TORO : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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, 2020.
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 financial measures that are not
calculated or presented in accordance with United States ("U.S.") generally
accepted accounting principles ("GAAP") ("non-GAAP financial measures"), 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 they 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 and benefits not related to our regular, ongoing
business, including, without limitation, certain non-cash, large, and/or
unpredictable charges or benefits; acquisitions and dispositions; legal
judgments, settlements, or other matters; 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. Unless the context
indicates otherwise, the terms "company," "TTC," "we," "our," or "us" refer to
The Toro Company and its consolidated subsidiaries. Our purpose is to help our
customers enrich the beauty, productivity, and sustainability of the land. Our
sustainability platform, "Sustainability Endures," directly ties sustainability
to our mission to deliver superior innovation and customer care and also
provides transparency on our continued efforts to address sustainability-focused
matters, including environmental, social, and governance priorities. 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. As further described in Note 7, Divestiture, in the Notes to
Condensed Consolidated Financial Statements included in Part I. Item 1 of this
Quarterly Report on Form 10-Q, during the first quarter of fiscal 2021, the
company completed the sale of its Northeastern U.S. distribution company. As a
result, for the three month period ended January 29, 2021, the company's Other
activities consisted of the company's remaining wholly-owned domestic
                                       25
--------------------------------------------------------------------------------
  Table of Contents
distribution company, the company's corporate activities, and the elimination of
intersegment revenues and expenses. For the three month period ended January 31,
2020, the company's Other activities consisted of the company's wholly-owned
domestic distribution companies, the company's corporate activities, and the
elimination of intersegment revenues and expenses.
Acquisition of Venture Products, Inc. ("Venture Products")
On March 2, 2020, during the second quarter of fiscal 2020, we completed our
acquisition of Venture Products, the manufacturer of Ventrac-branded products.
Venture Products designs, manufactures, and markets articulating turf,
landscape, and snow and ice management equipment for grounds, landscape
contractor, golf, municipal, and rural acreage customers and provides innovative
product offerings that broadened and strengthened our Professional segment and
expanded our dealer network. The total acquisition consideration was $163.2
million, of which $25.0 million is expected to be paid throughout fiscal 2021 to
the former Venture Products shareholders, subject to any indemnification claims.
We funded the acquisition consideration with borrowings under our existing
unsecured senior revolving credit facility. Subsequent to the closing date,
results of operations for Venture Products have been included within our
Professional reportable segment within our Condensed Consolidated Financial
Statements and had, and will continue to have, an incremental impact to our
Professional reportable segment net sales and segment earnings for the first
twelve months post acquisition. For additional information regarding the
acquisition and our unsecured senior revolving credit facility utilized to fund
the acquisition consideration, refer to Note 2, Business Combination, 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," "the pandemic," or "the virus") outbreak a global pandemic.
COVID-19 has negatively impacted public health and portions of the global
economy, disrupted global supply chains, and created volatility in financial
markets. The global impact of the pandemic has had a material impact on parts of
our business, as well as our customers and suppliers, and caused many challenges
for our business and manufacturing operations. During the first quarter of
fiscal 2021, several jurisdictions around the world continued or again
implemented increased restrictions in an effort to curb the ongoing spread of
the virus. The ultimate longevity and future severity of such restrictions, the
success of the deployment and effectiveness of approved COVID-19 vaccines, and
the ultimate impact on our business, operations, and Results of Operations,
Financial Position, and Cash Flows as a result of COVID-19 is unknown at this
time.
Our main focus from the beginning of the pandemic has been, and will continue to
be, the health, safety, and well-being of our employees, customers, suppliers
and communities around the world. In support of continuing our global
manufacturing and business operations, we have adopted, and continue to adhere
to, 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 in an effort 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 work from home arrangements for those employees
who 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 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 and where face
coverings are required by local government mandates. We also implemented an
employee campaign in support of COVID-19 vaccine efforts around the world. This
employee campaign is designed to provide information about, and support and
encourage our employees to receive, a COVID-19 vaccination when available. We
expect to continue our safety measures until we determine that COVID-19 is
adequately contained for purposes of our global manufacturing and business
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.
In addition to our vigilant safety measures, we have also maintained our focus
on our responsibility to meet the needs of our customers as we supply products
that are critical to maintaining essential global infrastructure, agricultural
food production, and the enablement of safe areas for outdoor spaces. Government
mandated 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. Our operations have been and continue to be considered
essential under applicable government mandated orders relating to COVID-19
allowing us to continue our global manufacturing and business operations since
the beginning of the pandemic and through the date of the filing of this
Quarterly Report on Form 10-Q. While our facilities have remained operational
during the first quarter of fiscal 2021, we experienced various degrees of
manufacturing cost pressures and inefficiencies. Such manufacturing cost
pressures and inefficiencies had an adverse impact on our gross margins for the
three month period ended January 29, 2021 and may continue to adversely impact
our gross margins going forward. As of the date of the filing of this Quarterly
Report on Form 10-Q, we have not experienced significant impacts to our global
manufacturing operations due to disruptions in our global supply chain as a
result of COVID-19 or otherwise. Although
                                       26
--------------------------------------------------------------------------------
  Table of Contents
we regularly monitor the adequacy of supply and financial health of the
companies in our supply chain, financial hardship and/or government mandated
restrictions on our suppliers caused by COVID-19, insufficient demand planning,
and/or the inability of companies throughout our supply chain to deliver on
supply commitments, requirements, and/or demands as a result of COVID-19 or
otherwise, 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 demand for our products and
other government actions. We currently expect our global manufacturing
facilities to remain operational through the remainder of fiscal 2021; however,
we currently expect a greater level of supply chain disruptions during the
second quarter of fiscal 2021 due to our inability to source adequate amounts of
component parts inventory.
During the first quarter of fiscal 2021, our Professional and Residential
reportable segments were less impacted by COVID-19 than was experienced
throughout most of fiscal 2020. During the first quarter of fiscal 2021, the
adverse demand trends we experienced within our Professional segment during much
of fiscal 2020 as a result of COVID-19 continued to stabilize. Most notably, our
landscape contractor business continued to build upon the momentum generated
during the fourth quarter of fiscal 2020 as our channel partners worked to
replenish their field inventory levels and we continued to experience strong
retail demand. Additionally, our golf and grounds business largely returned to
normalized sales levels within the United States as budgetary constraints began
to moderate. Our Residential segment continued to build on the momentum
generated during fiscal 2020 and experienced strong retail demand during the
first quarter of fiscal 2021 for snow thrower products and Flex-Force
battery-powered products as we experienced favorable weather conditions. While
the continued strong retail demand experienced in our Residential segment is a
positive event, 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 three month period ended January 29, 2021 and could continue to
adversely impact our gross margins for the remainder of fiscal 2021. Further, as
a result of strong business performance, during the first quarter of fiscal
2021, some of the cost reduction measures enacted in fiscal 2020 ceased. Our
balance sheet and liquidity profile remained strong as of January 29, 2021 and
we expect to continue to our historical practice of prudently managing our
expenses and adjusting production levels as needed to align with anticipated
sales volumes throughout fiscal 2021.
Significant uncertainty still exists concerning the duration of COVID-19. We
will continue to monitor the 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 well-being
of our employees, customers, suppliers, and communities. In these circumstances,
there may be developments outside our control requiring us to adjust our
operating plans and implement appropriate cost reduction measures and such
developments could rapidly occur. If the 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 be adversely impacted. Any
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,
valuation adjustment, allowance, 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 of this
Quarterly Report on Form 10-Q and also refer to Part I, Item 1A, "Risk Factors",
within our Annual Report on From 10-K for the fiscal year ended October 31,
2020.
RESULTS OF OPERATIONS
Overview
Worldwide consolidated net sales for the first quarter of fiscal 2021 were
$873.0 million, up 13.7 percent compared to $767.5 million in the first quarter
of fiscal 2020.
Professional segment net sales for the first quarter of fiscal 2021 were $650.2
million, an increase of 9.3 percent compared to $594.7 million in the first
quarter of the prior fiscal year. This increase was primarily driven by
increased shipments of landscape contractor zero-turn riding mowers and
incremental net sales as a result of our acquisition of Venture Products,
partially offset by fewer shipments of underground construction equipment and
golf and grounds equipment.
Residential segment net sales for the first quarter of fiscal 2021 were $217.7
million, an increase of 31.3 percent compared to $165.8 million in the first
quarter of the prior fiscal year. This increase was mainly driven by strong
demand for snow products, Flex-Force battery-powered products, and walk power
mowers.
Net earnings for the first quarter of fiscal 2021 were $111.3 million, or $1.02
per diluted share, compared to $70.1 million, or $0.65 per diluted share, for
the first quarter of fiscal 2020.
                                       27
--------------------------------------------------------------------------------
  Table of Contents
Non-GAAP net earnings for the first quarter of fiscal 2021 were $93.2 million,
or $0.85 per diluted share, compared to $69.7 million, or $0.64 per diluted
share, for the first quarter of fiscal 2020. 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 first quarter of fiscal 2021 by 5.0
percent to $0.2625 per share compared to $0.25 per share paid in the first
quarter of fiscal 2020 and we resumed repurchases of shares of our common stock
under our Board authorized repurchase plan during the first quarter of fiscal
2021.
Field inventory levels were lower as of the end of the first quarter of fiscal
2021 compared to the first quarter of fiscal 2020 across the majority of our
businesses as a result of continued strong retail demand, most notably within
our Professional segment landscape contractor and golf and grounds businesses.
Net Sales
Worldwide consolidated net sales for the first quarter of fiscal 2021 were
$873.0 million, up 13.7 percent compared to $767.5 million in the first quarter
of fiscal 2020. This increase was primarily driven by increased shipments of
Professional segment landscape contractor zero-turn riding mowers due to
continued strong retail demand and low field inventory levels at the end of
fiscal 2020, strong retail demand for Residential segment snow products as a
result of favorable winter conditions in key regions, and incremental
Professional segment net sales as a result of our acquisition of Venture
Products. The net sales increase was partially offset by fewer sales of
underground construction equipment as a result of decreased retail demand in the
oil and gas industry and timing of international shipments of golf and grounds
equipment.
Net sales in international markets increased by 9.0 percent for the first
quarter of fiscal 2021. Changes in foreign currency exchange rates resulted in
an increase in our net sales of approximately $2.5 million for the first quarter
of fiscal 2021. The international net sales increase for the quarter comparison
was mainly driven by strong demand for both Professional and Residential segment
zero-turn riding products, increased sales of underground construction
equipment, and incremental net sales as a result of our acquisition of Venture
Products, partially offset by the timing of shipments of golf and grounds
equipment.
The following table summarizes our Results of Operations as a percentage of
consolidated net sales:
                                                            Three Months Ended
                                                  January 29, 2021       January 31, 2020
Net sales                                                   100.0  %              100.0  %
Cost of sales                                               (63.9)                (62.5)
Gross profit                                                 36.1                  37.5
Selling, general and administrative expense                 (19.9)                (25.6)
Operating earnings                                           16.2                  11.9
Interest expense                                             (0.9)                 (1.1)
Other income, net                                             0.3                   0.4
Earnings before income taxes                                 15.6                  11.2
Provision for income taxes                                   (2.9)                 (2.1)
Net earnings                                                 12.7  %                9.1  %


Gross Profit and Gross Margin
Gross profit for the first quarter of fiscal 2021 was $315.0 million, up 9.4
percent compared to $288.1 million in the first quarter of fiscal 2020. Gross
margin was 36.1 percent for the first quarter of fiscal 2021 compared to 37.5
percent for the first quarter of fiscal 2020, a decrease of 140 basis points.
Non-GAAP gross profit for the first quarter of fiscal 2021 was $315.0 million,
up 9.2 percent compared to $288.6 million in the first quarter of fiscal 2020.
Non-GAAP gross margin was 36.1 percent for the first quarter of fiscal 2021
compared to 37.6 percent for the first quarter of fiscal 2020, a decrease of 150
basis points. The decrease in gross margin and non-GAAP gross margin for the
first quarter comparison was primarily due to manufacturing cost pressures and
unfavorable product mix, partially offset by the favorable impact of strategic
productivity and synergy initiatives and net price realization.
Non-GAAP gross profit and non-GAAP gross margin exclude the impact of
acquisition-related costs related to our acquisition of The Charles Machine
Works, Inc. ("CMW"), including charges incurred for the take-down of the
inventory fair value step-up amounts resulting from purchase accounting
adjustments. 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.
                                       28
--------------------------------------------------------------------------------
  Table of Contents
Selling, General, and Administrative ("SG&A") Expense
SG&A expense decreased $23.4 million, or 11.9 percent, for the first quarter of
fiscal 2021. As a percentage of net sales, SG&A expense decreased 570 basis
points for the first quarter of fiscal 2021. The decrease in SG&A expense as a
percentage of net sales for the first quarter comparison was primarily the
result of leveraging expense over higher sales volumes, which further benefited
from a favorable net legal settlement with Briggs & Stratton Corporation ("BGG")
and decreased indirect marketing expenses as a result of reduced meeting,
travel, and entertainment costs due to COVID-19 safety measures and
restrictions.
Interest Expense
Interest expense decreased $0.6 million for the first quarter of fiscal 2021
compared to the first quarter of fiscal 2020. This decrease was driven by the
reduction in LIBOR, partially offset by higher average outstanding borrowings
under our debt arrangements.
Other Income, Net
Other income, net for the first quarter of fiscal 2021 decreased $1.3 million
compared to the first quarter of fiscal 2020. This decrease was primarily due to
lower income from our Red Iron joint venture as a result of lower field
inventory levels and increased inventory turnover at our channel partners due to
strong retail demand during the first quarter of fiscal 2021 as compared to the
first quarter of fiscal 2020.
Provision for Income Taxes
The effective tax rate for the first quarter of fiscal 2021 was 18.1 percent
compared to 18.6 percent in the first quarter of fiscal 2020. This decrease was
the result of a higher level of favorable discrete tax benefits realized during
the first quarter of fiscal 2021 as compared to the first quarter of fiscal
2020, including the excess tax deduction for share-based compensation.
The non-GAAP effective tax rate for the first quarter of fiscal 2021 was 21.5
percent, compared to a non-GAAP effective tax rate of 21.0 percent in the first
quarter of fiscal 2020. The increase was the result of the geographic mix of
earnings before income taxes. The non-GAAP effective tax rate excludes the
impact of discrete tax benefits recorded as excess tax deductions for
share-based compensation. 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 first quarter of fiscal 2021 were $111.3 million, or $1.02
per diluted share, compared to $70.1 million, or $0.65 per diluted share, for
the first quarter of fiscal 2020. This increase was primarily driven by higher
sales volumes, a favorable net legal settlement with BGG, and the favorable
impact of strategic productivity and synergy initiatives, partially offset by
manufacturing cost pressures and unfavorable product mix.
Non-GAAP net earnings for the first quarter of fiscal 2021 were $93.2 million,
or $0.85 per diluted share, compared to $69.7 million, or $0.64 per diluted
share, for the first quarter of fiscal 2020, an increase of 32.8 percent per
diluted share. This increase in non-GAAP net earnings was primarily driven by
higher sales volumes and the favorable impact of strategic productivity and
synergy initiatives, partially offset by manufacturing cost pressures and
unfavorable product mix. Non-GAAP net earnings and non-GAAP net earnings per
diluted share exclude the impact of the favorable net legal settlement with BGG,
the impact of discrete tax benefits recorded as excess tax deductions for
share-based compensation, and acquisition-related costs related to our
acquisitions of Venture Products and CMW. 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. As further described in Note
7, Divestiture, during the first quarter of fiscal 2021, we completed the sale
of our Northeastern U.S. distribution company. As a result, for the three month
period ended January 29, 2021, operating loss for our Other activities included
earnings (loss) from our wholly-owned domestic distribution company, Red Iron
join venture, corporate activities, other income, and interest expense. For the
three month period ended January 31, 2020, operating loss for our Other
activities included 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.
                                       29
--------------------------------------------------------------------------------
  Table of Contents
The following tables summarize net sales for our reportable business segments
and Other activities:
                                                                                                   Three Months Ended
                                                                 January 29,         January 31,             Dollar
(Dollars in thousands)                                              2021                2020              Value Change              Percentage Change
Professional                                                    $  650,223          $  594,721          $       55,502                             9.3  %
Residential                                                        217,700             165,848                  51,852                            31.3
Other                                                                5,063               6,914                  (1,851)                          (26.8)
Total net sales*                                                $  872,986          $  767,483          $      105,503                            13.7  %

*Includes international net sales of:                           $  191,681          $  175,835          $       15,846                             9.0  %

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

                                                                                                   Three Months Ended
                                                                 January 29,         January 31,             Dollar
(Dollars in thousands)                                              2021                2020              Value Change              Percentage Change
Professional                                                    $  116,816          $  102,474          $       14,342                            14.0  %
Residential                                                         32,108              21,566                  10,542                            48.9
Other                                                              (13,098)            (37,901)                 24,803                            65.4
Total segment earnings                                          $  135,826          $   86,139          $       49,687                            57.7  %


Professional Segment
Segment Net Sales
Worldwide net sales for our Professional segment for the first quarter of fiscal
2021 increased 9.3 percent compared to the first quarter of fiscal 2020. This
increase was primarily driven by increased shipments of landscape contractor
zero-turn riding mowers due to continued strong retail demand and low field
inventory levels at the end of fiscal 2020, as well as incremental net sales as
a result of our acquisition of Venture Products. The net sales increase was
partially offset by fewer sales of underground construction equipment as a
result of decreased retail demand in the oil and gas industry and timing of
international shipments of golf and grounds equipment.
Segment Earnings
Professional segment earnings for the first quarter of fiscal 2021 increased
14.0 percent compared to the first quarter of fiscal 2020, and when expressed as
a percentage of net sales, increased to 18.0 percent from 17.2 percent. As a
percentage of net sales, the Professional segment earnings increase was
primarily driven by reduced SG&A expense as a percentage of net sales due to
leveraging expense over higher sales volumes, as well as the favorable impact of
strategic productivity and synergy initiatives and net price realization,
partially offset by manufacturing cost pressures and unfavorable product mix.
Residential Segment
Segment Net Sales
Worldwide net sales for our Residential segment for the first quarter of fiscal
2021 increased 31.3 percent compared to the first quarter of fiscal 2020. This
increase was mainly driven by strong retail demand for snow products as a result
of favorable winter conditions in key regions, increased sales of Flex-Force
battery-powered products primarily due to successful new product introductions;
and increased shipments of walk power mowers ahead of our key selling season
driven by continued strong channel and retail demand.
Segment Earnings
Residential segment earnings for the first quarter of fiscal 2021 increased 48.9
percent compared to the first quarter of fiscal 2020, and when expressed as a
percentage of net sales, increased to 14.7 percent from 13.0 percent. As a
percentage of net sales, the Residential segment net earnings increase for the
first quarter was driven by reduced SG&A expense as a percentage of net sales
due to leveraging expense over higher sales volumes, as well as the favorable
impact of strategic productivity and synergy initiatives and net price
realization, partially offset by manufacturing cost pressures and unfavorable
product mix.
                                       30
--------------------------------------------------------------------------------
  Table of Contents
Other Activities
Other Net Sales
For the first quarter of fiscal 2021, net sales for our Other activities
included sales from our wholly-owned domestic distribution company less sales
from the Professional and Residential segments to the distribution company. For
the first quarter of fiscal 2020, net sales for our Other activities included
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 first quarter of fiscal 2021 decreased by $1.9
million compared to the first quarter of fiscal 2020 due to the sale of our
Northeastern U.S. distribution company during the first quarter of fiscal 2021,
which was partially offset by increased sales for our remaining wholly-owned
domestic distribution company.
Other Operating Loss
The operating loss for our Other activities for the first quarter of fiscal 2021
decreased $24.8 million compared to the first quarter of fiscal 2020. This
operating loss decrease was primarily driven by a favorable net legal settlement
with BGG, reduced expenses incurred as a result of the sale of our Northeastern
U.S. distribution company during the first quarter of fiscal 2021, and reduced
interest expense on our outstanding borrowings as a result of the reduction in
LIBOR. For additional information regarding the favorable net legal settlement
with BGG, refer to Note 15, Contingencies, within the Notes to Condensed
Consolidated Financial Statements included within Part I of this Quarterly
Report on Form 10-Q.
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 first quarter of fiscal 2021 decreased $14.3 million, or 4.5 percent,
compared to the end of the first quarter of fiscal 2020, primarily due to lower
receivables within our international distribution network due to decreased sales
in key regions during the fourth quarter of fiscal 2020, as well as a lower
receivable from our Red Iron joint venture as a result of lower sales financed
under the joint venture near quarter-end within our Professional segment. The
decrease was partially offset by higher receivables from the mass retail channel
of our Residential segment due to increased sales during the first quarter of
fiscal 2021. Inventory levels were down $63.7 million, or 8.6 percent, as of the
end of the first quarter of fiscal 2021 compared to the end of the first quarter
of fiscal 2020, primarily due to lower finished goods inventories in certain of
our Professional segment businesses as a result of increased demand for our
products. Accounts payable increased $16.4 million, or 4.7 percent, as of the
end of the first quarter of fiscal 2021 compared to the end of the first quarter
of fiscal 2020, mainly due to increased purchases of component parts
inventories, as well as incremental payables as a result of our acquisition of
Venture Products.
Cash Flow
Cash Flows from Operating Activities
Cash provided by operating activities for the first three months of fiscal 2021
was $95.0 million compared to cash used in operating activities for the first
three months of fiscal 2020 of $23.3 million. This increase was primarily due to
less cash utilized for inventory purchases as a result of strong demand for our
products, which exceeded our procurement of commodities, components, parts, and
accessories, as well as higher net earnings that were partially driven by a
favorable legal settlement with BGG.
Cash Flows from Investing Activities
Cash used in investing activities decreased $9.7 million during the first three
months of fiscal 2021 compared to the first three months of fiscal 2020. This
decrease was primarily due to cash proceeds from the sale of a Northeastern U.S.
distribution company, partially offset by cash used for an immaterial asset
acquisition.
Cash Flows from Financing Activities
Cash used in financing activities for the first three months of fiscal 2021
increased $135.5 million compared to the first three months of fiscal 2020. This
increase was mainly due to lower borrowings under our debt arrangements, higher
repayments of outstanding indebtedness, and the resumption of repurchases of
shares of our common stock under our Board authorized repurchase program in the
first three months of fiscal 2021.
                                       31
--------------------------------------------------------------------------------
  Table of Contents
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 revolving credit facility, and in certain instances, other forms of
financing arrangements. Our 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. We currently
believe that our existing liquidity position, including the funds available
through existing, and potential future, financing arrangements and forecasted
cash flows from operations 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 January 29, 2021, we had available liquidity of
approximately $1,030.9 million, consisting of cash and cash equivalents of
approximately $433.4 million, of which approximately $108.9 million was held by
our foreign subsidiaries, and availability under our revolving credit facility
of $597.5 million.
Indebtedness
The following is a summary of our indebtedness:
                                                                   January 29,         January 31,         October 31,
(Dollars in thousands)                                                2021                2020                2020
Revolving credit facility                                         $        -          $   14,000          $        -
$200 million term loan                                               100,000             100,000             100,000
$300 million term loan                                               180,000             180,000             180,000
$190 million term loan                                                     -                   -              90,000
3.81% series A senior notes                                          100,000             100,000             100,000
3.91% series B senior notes                                          100,000             100,000             100,000
7.8% debentures                                                      100,000             100,000             100,000
6.625% senior notes                                                  123,993             123,931             123,978

Less: unamortized discounts, debt issuance costs, and deferred charges

                                                       2,645               3,012               2,855
Total long-term debt                                                 701,348             714,919             791,123
Less: current portion of long-term debt                                9,992             113,903              99,873
Long-term debt, less current portion                              $  

691,356 $ 601,016 $ 691,250

In addition to our long-term debt, our domestic and non-U.S. operations maintain
credit lines for import letters of credit during the normal course of business,
as required by some vendor contracts. Collectively, these import letters of
credit had a maximum availability of $14.2 million and $13.1 million as of
January 29, 2021 and January 31, 2020, respectively. We had $3.9 million and
$3.5 million outstanding on such import letters of credit as of January 29, 2021
and January 31, 2020, respectively.
Revolving Credit Facility
Seasonal cash requirements are financed with cash flow from operations, cash on
hand, and borrowings under our $600.0 million revolving credit facility that
expires in June 2023, as applicable. The revolving credit facility includes 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 our debt rating. Swingline loans
under the revolving
                                       32
--------------------------------------------------------------------------------
  Table of Contents
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 our debt rating. Interest is payable quarterly
in arrears. Our debt rating for long-term unsecured senior, non-credit enhanced
debt was unchanged during the first quarter of fiscal 2021 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
month period ended January 29, 2021, no interest expense was incurred on our
revolving credit facility as we did not have outstanding borrowings during such
period. For the three month period ended January 31, 2020, we incurred interest
expense of approximately $0.1 million on the outstanding borrowings under our
revolving credit facility.
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 January 29, 2021, 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
January 29, 2021, and we expect to be in compliance with all covenants during
the remainder of fiscal 2021. 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 January 29, 2021, we had no borrowings outstanding under the revolving
credit facility and $2.5 million outstanding under the sublimit for standby
letters of credit, resulting in $597.5 million of unutilized availability under
our revolving credit facility. As of January 31, 2020, we had $14.0 million of
borrowings outstanding under the revolving credit facility and $1.9 million
outstanding under the sublimit for standby letters of credit, resulting in
$584.1 million of unutilized availability under our revolving credit facility.
As of October 31, 2020, we had no borrowings outstanding under the revolving
credit facility and $2.5 million outstanding under the sublimit for standby
letters of credit, resulting in $597.5 million of unutilized availability under
our 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 the 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 the CMW closing date.
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. Amounts repaid or prepaid may not be reborrowed. As
of January 29, 2021, January 31, 2020, and October 31, 2020, we had prepaid
$100.0 million and $120.0 million of 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. Thus, as of January
29, 2021, there was $100.0 million and $180.0 million outstanding under the
$200.0 million three-year unsecured senior term loan facility and the $300.0
million five-year unsecured senior term loan facility, respectively. As of
January 29, 2021, we have reclassified $10.0 million of the outstanding
principal balance of the $300.0 million five-year unsecured senior term loan
facility, 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 this is the amount we intend to repay utilizing anticipated
cash flows from operations within the next twelve months.
                                       33
--------------------------------------------------------------------------------
  Table of Contents
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 month periods ended January 29, 2021 and January 31,
2020, we incurred interest expense of $0.9 million and $1.9 million,
respectively, 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
January 29, 2021, 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. We expect to be in compliance with all
covenants related to our $500.0 million term loan during the remainder of fiscal
2021. 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 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 a $190.0 million term loan credit agreement
("$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 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. 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.
During the three month period ended January 29, 2021, we repaid the remaining
$90.0 million outstanding principal balance of the $190.0 million term loan and
recognized expense of $0.1 million associated with the accelerated amortization
of the remaining unamortized debt issuance costs. As a result of the repayment
there were no outstanding borrowings under the $190.0 million term loan as of
January 29, 2021.
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 loan credit agreement. Interest is payable quarterly in arrears. For the
three month period ended January 29, 2021, we incurred interest expense of
approximately $0.3 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 ("holders") 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 our unsecured senior obligations.
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.
Interest on the Senior Notes is payable semiannually on the 15th day of June and
December in each year. We incurred interest expense of approximately $1.9
million on the Senior Notes for the three month periods ended January 29, 2021
and January 31, 2020.
                                       34
--------------------------------------------------------------------------------
  Table of Contents
Our private placement note purchase agreement contains customary representations
and warranties, 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 January 29, 2021, 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 private
placement note purchase agreement as of January 29, 2021 and we expect to be in
compliance with all covenants during the remainder of fiscal 2021. If we were
out of compliance with any covenant required by this private placement note
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.
7.8% Debentures
In June 1997, we issued $175.0 million of debt securities consisting of $75.0
million of 7.125 percent coupon 10-year notes and $100.0 million of 7.8 percent
coupon 30-year debentures. The $75.0 million of 7.125 percent coupon 10-year
notes were repaid at maturity during fiscal 2007. In connection with the
issuance of $175.0 million in long-term debt securities, we paid $23.7 million
to terminate three forward-starting interest rate swap agreements with notional
amounts totaling $125.0 million. These swap agreements had been entered into to
reduce exposure to interest rate risk prior to the issuance of the new long-term
debt securities. As of the inception of one of the swap agreements, we had
received payments that were recorded as deferred income to be recognized as an
adjustment to interest expense over the term of the new debt securities. As of
the date the swaps were terminated, this deferred income totaled $18.7 million.
The excess termination fees over the deferred income recorded was deferred and
is being recognized as an adjustment to interest expense over the term of the
debt securities issued. Interest on the debentures is payable semiannually on
the 15th day of June and December in each year. We incurred interest expense of
$2.0 million for the three month periods ended January 29, 2021 and January 31,
2020.
6.625% Senior Notes
On April 26, 2007, we issued $125.0 million in aggregate principal amount of
6.625 percent senior notes due May 1, 2037 and priced at 98.513 percent of par
value. The resulting discount of $1.9 million is being amortized over the term
of the notes using the straight-line method as the results obtained are not
materially different from those that would result from the use of the effective
interest method. Although the coupon rate of the senior notes is 6.625 percent,
the effective interest rate is 6.741 percent after taking into account the
issuance discount. The senior notes are our unsecured senior obligations and
rank equally with our other unsecured and unsubordinated indebtedness. The
indentures under which the senior notes were issued contain customary covenants
and event of default provisions. We may redeem some or all of the senior notes
at any time at the greater of the full principal amount of the senior notes
being redeemed or the present value of the remaining scheduled payments of
principal and interest discounted to the redemption date on a semi-annual basis
at the treasury rate plus 30 basis points, plus, in both cases, accrued and
unpaid interest. In the event of the occurrence of both (i) a change of control
of the company, and (ii) a downgrade of the notes below an investment grade
rating by both Moody's Investors Service, Inc. and Standard & Poor's Ratings
Services within a specified period, we would be required to make an offer to
purchase the senior notes at a price equal to 101 percent of the principal
amount of the senior notes plus accrued and unpaid interest to the date of
repurchase. Interest on the senior notes is payable semiannually on the 1st day
of May and November in each year. We incurred interest expense of $2.1 million
for the three month periods ended January 29, 2021 and January 31, 2020.
Cash Dividends
Our Board of Directors approved a cash dividend of $0.2625 per share for the
first quarter of fiscal 2021 that was paid on January 13, 2021. This was an
increase of 5.0 percent over our cash dividend of $0.25 per share for the first
quarter of fiscal 2020. We currently expect to continue paying our quarterly
cash dividend to shareholders for the remainder of fiscal 2021.
Share Repurchases
During the first three months of fiscal 2021, we repurchased 332,878 shares of
our common stock in the open market under our Board authorized repurchase
program, thereby reducing our total shares outstanding. As of January 29, 2021,
6,709,378 shares remained available for repurchase under our Board authorized
repurchase program. We currently expect to continue repurchasing shares of our
common stock throughout the remainder of fiscal 2021, depending on our cash
balance, debt repayments, market conditions, our anticipated working capital
needs, and/or other factors.
                                       35
--------------------------------------------------------------------------------
  Table of Contents
Customer Financing Arrangements
Our customer financing arrangements, including both wholesale financing and
end-user 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 end-user customer financing arrangements during the first three months of
fiscal 2021.
Wholesale Financing
We are party to a joint venture with TCF Inventory Finance, Inc. ("TCFIF"),
established as Red Iron, a subsidiary of TCF National Bank, the primary purpose
of which is to provide 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. The net amount of receivables financed
for dealers and distributors under this arrangement for the three month period
ended January 29, 2021 and January 31, 2020 was $511.3 million and $405.1
million, respectively.
Under a separate agreement, TCF Commercial Finance Canada, Inc. ("TCFCFC")
provides inventory financing to dealers of certain of our products in Canada. 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. These third-party
financial institutions financed $92.6 million and $87.1 million of receivables
for such dealers and distributors during the three month periods ended
January 29, 2021 and January 31, 2020, respectively. As of January 29, 2021 and
January 31, 2020, $147.6 million and $161.1 million of receivables financed by
these third-party financing companies, excluding Red Iron, respectively, were
outstanding.
We entered into a limited inventory repurchase agreement with Red Iron and
TCFCFC. Under such 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. Under such inventory repurchase
agreements, we have agreed to repurchase products repossessed by the separate
third-party financial institutions. As of January 29, 2021 and January 31, 2020,
we were contingently liable to repurchase up to a maximum amount of $111.2
million and $128.2 million, respectively, 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 subsequent resale of the repossessed
product. We have repurchased immaterial amounts of inventory pursuant to such
arrangements during the three month period ended January 29, 2021 and
January 31, 2020. However, a decline in retail sales or financial difficulties
of our 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 during
the first three months of fiscal 2021, with the exception of the repayment of
the $190.0 million term loan during the first quarter of fiscal 2021 described
in further detail in the section titled "Liquidity and Capital Resources" within
this MD&A.
Off-Balance Sheet Arrangements
We have off-balance sheet arrangements with Red Iron 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
during the first three months of fiscal 2021.
                                       36

--------------------------------------------------------------------------------

Table of Contents

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 presented in this
Quarterly Report on Form 10-Q 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 they 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 and benefits not related to our regular, ongoing business, including,
without limitation, certain non-cash, large, and/or unpredictable charges and
benefits; acquisitions and dispositions; legal judgments, settlements, or other
matters; 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 month periods ended January 29, 2021
and January 31, 2020:
                                                               Three Months 

Ended

(Dollars in thousands, except per share data) January 29, 2021 January 31, 2020

 Gross profit                                       $       315,036       $ 

288,088

 Acquisition-related costs2                                       -                   470

 Non-GAAP gross profit                              $       315,036       $       288,558

 Gross margin                                                  36.1  %               37.5  %

 Acquisition-related costs2                                       -  %                0.1  %

 Non-GAAP gross margin                                         36.1  %               37.6  %

 Operating earnings                                 $       141,465       $        91,129
 Litigation settlement, net1                                (17,075)                    -
 Acquisition-related costs2                                       -         

2,018

 Non-GAAP operating earnings                        $       124,390       $ 

93,147

 Earnings before income taxes                       $       135,826       $ 

86,139

 Litigation settlement, net1                                (17,075)                    -
 Acquisition-related costs2                                       -         

2,018

 Non-GAAP earnings before income taxes              $       118,751       $        88,157

 Net earnings                                       $       111,281       $        70,091
 Litigation settlement, net1                                (13,455)                    -
 Acquisition-related costs2                                       -                 1,633

 Tax impact of share-based compensation3                     (4,578)               (2,035)

 Non-GAAP net earnings                              $        93,248       $        69,689


                                       37

--------------------------------------------------------------------------------

Table of Contents

                                                               Three Months 

Ended

 (Dollars in thousands, except per share data)       January 29, 2021      January 31, 2020
 Diluted EPS                                        $         1.02        $          0.65
 Litigation settlement, net1                                 (0.13)                     -
 Acquisition-related costs2                                      -                   0.01

 Tax impact of share-based compensation3                     (0.04)                 (0.02)

 Non-GAAP diluted EPS                               $         0.85        $          0.64

 Effective tax rate                                           18.1   %               18.6  %

 Tax impact of share-based compensation3                       3.4   %                2.4  %

 Non-GAAP effective tax rate                                  21.5   %               21.0  %


1  On November 19, 2020, Exmark Manufacturing Company Incorporated ("Exmark"), a
wholly-owned subsidiary of TTC, and Briggs & Stratton Corporation ("BGG")
entered into a settlement agreement ("Settlement Agreement") relating to the
decade-long patent infringement litigation that Exmark originally filed in May
2010 against Briggs & Stratton Power Products Group, LLC ("BSPPG"), a former
wholly-owned subsidiary of BGG (Case No. 8:10CV187, U.S. District Court for the
District of Nebraska) (the "Infringement Action"). The Settlement Agreement
provided, among other things, that upon approval by the bankruptcy court, and
such approval becoming final and nonappealable, BGG agreed to pay Exmark $33.65
million ("Settlement Amount"). During January 2021, the Settlement Amount was
received by Exmark in connection with the settlement of the Infringement Action
and at such time, the underlying events and contingencies associated with the
gain contingency related to the Infringement Action were satisfied. As such, we
recognized in selling, general and administrative expense within the Condensed
Consolidated Statements of Earnings during the first quarter of fiscal 2021 (i)
the gain associated with the Infringement Action and (ii) a corresponding
expense related to the contingent fee arrangement with our external legal
counsel customary in patent infringement cases equal to approximately 50 percent
of the Settlement Amount. Accordingly, litigation settlement, net represents the
net amount recorded within selling, general and administrative expense in the
Condensed Consolidated Statements of Earnings for the settlement of the
Infringement Action during the three month period ended January 29, 2021. Refer
to Footnote 15, Contingencies, for additional information regarding the
settlement of the Infringement Action.
2  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 Combination, 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 month period ended January 31, 2020
represent costs incurred related to our acquisition of Venture Products, as well
as integration costs and charges incurred for the take-down of the inventory
fair value step-up amount resulting from purchase accounting adjustments related
to our acquisition of CMW. No acquisition-related costs were incurred during the
three month period ended January 29, 2021.
3  The accounting standards codification guidance governing employee stock-based
compensation requires that any excess tax deduction for share-based compensation
be immediately recorded within income tax expense. Employee stock-based
compensation activity, including the exercise of stock options under The Toro
Company Amended and Restated 2010 Equity and Incentive Plan, can be
unpredictable and can significantly impact the company's net earnings, diluted
EPS, and effective tax rate. These amounts represent the discrete tax benefits
recorded as excess tax deductions for share-based compensation during the three
month periods ended January 29, 2021 and January 31, 2020.
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, 2020. 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, 2020 for a
discussion of our critical accounting policies and estimates.
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
                                       38
--------------------------------------------------------------------------------
  Table of Contents
condition, and anticipated impacts 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
and could continue to impact demand for our products, and ultimately, our net
sales and earnings. These 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; slowdowns or
reductions in levels of golf course activity, including food and beverage
spending, 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; further 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, foreign currency fluctuations, 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. In the past, some of
these factors have caused our distributors, dealers, and end-user customers to
reduce spending and delay or forego purchases of our products, which have had an
adverse effect on our net sales and earnings.
•COVID-19 has materially adversely impacted portions of our business, financial
condition and operating results and will likely continue to adversely impact
portions of our business and such impact could continue to be material and will
depend on numerous evolving factors, including: the duration of COVID-19;
governmental, business and individual actions that have been, and continue to
be, taken in response to COVID-19; the success of the deployment of approved
COVID-19 vaccines and their effectiveness; 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; the effect of COVID-19 on our suppliers and companies
throughout our supply chain and any such supplier's ability to meet supply
commitments, requirements, and/or demands and our ability to continue 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; our ability to establish and maintain
appropriate estimates and assumptions used to prepare the Condensed Consolidated
Financial Statements; the continued 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
continued 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. In addition, the impacts from COVID-19 and efforts to
contain it have heightened the other risks described herein.
•Our Professional segment net sales are dependent upon certain and varied
factors. Our Professional segment includes a variety of products that are sold
by distributors or dealers, or directly to government customers, rental
companies, construction companies, and professional users engaged in maintaining
and creating properties and landscapes, such as golf courses, sports fields,
residential and commercial properties and landscapes, and governmental and
municipal properties. Among other things, any one of a combination of the
following factors, many of which have been adversely impacted by COVID-19, could
result in a decrease in spending and demand for our products and have an adverse
effect on our Professional segment net sales: golf course revenues; reduced
levels of investment in golf course renovations and improvements; the level of
new golf course development and golf course closures; reduced consumer and
business spending on property maintenance, including lawn care and snow removal
activities; construction activity; low or reduced levels of infrastructure
improvements; decreased oil and gas construction activities; a decline in
acceptance of, and demand for, ag-irrigation solutions for agricultural
production; availability of cash or credit for our customers to finance new
product purchases; and customer and/or government budgetary constraints,
resulting in reduced spending for grounds maintenance or construction equipment.
•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
                                       39
--------------------------------------------------------------------------------
  Table of Contents
disruptive technologies that may become preferred by our customers, we may
experience a decrease in demand for our products, and our net sales, which have
historically benefited from the introduction of new products, may be adversely
affected.
•Increases in the cost of commodities, components, parts and accessories that we
purchase and/or increases in other costs of doing business have, and could
continue to, adversely affect our profit margins and businesses. We purchase
commodities, components, parts and accessories 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, increased costs,
including as a result of COVID-19, 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, including
certain engines imported into the United States from China, or the 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.
•Disruption and/or shortages in the availability of commodities, components,
parts, or accessories used in our products has, and could continue to, adversely
affect our business.
•Any disruption at any of our facilities or in our manufacturing or other
operations, or those of our distribution channel customers or suppliers, or our
inability to cost-effectively expand existing, open and manage new or acquired,
and/or move production between manufacturing facilities could adversely affect
our business and operating results.
•If we underestimate and overestimate demand for our products and do not
maintain appropriate inventory levels, our net sales and/or working capital
could be negatively impacted. 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 and availability of supply of
commodities, components, parts or accessories used in our products. Such
manufacturing inefficiencies have resulted in unfavorable manufacturing
variances that have negatively impacted our financial results. If such
manufacturing inefficiencies continue, 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. Adjustments in the carrying
amount of inventories by our distribution channel customers have impacted and
may continue to impact our inventory management and working capital goals as
well as operating results.
•Weather conditions, including conditions exacerbated by global climate changes,
have previously impacted demand for some of our products and/or caused
disruptions in our operations, including as a result of disruption in our supply
chain, and may impact such items in the future which may adversely affect our
net sales or otherwise adversely affect our operating results.
•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 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, have
been impacted and will continue to 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, lower sales of products that generally carry higher profit
margins, have impacted our financial performance, including profit margins and
net earnings, and such financial performance could continue to 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 may harm our business, reputation,
financial condition, and operating results.
•As of January 29, 2021, we had goodwill of $422.2 million and other intangible
assets of $410.6 million, including goodwill and other intangible assets from
the Venture Products acquisition. These amounts are maintained in various
reporting units and together comprise 29.0 percent of our total assets as of
January 29, 2021. If we determine that our goodwill or other intangible assets
recorded in connection with the acquisition of Venture Products or any other
prior or future acquisition have become impaired, we will be required to record
a charge resulting from the impairment. Impairment charges could be significant
and could adversely affect our results of operations and financial condition.
•Failure to successfully complete divestitures or other restructuring activities
could negatively affect our operations.
                                       40
--------------------------------------------------------------------------------
  Table of Contents
•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, 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, including certain
engines imported into the United States from China, 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.
•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, and those of our suppliers and distribution channel partners,
fluctuate throughout the year and by region. During all periods presented in
this Quarterly Report on Form 10-Q, such labor needs were negatively impacted by
COVID-19 and such impact is expected to continue. Any failure by us, or our
suppliers and/or distribution partners, to hire and/or retain a labor force,
including 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, and those of our suppliers and distribution channel partners,
have been impacted by COVID-19 and such impact will likely continue, including
as a result of global 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. In addition, our products
may infringe the valid proprietary rights of others.
•Our company, business, properties, and products are subject to laws, rules,
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. Laws, rules, policies, and
regulations may also adversely affect the demand for some of our products and
our operating results. In addition, changes in laws, rules, 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: (1) adoption
of laws and regulations to address COVID-19, (ii) taxation and tax policy
changes, tax rate changes, new tax laws, new or revised ta 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, including certain engines imported into the
United States from China, 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.
                                       41
--------------------------------------------------------------------------------
  Table of Contents
•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.
•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 the availability of floor plan financing 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 our floor plan arrangements, challenges or delays in
transferring new distributors and dealers from any business we might acquire or
otherwise to available floor plan platforms, any termination or disruption of
our floor plan arrangements, 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.
•A downgrade to our credit ratings could increase our cost of funding and/or
adversely affect our access to capital markets or the availability of funding
from a variety of lenders.
•The expected phase out of LIBOR could impact the interest rates paid on our
variable rate indebtedness and cause our interest expense to increase.
•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.
•Brexit and the uncertainty regarding its implementation and effect could
disrupt our operations and adversely affect our operating results.
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.
                                       42

--------------------------------------------------------------------------------

Table of Contents

© Edgar Online, source Glimpses