Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended April 30, 2021 ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exact name of registrant as specified in its charter) State or Other Jurisdiction of Incorporation or Organization For the Transition Period from to Commission File Number: 1-8649 Dela ...

The Toro Company THE TORO COMPANY Investor Presentation March 2021 | --- | --- | --- | --- | --- | --- | --- | --- | --- | |-------|-------|-------|-------|-------|---------|-------|-----------|--------| | | | | | | | | | | | TORO. | | | | UNIOI | | | | | | | | | | | | | | | | | | | | | TRENCOR | | Irritrol. | � POPE | SAFE HARBOR • This presentation contains forward-looking statements regarding our business and future financial and operating results made pursuant to the safe harbor provisions of the Privat ...

Financial Data and Key Metrics Changes - The company reported net sales of $873 million, a 13.7% increase year-over-year, with reported EPS at $1.02 and adjusted EPS at $0.85 per diluted share, compared to $0.65 and $0.64 respectively in the same quarter last year [24][25][30] - Gross margin for the quarter was 36.1%, down 140 basis points from the prior year, primarily due to manufacturing cost pressures and product mix [29] - Free cash flow was $84.5 million with a net earnings conversion ratio of 76%, driven by higher earnings and lower working capital [33] Business Segment Data and Key Metrics Changes - Professional segment net sales increased by 9.3% to $650.2 million, driven by higher shipments of landscape contractor zero turn riding mowers and incremental sales from the Venture Products acquisition [25][26] - Residential segment net sales surged by 31.3% to $217.7 million, attributed to strong retail demand for snow products and expanded mass retail placement [27][28] - Professional segment earnings rose by 14% to $116.8 million, while residential segment earnings increased by 48.9% to a record $32.1 million [26][28] Market Data and Key Metrics Changes - The company noted strong retail demand across its businesses, particularly in the residential segment, which benefited from favorable weather and stay-at-home trends [18][21] - The ongoing effects of COVID-19 and supply chain challenges were highlighted as significant factors impacting the operational environment [43][44] Company Strategy and Development Direction - The company is focused on innovation, operational execution, and expanding its product offerings, particularly in battery-powered and autonomous solutions [16][20] - Recent acquisitions of TURFLYNX and Left Hand Robotics are seen as strategic moves to enhance technology capabilities [16][66] - The company aims to maintain strong relationships with channel partners and invest in technology to drive long-term growth [21][53] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continued demand and recovery in professional segment end markets, particularly in the second and third quarters of 2021 [37][41] - The company anticipates net sales growth in the range of 6% to 8% for fiscal 2021, with a focus on managing supply chain dynamics and cost inflation [35][38] - Management emphasized the importance of vaccinations in navigating the ongoing pandemic and its impact on operations [17][78] Other Important Information - The company paid down $90 million in debt and returned $59.8 million to shareholders during the quarter [34] - The company reaffirmed its full-year fiscal 2021 guidance, indicating strong demand across its businesses [35] Q&A Session Summary Question: Supply chain constraints and management - Management acknowledged ongoing supply chain challenges due to COVID-19 and strong demand, emphasizing close relationships with suppliers to mitigate issues [56][58] Question: Residential business product placement and battery sales - Management noted improved product placement and emphasized the growing importance of battery-powered products, although they currently represent a small portion of total sales [61][63] Question: Impact of recent storms in Texas - Management indicated that while there were supply challenges due to storms, demand for snow products increased positively [73][75] Question: Outlook for professional business and deferred spending - Management highlighted strong recovery trends in the professional segment, particularly in landscape contracting and construction [111][112] Question: Acquisitions and autonomous product development - Management expressed confidence in the demand for autonomous products and the importance of meeting customer needs with effective solutions [121][124]

PART I. FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company presents its unaudited condensed consolidated financial statements for the first quarter of fiscal 2021 [Condensed Consolidated Statements of Earnings (Unaudited)](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings%20(Unaudited)) Q1 2021 vs Q1 2020 Earnings Summary (in thousands) | Metric | Three Months Ended Jan 29, 2021 | Three Months Ended Jan 31, 2020 | | :--- | :--- | :--- | | **Net sales** | $872,986 | $767,483 | | **Gross profit** | $315,036 | $288,088 | | **Operating earnings** | $141,465 | $91,129 | | **Net earnings** | $111,281 | $70,091 | | **Diluted EPS** | $1.02 | $0.65 | [Condensed Consolidated Balance Sheets (Unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) Balance Sheet Summary (in thousands) | Metric | Jan 29, 2021 | Oct 31, 2020 | | :--- | :--- | :--- | | **Cash and cash equivalents** | $433,394 | $479,892 | | **Inventories, net** | $675,307 | $652,433 | | **Total current assets** | $1,456,743 | $1,427,648 | | **Total assets** | $2,875,138 | $2,853,228 | | **Total current liabilities** | $819,541 | $855,797 | | **Long-term debt, less current portion** | $691,356 | $691,250 | | **Total stockholders' equity** | $1,179,722 | $1,114,828 | [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) Q1 2021 vs Q1 2020 Cash Flow Summary (in thousands) | Metric | Three Months Ended Jan 29, 2021 | Three Months Ended Jan 31, 2020 | | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | $95,025 | $(23,299) | | **Net cash used in investing activities** | $(2,086) | $(11,796) | | **Net cash used in financing activities** | $(142,989) | $(7,507) | | **Net decrease in cash and cash equivalents** | $(46,498) | $(42,914) | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) The notes detail accounting policies, business combinations, segment data, and a significant litigation settlement - On March 2, 2020, the company acquired Venture Products, Inc for a total consideration of **$163.2 million**, resulting in **$61.2 million in goodwill**[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk) - In January 2021, the company received a **$33.65 million settlement** from Briggs & Stratton Corporation related to a patent infringement lawsuit[68](index=68&type=chunk)[69](index=69&type=chunk) - The company uses forward currency contracts to hedge foreign currency risk, with a notional amount of **$259.9 million** in outstanding contracts as of January 29, 2021[76](index=76&type=chunk)[78](index=78&type=chunk)[84](index=84&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes Q1 2021 performance, highlighting a 13.7% sales increase driven by both segments [Company Overview](index=26&type=section&id=Company%20Overview) The company operates through Professional and Residential segments, noting COVID-19 impacts and the Venture Products acquisition - The company's operations are classified into two reportable segments: **Professional and Residential**[102](index=102&type=chunk) - The COVID-19 pandemic has had a material impact, causing **manufacturing cost pressures and inefficiencies**, though operations have continued as an essential business[105](index=105&type=chunk)[107](index=107&type=chunk) - The acquisition of Venture Products on March 2, 2020, broadened and strengthened the **Professional segment's product offerings** and dealer network[104](index=104&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Q1 net sales grew 13.7% to $873.0 million, though gross margin declined to 36.1% due to cost pressures Q1 2021 vs Q1 2020 Results of Operations | Metric | Q1 2021 | Q1 2020 | % Change | | :--- | :--- | :--- | :--- | | **Net Sales** | $873.0M | $767.5M | +13.7% | | **Gross Profit** | $315.0M | $288.1M | +9.4% | | **Gross Margin** | 36.1% | 37.5% | -140 bps | | **Operating Earnings** | 16.2% of sales | 11.9% of sales | +430 bps | | **Net Earnings** | $111.3M | $70.1M | +58.8% | | **Diluted EPS** | $1.02 | $0.65 | +56.9% | - The decrease in gross margin was primarily due to **manufacturing cost pressures and unfavorable product mix**, partially offset by productivity initiatives and net price realization[120](index=120&type=chunk) - SG&A expense decreased as a percentage of sales due to leveraging higher sales volumes, a **favorable net legal settlement** with Briggs & Stratton, and reduced travel and marketing costs[122](index=122&type=chunk) [Business Segments](index=30&type=section&id=Business%20Segments) Both Professional and Residential segments reported strong sales growth of 9.3% and 31.3%, respectively Segment Net Sales (Q1 2021 vs Q1 2020) (in thousands) | Segment | Q1 2021 Net Sales | Q1 2020 Net Sales | % Change | | :--- | :--- | :--- | :--- | | **Professional** | $650,223 | $594,721 | +9.3% | | **Residential** | $217,700 | $165,848 | +31.3% | Segment Earnings (Q1 2021 vs Q1 2020) (in thousands) | Segment | Q1 2021 Earnings | Q1 2020 Earnings | % Change | | :--- | :--- | :--- | :--- | | **Professional** | $116,816 | $102,474 | +14.0% | | **Residential** | $32,108 | $21,566 | +48.9% | [Financial Position, Liquidity, and Capital Resources](index=32&type=section&id=Financial%20Position) The company maintained a strong liquidity position, improved operating cash flow, and returned capital to shareholders - Cash provided by operating activities increased to **$95.0 million** from a use of $23.3 million in the prior year, driven by higher net earnings and lower cash used for inventory[138](index=138&type=chunk) - Inventory levels **decreased by $63.7 million (8.6%)** compared to the prior year due to strong product demand[137](index=137&type=chunk) - The company **repaid the remaining $90.0 million** outstanding on its $190.0 million term loan during the quarter[153](index=153&type=chunk) - The company **resumed share repurchases**, buying back 332,878 shares, and paid a cash dividend of $0.2625 per share, a 5.0% increase[161](index=161&type=chunk)[162](index=162&type=chunk) [Non-GAAP Financial Measures](index=38&type=section&id=Non-GAAP%20Financial%20Measures) The company provides a reconciliation of GAAP to non-GAAP measures, adjusting for litigation and tax impacts GAAP to Non-GAAP Reconciliation Summary (Q1 2021) | Metric | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | **Net Earnings** | $111.3M | $(18.0M) | $93.2M | | **Diluted EPS** | $1.02 | $(0.17) | $0.85 | [Quantitative and Qualitative Disclosures about Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is exposed to market risks from foreign currency, interest rates, and commodity costs - The company is exposed to foreign currency risk, primarily with the Euro, Australian dollar, Canadian dollar, and British pound, and **uses derivative instruments to hedge** these exposures[184](index=184&type=chunk)[185](index=185&type=chunk) - As of January 29, 2021, the company had **$280.0 million of gross LIBOR-based borrowings**, exposing it to interest rate fluctuations[187](index=187&type=chunk) - The company faces commodity cost risk for key materials and anticipates that the **average cost of commodities will be higher** for the remainder of fiscal 2021 compared to fiscal 2020[189](index=189&type=chunk)[190](index=190&type=chunk) [Controls and Procedures](index=45&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of the quarter-end - The CEO and CFO concluded that the company's **disclosure controls and procedures were effective** as of the end of the quarter[192](index=192&type=chunk) - The company is in the process of **integrating internal controls for the Venture Products acquisition**, which was excluded from the current assessment and is expected to be included by October 31, 2021[193](index=193&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) The company references Note 15 for details on material legal proceedings, including a significant settlement - The company refers to Note 15 for a description of its material legal proceedings, including the settlement of the **Briggs & Stratton patent infringement case**[197](index=197&type=chunk) [Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported since the last Annual Report on Form 10-K - There has been **no material change** in the company's risk factors since its last Annual Report on Form 10-K[198](index=198&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 332,878 shares of its common stock during the first quarter of fiscal 2021 Share Repurchases in Q1 2021 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Nov 1 - Dec 4, 2020 | — | $— | | Dec 5 - Jan 1, 2021 | 204,033 | $94.16 | | Jan 2 - Jan 29, 2021 | 130,012 | $94.27 | | **Total** | **334,045** | **$94.20** | - As of January 29, 2021, **6,709,378 shares remained available for repurchase** under the company's Board-authorized program[199](index=199&type=chunk) [Exhibits](index=48&type=section&id=Item%206.%20Exhibits) This section lists filed exhibits, including CEO/CFO certifications and Inline XBRL financial statements - The report includes certifications from the Chief Executive Officer and Chief Financial Officer pursuant to **Sections 302 and 906 of the Sarbanes-Oxley Act of 2002**[200](index=200&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended October 31, 2020 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period from to Commission file number: 1-8649 THE TORO COMPANY 8111 Lyndale Avenue South Bloomington, Minnesota 55420-1196 Telephone Number: (952) 888-8801 (Address, including zip code, a ...

The Toro Company (NYSE:TTC) Q4 2020 Earnings Conference Call December 16, 2020 11:00 AM ET Company Participants Nicholas Rhoads - Managing Director, Investor Relations Rick Olson - Chairman and Chief Executive Officer Renee Peterson - Vice President, Treasurer and Chief Financial Officer Conference Call Participants Mike Shlisky - Colliers Securities Tim Wojs - Robert W. Baird Eric Bosshard - Cleveland Research Sam Darkatsh - Raymond James David MacGregor - Longbow Research Operator Ladies and gentlemen, th ...

The Toro Company THE TORO COMPANY Investor Presentation December 2020 TORO. TRENCOR® UNIQUE Irritrol. POPE SAFE HARBOR • This presentation contains forward-looking statements regarding our business and future financial and operating results made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. • These forward-looking statements are based on management's current assumptions and expectations of future events. Actual events and results may differ from those predic ...

Financial Data and Key Metrics Changes - The company achieved third quarter net sales of $841 million, a 0.3% increase year-over-year, with reported and adjusted EPS at $0.82 compared to $0.56 and $0.83 last year [21][22] - Year-to-date net sales increased by 5.6% to $2.54 billion, with diluted EPS rising to $2.37 from $2.18 in the same period of the previous year [22] - Gross margin for the third quarter was 35%, up 330 basis points year-over-year, while adjusted gross margin decreased by 70 basis points to 35.2% [29][30] Business Line Data and Key Metrics Changes - Residential segment net sales grew by 38.3% to $205 million, driven by strong demand for zero-turn riding and walk power mowers [24] - Professional segment net sales decreased by 7.9% to $623.6 million, impacted by reduced channel demand due to COVID-19 [27] - Residential segment operating earnings increased by 76.7% to $28.5 million, reflecting a 300 basis point increase in operating margin to 13.9% [25][26] Market Data and Key Metrics Changes - The residential segment saw record sales of zero-turn mowers, which doubled in the quarter, while the professional segment showed improved demand in landscape contractor and irrigation markets [14][15] - Improved retail demand reduced field inventory, setting the company up well for preseason shipments [16] Company Strategy and Development Direction - The company launched the Sustainability Endures platform to enhance its commitment to social, environmental, and financial impact [17] - The focus remains on innovation and adapting to changing market dynamics, with a balanced business model to drive growth [19][47] Management's Comments on Operating Environment and Future Outlook - Management noted uncertainty due to COVID-19 but expressed optimism about future growth driven by strong residential demand and recovery in professional markets [41][50] - The company anticipates continued year-over-year growth in the residential market, with professional markets benefiting from a return to normal buying patterns [41] Other Important Information - The company maintained a strong liquidity position of $992 million at the end of the third quarter, with cash and cash equivalents of $394 million [23] - The cash dividend was increased by 11.1% to $0.25 per share, reflecting confidence in the financial position [38] Q&A Session Summary Question: Update on Tractor Supply initiative - Management reported a successful first year with Tractor Supply, with broad-based growth across channels [58][59] Question: Financial strain on professional dealerships - Management indicated that while professional businesses faced challenges, they did not see widespread financial threats, with many dealers utilizing the CARES Act [62] Question: Supply chain issues with engine suppliers - Management acknowledged the situation with Briggs & Stratton but stated that they have multiple engine suppliers and are prepared for 2021 [63][64] Question: Impact of budget constraints on business - Management highlighted potential impacts on municipal budgets affecting maintenance priorities, particularly in golf and parks [94] Question: Inventory levels across segments - Field inventories are below last year, which management views as a success given the circumstances, with plans to build inventory in the fourth quarter [98][101] Question: Capital expenditures focus - Management indicated that CapEx is focused on productivity, cost reduction, and new product development [105][107]

Financial Performance & Strategy - The Toro Company's F'19 revenues reached $3.1 billion[13] - The company aims for mid-single-digit organic growth annually, focusing on market share and margin expansion[66] - The company targets a debt-to-EBITDA ratio of 1-2x, balancing operating needs with shareholder returns[52] - The company's investment in Research & Engineering is sustained at 3%+ of net sales[48] Segment Breakdown (F'19) - Professional segment accounted for 78% of revenues, with sales of $2.443 billion and segment earnings of 15.6%[14, 15] - Residential segment contributed 21% of revenues, with sales of $661 million and segment earnings of 9.9%[14, 15] - Equipment makes up 88% of product type revenue, while Irrigation accounts for 12%[16] - United States represents 77% of the geographic market, with International at 23%[17] Fiscal Year 2020 Results (Year-to-Date) - Net sales reached $2.5379 billion, a 5.6% increase from F'19 YTD[37] - Gross profit was $889.4 million, up 10.8% from F'19 YTD, with a gross margin of 35.0%[37] - Operating earnings were $332.9 million, an 18.2% increase from F'19 YTD, resulting in an operating earnings margin of 13.1%[37]

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements for The Toro Company, including statements of earnings, balance sheets, cash flows, and detailed notes [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for The Toro Company for the quarterly period ended July 31, 2020 [Condensed Consolidated Statements of Earnings](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings) For Q3 2020, net sales remained flat at **$841.0 million**, while net earnings significantly increased to **$89.0 million** from **$60.6 million** year-over-year Condensed Consolidated Statements of Earnings (Unaudited) | (In thousands, except per share data) | Three Months Ended July 31, 2020 | Three Months Ended August 2, 2019 | Nine Months Ended July 31, 2020 | Nine Months Ended August 2, 2019 | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $840,972 | $838,713 | $2,537,853 | $2,403,705 | | **Gross profit** | $294,574 | $265,981 | $889,379 | $802,896 | | **Operating earnings** | $115,952 | $73,944 | $332,876 | $281,723 | | **Net earnings** | $88,968 | $60,607 | $257,505 | $235,717 | | **Diluted net earnings per share** | $0.82 | $0.56 | $2.37 | $2.18 | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of July 31, 2020, total assets increased to **$2.81 billion** from **$2.31 billion** a year prior, driven by higher cash and acquisitions Condensed Consolidated Balance Sheets (Unaudited) | (In thousands) | July 31, 2020 | August 2, 2019 | October 31, 2019 | | :--- | :--- | :--- | :--- | | **Total current assets** | $1,384,246 | $1,130,403 | $1,122,891 | | **Total assets** | $2,813,863 | $2,309,733 | $2,330,547 | | **Total current liabilities** | $797,112 | $756,403 | $756,970 | | **Total liabilities** | $1,759,831 | $1,465,911 | $1,470,969 | | **Total stockholders' equity** | $1,054,032 | $843,822 | $859,578 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended July 31, 2020, net cash from operating activities increased to **$305.9 million**, with cash at period-end reaching **$394.1 million** Condensed Consolidated Statements of Cash Flows (Unaudited) | (In thousands) | Nine Months Ended July 31, 2020 | Nine Months Ended August 2, 2019 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $305,876 | $259,113 | | **Net cash used in investing activities** | ($184,648) | ($744,137) | | **Net cash provided by financing activities** | $119,154 | $339,798 | | **Net increase (decrease) in cash** | $242,313 | ($145,807) | | **Cash and cash equivalents at end of period** | $394,141 | $143,317 | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations for the financial statements, covering accounting policies, acquisitions, segment data, and the impact of COVID-19 - The COVID-19 pandemic has materially impacted the company, creating uncertainty that could affect future accounting estimates, financial position, and results of operations[19](index=19&type=chunk) - The company adopted the new lease accounting standard (ASU 2016-02) on November 1, 2019, recognizing **$78.1 million** of right-of-use assets and **$77.1 million** of lease liabilities[22](index=22&type=chunk)[23](index=23&type=chunk)[25](index=25&type=chunk) - On March 2, 2020, the company acquired Venture Products for **$163.2 million**, funded by borrowings, to strengthen the Professional segment[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) - On April 1, 2019, the company acquired The Charles Machine Works, Inc. (CMW) for **$685.0 million** to broaden its Professional segment product portfolio[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=45&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and the impact of COVID-19 and recent acquisitions [Company Overview](index=45&type=section&id=Company%20Overview) The Toro Company designs, manufactures, and markets products for professional and residential customers, with recent acquisitions and significant COVID-19 impacts - The company's main focus during the COVID-19 pandemic has been employee health and safety, leading to rigorous safety measures like social distancing and remote work[140](index=140&type=chunk) - COVID-19 caused manufacturing inefficiencies and intermittent facility closures, adversely impacting gross margins, with softer demand in the Professional segment but strong retail demand in the Residential segment[141](index=141&type=chunk)[142](index=142&type=chunk) - To mitigate COVID-19's financial impact, the company implemented cost reduction measures, including salary reductions, spending cuts, and a hiring freeze, while managing working capital[144](index=144&type=chunk) - Due to ongoing COVID-19 uncertainty, the company withdrew its fiscal 2020 financial guidance and does not expect to meet its "Vision 2020" operating earnings goal of **$485.0 million**[145](index=145&type=chunk)[155](index=155&type=chunk) [Results of Operations](index=49&type=section&id=Results%20of%20Operations) For Q3 2020, consolidated net sales were flat at **$841.0 million**, while YTD sales grew **5.6%** to **$2.54 billion**, driven by acquisitions and strong Residential demand Key Operating Metrics as a Percentage of Net Sales | | Three Months Ended July 31, 2020 | Three Months Ended August 2, 2019 | Nine Months Ended July 31, 2020 | Nine Months Ended August 2, 2019 | | :--- | :--- | :--- | :--- | :--- | | **Gross profit** | 35.0% | 31.7% | 35.0% | 33.4% | | **Operating earnings** | 13.8% | 8.8% | 13.1% | 11.7% | | **Net earnings** | 10.6% | 7.2% | 10.1% | 9.8% | - Q3 2020 gross margin increased by **330 basis points** to **35.0%**, driven by lower purchase accounting charges, favorable net price realization, and productivity initiatives, partially offset by COVID-19 related manufacturing variances and product mix[161](index=161&type=chunk) - SG&A expense decreased **7.0%** in Q3 2020, primarily due to COVID-19 related cost reduction measures and lower acquisition-related costs[165](index=165&type=chunk) - The effective tax rate for Q3 2020 was **19.8%**, up from **14.9%** in Q3 2019, due to lower discrete tax benefits, including from share-based compensation[168](index=168&type=chunk) [Business Segments](index=54&type=section&id=Business%20Segments) The Professional segment saw a **7.9%** sales decline in Q3 2020, while the Residential segment experienced a significant **38.3%** sales increase Net Sales by Segment (Q3) | (In thousands) | July 31, 2020 | August 2, 2019 | % Change | | :--- | :--- | :--- | :--- | | **Professional** | $623,615 | $676,756 | (7.9)% | | **Residential** | $204,961 | $148,234 | 38.3% | Segment Earnings (Q3) | (In thousands) | July 31, 2020 | August 2, 2019 | % Change | | :--- | :--- | :--- | :--- | | **Professional** | $113,652 | $81,592 | 39.3% | | **Residential** | $28,545 | $16,151 | 76.7% | - Professional segment sales decreased in Q3 due to reduced demand from channel partners in golf, rental, and construction markets as a result of COVID-19, partially offset by the Venture Products acquisition[177](index=177&type=chunk) - Residential segment sales surged in Q3 due to strong retail demand for mowers, driven by favorable weather, new products, customer focus on home care during COVID-19, and an expanded mass retail channel[181](index=181&type=chunk) [Financial Position](index=57&type=section&id=Financial%20Position) The company maintained a strong financial position with available liquidity of **$992.1 million** as of July 31, 2020, and improved cash from operations - Working capital changes reflect COVID-19 impacts: accounts receivable decreased **5.6%** year-over-year due to lower sales in certain professional channels, while inventory increased **5.7%** year-over-year due to acquisitions and reduced demand in the Professional segment[187](index=187&type=chunk) - Cash provided by operating activities increased to **$305.9 million** for the first nine months of fiscal 2020, up from **$259.1 million** in the prior year, mainly due to better management of inventory purchases and accounts receivable[188](index=188&type=chunk) - The company enhanced its liquidity position in response to COVID-19 by refinancing debt with a new **$190.0 million** term loan, reducing capital expenditures, and curtailing share repurchases, with total available liquidity of approximately **$992.1 million** as of July 31, 2020[191](index=191&type=chunk)[144](index=144&type=chunk) - The company amended its Red Iron joint venture agreement, extending the term to 2026 and increasing the credit facility to **$625 million**[213](index=213&type=chunk) [Non-GAAP Financial Measures](index=64&type=section&id=Non-GAAP%20Financial%20Measures) The company provides non-GAAP financial measures to offer supplemental information on its core operational performance by excluding certain non-recurring items - Non-GAAP measures are used by management to make operating decisions and facilitate internal and competitor comparisons by excluding charges not related to regular, ongoing business[220](index=220&type=chunk) Reconciliation of GAAP to Non-GAAP Net Earnings (Q3) | (In thousands) | Three Months Ended July 31, 2020 | Three Months Ended August 2, 2019 | | :--- | :--- | :--- | | **Net earnings (GAAP)** | **$88,968** | **$60,607** | | Acquisition-related costs | $924 | $23,953 | | Management actions | $0 | $7,351 | | Tax impact of share-based compensation | ($1,173) | ($1,200) | | U.S. Tax Reform | $0 | ($926) | | **Non-GAAP net earnings** | **$88,719** | **$89,785** | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=71&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is exposed to market risks from foreign currency exchange rates, interest rates, and commodity costs, which are actively managed - The company actively manages foreign currency exchange rate risk (exposures to EUR, AUD, CAD, etc.) by using derivative instruments, primarily forward currency contracts, to hedge transactions[243](index=243&type=chunk)[244](index=244&type=chunk) - As of July 31, 2020, the company had **$470.0 million** of LIBOR-based variable-rate debt and **$424.0 million** of fixed-rate debt, exposing it to fluctuations in interest rates[247](index=247&type=chunk) - The company faces commodity cost risk for materials like steel, aluminum, and engines, mitigating this through supplier collaboration, alternative sourcing, and price adjustments, with expected lower average costs for the remainder of fiscal 2020[248](index=248&type=chunk)[249](index=249&type=chunk) [Item 4. Controls and Procedures](index=72&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of July 31, 2020, with ongoing integration of internal controls for recent acquisitions - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[251](index=251&type=chunk) - The company is integrating internal controls for the Venture Products acquisition (expected completion in fiscal 2021) and has substantially completed the integration for the CMW acquisition, which will be included in the year-end assessment[252](index=252&type=chunk)[253](index=253&type=chunk) [PART II. OTHER INFORMATION](index=74&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, updated risk factors, equity security sales, and exhibits filed with the Form 10-Q [Item 1. Legal Proceedings](index=74&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings in the ordinary course of business, which management believes will not materially affect its financial condition - The company is party to ordinary course litigation, including claims related to product liability, asbestos, environmental issues, and patents, with management not expecting these proceedings to materially affect its financial results[256](index=256&type=chunk) [Item 1A. Risk Factors](index=74&type=section&id=Item%201A.%20Risk%20Factors) This section highlights two new risk factors: the material adverse impacts of the COVID-19 pandemic and challenges associated with the Venture Products acquisition - A new risk factor details the material adverse impact of COVID-19, which has caused significant volatility, disruption, and weakened economic conditions, affecting demand, supply chains, and operations[258](index=258&type=chunk)[259](index=259&type=chunk) - A new risk factor was added concerning the acquisition of Venture Products, highlighting risks such as integration challenges, potential loss of key employees or customers, and the financial burden of increased debt[262](index=262&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=76&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q3 2020, the company did not repurchase shares under its publicly announced program, with a small number purchased for deferred compensation plans Issuer Purchases of Equity Securities (Q3 2020) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased As Part of Publicly Announced Plans | Maximum Number of Shares that May Yet Be Purchased Under the Plans | | :--- | :--- | :--- | :--- | :--- | | May 2 - May 29, 2020 | — | $ — | — | 7,042,256 | | May 30 - July 3, 2020 | — | $ — | — | 7,042,256 | | July 4 - July 31, 2020 | 1,704 | $64.92 | — | 7,042,256 | | **Total** | **1,704** | **$64.92** | **—** | | - No shares were repurchased under the company's authorized stock repurchase program during the third quarter of fiscal 2020[263](index=263&type=chunk) [Item 6. Exhibits](index=77&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements in Inline XBRL format - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906[266](index=266&type=chunk) - Financial statements and notes are provided in Inline eXtensible Business Reporting Language (Inline XBRL) format[266](index=266&type=chunk) [Signatures](index=78&type=section&id=Signatures) The report is duly signed on September 3, 2020, by Renee J. Peterson, Vice President, Treasurer and Chief Financial Officer - The Form 10-Q was signed on September 3, 2020, by the company's CFO, Renee J. Peterson[268](index=268&type=chunk)[270](index=270&type=chunk)