This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is intended to provide a reader of our financial statements
with a narrative from the perspective of management on our financial condition,
results of operations, liquidity, and certain other factors that may affect our
future results. Unless expressly stated otherwise, the comparisons presented in
this MD&A refer to the same period in the prior fiscal year. Our MD&A is
presented as follows:
•Company Overview
•Results of Operations
•Business Segments
•Financial Position
•Non-GAAP Financial Measures
•Critical Accounting Policies and Estimates
•Forward-Looking Information
This MD&A should be read in conjunction with the MD&A included in Part II, Item
7 of our Annual Report on Form 10-K for the fiscal year ended October 31, 2019.
This discussion contains various "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995 and we refer readers to
the section titled "Forward-Looking Information" located at the end of
Part I, Item 2 of this report for more information.
Non-GAAP Financial Measures
Throughout this MD&A, we have provided non-GAAP financial measures, which are
not calculated or presented in accordance with United States ("U.S.") generally
accepted accounting principles ("GAAP"), as information supplemental and in
addition to the most directly comparable financial measures presented in this
report that are calculated and presented in accordance with U.S. GAAP. We use
these non-GAAP financial measures in making operating decisions because we
believe these non-GAAP financial measures provide meaningful supplemental
information regarding our core operational performance and provide us with a
better understanding of how to allocate resources to both ongoing and
prospective business initiatives. Additionally, these non-GAAP financial
measures facilitate our internal comparisons to both our historical operating
results and to our competitors' operating results by factoring out potential
differences caused by charges not related to our regular, ongoing business,
including, without limitation, non-cash charges, certain large and unpredictable
charges, acquisitions and dispositions, legal settlements, and tax positions.
We believe that these non-GAAP financial measures, when considered in
conjunction with our Condensed Consolidated Financial Statements prepared in
accordance with U.S. GAAP, provide investors with useful supplemental financial
information to better understand our core operational performance.
Reconciliations of non-GAAP financial measures to the most directly comparable
reported U.S. GAAP financial measures are included in the section titled
"Non-GAAP Financial Measures" within this MD&A. These non-GAAP financial
measures, however, should not be considered superior to, as a substitute for, or
as an alternative to, and should be considered in conjunction with, the most
directly comparable U.S. GAAP financial measures and metrics. Further, these
non-GAAP financial measures may differ from similar measures used by other
companies.
COMPANY OVERVIEW
The Toro Company is in the business of designing, manufacturing, and marketing
professional turf maintenance equipment and services; turf irrigation systems;
landscaping equipment and lighting products; snow and ice management products;
agricultural irrigation systems; rental, specialty, and underground construction
equipment; and residential yard and snow thrower products. We sell our products
worldwide through a network of distributors, dealers, mass retailers, hardware
retailers, equipment rental centers, home centers, as well as online (direct to
end-users). We strive to provide innovative, well-built, and dependable products
supported by an extensive service network. A significant portion of our net
sales has historically been, and we expect will continue to be, attributable to
new and enhanced products. We define new products as those introduced in the
current and previous two fiscal years.
We classify our operations into two reportable business segments: Professional
and Residential. Our remaining activities are presented as "Other" due to their
insignificance. Such Other activities consist of earnings (loss) from our
wholly-owned domestic distribution companies, corporate activities, and the
elimination of intersegment revenues and expenses. Unless the context indicates
otherwise, the terms "company," "TTC," "we," "our," or "us" refer to The Toro
Company and its consolidated subsidiaries.
Business Combinations
Acquisition of Venture Products, Inc. ("Venture Products")
On March 2, 2020, we completed the acquisition of Venture Products. Venture
Products designs, manufactures, and markets articulating turf, landscape, and
snow and ice management equipment for grounds, landscape contractor, golf,
municipal, and rural

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acreage customers and provides innovative product offerings that broadened and
strengthened our Professional segment and expanded our dealer network.
The acquisition of Venture Products was structured as a merger, pursuant to
which a wholly-owned subsidiary of TTC merged with and into Venture Products,
with Venture Products continuing as the surviving entity and a wholly-owned
subsidiary of TTC. As a result of the merger, all of the outstanding equity
securities of Venture Products were canceled and now only represent the right to
receive the applicable cash consideration as described in the merger agreement.
We also acquired from an affiliate of Venture Products the real estate used by
Venture Products. The aggregate preliminary consideration for Venture Products
and the real estate was $165.9 million, which consisted of a cash payment of
$136.4 million and a $29.5 million holdback to satisfy any indemnification or
certain other obligations of Venture Products to TTC. The aggregate preliminary
consideration remains subject to certain customary adjustments based on, among
other things, the amount of actual cash, debt, and working capital in the
business of Venture Products as of closing date. These adjustments are expected
to be completed during fiscal 2020. The holdback is expected to expire by the
end of the fourth quarter of fiscal 2021. We funded the cash payment with
borrowings under our existing unsecured senior revolving credit facility. For
additional information regarding the Venture Products acquisition and our
unsecured senior revolving credit facility utilized to fund the aggregate
preliminary consideration, refer to Note 2, Business Combinations, and Note 6,
Indebtedness, respectively, in the Notes to Condensed Consolidated Financial
Statements included in Part I. Item 1 of this Quarterly Report on Form 10-Q.
Acquisition of The Charles Machine Works, Inc. ("CMW")
On April 1, 2019, we completed our acquisition of CMW, a privately held Oklahoma
corporation. CMW designs, manufactures, and markets a range of professional
products to serve the underground construction market, including horizontal
directional drills, walk and ride trenchers, compact utility loaders/skid
steers, vacuum excavators, asset locators, pipe rehabilitation solutions, and
after-market tools. CMW provides innovative product offerings that broadened and
strengthened our Professional segment product portfolio and expanded our dealer
network, while also providing a complementary geographic manufacturing
footprint. As of the closing date of the transaction, we paid preliminary merger
consideration of $679.3 million that was subject to customary adjustments based
on, among other things, the amount of actual cash, debt, and working capital in
the business of CMW as of the closing date. During the fourth quarter of fiscal
2019, we finalized the adjustments, which resulted in an aggregate merger
consideration of $685.0 million. We funded the purchase price for the
acquisition by using a combination of cash proceeds from the issuance of
borrowings under our unsecured senior term loan credit agreement and borrowings
under our unsecured senior revolving credit facility. For additional information
regarding the CMW acquisition and the financing agreements utilized to fund the
purchase price, refer to Note 2, Business Combinations, and Note 6,
Indebtedness, respectively, in the Notes to Condensed Consolidated Financial
Statements included in Part I. Item 1 of this Quarterly Report on Form 10-Q.
Impact of COVID-19 Pandemic
In March 2020, the World Health Organization declared the novel coronavirus
("COVID-19" or "the virus") outbreak a global pandemic. The COVID-19 pandemic
has negatively impacted the global economy, disrupted global supply chains,
created significant volatility and disruption in financial markets, and has
resulted in a global economic slowdown. COVID-19 has resulted in government
authorities around the world implementing stringent measures to attempt to help
control the spread of the virus, including business shutdowns and curtailments,
travel restrictions, prohibitions on group events and gatherings, quarantines,
"shelter-in-place" and "stay-at-home" orders, curfews, social distancing, and
other measures. The global economic impact of this pandemic has had a material
impact on our business, customers, and suppliers and has caused many challenges,
which began in the second quarter of fiscal 2020 and steadily increased as the
second quarter progressed.
As the events surrounding COVID-19 continued to unfold during the second quarter
of fiscal 2020, our main focus was, and will continue to be, the health, safety,
and wellbeing of our employees, customers, suppliers and communities around the
world. In support of continuing our global manufacturing operations, we have
adopted rigorous and meaningful safety measures recommended by the U.S. Centers
for Disease Control and Prevention, World Health Organization, and federal,
state, local, and foreign authorities to protect our employees, customers,
suppliers, and communities. These important safety measures enacted at our
facilities and other sites include, but are not limited to, implementing social
distancing protocols such as the reconfiguration of manufacturing processes and
other workspaces, instituting working from home arrangements for those employees
that do not need to be physically present at our facilities and sites to perform
their job responsibilities, suspending non-essential travel, extensively and
frequently disinfecting our facilities and workspaces, suspending all
non-essential visitors, and providing or accommodating the wearing of face
coverings and other sanitary measures to those employees who must be physically
present at our facilities and sites to perform their job responsibilities. We
also adopted a special COVID-19 employee leave policy that provides two weeks of
pay for employees who have contracted the virus, are involuntarily quarantined
because of the virus, or are without work due to changes in our production
schedules as a result of the virus. We expect to continue such safety measures
until we determine that COVID-19 is adequately contained for purposes of our
operations and we may take further actions as government authorities require or
recommend or as we determine to be in the best interests of our employees,
customers, suppliers, and communities.

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We have been balancing our safety-focused approach with our responsibility to
meet the needs of our customers as we supply them with products that are
critical to maintaining essential infrastructure globally, agricultural food
production, and the enablement of safe areas for outdoor spaces. Government
mandated measures providing for business shutdowns or curtailments generally
exclude certain essential businesses and services, including businesses that
manufacture and sell products that are considered essential to daily lives or
otherwise operate in essential or critical sectors. Substantially all of our
operations are considered essential under applicable government mandated orders
relating to COVID-19 allowing us to continue our global manufacturing and other
operations. While we have been able to continue manufacturing substantially all
of our products and our facilities have remained operational, we have
experienced intermittent partial or full facility closures, reduced levels of
production at certain facilities, and manufacturing inefficiencies as a result
of these government mandated measures, reduced demand for products in certain of
our businesses, and the reconfiguration of certain of our manufacturing
processes in order to implement social distancing protocols within our
facilities. We have not yet experienced any significant impacts to our global
manufacturing operations due to disruptions in our global supply chain as a
result of COVID-19. Although we regularly monitor the financial health of the
companies in our supply chain, financial hardship or government mandated
restrictions on our suppliers caused by COVID-19 could cause a disruption in our
ability to procure the commodities, components, and parts required to
manufacture our products. Ongoing communications continue with our suppliers in
an attempt to identify and mitigate such risks and to proactively manage
inventory levels of commodities, components, and parts to align with anticipated
reduced levels of production as a result of softened demand for our products and
other government actions. While domestic and/or international governmental
measures may be modified or extended, we currently expect that our global
manufacturing facilities will remain operational, although operating at reduced
production capacity at certain of our facilities, during the remainder of fiscal
2020. However, such expectation is dependent upon, among other things, future
governmental actions and demand for our products, the stability of our global
supply chain, and the ability of carriers to transport procured commodities,
components, and parts to our facilities and transport our products to our
customers.
As a result of the global economic slowdown caused by the COVID-19 pandemic, in
mid-March 2020, we began experiencing softened demand in certain of our
businesses. Within our Professional segment, the majority of our businesses were
adversely impacted during our fiscal 2020 second quarter due to reduced demand
from channel partners and end-customers. Most notably, our golf and grounds;
irrigation; landscape contractor; and rental, specialty, and underground
construction businesses were particularly affected by COVID-19. Demand for our
golf and grounds and irrigation products decreased as a result of the
curtailment and closure of certain business activities for golf courses and
municipalities across the globe resulting in lower overall revenues and budget
constraints and a preference for repairs and deferrals over new equipment
purchases. The decrease in demand for our landscape contractor business was
primarily due to channel partners aligning field inventory levels with reduced
retail demand from end-customers. Our rental, specialty, and underground
construction business experienced reduced demand as a result of curtailed
investments by end-customers in the oil and gas and construction industries. We
currently expect this reduced demand in our Professional segment business to
continue, particularly if adverse economic and recessionary conditions continue
or worsen. Contrary to the impact experienced in the majority of our
Professional segment businesses, our Residential segment experienced strong
retail demand during the second quarter of fiscal 2020 for zero-turn riding
mowers and walk power mowers partially due to the impacts of COVID-19 as, among
other reasons, end-customers were subject to government mandated
"shelter-in-place" and "stay-at-home" orders and experienced favorable spring
weather conditions for property enhancement and maintenance activities in key
regions of the globe. While the strong retail demand experienced in our
Residential segment is a positive event in light of COVID-19, the shift to a
greater percentage of Residential segment net sales as a percentage of
consolidated net sales adversely impacted our gross margins for the for the
three and six month periods ended May 1, 2020 and we expect will continue to
adversely impact our gross margins.
In an effort to partially mitigate the anticipated adverse impacts of COVID-19
on our fiscal 2020 Results of Operations, Financial Position, or Cash Flows as a
result of lower demand we have experienced in certain of our businesses, we have
taken and continue to take meaningful cost reduction measures across our
organization to align our costs with anticipated lower sales volumes. These cost
reduction measures include reducing production levels within our manufacturing
facilities to align with anticipated reduced sales volumes; enacting tiered
salary reductions and suspending merit-based salary increases and discretionary
retirement fund contributions for the remainder of fiscal 2020; reducing
discretionary spending; freezing the hiring of new employees; and delaying,
reducing, or eliminating purchased services and travel. Additionally, we have
proactively managed our working capital through various measures, and we expect
to continue to do so, including, but not limited to, refinancing outstanding
borrowings on our unsecured senior revolving credit facility with the net
proceeds from a new three year term loan for $190.0 million, which also added
incremental liquidity; reducing capital expenditures; continuing the curtailment
of share repurchases under our Board authorized repurchase plan; reducing
production levels within our manufacturing facilities to manage finished goods
inventory levels to align with lower sales volumes; deferring receipts of
commodities, components, and parts inventory to align with reduced production
levels; and monitoring and participating in government economic stabilization
efforts and certain legislative provisions, such as deferring certain tax
payments, as applicable. We currently expect to continue paying our quarterly
cash dividend to shareholders for the remainder of fiscal 2020. As a result of
proactively managing our working capital and monitoring government economic
stabilization efforts, our balance sheet and liquidity profile remains strong
with available liquidity of approximately $798.1 million as of May 1, 2020,
consisting of cash and cash equivalents of approximately $200.0 million and
availability under our unsecured senior revolving credit facility of $598.1
million.

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Significant uncertainty still exists concerning the anticipated future magnitude
of the impact and duration of COVID-19. We intend to continue to monitor the
rapidly evolving situation and the guidance from global government authorities,
as well as federal, state, local and foreign public health authorities, and may
take additional meaningful actions based on their requirements and
recommendations to attempt to protect the health and wellbeing of our employees,
customers, suppliers, and communities. In these circumstances, there may be
developments outside our control requiring us to adjust our operating plan and
cost reduction measures and such developments could occur rapidly. Given the
many evolving COVID-19 related factors, risks, and challenges that could
negatively impact our business, we withdrew our fiscal 2020 detailed financial
guidance on March 30, 2020. Many of these uncertainties still remain and as a
result, we are not in a position to provide detailed financial guidance for our
third quarter or full year of fiscal 2020 at this time nor do we have the
ability to predict the level of impact of COVID-19 on our business and related
Results of Operations, Financial Position, or Cash Flows. We currently believe
that the current market trends will continue throughout the remainder of our
fiscal year, including customer budget constraints and cash preservation and a
preference for repairs and deferrals over new equipment purchases in our
Professional segment, as well as higher demand in our Residential segment. We
expect that the third quarter of fiscal 2020 will be the most challenging
quarter for our business with the most significant year-over-year net sales and
diluted earnings per share declines experienced and we currently expect negative
year-over-year fourth quarter net sales and diluted earnings per share growth.
However, if adverse impacts from COVID-19 continue for an extended period of
time or worsen, our business and related Results of Operations, Financial
Position, or Cash Flows could continue to be adversely impacted. Sustained
adverse impacts to our business and certain suppliers or customers may also
affect the future valuation of certain of our assets and therefore, may increase
the likelihood of a charge related to an impairment, write-off, or reserve
associated with such assets, including, but not limited to, goodwill, indefinite
and finite-lived intangible assets, inventories, accounts receivable, deferred
income taxes, and property, plant and equipment. Such a charge could be material
to our future Results of Operations, Financial Position, or Cash Flows.
For additional information regarding risks associated with COVID-19, refer to
the section titled "Forward-Looking Information" located at the end of
Part I, Item 2 and the section titled "Risk Factors" located within Part II,
Item 1A, of this Quarterly Report on Form 10-Q.
RESULTS OF OPERATIONS
Overview
Worldwide consolidated net sales for the second quarter of fiscal 2020 were
$929.4 million, down 3.4 percent compared to $962.0 million in the second
quarter of fiscal 2019. For the year-to-date period of fiscal 2020, worldwide
consolidated net sales were $1,696.9 million, up 8.4 percent compared to
$1,565.0 million from the same period in the prior fiscal year.
Professional segment net sales for the second quarter of fiscal 2020 were $661.1
million, a decrease of 8.6 percent compared to $723.5 million in the second
quarter of the prior fiscal year. This decrease was primarily due to the
unfavorable impact of COVID-19 on our Professional businesses, partially offset
by incremental net sales as a result of our acquisitions of CMW and Venture
Products. For the year-to-date period of fiscal 2020, Professional segment net
sales were $1,255.8 million, an increase of 6.6 percent compared to $1,178.5
million in the prior fiscal year comparable period. This increase was driven by
incremental net sales as a result of our acquisitions of CMW and Venture
Products, partially offset by the unfavorable impact of COVID-19 on our
Professional businesses.
Residential segment net sales for the second quarter of fiscal 2020 were $262.0
million, an increase of 12.9 percent compared to $232.1 million in the second
quarter of the prior fiscal year. For the year-to-date period of fiscal 2020,
Residential segment net sales were $427.8 million, an increase of 13.4 percent
compared to $377.3 million in the prior fiscal year comparable period. These
increases were mainly driven by incremental sales to our expanded mass retail
channel and strong retail demand driven by favorable weather conditions in key
regions, new and enhanced products, and government mandated "shelter-in-place"
and "stay-at-home" orders.
Net earnings for the second quarter of fiscal 2020 were $98.4 million, or $0.91
per diluted share, compared to $115.6 million, or $1.07 per diluted share, for
the second quarter of fiscal 2019. Net earnings for the first six months of
fiscal 2020 were $168.5 million, or $1.55 per diluted share, compared to net
earnings of $175.1 million, or $1.62 per diluted share in the comparable fiscal
2019 period.
Non-GAAP net earnings for the second quarter of fiscal 2020 were $100.2 million,
or $0.92 per diluted share, compared to $126.0 million, or $1.17 per diluted
share, for the prior fiscal year comparative period, a decrease of 21.4 percent
per diluted share. Non-GAAP net earnings for the first six months of fiscal 2020
were $169.8 million, or $1.56 per diluted share, compared to $182.7 million, or
$1.69 per diluted share, in the comparable fiscal 2019 period, a decrease of 7.7
percent per diluted share. Reconciliations of non-GAAP financial measures to the
most directly comparable reported U.S. GAAP financial measures are included in
the section titled "Non-GAAP Financial Measures" within this MD&A.
We increased our cash dividend for the second quarter of fiscal 2020 by 11.1
percent to $0.25 per share compared to the $0.225 per share cash dividend paid
in the second quarter of fiscal 2019.

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Field inventory levels were slightly higher as of the end of the second quarter
of fiscal 2020 compared to the second quarter of fiscal 2019, primarily as a
result of higher Residential segment field inventory due to shipments into our
expanded mass retail channel and incremental field inventories within our
Professional segment as a result of the acquisition of Venture Products,
partially offset by reduced field inventories in our golf and grounds and
landscape contractor businesses as our channel partners aligned field inventory
levels with anticipated retail demand for our products.
Three-Year Employee Initiative - "Vision 2020"
Our current multi-year employee initiative, "Vision 2020", which began with our
2018 fiscal year, focuses on driving profitable growth with an emphasis on
innovation and serving our customers, which we believe will generate further
momentum for the organization. Through the first two fiscal years of our Vision
2020 initiative, we set specific financial goals, which included organic revenue
and operating earnings growth. After our transformational acquisition of CMW, we
changed the focus of our third and final fiscal year of our Vision 2020
initiative to a revised enterprise-wide performance goal of achieving non-GAAP
operating earnings of $485.0 million. However, as a result of COVID-19 and its
impact on our fiscal 2020 Results of Operations experienced to date, we do not
expect to meet this enterprise-wide performance goal for fiscal 2020.
Net Sales
Worldwide consolidated net sales for the second quarter of fiscal 2020 were
$929.4 million, down 3.4 percent compared to $962.0 million in the second
quarter of fiscal 2019. This decrease was primarily the result of reduced net
sales in the majority of our Professional segment businesses due to reduced
demand from channel partners and end-customers as a result of COVID-19. Within
our Professional segment businesses, the decrease was primarily due to fewer
shipments of golf and grounds equipment and irrigation products as a result of
the curtailment and closure of certain business activities for golf courses and
municipalities across the globe resulting in lower overall revenues and budget
constraints and a preference for repairs and deferrals over new equipment
purchases; fewer shipments of our landscape contractor zero-turn riding mowers
as our channel partners aligned field inventory levels with reduced retail
demand for our products; and reduced sales of our rental, specialty, and
underground construction equipment as a result of the global economic slowdown
experienced during our fiscal 2020 second quarter that unfavorably impacted the
oil and gas and construction industries. These net sales decreases were
partially offset by incremental sales in our Professional segment as a result of
our acquisitions of CMW and Venture Products, as well as an increase in net
sales in our Residential segment driven by incremental shipments of zero-turn
riding mowers and walk power mowers as a result of our expanded mass retail
channel and strong retail demand driven by favorable spring weather conditions
in key regions, new and enhanced products, and government mandated
"shelter-in-place" and "stay-at-home" orders.
For the year-to-date period of fiscal 2020, worldwide consolidated net sales
were $1,696.9 million, up 8.4 percent compared to $1,565.0 million from the same
period in the prior fiscal year. This increase was primarily driven by
incremental sales in our Professional segment as a result of our acquisitions of
CMW and Venture Products, as well as an increase in net sales in our Residential
segment driven by incremental shipments of zero-turn riding mowers and walk
power mowers as a result of our expanded mass retail channel and strong retail
demand driven by favorable spring weather conditions in key regions, new and
enhanced products, and government mandated "shelter-in-place" and "stay-at-home"
orders. These increases were partially offset by reductions in net sales for the
majority of our Professional segment businesses due to reduced demand from
channel partners and end-customers as a result of COVID-19. Within our
Professional segment businesses, the decrease was primarily due to fewer
shipments of golf and grounds equipment and irrigation products as a result of
the curtailment and closure of certain business activities for golf courses and
municipalities across the globe resulting in lower overall revenues and budget
constraints and a preference for repairs and deferrals over new equipment
purchases; fewer shipments of our landscape contractor zero-turn riding mowers
as our channel partners aligned field inventory levels with reduced retail
demand for our products; and reduced sales volumes for our rental, specialty,
and underground construction equipment as a result of the global economic
slowdown experienced during our fiscal 2020 second quarter that unfavorably
impacted the oil and gas and construction industries.
Net sales in international markets decreased by 16.9 percent and 0.7 percent for
the second quarter and year-to-date periods of fiscal 2020, respectively.
Changes in foreign currency exchange rates resulted in a decrease in our net
sales of approximately $5.4 million and $4.9 million for the second quarter and
year-to-date periods of fiscal 2020, respectively. The net sales decrease for
the quarter comparison was mainly due to decreased sales of golf and grounds and
irrigation equipment, walk-power mowers, zero-turn riding mowers, and
Pope-branded irrigation products as a result of COVID-19 related government
mandated business curtailment measures in key global regions, partially offset
by incremental sales as a result of our acquisitions of CMW and Venture Products
and higher shipments of our ag-irrigation products due to favorable weather
conditions in key regions. The net sales decrease for the year-to-date
comparison was mainly due to decreased sales of golf and grounds and irrigation
equipment, zero-turn riding mowers, and walk power mowers as a result of
COVID-19 related government mandated business curtailment measures in key global
regions, partially offset by incremental sales as a result of our acquisitions
of CMW and Venture Products and higher shipments of our ag-irrigation products
due to favorable weather conditions in key regions.

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The following table summarizes the major operating costs and other income as a
percentage of net sales:
                                           Three Months Ended             Six Months Ended
                                      May 1, 2020     May 3, 2019    May 1, 2020    May 3, 2019
Net sales                                 100.0 %          100.0 %       100.0 %         100.0 %
Cost of sales                             (67.0 )          (66.6 )       (64.9 )         (65.7 )
Gross profit                               33.0             33.4          35.1            34.3
Selling, general and administrative
expense                                   (19.5 )          (19.1 )       (22.3 )         (21.0 )
Operating earnings                         13.5             14.3          12.8            13.3
Interest expense                           (0.9 )           (0.7 )        (1.0 )          (0.7 )
Other income, net                           0.5              0.7           0.4             0.6
Earnings before income taxes               13.1             14.3          12.2            13.2
Provision for income taxes                 (2.5 )           (2.3 )        (2.3 )          (2.0 )
Net earnings                               10.6 %           12.0 %         9.9 %          11.2 %


Gross Profit and Gross Margin
Gross profit for the second quarter of fiscal 2020 was $306.7 million, down 4.5
percent compared to $321.3 million in the second quarter of fiscal 2019. Gross
margin for the second quarter of fiscal 2020 was 33.0 percent, a decrease of 40
basis points when compared to the second quarter of fiscal 2019. The decrease in
gross margin for the second quarter comparison was primarily due to unfavorable
manufacturing variance due to production downtime and manufacturing
inefficiencies as a result of COVID-19-related facilities closures and the
reconfiguration of certain of our manufacturing processes in order to implement
social distancing protocols within our facilities and unfavorable product mix
primarily due to higher sales of Residential segment products as a percentage of
total consolidated net sales, partially offset by the favorable impact of
strategic productivity and synergy initiatives, favorable net price realization
within our Professional segment due to fewer sales promotion activities as a
result of reduced demand and a revised floor plan financing rate structure as a
result of the amendments to certain agreements pertaining to our Red Iron joint
venture, and lower costs of commodities and tariffs. Non-GAAP gross profit for
the second quarter of fiscal 2020 was $310.0 million, down 6.3 percent compared
to $330.8 million in the second quarter of fiscal 2019. Non-GAAP gross margin
was 33.4 percent for the second quarter of fiscal 2020 compared to 34.4 percent
for the second quarter of fiscal 2019, a decrease of 100 basis points. The
decrease in non-GAAP gross margin is a result of the same factors noted above
for the decrease to gross margin for the second quarter of fiscal 2020, as well
as decreased acquisition-related costs for the fiscal 2020 acquisition of
Venture Products as compared to the fiscal 2019 acquisition of CMW, partially
offset by the incremental adjustment for management actions related to inventory
write-down charges for the wind down of our Toro-branded large horizontal
directional drill and riding trencher product line ("Toro underground wind
down").
Gross profit for the year-to-date period of fiscal 2020 was $594.8 million, up
10.8 percent compared to $536.9 million in the same period of fiscal 2019. Gross
margin for the year-to-date period of fiscal 2020 was 35.1 percent, an increase
of 80 basis points when compared to the same period of fiscal 2019. The increase
in gross margin for the year-to-date comparison was primarily due to the
favorable impact of strategic productivity and synergy initiatives, favorable
net price realization within our Professional segment due to fewer sales
promotion activities as a result of reduced demand and a revised floor plan
financing rate structure as a result of the amendments to certain agreements
pertaining to our Red Iron joint venture, and lower costs of commodities and
tariffs. The gross margin increase was partially offset by unfavorable
manufacturing variance due to production downtime and manufacturing
inefficiencies as a result of COVID-19-related facilities closures and the
reconfiguration of certain of our manufacturing processes in order to implement
social distancing protocols within our facilities and unfavorable product mix
primarily due to higher sales of Residential segment products as a percentage of
total consolidated net sales. Non-GAAP gross profit for the year-to-date period
of fiscal 2020 was $598.5 million, up 9.5 percent compared to $546.4 million in
the same period of fiscal 2019. Non-GAAP gross margin was 35.3 percent for the
year-to-date period of fiscal 2020 compared to 34.9 percent for the same
year-to-date period of fiscal 2019, an increase of 40 basis points. The increase
in non-GAAP gross margin is a result of the same factors noted above for the
increase to gross margin for the year-to-date period of fiscal 2020, as well as
the adjustment for management actions related to inventory write-down charges
for the Toro underground wind down, partially offset by a decrease in
acquisition-related costs for the fiscal 2020 acquisition of Venture Products as
compared to the fiscal 2019 acquisition of CMW.
Non-GAAP gross profit and non-GAAP gross margin exclude the impact of
acquisition-related costs related to our acquisitions of Venture Products and
CMW, including charges incurred for the take-down of the inventory fair value
step up amounts resulting from purchase accounting adjustments in both
acquisitions and the amortization of the backlog intangible asset resulting from
purchase accounting adjustments for the CMW acquisition, and the impact of
management actions, including charges incurred for inventory write-downs related
to the Toro underground wind down. Reconciliations of non-GAAP financial
measures to the most directly comparable reported U.S. GAAP financial measures
are included in the section titled "Non-GAAP Financial

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Measures" within this MD&A.
Selling, General, and Administrative Expense
SG&A expense decreased $2.7 million, or 1.4 percent, for the second quarter of
fiscal 2020 and increased $48.7 million, or 14.8 percent, for the year-to-date
period of fiscal 2020. As a percentage of net sales, SG&A expense increased 40
basis points for the second quarter of fiscal 2020 and increased 130 basis
points for the year-to-date period of fiscal 2020. The increase in SG&A expense
as a percentage of net sales for the second quarter comparison was primarily due
to incremental engineering, marketing, and service costs as a result of our
acquisitions of CMW and Venture Products and higher warranty expense, partially
offset by decreased incentive compensation costs as a result of diminished
company performance due to COVID-19 and reduced transaction and integration
costs incurred for the Venture Products acquisition in fiscal 2020 as compared
to the transaction and integration costs incurred for the CMW acquisition in
fiscal 2019. The increase in SG&A expense as a percentage of net sales for the
year-to-date comparison was primarily due to incremental administrative,
marketing, engineering, and service costs as a result of our acquisitions of CMW
and Venture Products and higher warranty expense, partially offset by decreased
incentive compensation costs as a result of diminished company performance due
to COVID-19 and reduced transaction and integration costs incurred for the
Venture Products acquisition in fiscal 2020 as compared to the transaction and
integration costs incurred for the CMW acquisition in fiscal 2019.
Interest Expense
Interest expense increased $2.0 million and $5.4 million for the second quarter
and year-to-date periods of fiscal 2020 compared to the comparable periods of
fiscal 2019. These increases were due to increased interest expense incurred on
higher average outstanding borrowings under our financing arrangements as a
result of our acquisitions of CMW and Venture Products.
Other Income, Net
Other income, net for the second quarter and year-to-date periods of fiscal 2020
decreased $1.9 million and $3.5 million, respectively, compared to the same
periods in fiscal 2019. The decrease for the second quarter comparison was
primarily due to a settlement charge incurred for the termination of our U.S.
defined benefit pension plan, lower income from our Red Iron joint venture as a
result of the amendments to certain agreements pertaining to the joint venture
and lower sales volume, and lower interest income on marketable securities,
partially offset the favorable impact of foreign currency exchange rates. The
decrease for the year-to-date comparison was primarily due to lower income from
our Red Iron joint venture as a result of the amendments to certain agreements
pertaining to the joint venture and lower sales volume, lower interest income on
marketable securities, and a settlement charge incurred for the termination of
our U.S. defined benefit pension plan, partially offset by the favorable impact
of foreign currency exchange rates.
Provision for Income Taxes
The effective tax rate for the second quarter and year-to-date periods of fiscal
2020 was 18.9 percent and 18.8 percent, respectively, compared to 15.8 percent
and 15.5 percent in the same periods in fiscal 2019. These increases were due to
a lower discrete tax benefit for the excess tax deduction for share-based
compensation.
The non-GAAP effective tax rate for the second quarter of fiscal 2020 was 20.0
percent, compared to a non-GAAP effective tax rate of 19.9 percent in the second
quarter of fiscal 2019. The non-GAAP effective tax rate for the year-to-date
period of fiscal 2020 was 20.4 percent, compared to a non-GAAP effective tax
rate of 20.2 percent in the same period of fiscal 2019. The non-GAAP effective
tax rate excludes the impact of acquisition-related costs related to our
acquisitions of Venture Products and CMW, including transaction and integration
costs and charges incurred related to certain purchase accounting adjustments;
the impact of discrete tax benefits recorded as excess tax deductions for
share-based compensation; and the impact of management actions, including
charges incurred for inventory write-downs related to the Toro underground wind
down. Reconciliations of non-GAAP financial measures to the most directly
comparable reported U.S. GAAP financial measures are included in the section
titled "Non-GAAP Financial Measures."
Net Earnings
Net earnings for the second quarter of fiscal 2020 were $98.4 million, or $0.91
per diluted share, compared to $115.6 million, or $1.07 per diluted share, for
the second quarter of fiscal 2019. This decrease was primarily due to reduced
gross margins largely as a result of unfavorable manufacturing variance due to
production downtime and manufacturing inefficiencies as a result of
COVID-19-related facilities closures and the reconfiguration of certain of our
manufacturing processes in order to implement social distancing protocols within
our facilities, a lower discrete tax benefit for the excess tax deduction for
share-based compensation, and increased interest expense due to higher average
outstanding borrowings under our financing arrangements. The net earnings
decrease was partially offset by the favorable impact of strategic productivity
and synergy initiatives on gross margins, decreased incentive compensation
costs, and reduced transaction and integration costs incurred for the Venture
Products acquisition in fiscal 2020 as compared to the transaction and
integration costs incurred for the CMW acquisition in fiscal 2019. Non-GAAP net
earnings for the second quarter of fiscal 2020 were $100.2 million, or $0.92 per
diluted share, compared to $126.0

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million, or $1.17 per diluted share, for the second quarter of fiscal 2019, a
decrease of 21.4 percent per diluted share. This decrease was primarily due to
decreased gross margins largely as a result of unfavorable manufacturing
variance due to production downtime and manufacturing inefficiencies as a result
of COVID-19-related facilities closures and the reconfiguration of certain of
our manufacturing processes in order to implement social distancing protocols
within our facilities, and increased interest expense due to higher average
outstanding borrowings under our financing arrangements, partially offset by the
favorable impact of strategic productivity and synergy initiatives on gross
margins and decreased incentive compensation costs.
Net earnings for the first six months of fiscal 2020 were $168.5 million, or
$1.55 per diluted share, compared to $175.1 million, or $1.62 per diluted share,
for the same period of fiscal 2019. This decrease was primarily due to
incremental administrative, marketing, engineering, and service costs as a
result of our acquisitions of CMW and Venture Products, higher warranty expense,
a lower discrete tax benefit for the excess tax deduction for share-based
compensation, and increased interest expense due to higher average outstanding
borrowings under our financing arrangements, partially offset by the favorable
impact of strategic productivity and synergy initiatives, decreased incentive
compensation costs, and reduced transaction and integration costs incurred for
the Venture Products acquisition in fiscal 2020 as compared to the transaction
and integration costs incurred for the CMW acquisition in fiscal 2019. Non-GAAP
net earnings for the first six months of fiscal 2020 were $169.8 million, or
$1.56 per diluted share, compared to $182.7 million, or $1.69 per diluted share
for the same year-to-date period of fiscal 2019, a decrease of 7.7 percent per
diluted share. This decrease was primarily due to incremental administrative,
marketing, engineering, and service costs as a result of our acquisitions of CMW
and Venture Products, higher warranty expense, and increased interest expense
due to higher average outstanding borrowings under our financing arrangements,
partially offset by the favorable impact of strategic productivity and synergy
initiatives and decreased incentive compensation costs.
Non-GAAP net earnings and non-GAAP net earnings per diluted share exclude the
impact of acquisition-related costs related to our acquisitions of Venture
Products and CMW, including transaction and integration costs and charges
incurred related to certain purchase accounting adjustments; the impact of
discrete tax benefits recorded as excess tax deductions for share-based
compensation; and the impact of management actions, including charges incurred
for inventory write-downs related to the Toro underground wind down.
Reconciliations of non-GAAP financial measures to the most directly comparable
reported U.S. GAAP financial measures are included in the section titled
"Non-GAAP Financial Measures" within this MD&A.
BUSINESS SEGMENTS
We operate in two reportable business segments: Professional and Residential.
Segment earnings for our Professional and Residential segments are defined as
earnings from operations plus other income, net. Our remaining activities are
presented as "Other" due to their insignificance. Operating loss for our Other
activities includes earnings (loss) from our wholly-owned domestic distribution
companies, Red Iron joint venture, corporate activities, other income, and
interest expense. Corporate activities include general corporate expenditures
(finance, human resources, legal, information services, public relations, and
similar activities) and other unallocated corporate assets and liabilities, such
as corporate facilities and deferred tax assets and liabilities.
The following tables summarize net sales for our reportable business segments
and Other activities:
                                                              Three Months Ended
(Dollars in thousands)                    May 1, 2020       May 3, 2019       $ Change       % Change
Professional                            $     661,087     $     723,506     $  (62,419 )        (8.6 )%
Residential                                   261,998           232,147         29,851          12.9
Other                                           6,313             6,383            (70 )        (1.1 )
Total net sales*                        $     929,398     $     962,036     $  (32,638 )        (3.4 )%

*Includes international net sales of:   $     182,044     $     219,077     $  (37,033 )       (16.9 )%


                                                              Six Months Ended
(Dollars in thousands)                   May 1, 2020      May 3, 2019       $ Change       % Change
Professional                            $  1,255,808     $  1,178,512     $   77,296           6.6  %
Residential                                  427,846          377,305         50,541          13.4
Other                                         13,227            9,175          4,052          44.2
Total net sales*                        $  1,696,881     $  1,564,992     $  131,889           8.4  %

*Includes international net sales of: $ 357,987 $ 360,622 $


  (2,635 )        (0.7 )%



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The following tables summarize segment earnings for our reportable business segments and operating (loss) for our Other activities:


                                            Three Months Ended
(Dollars in thousands)    May 1, 2020      May 3, 2019      $ Change     % Change
Professional             $    106,259     $    150,119     $ (43,860 )    (29.2 )%
Residential                    37,122           22,030        15,092       68.5
Other                         (22,010 )        (34,969 )      12,959       37.1
Total segment earnings   $    121,371     $    137,180     $ (15,809 )    (11.5 )%


                                             Six Months Ended
(Dollars in thousands)    May 1, 2020      May 3, 2019      $ Change     % Change
Professional             $    208,733     $    238,097     $ (29,364 )    (12.3 )%
Residential                    58,688           35,102        23,586       67.2
Other                         (59,911 )        (65,999 )       6,088        9.2

Total segment earnings $ 207,510 $ 207,200 $ 310 0.1 %




Professional Segment
Segment Net Sales
Worldwide net sales for our Professional segment for the second quarter of
fiscal 2020 decreased 8.6 percent compared to the same period of fiscal 2019.
The net sales decrease for the second quarter comparison was primarily the
result of COVID-19 and its impact on retail demand for our Professional segment
products. The proliferation of COVID-19 throughout the second quarter of fiscal
2020 resulted in fewer shipments of golf and grounds equipment and irrigation
products as a result of the curtailment and closure of certain business
activities for golf courses and municipalities across the globe resulting in
lower overall revenues and budget constraints and a preference for repairs and
deferrals over new equipment purchases; fewer shipments of our landscape
contractor zero-turn riding mowers as our channel partners aligned field
inventory levels with reduced retail demand for our products; and reduced sales
volumes for our rental, specialty, and underground construction equipment as a
result of the global economic slowdown experienced during our fiscal 2020 second
quarter that unfavorably impacted the oil and gas and construction industries.
The net sales decrease was partially offset by incremental sales as a result of
our acquisitions of CMW and Venture Products.
Worldwide net sales for our Professional segment for the year-to-date period of
fiscal 2020 increased 6.6 percent compared to the same period of fiscal 2019.
The net sales increase for the year-to-date comparison was driven by incremental
sales as a result of our acquisitions of CMW and Venture Products. The net sales
increase was largely offset by COVID-19 and its impact on retail demand for our
Professional segment products, which resulted in fewer shipment of our landscape
contractor zero-turn riding mowers as our channel partners aligned field
inventory levels with reduced retail demand for our products; fewer shipments of
golf and grounds equipment and irrigation products as a result of the
curtailment and closure of certain business activities for golf courses and
municipalities across the globe resulting in lower overall revenues and budget
constraints and a preference for repairs and deferrals over new equipment
purchases; and reduced sales volumes for our rental, specialty, and underground
construction equipment as a result of the global economic slowdown experienced
during our fiscal 2020 second quarter that unfavorably impacted the oil and gas
and construction industries.
Segment Earnings
Professional segment earnings for the second quarter of fiscal 2020 decreased
29.2 percent compared to the second quarter of fiscal 2019, and when expressed
as a percentage of net sales, decreased to 16.1 percent from 20.7 percent. As a
percentage of net sales, the Professional segment earnings decrease was
primarily due to unfavorable manufacturing variance due to production downtime
and manufacturing inefficiencies as a result of COVID-19-related facilities
closures and the reconfiguration of certain of our manufacturing processes in
order to implement social distancing protocols within our facilities;
incremental marketing, engineering, administrative and service costs as a result
of our acquisitions of CMW and Venture Products; higher warranty expense;
unfavorable product mix due to incremental sales of lower margin product, and
additional inventory write-down charges incurred related to the Toro underground
wind down. The segment earnings decrease was partially offset by favorable net
price realization due to fewer sales promotion activities as a result of reduced
demand attributed to the COVID-19 pandemic and a revised floor plan financing
rate structure as a result of the amendments to certain agreements pertaining to
our Red Iron joint venture, the favorable impact of strategic productivity and
synergy initiatives, lower costs of commodities and tariffs, and decreased
incentive compensation costs due to diminished performance as a result of
COVID-19.
For the year-to-date period of fiscal 2020, Professional segment earnings
decreased by 12.3 percent compared to the same period in the prior fiscal year,
and when expressed as a percentage of net sales, decreased to 16.6 percent from
20.2 percent. As a percentage

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of net sales, the Professional segment earnings decrease was primarily due to
unfavorable manufacturing variance due to production downtime and manufacturing
inefficiencies as a result of COVID-19-related facilities closures and the
reconfiguration of certain of our manufacturing processes in order to implement
social distancing protocols within our facilities; incremental administrative,
marketing, engineering, and service costs as a result of our acquisitions of CMW
and Venture Products; and unfavorable product mix due to incremental sales of
lower margin product as a result of our CMW acquisition. The segment earnings
decrease was partially offset by the favorable impact of strategic productivity
and synergy initiatives, favorable net price realization due to fewer sales
promotion activities as a result of reduced demand attributed to the COVID-19
pandemic and a revised floor plan financing rate structure as a result of the
amendments to certain agreements pertaining to our Red Iron joint venture, and
lower commodity and tariff costs.
Residential Segment
Segment Net Sales
Worldwide net sales for our Residential segment for the second quarter and
year-to-date periods of fiscal 2020 increased 12.9 percent and 13.4 percent,
respectively, compared to the same periods of fiscal 2019. The Residential
segment net sales increases for the second quarter and year-to-date comparisons
were mainly driven by incremental shipments of zero-turn riding mowers and walk
power mowers as a result of our expanded mass retail channel and strong retail
demand driven by favorable spring weather conditions in key regions, new and
enhanced products, and government mandated "shelter-in-place" and "stay-at-home"
orders.
Segment Earnings
Residential segment earnings for the second quarter of fiscal 2020 increased
68.5 percent compared to the second quarter of fiscal 2019, and when expressed
as a percentage of net sales, increased to 14.2 percent from 9.5 percent. For
the year-to-date period of fiscal 2020, Residential segment net earnings
increased 67.2 percent compared to the same period in the prior fiscal year, and
when expressed as a percentage of net sales, increased to 13.7 percent from 9.3
percent. As a percentage of net sales, the Residential segment net earnings
increases for the second quarter and year-to-date comparisons were driven by the
favorable impact of strategic productivity and synergy initiatives, lower
commodity and tariff costs, reductions in freight costs as a result of cost
reduction initiatives and lower fuel prices, and reduced SG&A expense as a
percentage of net sales due to leveraging expense over higher sales volumes. The
segment earnings increases for both comparisons were partially offset by
unfavorable manufacturing variance due to production downtime and manufacturing
inefficiencies as a result of COVID-19-related facilities closures and the
reconfiguration of certain of our manufacturing processes in order to implement
social distancing protocols within our facilities, as well as higher warranty
expense.
Other Activities
Other Net Sales
Net sales for our Other activities include sales from our wholly-owned domestic
distribution companies less sales from the Professional and Residential segments
to the distribution companies. Net sales for our Other activities in the second
quarter of fiscal 2020 decreased by $0.1 million compared to the second quarter
of fiscal 2019. The net sales decrease for the second quarter comparison was the
result of COVID-19, which led to reduced sales of our Professional and
Residential segment products by our wholly-owned domestic distribution companies
due to reduced retail demand. This decrease was largely offset by reduced
intercompany sales eliminations for sales from our Professional and Residential
segments to our wholly-owned domestic distribution companies as a result of
reduced retail demand. Net sales for our Other activities for the year-to-date
period of fiscal 2020 increased $4.1 million compared to the same period in the
prior fiscal year. The net sales increase for the year-to-date comparison was
also the result of COVID-19, which led to reduced intercompany sales
eliminations for sales from our Professional and Residential segments to our
wholly-owned domestic distribution companies as a result of reduced retail
demand. This increase was partially offset by reduced sales by our wholly-owned
distribution companies due to reduced retail demand.
Other Operating Loss
The operating loss for our Other activities decreased $13.0 million for the
second quarter of fiscal 2020. The operating loss decrease was primarily driven
by reduced transaction and integration costs incurred for the acquisition of
Venture Products in fiscal 2020 as compared to the acquisition of CMW in fiscal
2019 and decreased incentive compensation costs as a result of diminished
company performance due to COVID-19. The operating loss decrease was partially
offset by increased interest expense due to higher average outstanding
borrowings under our financing arrangements, a settlement charge incurred for
the termination of our U.S. defined benefit pension plan, lower income from our
Red Iron joint venture as a result of the amendments to certain agreements
pertaining to the joint venture, and lower interest income on marketable
securities.
The operating loss for our Other activities decreased $6.1 million for the
year-to-date period of fiscal 2020. The operating loss decrease was primarily
driven by reduced transaction and integration costs incurred for the acquisition
of Venture Products in fiscal 2020 as compared to the acquisition of CMW in
fiscal 2019, decreased incentive compensation costs as a result of diminished

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company performance due to COVID-19, and reduced intercompany sales eliminations
for sales from our Professional and Residential segments to our wholly-owned
domestic distribution companies as a result of reduced retail demand. The
operating loss decrease was partially offset by increased interest expense due
to higher average outstanding borrowings under our financing arrangements, lower
income from our Red Iron joint venture as a result of the amendments to certain
agreements pertaining to the joint venture, lower interest income on marketable
securities, and a settlement charge incurred for the termination of our U.S.
defined benefit pension plan.
FINANCIAL POSITION
Working Capital
Our working capital strategy continues to place emphasis on improving asset
utilization with a focus on reducing the amount of working capital in the supply
chain, adjusting production plans, and maintaining or improving order
replenishment and service levels to end-users. Accounts receivable as of the end
of the second quarter of fiscal 2020 decreased $28.1 million, or 6.6 percent,
compared to the end of the second quarter of fiscal 2019, primarily due to lower
sales near quarter-end driven by reduced demand as a result of COVID-19 and the
impact of foreign currency exchange rates, partially offset by higher sales
within the expanded mass retail channel of our Residential segment and
incremental receivables as a result of our acquisition of Venture Products.
Inventory levels were up $102.8 million, or 16.8 percent, as of the end of the
second quarter of fiscal 2020 compared to the end of the second quarter of
fiscal 2019, primarily due to COVID-19 resulting in elevated finished goods
inventories in our Professional segment due to reduced sales as a result of
decreased demand for our products, higher raw materials and work in process
inventories as a result of production downtime due to facilities closures and
production inefficiencies as a result of social distancing protocols, and
incremental inventories as a result of our acquisition of Venture Products. The
inventory increase was partially offset by reduced CMW inventories in fiscal
2020 as a result of the fiscal 2019 purchase accounting adjustments to record
CMW's inventories at fair value and the impact of foreign currency exchange
rates. Accounts payable decreased $64.3 million, or 16.4 percent, as of the end
of the second quarter of fiscal 2020 compared to the end of the second quarter
of fiscal 2019, mainly due to decreased purchases of commodities, components,
parts, and accessories due to the reduction in our production levels within our
manufacturing facilities to align with reduced sales volumes as a result of
COVID-19, partially offset by incremental payables as a result of our
acquisition of Venture Products.
Cash Flow
Cash provided by operating activities for the first six months of fiscal 2020
was $70.9 million compared to $164.0 million for the first six months of fiscal
2019. This decrease was primarily due to the impacts of COVID-19, including a
lower cash benefit from accounts payable than was experienced during fiscal 2019
within our historically working capital intensive second quarter as a result of
lower purchases of raw materials inventory, as well as higher amounts of cash
used for finished goods inventories as a result of reduced demand for our
products. The decrease was partially offset by the cash benefit of lower
accounts receivable as a result of reduced demand for our products as a result
of COVID-19. Cash used in investing activities decreased $562.0 million during
the first six months of fiscal 2020 compared to the first six months of fiscal
2019. This decrease was primarily due to less cash utilized for the acquisition
of Venture Products in fiscal 2020 than was used for the acquisitions of CMW and
a Northeastern U.S. distribution company in fiscal 2019, as well as reduced cash
investments in property, plant, and equipment as a result of the actions taken
to improve our liquidity position in light of COVID-19 during fiscal 2020. Cash
provided by financing activities for the first six months of fiscal 2020
decreased $310.4 million compared to the first six months of fiscal 2019, mainly
due to lower net borrowings under our debt arrangements, and lower cash proceeds
from the exercise of stock options in the first six months of fiscal 2020. The
decrease in cash provided by financing activities was partially offset by
reduced cash utilized for purchases of TTC common stock in the first six months
of fiscal 2020.
Liquidity and Capital Resources
Our businesses are seasonally working capital intensive and require funding for
purchases of raw materials used in production, replacement parts inventory,
payroll and other administrative costs, capital expenditures, establishment of
new facilities, expansion and renovation of existing facilities, as well as for
financing receivables from customers that are not financed with Red Iron or
other third-party financial institutions. Our accounts receivable balances
historically increase between January and April as a result of typically higher
sales volumes and extended payment terms made available to our customers, and
typically decrease between May and December when payments are received.
We generally fund cash requirements for working capital needs, capital
expenditures, acquisitions, investments, debt repayments, interest payments,
quarterly cash dividend payments, and common stock repurchases, all as
applicable, through cash provided by operating activities, availability under
our existing senior unsecured revolving credit facility, and in certain
instances, other forms of financing arrangements. Our senior unsecured revolving
credit facility has been adequate for these purposes, although we have
negotiated and completed additional financing arrangements as needed to allow us
to complete acquisitions. Although there is uncertainty of the scope, duration,
and severity of COVID-19 and its impact to our future results, we believe we are
well-positioned to manage our business and have taken the appropriate actions to
maintain and improve our liquidity position, including refinancing outstanding
borrowings on our unsecured senior revolving credit facility with a new three
year term loan agreement for $190.0

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million, which also added incremental liquidity; reducing capital expenditures;
continuing the curtailment of share repurchases under our Board authorized
repurchase program; and monitoring and participating in government economic
stabilization efforts and certain legislative provisions, such as deferring
certain tax payments, as applicable. As a result, we believe that our existing
liquidity position, including the funds available through existing, and
potential future, financing arrangements and forecasted cash flows will be
sufficient to provide the necessary capital resources for our anticipated
working capital needs, capital expenditures, investments, debt repayments,
interest payments, quarterly cash dividend payments, and common stock
repurchases, all as applicable, for at least the next twelve months. As of
May 1, 2020, we had available liquidity of approximately $798.1 million,
consisting of cash and cash equivalents of approximately $200.0 million, of
which approximately $83.8 million was held by our foreign subsidiaries, and
availability under our unsecured senior revolving credit facility of $598.1
million.
Indebtedness
As of May 1, 2020, we had $890.8 million of outstanding indebtedness that
included $100.0 million of 7.8 percent debentures due June 15, 2027, $123.9
million of 6.625 percent senior notes due May 1, 2037, $100.0 million
outstanding under our $200.0 million three year unsecured senior term loan
facility, $180.0 million outstanding under our $300.0 million five year
unsecured senior term loan facility, $190.0 million outstanding under our $190.0
million three year unsecured senior term loan facility, $100.0 million
outstanding under our Series A Senior Notes, $100.0 million outstanding under
our Series B Senior Notes, and no outstanding borrowings under our revolving
credit facility. The May 1, 2020 outstanding indebtedness amounts were partially
offset by debt issuance costs and deferred charges of $3.1 million related to
our outstanding indebtedness. As of May 1, 2020, we have reclassified $99.9
million of the remaining outstanding principal balance under the $190.0 million
term loan, net of the related proportionate share of debt issuance costs, to
current portion of long-term debt within the Condensed Consolidated Balance
Sheet as of such date as we intend to prepay such amounts utilizing cash flows
from operations within the next twelve months.
As of May 3, 2019, we had $811.1 million of outstanding indebtedness that was
classified as long-term debt within our Condensed Consolidated Balance Sheet as
of such date and included $100.0 million of 7.8 percent debentures due June 15,
2027, $123.9 million of 6.625 percent senior notes due May 1, 2037, $200.0
million outstanding under our $200.0 million three year unsecured senior term
loan facility, $300.0 million outstanding under our $300.0 million five year
unsecured senior term loan facility, and $90.0 million of outstanding borrowings
under our revolving credit facility. The May 3, 2019 outstanding indebtedness
amounts were partially offset by debt issuance costs and deferred charges of
$2.8 million related to our outstanding indebtedness.
Our domestic and non-U.S. operations maintained credit lines for import letters
of credit in the aggregate amount of approximately $10.2 million and $13.4
million as of May 1, 2020 and May 3, 2019, respectively. We had $2.2 million and
$2.0 million outstanding on such import letters of credit as of May 1, 2020 and
May 3, 2019, respectively.
Revolving Credit Facility
Seasonal cash requirements are financed from operations, cash on hand, and with
borrowings under our $600.0 million unsecured senior five-year revolving credit
facility that expires in June 2023, as applicable. Included in our $600.0
million revolving credit facility is a $10.0 million sublimit for standby
letters of credit and a $30.0 million sublimit for swingline loans. At our
election, and with the approval of the named borrowers on the revolving credit
facility and the election of the lenders to fund such increase, the aggregate
maximum principal amount available under the facility may be increased by an
amount up to $300.0 million. Funds are available under the revolving credit
facility for working capital, capital expenditures, and other lawful corporate
purposes, including, but not limited to, acquisitions and common stock
repurchases, subject in each case to compliance with certain financial covenants
described below.
Outstanding loans under the revolving credit facility (other than swingline
loans), if applicable, bear interest at a variable rate generally based on LIBOR
or an alternative variable rate based on the highest of the Bank of America
prime rate, the federal funds rate or a rate generally based on LIBOR, in each
case subject to an additional basis point spread that is calculated based on the
better of the leverage ratio (as measured quarterly and defined as the ratio of
total indebtedness to consolidated earnings before interest and taxes plus
depreciation and amortization expense) and debt rating of TTC. Swingline loans
under the revolving credit facility bear interest at a rate determined by the
swingline lender or an alternative variable rate based on the highest of the
Bank of America prime rate, the federal funds rate or a rate generally based on
LIBOR, in each case subject to an additional basis point spread that is
calculated based on the better of the leverage ratio and debt rating of TTC.
Interest is payable quarterly in arrears. Our debt rating for long-term
unsecured senior, non-credit enhanced debt was unchanged during the second
quarter of fiscal 2020 by Standard and Poor's Ratings Group at BBB and by
Moody's Investors Service at Baa3. If our debt rating falls below investment
grade and/or our leverage ratio rises above 1.50, the basis point spread we
currently pay on outstanding debt under the revolving credit facility would
increase. However, the credit commitment could not be canceled by the banks
based solely on a ratings downgrade. For the three and six month periods ended
May 1, 2020, we incurred interest expense of approximately $0.7 million and $0.8
million, respectively, on the outstanding borrowings under our revolving credit
facility. For the three and six month periods ended May 3, 2019, we incurred
interest expense of approximately $1.0 million and $1.8 million, respectively,
on the outstanding borrowings under our revolving credit facility.

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Our revolving credit facility contains customary covenants, including, without
limitation, financial covenants, such as the maintenance of minimum interest
coverage and maximum leverage ratios; and negative covenants, which among other
things, limit disposition of assets, consolidations and mergers, restricted
payments, liens, and other matters customarily restricted in such agreements.
Most of these restrictions are subject to certain minimum thresholds and
exceptions. Under the revolving credit facility, we are not limited in the
amount for payments of cash dividends and common stock repurchases as long as,
both before and after giving pro forma effect to such payments, our leverage
ratio from the previous quarter compliance certificate is less than or equal to
3.5 (or, at our option (which we may exercise twice during the term of the
facility) after certain acquisitions with aggregate consideration in excess of
$75.0 million, for the first four quarters following the exercise of such
option, is less than or equal to 4.0), provided that immediately after giving
effect of any such proposed action, no default or event of default would exist.
As of May 1, 2020, we were not limited in the amount for payments of cash
dividends and common stock repurchases. We were in compliance with all covenants
related to the credit agreement for our revolving credit facility as of May 1,
2020, and we expect to be in compliance with all covenants during the remainder
of fiscal 2020. If we were out of compliance with any covenant required by this
credit agreement following the applicable cure period, the banks could terminate
their commitments unless we could negotiate a covenant waiver from the banks. In
addition, our long-term senior notes, debentures, term loan facilities, and any
amounts outstanding under the revolving credit facility could become due and
payable if we were unable to obtain a covenant waiver or refinance our
borrowings under our credit agreement.
As of May 1, 2020, we had no outstanding borrowings under the revolving credit
facility and $1.9 million outstanding under the sublimit for standby letters of
credit, resulting in $598.1 million of unutilized availability under our
revolving credit facility. As of May 3, 2019, we had $90.0 million outstanding
under the revolving credit facility and $1.9 million outstanding under the
sublimit for standby letters of credit, resulting in $508.1 million of
unutilized availability under the revolving credit facility.
$500.0 Million Term Loan Credit Agreement
In March 2019, we entered into a term loan credit agreement with a syndicate of
financial institutions for the purpose of partially funding the purchase price
of our acquisition of CMW and the related fees and expenses incurred in
connection with such acquisition. The term loan credit agreement provided for a
$200.0 million three year unsecured senior term loan facility maturing on April
1, 2022 and a $300.0 million five year unsecured senior term loan facility
maturing on April 1, 2024 (collectively, the "$500.0 million term loan"). The
funds under the $500.0 million term loan were received on April 1, 2019 in
connection with the closing of the acquisition of CMW. There are no scheduled
principal amortization payments prior to maturity on the $200.0 million three
year unsecured senior term loan facility. For the $300.0 million five year
unsecured senior term loan facility, we are required to make quarterly principal
amortization payments of 2.5 percent of the original aggregate principal balance
reduced by any applicable prepayments beginning with the last business day of
the thirteenth calendar quarter ending after April 1, 2019, with the remainder
of the unpaid principal balance due at maturity. No principal payments are
required during the first three and one-quarter (3.25) years of the $300.0
million five year unsecured senior term loan facility. The term loan facilities
may be prepaid and terminated at our election at any time without penalty or
premium. As of May 1, 2020, we have prepaid $100.0 million and $120.0 million
against the outstanding principal balances of the $200.0 million three year
unsecured senior term loan facility and $300.0 million five year unsecured
senior term loan facility, respectively.
Outstanding borrowings under the $500.0 million term loan bear interest at a
variable rate generally based on LIBOR or an alternative variable rate, based on
the highest of the Bank of America prime rate, the federal funds rate, or a rate
generally based on LIBOR, in each case subject to an additional basis point
spread as defined in the $500.0 million term loan. Interest is payable quarterly
in arrears. For the three and six month periods ended May 1, 2020, we incurred
interest expense of approximately $1.5 million and $3.4 million on the
outstanding borrowings under the $500.0 million term loan, respectively. For the
three and six month periods ended May 3, 2019, we incurred interest expense of
approximately $1.6 million on the outstanding borrowings under the $500.0
million term loan.
The $500.0 million term loan contains customary covenants, including, without
limitation, financial covenants, generally consistent with those applicable
under our revolving credit facility, such as the maintenance of minimum interest
coverage and maximum leverage ratios; and negative covenants, which among other
things, limit disposition of assets, consolidations and mergers, restricted
payments, liens, and other matters customarily restricted in such agreements.
Most of these restrictions are subject to certain minimum thresholds and
exceptions. Under the $500.0 million term loan, we are not limited in the amount
for payments of cash dividends and common stock repurchases as long as, both
before and after giving pro forma effect to such payments, our leverage ratio
from the previous quarter compliance certificate is less than or equal to 3.5
(or, at our option (which we may exercise twice during the term of the facility)
after certain acquisitions with aggregate consideration in excess of $75.0
million, for the first four quarters following the exercise of such option, is
less than or equal to 4.0), provided that immediately after giving effect of any
such proposed action, no default or event of default would exist. As of May 1,
2020, we were in compliance with all covenants related to our $500.0 million
term loan and were not limited in the amount for payments of cash dividends and
common stock repurchases. Additionally, we expect to be in compliance with all
covenants related to our $500.0 million term loan during the remainder of fiscal
2020. If we were out of compliance with any covenant required by the $500.0
million term loan credit agreement following the applicable cure period, our
term loan facilities, long-term senior notes, debentures, and any amounts
outstanding

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under the revolving credit facility could become due and payable if we were
unable to obtain a covenant waiver or refinance our borrowings under our $500.0
million term loan credit agreement.
$190.0 Million Term Loan Credit Agreement
On March 30, 2020, we entered into the $190.0 million term loan ("$190.0 million
term loan") with certain financial institutions for the purpose of refinancing
certain of our outstanding borrowings incurred in connection with the
acquisition of Venture Products on March 2, 2020, as well as a precautionary
measure to increase our liquidity and preserve financial flexibility in light of
the current uncertainty in the global financial and commercial markets as a
result of COVID-19. The $190.0 million term loan provided for a $190.0 million
three year unsecured senior term loan facility maturing on June 19, 2023.
Beginning with the last business day of March 2021, we are required to make
quarterly amortization payments on the $190.0 million term loan equal to 5.0%
for the first four payments and 7.5% thereafter of the original aggregate
principal amount reduced by any applicable prepayments. The $190.0 million term
loan may be prepaid and terminated at our election at any time without penalty
or premium. Amounts repaid or prepaid may not be reborrowed. As of May 1, 2020,
there was $190.0 million of outstanding borrowings under the $190.0 million term
loan and we have reclassified $99.9 million of the remaining outstanding
principal balance under the $190.0 million term loan, net of the related
proportionate share of deferred debt issuance costs, to current portion of
long-term debt within the Condensed Consolidated Balance Sheets as we intend to
prepay such amount utilizing anticipated cash flows from operations within the
next twelve months.
The $190.0 million term loan contains customary covenants, including, without
limitation, financial covenants generally consistent with those applicable under
the our revolving credit facility, such as the maintenance of minimum interest
coverage and maximum leverage ratios; and negative covenants, which among other
things, limit disposition of assets, consolidations and mergers, restricted
payments, liens, and other matters customarily restricted in such agreements.
Most of these restrictions are subject to certain minimum thresholds and
exceptions. We were in compliance with all covenants related to the $190.0
million term loan as of May 1, 2020. Outstanding borrowings under the $190.0
million term loan bear interest at a variable rate based on LIBOR or an
alternative variable rate with a minimum rate of 0.75 percent, subject to an
additional basis point spread as defined in the term credit loan agreement.
Interest is payable quarterly in arrears. For the three and six month periods
ended May 1, 2020, we incurred interest expense of approximately $0.4 million on
the outstanding borrowings under the $190.0 million term loan.
3.81% Series A and 3.91% Series B Senior Notes
On April 30, 2019, we entered into a private placement note purchase agreement
with certain purchasers pursuant to which we agreed to issue and sell an
aggregate principal amount of $100.0 million of 3.81% Series A Senior Notes due
June 15, 2029 ("Series A Senior Notes") and $100.0 million of 3.91% Series B
Senior Notes due June 15, 2031 ("Series B Senior Notes" and together with the
Series A Senior Notes, the "Senior Notes"). On June 27, 2019, we issued $100.0
million of the Series A Senior Notes and $100.0 million of the Series B Senior
Notes pursuant to the private placement note purchase agreement. The Senior
Notes are senior unsecured obligations of TTC. Interest on the Senior Notes is
payable semiannually on the 15th day of June and December in each year. For the
three and six month periods ended May 1, 2020, we incurred interest expense of
approximately $1.9 million and $3.9 million on the outstanding borrowings under
the private placement note purchase agreement.
No principal is due on the Senior Notes prior to their stated due dates. We have
the right to prepay all or a portion of either series of the Senior Notes in
amounts equal to not less than 10.0 percent of the principal amount of the
Senior Notes then outstanding upon notice to the holders of the series of Senior
Notes being prepaid for 100.0 percent of the principal amount prepaid, plus a
make-whole premium, as set forth in the private placement note purchase
agreement, plus accrued and unpaid interest, if any, to the date of prepayment.
In addition, at any time on or after the date that is 90 days prior to the
maturity date of the respective series, we have the right to prepay all of the
outstanding Senior Note of such series for 100.0 percent of the principal amount
so prepaid, plus accrued and unpaid interest, if any, to the date of prepayment.
Upon the occurrence of certain change of control events, we are required to
offer to prepay all Senior Notes for the principal amount thereof plus accrued
and unpaid interest, if any, to the date of prepayment.
The private placement note purchase agreement contains customary representations
and warranties of TTC, as well as certain customary covenants, including,
without limitation, financial covenants, such as the maintenance of minimum
interest coverage and maximum leverage ratios, and other covenants, which, among
other things, provide limitations on transactions with affiliates, mergers,
consolidations and sales of assets, liens and priority debt. Under the private
placement note purchase agreement, we are not limited in the amount for payments
of cash dividends and common stock repurchases as long as, both before and after
giving pro forma effect to such payments, our leverage ratio from the previous
quarter compliance certificate is less than or equal to 3.5 (or, at our option
(which we may exercise twice during the term of the facility) after certain
acquisitions with aggregate consideration in excess of $75.0 million, for the
first four quarters following the exercise of such option, is less than or equal
to 4.0), provided that immediately after giving effect of any such proposed
action, no default or event of default would exist. As of May 1, 2020, we were
not limited in the amount for payments of cash dividends and stock repurchases.
We were in compliance with all covenants related to the private placement note
purchase agreement as of May 1, 2020 and we expect to be in compliance with all
covenants during the remainder of fiscal 2020. If we were out of compliance with
any covenant required by this private placement note

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purchase agreement following the applicable cure period, our term loan
facilities, long-term senior notes, debentures, and any amounts outstanding
under the revolving credit facility would become due and payable if we were
unable to obtain a covenant waiver or refinance our borrowings under our private
placement note purchase agreement.
Cash Dividends
Our Board of Directors approved a cash dividend of $0.25 per share for the
second quarter of fiscal 2020 that was paid on April 9, 2020. This was an
increase of 11.1 percent over our cash dividend of $0.225 per share for the
second quarter of fiscal 2019. We currently expect to continue paying our
quarterly cash dividend to shareholders for the remainder of fiscal 2020.
Share Repurchases
During the first six months of fiscal 2020, we curtailed repurchasing shares of
our common stock in the open market under our Board authorized repurchase
program. In March 2020, we announced our intention to continue the curtailment
of share repurchases as a prudent measure to enhance our liquidity position in
response to COVID-19. As of May 1, 2020, we expect to continue curtailing
repurchasing shares of our common stock for the remainder of fiscal 2020. The
existing repurchase program remains authorized by our Board and has no
expiration date. We may resume repurchasing shares of our common stock under the
program in the future at any time, depending on our cash balance, debt
repayments, market conditions, our working capital needs, and/or other factors.
Customer Financing Arrangements
Our customer financing arrangements are described in further detail within our
most recently filed Annual Report on Form 10-K. There have been no material
changes to our customer financing arrangements with the exception of the
amendments to certain agreements pertaining to our Red Iron joint venture
described in further detail within the section titled "Wholesale Financing"
below.
Wholesale Financing
Our Red Iron joint venture with TCF Inventory Finance, Inc. ("TCFIF"), a
subsidiary of TCF National Bank, provides inventory financing to certain
distributors and dealers of certain of our products in the U.S. that enables
them to carry representative inventories of certain of our products. On December
20, 2019, during the first quarter of fiscal 2020, we amended certain agreements
pertaining to the Red Iron joint venture. The purpose of these amendments was,
among other things, to: (i) adjust certain rates under the floor plan financing
rate structure charged to our distributors and dealers participating in
financing arrangements through the Red Iron joint venture; (ii) extend the term
of the Red Iron joint venture from October 31, 2024 to October 31, 2026, subject
to two-year extensions thereafter unless either we or TCFIF provides written
notice to the other party of non-renewal at least one year prior to the end of
the then-current term; (iii) amend certain exclusivity-related provisions,
including the definition of our products that are subject to exclusivity,
inclusion of a two-year review period by us for products acquired in future
acquisitions to assess, without a commitment to exclusivity, the potential
benefits and detriments of including such acquired products under the Red Iron
financing arrangement, and the pro-rata payback over a five-year period of the
exclusivity incentive payment we received from TCFIF in 2016; (iv) extend the
maturity date of the revolving credit facility used by Red Iron primarily to
finance the acquisition of inventory from us by our distributors and dealers
from October 31, 2024 to October 31, 2026 and to increase the amount available
under such revolving credit facility from $550 million to $625 million; and
(v) memorialize certain other non-material amendments. Under separate agreements
between Red Iron and the dealers and distributors, Red Iron provides loans to
the dealers and distributors for the advances paid by Red Iron to us. The net
amount of receivables financed for dealers and distributors under this
arrangement for the six month period ended May 1, 2020 and May 3, 2019 was
$886.4 million and $1,031.3 million, respectively.
We also have floor plan financing agreements with other third-party financial
institutions to provide floor plan financing to certain dealers and distributors
not financed through Red Iron, which include agreements with third-party
financial institutions in the U.S. and internationally in Australia. These
third-party financial institutions financed $173.9 million and $46.3 million of
receivables for such dealers and distributors during the six month periods ended
May 1, 2020 and May 3, 2019, respectively. As of May 1, 2020 and May 3, 2019,
$203.6 million and $159.1 million of receivables financed by the third-party
financing companies, excluding Red Iron, respectively, were outstanding.
We entered into a limited inventory repurchase agreement with Red Iron. Under
the limited inventory repurchase agreement, we have agreed to repurchase
products repossessed by Red Iron and TCFCFC, up to a maximum aggregate amount of
$7.5 million in a calendar year. Additionally, as a result of our floor plan
financing agreements with the separate third-party financial institutions, we
have also entered into inventory repurchase agreements with the separate
third-party financial institutions, for which we have agreed to repurchase
products repossessed by the separate third-party financial institutions. As of
May 1, 2020, we were contingently liable to repurchase up to a maximum amount of
$145.6 million of inventory related to receivables under these inventory
repurchase agreements. Our financial exposure under these inventory repurchase
agreements is limited to the difference between the amount paid to Red Iron or
other third-party financing institutions for repurchases of inventory and the
amount received upon any subsequent resale of the repossessed product. We have
repurchased immaterial amounts of inventory pursuant to such arrangements during
the six month period ended May 1, 2020 and May 3, 2019. However, a decline in
retail sales or financial difficulties of our

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distributors or dealers could cause this situation to change and thereby require
us to repurchase financed product, which could have an adverse effect on our
Results of Operations, Financial Position, or Cash Flows.
Contractual Obligations
We are obligated to make future payments under various existing contracts, such
as debt agreements, operating lease agreements, unconditional purchase
obligations, and other long-term obligations. Our contractual obligations are
described in further detail within our most recently filed Annual Report on Form
10-K. There have been no material changes to such contractual obligations, with
the exception of the new $190.0 million term loan described in further detail in
the section titled "Liquidity and Capital Resources" within this MD&A and the
holdback associated with the Venture Products merger agreement described in
further detail in the section titled "Company Overview" within this MD&A.
Off-Balance Sheet Arrangements
We have off-balance sheet arrangements with Red Iron, our joint venture with
TCFIF, and other third-party financial institutions in which inventory
receivables for certain dealers and distributors are financed by Red Iron or
other third-party financial institutions. Additionally, we use standby letters
of credit under our revolving credit facility, import letters of credit, and
surety bonds in the ordinary course of business to ensure the performance of
contractual obligations, as required under certain contracts. Our off-balance
sheet arrangements are described in further detail within our most recently
filed Annual Report on Form 10-K. There have been no material changes to such
off-balance sheet arrangements, with the exception of the amendments to certain
agreements pertaining to our Red Iron joint venture described in further detail
within the section titled "Wholesale Financing" above.
NON-GAAP FINANCIAL MEASURES
We have provided non-GAAP financial measures, which are not calculated or
presented in accordance with U.S. GAAP, as information supplemental and in
addition to the most directly comparable financial measures that are calculated
and presented in accordance with U.S. GAAP. We use these non-GAAP financial
measures in making operating decisions because we believe these non-GAAP
financial measures provide meaningful supplemental information regarding our
core operational performance and provide us with a better understanding of how
to allocate resources to both ongoing and prospective business initiatives.
Additionally, these non-GAAP financial measures facilitate our internal
comparisons to both our historical operating results and to our competitors'
operating results by factoring out potential differences caused by charges not
related to our regular, ongoing business, including, without limitation,
non-cash charges, certain large and unpredictable charges, acquisitions and
dispositions, legal settlements, and tax positions.We believe that these
non-GAAP financial measures, when considered in conjunction with our Condensed
Consolidated Financial Statements prepared in accordance with U.S. GAAP, provide
investors with useful supplemental financial information to better understand
our core operational performance. These non-GAAP financial measures should not
be considered superior to, as a substitute for, or as an alternative to, and
should be considered in conjunction with, the most directly comparable U.S. GAAP
financial measures. The non-GAAP financial measures may differ from similar
measures used by other companies.
The following table provides a reconciliation of financial measures calculated
and reported in accordance with U.S. GAAP to the most directly comparable
non-GAAP financial measures for the three and six month periods ended May 1,
2020 and May 3, 2019:
                                            Three Months Ended                 Six Months Ended
(Dollars in thousands, except per
share data)                            May 1, 2020      May 3, 2019      May 1, 2020      May 3, 2019
Gross profit                          $    306,717     $    321,298     $    594,805     $    536,915
Acquisition-related costs1                   2,393            9,519            2,863            9,519
Management actions2                            857                -              857                -
Non-GAAP gross profit                 $    309,967     $    330,817     $   

598,525 $ 546,434



Gross margin                                  33.0 %           33.4 %           35.1 %           34.3 %
Acquisition-related costs1                     0.3 %            1.0 %            0.1 %            0.6 %
Management actions2                            0.1 %              - %            0.1 %              - %
Non-GAAP gross margin                         33.4 %           34.4 %           35.3 %           34.9 %

Operating earnings                    $    125,795     $    137,725     $    216,924     $    207,779
Acquisition-related costs1                   3,004           20,107            5,022           21,754
Management actions2                            857                -              857                -
Non-GAAP operating earnings           $    129,656     $    157,832     $    222,803     $    229,533



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                                            Three Months Ended                 Six Months Ended
(Dollars in thousands, except per
share data)                            May 1, 2020      May 3, 2019      May 1, 2020      May 3, 2019
Earnings before income taxes          $    121,371     $   137,180      $    207,510     $   207,200
Acquisition-related costs1                   3,004          20,107             5,022          21,754
Management actions2                            857               -               857               -
Non-GAAP earnings before income
taxes                                 $    125,232     $   157,287      $    213,389     $   228,954

Net earnings                          $     98,446     $   115,570      $    168,537     $   175,110
Acquisition-related costs1                   2,365          16,352             3,998          17,862
Management actions2                            682               -               682               -
Tax impact of share-based
compensation3                               (1,342 )        (5,957 )          (3,377 )       (10,318 )
Non-GAAP net earnings                 $    100,151     $   125,965      $    169,840     $   182,654

Diluted EPS                           $       0.91     $      1.07      $       1.55     $      1.62
Acquisition-related costs1                    0.02            0.15              0.04            0.17
Tax impact of share-based
compensation3                                (0.01 )         (0.05 )           (0.03 )         (0.10 )
Non-GAAP diluted EPS                  $       0.92     $      1.17      $       1.56     $      1.69

Effective tax rate                            18.9 %          15.8  %           18.8 %          15.5  %
Acquisition-related costs1                       - %          (0.2 )%              - %          (0.3 )%
Tax impact of share-based
compensation3                                  1.1 %           4.3  %            1.6 %           5.0  %
Non-GAAP effective tax rate                   20.0 %          19.9  %           20.4 %          20.2  %


1   On March 2, 2020, we completed the acquisition of Venture Products and on
    April 1, 2019, we completed the acquisition of CMW. For additional
    information regarding these acquisitions, refer to Note 2, Business

Combinations, within the Notes to Condensed Consolidated Financial Statements

included within Part I, Item 1, "Financial Statements" of this Quarterly

Report on Form 10-Q. Acquisition-related costs for the three and six month

periods ended May 1, 2020 represent transaction costs incurred for our

acquisition of Venture Products, as well as integration costs and charges

incurred for the take-down of the inventory fair value step-up amounts

resulting from purchase accounting adjustments related to the acquisitions of

Venture Products and CMW. Acquisition-related costs for the three and six

month periods ended May 3, 2019 represent transaction and integration costs,

as well as charges incurred for the take-down of the inventory fair value

step-up amount and amortization of the backlog intangible asset resulting

from purchase accounting adjustments related to our acquisition of CMW.

2 During the third quarter of fiscal 2019, we announced the wind down of our

Toro-branded large horizontal directional drill and riding trencher product

line ("Toro underground wind down"). Management actions represent inventory

write-down charges incurred during the three and six month periods ended

May 1, 2020 for the Toro underground wind down. For additional information

regarding the Toro underground wind down, refer to Note 7, Management

Actions, within the Notes to Condensed Consolidated Financial Statements

included within Part 1, Item 1, "Financial Statements" of this Quarterly

Report on Form 10-Q.

3 In the first quarter of fiscal 2017, we adopted Accounting Standards Update

No. 2016-09, Stock-based Compensation: Improvements to Employee Share-based

Payment Accounting, which requires that any excess tax deduction for

share-based compensation be immediately recorded within income tax expense.

These amounts represent the discrete tax benefits recorded as excess tax


    deductions for share-based compensation during the three and six month
    periods ended May 1, 2020 and May 3, 2019.



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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to our critical accounting policies and
estimates since our most recent Annual Report on Form 10-K for the fiscal year
ended October 31, 2019. Refer to Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations", and Part II, Item 8,
Note 1, Summary of Significant Accounting Policies and Related Data, within our
Annual Report on Form 10-K for the fiscal year ended October 31, 2019 for a
discussion of our critical accounting policies and estimates.
New Accounting Pronouncements to be Adopted
In June 2016, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2016-03, Financial Instruments - Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which
modifies the measurement approach for credit losses on financial assets measured
on an amortized cost basis from an 'incurred loss' method to an 'expected loss'
method. Such modification of the measurement approach for credit losses
eliminates the requirement that a credit loss be considered probable, or
incurred, to impact the valuation of a financial asset measured on an amortized
cost basis. The amended guidance requires the measurement of expected credit
losses to be based on relevant information, including historical experience,
current conditions, and a reasonable and supportable forecast that affects the
collectability of the related financial asset. This amendment will affect trade
receivables, off-balance-sheet credit exposures, and any other financial assets
not excluded from the scope of this amendment that have the contractual right to
receive cash. The amended guidance will become effective in the first quarter of
fiscal 2021. We are currently evaluating the impact of this new standard on our
Consolidated Financial Statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic
820) - Changes to the Disclosure Requirements for Fair Value Measurement, which
makes a number of changes to add, modify or remove certain disclosure
requirements of fair value measurements. The amended guidance will become
effective in the first quarter of fiscal 2021. Early adoption is permitted for
any removed or modified disclosures. We are currently evaluating the impact of
this new standard on our Consolidated Financial Statements.
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement
Benefits - Defined Benefit Plans (Topic 715), which modifies the disclosure
requirements for defined benefit pension plans and other post-retirement plans.
The amended guidance will become effective in the first quarter of fiscal 2021.
Early adoption is permitted. We are currently evaluating the impact of this new
standard on our Consolidated Financial Statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes, which eliminates certain exceptions
related to the approach for intraperiod tax allocation, the methodology for
calculating income taxes in an interim period, and the recognition of deferred
tax liabilities for outside basis differences. The amended guidance also
clarifies and simplifies other aspects of the accounting for income taxes under
Accounting Standards Codification Topic 740, Income Taxes. The amended guidance
will become effective in the first quarter of fiscal 2022. Early adoption is
permitted. We are currently evaluating the impact of this new standard on our
Consolidated Financial Statements.
In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity
Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic
323), and Derivatives and Hedging (Topic 815), which clarified that before
applying or upon discontinuing the equity method of accounting for an investment
in equity securities, an entity should consider observable transactions that
require it to apply or discontinue the equity method of accounting for the
purposes of applying the fair value measurement alternative. The amended
guidance will become effective in the first quarter of fiscal 2022. Early
adoption is permitted. We are currently evaluating the impact of this standard
on our Consolidated Financial Statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic
848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting, which provides temporary optional guidance to ease the potential
burden of accounting for reference rate reform due to the cessation of the
London Interbank Offered Rate, commonly referred to as "LIBOR." The temporary
guidance provides optional expedients and exceptions for applying U.S. GAAP to
contracts, relationships, and transactions affected by reference rate reform if
certain criteria are met. The provisions of the temporary optional guidance are
only available until December 31, 2022, when the reference rate reform activity
is expected to be substantially complete. When adopted, entities may apply the
provisions as of the beginning of the reporting period when the election is
made. We are currently evaluating the impact of this standard on our
Consolidated Financial Statements and have yet to elect an adoption date.
We believe that all other recently issued accounting pronouncements from the
FASB that we have not noted above, will not have a material impact on our
Consolidated Financial Statements or do not apply to our operations.

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FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains not only historical information, but
also forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended ("Securities Act"), and Section 21E under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and that are
subject to the safe harbor created by those sections. In addition, we or others
on our behalf may make forward-looking statements from time to time in oral
presentations, including telephone conferences and/or web casts open to the
public, in press releases or reports, on our web sites or otherwise. Statements
that are not historical are forward-looking and reflect expectations and
assumptions. Forward-looking statements are based on our current expectations of
future events, and often can be identified in this report and elsewhere by using
words such as "expect," "strive," "looking ahead," "outlook," "guidance,"
"forecast," "goal," "optimistic," "anticipate," "continue," "plan," "estimate,"
"project," "believe," "should," "could," "will," "would," "possible," "may,"
"likely," "intend," "can," "seek," "potential," "pro forma," or the negative
thereof and similar expressions or future dates. Our forward-looking statements
generally relate to our future performance, including our anticipated operating
results, liquidity requirements, financial condition, and anticipated impacts as
a result of COVID-19; our business strategies and goals; the integration of each
of the CMW and Venture Products acquisitions; and the effect of laws, rules,
policies, regulations, tax reform, new accounting pronouncements, and
outstanding litigation on our business and future performance.
Forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from those projected or implied. The
following are some of the factors known to us that could cause our actual
results to differ materially from what we have anticipated in our
forward-looking statements:
•      Adverse economic conditions and outlook in the United States and in other

countries in which we conduct business, including as a result of COVID-19,

have adversely affected our net sales and earnings and could continue to


       adversely affect our net sales and earnings, which include but are not
       limited to business closures; slowdowns, suspensions or delays of
       production and commercial activity; recessionary conditions; slow or
       negative economic growth rates; slow down or reductions in levels of golf

course development, renovation, and improvement; golf course closures;

reduced governmental or municipal spending; reduced levels of home

ownership, construction, and sales; home foreclosures; negative consumer

confidence; reduced consumer spending levels; increased unemployment

rates; prolonged high unemployment rates; higher costs of commodities,

components, parts, and accessories and/or transportation-related costs,

including as a result of inflation, changing prices, tariffs, and/or

duties; inflationary or deflationary pressures; reduced infrastructure

spending; the impact of U.S. federal debt, state debt and sovereign debt

defaults and austerity measures by certain European countries; reduced

credit availability or unfavorable credit terms for our distributors,


       dealers, and end-user customers; higher short-term, mortgage, and other
       interest rates; and general economic and political conditions and
       expectations.

• COVID-19 has directly and indirectly adversely impacted our business,

financial condition and operating results and such adverse impact will

likely continue, is highly uncertain and cannot be predicted, but has been


       and could continue to be material and is based on numerous factors, which
       include but are not limited to, the duration, scope, and severity of
       COVID-19; governmental, business and individual actions that have been,

and continue to be, taken in response to COVID-19; the effect of COVID-19

on our dealers, distributors, mass retailers and other channel partners

and customers, including reduced or constrained budgets and cash

preservation efforts; our ability during COVID-19 to continue operations

and/or adjust our production schedules; significant reductions or

volatility in demand for one or more of our products or services and/or

higher demand for moderately-priced products; the effect of COVID-19 on

our suppliers and our ability to obtain commodities, components, parts,


       and accessories on a timely basis through our supply chain and at
       anticipated costs; logistics costs and challenges; costs incurred as a
       result of necessary actions and preparedness plans to help ensure the

health and safety of our employees and continued operations; potential

future restructuring, impairment or other charges; availability of

employees, their ability to conduct work away from normal working

locations and/or under revised work environment protocols, as well as the

general willingness of employees to come to and perform work; the impact

of COVID-19 on the financial and credit markets and economic activity

generally; our ability to access lending, capital markets, and other

sources of liquidity when needed on reasonable terms or at all; our

ability to comply with the financial covenants in our debt agreements if

the material economic downturn as a result of COVID-19 results in

substantially increased indebtedness and/or lower EBITDA for us; and the

exasperation of negative impacts as a result of the occurrence of a global

or national recession, depression or other sustained adverse market event

as a result of COVID-19.

• Our Professional segment net sales are dependent upon certain factors,

many of which have been adversely impacted by COVID-19, including golf

course revenues and the amount of investment in golf course renovations

and improvements; the level of new golf course development and golf course

closures; infrastructure improvements; demand for our products in the

rental, specialty and underground construction markets, including those

related to oil and gas construction activities; the extent to which

property owners outsource their lawn care and snow and ice removal

activities; residential and/or municipal commercial construction activity;


       continued acceptance of, and demand for, ag-irrigation solutions; the
       timing and occurrence of winter weather conditions; availability of cash
       or credit to Professional segment customers on acceptable



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terms to finance new product purchases; and the amount of government and other
customer revenues, budget, and spending levels for grounds maintenance or
construction equipment.
•      Increases in the cost, or disruption and/or shortages in the availability,

of commodities, components, parts and accessories containing various

materials that we purchase for use in our manufacturing process and

end-products or to be sold as stand-alone end-products, such as steel,

aluminum, petroleum and natural gas-based resins, linerboard, copper,

lead, rubber, engines, transmissions, transaxles, hydraulics, electric

motors, and other commodities, components, parts and accessories,

including as a result of COVID-19, increased costs, increased tariffs,

duties or other charges as a result of changes to U.S. or international

trade policies or trade agreements, trade regulation and/or industry

activity, or antidumping and countervailing duty petitions on certain

products imported from foreign countries, or inability of suppliers to

continue operations or otherwise remain in business as a result of

COVID-19, financial difficulties, or otherwise, have affected our profit

margins, operating results and businesses and could continue to result in

declines in our profit margins, operating results and businesses.

• Our ability to manage our inventory levels to meet our customers' demand

for our products is important for our business. Managing inventory levels

in the current COVID-19 commercial environment is particularly difficult

as a result of changes to production operations, locations and schedules

as well as demand volatility. If we underestimate or overestimate both

channel and retail demand for our products, are not able to manufacture

product to fulfill customer demand, and/or do not produce or maintain

appropriate inventory levels, our net sales, profit margins, net earnings,


       and/or working capital could be negatively impacted.


•      Changes in the composition of, financial viability of, and/or the

relationships with, our distribution channel customers could negatively

impact our business and operating results.

• Our business and operating results are subject to the inventory management


       decisions of our distribution channel customers. Any adjustments in the
       carrying amount of inventories by our distribution channel customers may
       impact our inventory management and working capital goals as well as
       operating results.

• Weather conditions, including unfavorable weather conditions exacerbated

by global climate changes or otherwise, may reduce demand for some of our

products and/or cause disruptions in our operations, including as a result

of disruption in our supply chain, and adversely affect our net sales and

operating results, or may affect the timing of demand for some of our

products and/or our ability to manufacture product to fulfill customer


       demand, which may adversely affect net sales and operating results in
       subsequent periods.

• Fluctuations in foreign currency exchange rates have in the past affected

our operating results and could continue to result in declines in our net

sales and net earnings.

• Our Residential segment net sales are dependent upon continued operations

of mass retailers, dealers, and home centers; consumers buying our

products at mass retailers, dealers, and home centers; the amount of

product placement at mass retailers and home centers; consumer confidence

and spending levels; changing buying patterns of customers; and the impact

of significant sales or promotional events.

• Our financial performance, including our profit margins and net earnings,

can be impacted depending on the mix of products we sell during a given

period, as our Professional segment products generally have higher profit

margins than our Residential segment products. Similarly, within each

segment, if we experience lower sales of products that generally carry

higher profit margins, our financial performance, including profit margins

and net earnings, could be negatively impacted.

• We intend to grow our business in part through acquisitions and alliances,

strong customer relations, and new joint ventures, investments, and

partnerships, which could be risky and harm our business, reputation,


       financial condition, and operating results, particularly if we are not
       able to successfully integrate such acquisitions and alliances, joint
       ventures, investments, and partnerships, such transactions result in
       disruption to our operations, we experience loss of key employees,
       customers, or channel partners, significant amounts of goodwill, other
       intangible assets, and/or long-lived assets incurred as a result of a

transaction are subsequently written off, and other factors. If previous

or future acquisitions do not produce the expected results or integration

into our operations takes more time than expected, our business could be

harmed.

• As of May 1, 2020, we had goodwill of $426.2 million and other intangible

assets of $417.9 million, which together comprise 30.0 percent of our

total assets as of May 1, 2020. These amounts are maintained in various

reporting units, including goodwill and other intangible assets from the

CMW and Venture Products acquisitions. If we determine that our goodwill

or other intangible assets recorded have become impaired, we will be

required to record a charge resulting from the impairment. Impairment


       charges, including such charges that could arise as a result of the
       COVID-19 pandemic, could be significant and could adversely affect our
       consolidated results of operations and financial position.

• We face intense competition in all of our product lines with numerous

manufacturers, including some that have larger operations and greater

financial resources than us. We may not be able to compete effectively

against competitors' actions, which could harm our business and operating

results.

• A significant percentage of our consolidated net sales is generated


       outside of the United States, and we intend to continue to expand our
       international operations. Our international operations also require
       significant management attention and financial resources; expose us to
       difficulties presented by international economic, political, legal,
       regulatory, accounting,



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and business factors, including implications of withdrawal by the U.S. from, or
revision to, international trade agreements, foreign trade or other policy
changes between the U.S. and other countries, trade regulation and/or industry
activity that favors domestic companies, including antidumping and
countervailing duty petitions on certain products imported from foreign
countries, pandemics and/or epidemics, including COVID-19, or weakened
international economic conditions; and may not be successful or produce desired
levels of net sales. In addition, a portion of our international net sales are
financed by third parties. The termination of our agreements with these third
parties, any material change to the terms of our agreements with these third
parties or in the availability or terms of credit offered to our international
customers by these third parties, or any delay in securing replacement credit
sources, could adversely affect our sales and operating results.
•      If we are unable to continue to enhance existing products, as well as

develop and market new products, that respond to customer needs and

preferences and achieve market acceptance, including by incorporating new,


       emerging and/or disruptive technologies that may become preferred by our
       customers, we may experience a decrease in demand for our products, and
       our net sales could be adversely affected.

• Any disruption, including as a result of natural or man-made disasters,

inclement weather, including as a result of climate change-related events,

work slowdowns, strikes, pandemics and/or epidemics, including COVID-19,

protests and/or social unrest, or other events, at or in proximity to any

of our facilities or in our manufacturing or other operations, or those of

our distribution channel customers, mass retailers or home centers where

our products are sold, or suppliers, or our inability to cost-effectively

expand existing facilities, open and manage new facilities, and/or move

production between manufacturing facilities could adversely affect our

business and operating results.

• Our labor needs fluctuate throughout the year and any failure by us to

hire and/or retain a labor force to adequately staff manufacturing

operations, perform service or warranty work, or other necessary

activities or by such labor force to adequately and safely perform their


       jobs could adversely affect our business, operating results, and
       reputation.

• Our labor force has been impacted by COVID-19 and such impact will likely

continue, including as a result of governmental, business and individual

actions that have been, and continue to be, taken in response to COVID-19.

Furthermore, we have incurred additional costs as a result of necessary

actions and preparedness plans to help ensure the health and safety of our


       employees and continued operations, including remote working
       accommodations, enhanced cleaning processes, protocols designed to
       implement appropriate social distancing practices, and/or adoption of
       additional wage and benefit programs to assist employees.


•      Management information systems are critical to our business. If our
       information systems or information security practices, or those of our

business partners or third-party service providers, fail to adequately


       perform and/or protect sensitive or confidential information, or if we,
       our business partners, or third-party service providers experience an

interruption in, or breach of, the operation of such systems or practices,

including by theft, loss or damage from unauthorized access, security

breaches, natural or man-made disasters, cyber attacks, computer viruses,


       malware, phishing, denial of service attacks, power loss or other
       disruptive events, our business, reputation, financial condition, and
       operating results could be adversely affected.

• Our reliance upon patents, trademark laws, and contractual provisions to


       protect our proprietary rights may not be sufficient to protect our
       intellectual property from others who may sell similar products. Our
       products may infringe the proprietary rights of others.


•      Our business, properties, and products are subject to governmental

policies and regulations with which compliance may require us to incur

expenses or modify our products or operations and non-compliance may

result in harm to our reputation and/or expose us to penalties.

Governmental policies and regulations may also adversely affect the demand

for some of our products and our operating results. In addition, changes

in laws, policies, and regulations in the U.S. or other countries in which

we conduct business also may adversely affect our financial results,

including as a result of, (i) adoption of laws and regulations to address

COVID-19, (ii) taxation and tax policy changes, tax rate changes, new tax

laws, new or revised tax law interpretations or guidance, including as a

result of the Tax Act, (iii) changes to, or adoption of new, healthcare

laws or regulations, or (iv) changes to U.S. or international policies or

trade agreements or trade regulation and/or industry activity, including

antidumping and countervailing duty petitions on certain products imported


       from foreign countries, that could result in additional duties or other
       charges on commodities, components, parts or accessories we import.


•      Changes in accounting or tax standards, policies, or assumptions in

applying accounting or tax policies could adversely affect our financial

statements, including our financial results and financial condition.

• Climate change legislation, regulations, or accords may adversely impact


       our operations.


•      Costs of complying with the various environmental laws related to our
       ownership and/or lease of real property, such as clean-up costs and

liabilities that may be associated with certain hazardous waste disposal

activities, could adversely affect our financial condition and operating

results.

• Legislative enactments could impact the competitive landscape within our

markets and affect demand for our products.

• We operate in many different jurisdictions and we could be adversely


       affected by violations of the U.S. Foreign Corrupt Practices Act and
       similar worldwide anti-corruption laws. The continued expansion of our
       international operations could increase the risk of violations of these
       laws in the future.



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• We are subject to product quality issues, product liability claims, and


       other litigation from time to time that could adversely affect our
       business, reputation, operating results, or financial condition.

• If we are unable to retain our executive officers or other key employees,

attract and retain other qualified personnel, or successfully implement

executive officer, key employee or other qualified personnel transitions,

we may not be able to meet strategic objectives and our business could


       suffer.


•      We are dependent upon various floor planning programs to provide
       competitive inventory financing programs to certain distributors and

dealers of our products. Any material change in the availability or terms

of credit offered to our customers by such programs, challenges or delays

in transferring new distributors and dealers from any business we might

acquire or otherwise to such programs, or any termination or disruption of

our various floor planning programs or any delay in securing replacement


       credit sources, could adversely affect our net sales and operating
       results.

• The terms of our credit arrangements and the indentures and other terms


       governing our senior notes and debentures could limit our ability to
       conduct our business, take advantage of business opportunities, and
       respond to changing business, market, and economic conditions.
       Additionally, we are subject to counterparty risk in our credit
       arrangements. If we are unable to comply with such terms, especially the
       financial covenants, our credit arrangements could be terminated and our
       senior notes, debentures, term loan facilities, and any amounts
       outstanding under our revolving credit facility could become due and
       payable.

• The addition of further leverage to our capital structure could result in

a downgrade to our credit ratings in the future and the failure to

maintain investment grade credit ratings could adversely affect our cost

of funding and our liquidity by limiting the access to capital markets or


       the availability of funding from a variety of lenders.


•      We are expanding and renovating our corporate and other facilities and
       could experience disruptions to our operations in connection with such
       efforts.

• We may not achieve our projected financial information or other business

initiatives in the time periods that we anticipate, or at all, which could

have an adverse effect on our business, operating results and financial

condition.




For more information regarding these and other uncertainties and factors that
could cause our actual results to differ materially from what we have
anticipated in our forward-looking statements or otherwise could materially
adversely affect our business, financial condition, or operating results, see
our most recently filed Annual Report on Form 10-K, Part I, Item 1A, "Risk
Factors" and Part II, Item 1A, "Risk Factors" of this report.
All forward-looking statements included in this report are expressly qualified
in their entirety by the foregoing cautionary statements. We caution readers not
to place undue reliance on any forward-looking statement which speaks only as of
the date made and to recognize that forward-looking statements are predictions
of future results, which may not occur as anticipated. Actual results could
differ materially from those anticipated in the forward-looking statements and
from historical results, due to the risks and uncertainties described above, the
risks described in our most recent Annual Report on Form 10-K, Part I, Item 1A,
"Risk Factors" and Part II, Item 1A, "Risk Factors" of this report, as well as
others that we may consider immaterial or do not anticipate at this time. The
foregoing risks and uncertainties are not exclusive and further information
concerning the company and our businesses, including factors that potentially
could materially affect our financial results or condition, may emerge from time
to time. We make no commitment to revise or update any forward-looking
statements in order to reflect actual results, events or circumstances occurring
or existing after the date any forward-looking statement is made, or changes in
factors or assumptions affecting such forward-looking statements. We advise you,
however, to consult any further disclosures we make on related subjects in our
future Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current
Reports on Form 8-K we file with or furnish to the Securities and Exchange
Commission.

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