Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

ý☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended February 2, 2018April 30, 2021

o☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period fromto
Commission File Number: 1-8649

THE TORO COMPANY
(Exact name of registrant as specified in its charter)
Delaware1-864941-0580470
(State or Other Jurisdiction of Incorporation)
Incorporation or Organization		(Commission File Number)(I.R.S. Employer Identification Number)No.


8111 Lyndale Avenue South
Bloomington, Minnesota 5542055420-1196
Telephone Number: (952) 888-8801
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $1.00 per shareTTCNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý☒  No  o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ý☒  No  o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
(Do not check if a smaller reporting company)
Emerging growth companyo
☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o☐  No  ý☒

The number of shares of the registrant’s common stock outstanding as of March 2, 2018May 27, 2021 was 106,020,302.
107,063,422.


Table of Contents
THE TORO COMPANY
INDEX TO FORM 10-Q
TABLE OF CONTENTS
DescriptionPage Number
Condensed Consolidated Statements of Earnings (Unaudited)
3
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
3
Condensed Consolidated Balance Sheets (Unaudited(Unaudited))
4
Condensed Consolidated Statements of Cash Flows (Unaudited)
5
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
6
Notes to Condensed Consolidated Financial Statements (Unaudited)
67
1927
Company Overview
27
Results of Operations
30
Business Segments
33
Financial Position
36
Non-GAAP Financial Measures
39
Critical Accounting Policies and Estimates
41
Forward-Looking Information
41
3045
3146
3248
3248
3348
3449
3550



2
Table of Contents
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Unaudited)
(Dollars and shares in thousands, except per share data)
 Three Months EndedSix Months Ended
April 30, 2021May 1, 2020April 30, 2021May 1, 2020
Net sales$1,149,107 $929,398 $2,022,093 $1,696,881 
Cost of sales746,154 622,681 1,304,104 1,102,076 
Gross profit402,953 306,717 717,989 594,805 
Selling, general and administrative expense222,237 180,922 395,808 377,881 
Operating earnings180,716 125,795 322,181 216,924 
Interest expense(7,124)(8,659)(14,646)(16,815)
Other income, net3,651 4,235 5,534 7,401 
Earnings before income taxes177,243 121,371 313,069 207,510 
Provision for income taxes35,072 22,925 59,617 38,973 
Net earnings$142,171 $98,446 $253,452 $168,537 
Basic net earnings per share of common stock$1.32 $0.92 $2.35 $1.57 
Diluted net earnings per share of common stock$1.31 $0.91 $2.32 $1.55 
Weighted-average number of shares of common stock outstanding — Basic107,753 107,552 107,937 107,487 
Weighted-average number of shares of common stock outstanding — Diluted108,898 108,500 109,052 108,581 
  Three Months Ended
  February 2,
2018		 February 3,
2017
Net sales $548,246
 $515,839
Cost of sales 344,007
 322,359
Gross profit 204,239
 193,480
Selling, general and administrative expense 137,317
 132,910
Operating earnings 66,922
 60,570
Interest expense (4,818) (4,883)
Other income, net 4,281
 3,866
Earnings before income taxes 66,385
 59,553
Provision for income taxes 43,781
 14,563
Net earnings $22,604
 $44,990
     
Basic net earnings per share of common stock $0.21
 $0.41
     
Diluted net earnings per share of common stock $0.21
 $0.41
     
Weighted-average number of shares of common stock outstanding — Basic 107,225
 108,627
     
Weighted-average number of shares of common stock outstanding — Diluted 109,855
 110,774


See accompanying Notes to Condensed Consolidated Financial Statements.





THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in thousands)
 Three Months EndedSix Months Ended
April 30, 2021May 1, 2020April 30, 2021May 1, 2020
Net earnings$142,171 $98,446 $253,452 $168,537 
Other comprehensive income (loss), net of tax: 
Foreign currency translation adjustments1,603 (5,167)11,999 (5,891)
Derivative instruments, net of tax of $291; $843; $(2,500); and $1,032, respectively1,161 2,674 (7,149)3,326 
Pension benefits0 912 0 912 
Other comprehensive income (loss), net of tax2,764 (1,581)4,850 (1,653)
Comprehensive income$144,935 $96,865 $258,302 $166,884 
  Three Months Ended
  February 2,
2018		 February 3,
2017
Net earnings $22,604
 $44,990
Other comprehensive income (loss), net of tax:    
Foreign currency translation adjustments 10,872
 117
Derivative instruments, net of tax of $(579) and $285, respectively (2,779) 221
Other comprehensive income, net of tax 8,093
 338
Comprehensive income $30,697
 $45,328


See accompanying Notes to Condensed Consolidated Financial Statements.

3

Table of Contents
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands, except per share data)
April 30, 2021May 1, 2020October 31, 2020
ASSETS   
Cash and cash equivalents$497,635 $200,004 $479,892 
Receivables, net391,236 400,444 261,135 
Inventories, net628,811 714,167 652,433 
Prepaid expenses and other current assets41,809 59,938 34,188 
Total current assets1,559,491 1,374,553 1,427,648 
Property, plant, and equipment, net453,548 453,761 467,919 
Goodwill422,250 426,175 424,075 
Other intangible assets, net432,929 417,886 408,305 
Right-of-use assets73,774 84,091 78,752 
Investment in finance affiliate25,295 27,836 19,745 
Deferred income taxes9,183 4,597 6,466 
Other assets19,639 22,576 20,318 
Total assets$2,996,109 $2,811,475 $2,853,228 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current portion of long-term debt$99,959 $99,868 $99,873 
Accounts payable421,738 327,354 363,953 
Accrued liabilities451,585 414,499 376,524 
Short-term lease liabilities15,622 14,012 15,447 
Total current liabilities988,904 855,733 855,797 
Long-term debt, less current portion591,496 790,908 691,250 
Long-term lease liabilities61,314 72,228 66,641 
Deferred income taxes74,440 70,755 70,435 
Other long-term liabilities50,538 36,901 54,277 
Stockholders’ equity:   
Preferred stock, par value $1.00 per share, authorized 1,000,000 voting and 850,000 non-voting shares, NaN issued and outstanding0 0 0 
Common stock, par value $1.00 per share, authorized 175,000,000 shares; issued and outstanding 107,042,925 shares as of April 30, 2021, 107,110,815 shares as of May 1, 2020, and 107,582,670 shares as of October 31, 2020107,043 107,111 107,583 
Retained earnings1,151,786 911,541 1,041,507 
Accumulated other comprehensive loss(29,412)(33,702)(34,262)
Total stockholders’ equity1,229,417 984,950 1,114,828 
Total liabilities and stockholders’ equity$2,996,109 $2,811,475 $2,853,228 
  February 2,
2018		 February 3,
2017		 October 31,
2017
ASSETS  
  
  
Cash and cash equivalents $219,730
 $158,893
 $310,256
Receivables, net 198,736
 183,850
 183,073
Inventories, net 439,343
 402,103
 328,992
Prepaid expenses and other current assets 43,039
 36,470
 37,565
Total current assets 900,848
 781,316
 859,886
       
Property, plant and equipment, gross 883,462
 855,826
 885,614
Less accumulated depreciation 649,014
 628,909
 650,384
Property, plant and equipment, net 234,448
 226,917
 235,230
       
Deferred income taxes 44,752
 56,864
 64,083
Goodwill 205,954
 201,246
 205,029
Other intangible assets, net 102,366
 110,782
 103,743
Other assets 28,438
 25,788
 25,816
Total assets $1,516,806
 $1,402,913
 $1,493,787
       
LIABILITIES AND STOCKHOLDERS’ EQUITY  
  
  
Current portion of long-term debt $13,000
 $22,960
 $26,258
Accounts payable 266,586
 232,440
 211,752
Accrued liabilities 292,903
 263,724
 283,786
Total current liabilities 572,489
 519,124
 521,796
       
Long-term debt, less current portion 302,465
 315,314
 305,629
Deferred revenue 24,731
 25,172
 24,761
Deferred income taxes 1,839
 —
 1,726
Other long-term liabilities 34,501
 30,267
 22,783
       
Stockholders’ equity:  
  
  
Preferred stock, par value $1.00 per share, authorized 1,000,000 voting and 850,000 non-voting shares, none issued and outstanding —
 —
 —
Common stock, par value $1.00 per share, authorized 175,000,000 shares; issued and outstanding 106,434,655 shares as of February 2, 2018, 107,575,440 shares as of February 3, 2017, and 106,882,972 shares as of October 31, 2017 106,435
 107,575
 106,883
Retained earnings 490,373
 443,559
 534,329
Accumulated other comprehensive loss (16,027) (38,098) (24,120)
Total stockholders’ equity 580,781
 513,036
 617,092
Total liabilities and stockholders’ equity $1,516,806
 $1,402,913
 $1,493,787


See accompanying Notes to Condensed Consolidated Financial Statements.

4

Table of Contents
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
 Six Months Ended
April 30, 2021May 1, 2020
Cash flows from operating activities:  
Net earnings$253,452 $168,537 
Adjustments to reconcile net earnings to net cash provided by operating activities:  
Non-cash income from finance affiliate(3,329)(4,010)
(Contributions to) distributions from finance affiliate, net(2,221)322 
Depreciation of property, plant and equipment38,045 35,951 
Amortization of other intangible assets11,134 9,618 
Fair value step-up adjustment to acquired inventory0 2,864 
Stock-based compensation expense10,345 5,367 
Deferred income taxes137 860 
Other(175)374 
Changes in operating assets and liabilities, net of the effect of acquisitions:  
Receivables, net(130,032)(126,639)
Inventories, net18,652 (43,095)
Prepaid expenses and other assets360 (2,870)
Accounts payable, accrued liabilities, deferred revenue and other liabilities122,251 23,606 
Net cash provided by operating activities318,619 70,885 
Cash flows from investing activities:  
Purchases of property, plant and equipment(26,198)(27,167)
Business combinations, net of cash acquired(14,874)(136,431)
Asset acquisitions, net of cash acquired(26,976)0 
Proceeds from asset disposals91 46 
Proceeds from sale of a business18,432 0 
Net cash used in investing activities(49,525)(163,552)
Cash flows from financing activities:  
Borrowings under debt arrangements0 636,025 
Repayments under debt arrangements(100,000)(446,025)
Proceeds from exercise of stock options10,865 8,347 
Payments of withholding taxes for stock awards(1,169)(1,482)
Purchases of TTC common stock(107,152)0 
Dividends paid on TTC common stock(56,602)(53,744)
Net cash (used in) provided by financing activities(254,058)143,121 
Effect of exchange rates on cash and cash equivalents2,707 (2,278)
Net increase in cash and cash equivalents17,743 48,176 
Cash and cash equivalents as of the beginning of the fiscal period479,892 151,828 
Cash and cash equivalents as of the end of the fiscal period$497,635 $200,004 
  Three Months Ended
  February 2,
2018		 February 3,
2017
Cash flows from operating activities:  
  
Net earnings $22,604
 $44,990
Adjustments to reconcile net earnings to net cash provided by operating activities:  
  
Non-cash income from finance affiliate (2,192) (1,943)
Contributions to finance affiliate, net (252) (98)
Provision for depreciation and amortization 15,226
 16,516
Stock-based compensation expense 3,124
 3,618
Deferred income taxes 19,682
 393
Other (26) (98)
Changes in operating assets and liabilities, net of effect of acquisitions:  
  
Receivables, net (12,989) (19,380)
Inventories, net (107,017) (90,560)
Prepaid expenses and other assets (2,588) (4,272)
Accounts payable, accrued liabilities, deferred revenue and other long-term liabilities 72,523
 66,128
Net cash provided by operating activities 8,095
 15,294
     
Cash flows from investing activities:  
  
Purchases of property, plant and equipment (10,784) (11,620)
Acquisition, net of cash acquired —
 (23,882)
Net cash used in investing activities (10,784) (35,502)
     
Cash flows from financing activities:  
  
Payments on long-term debt (18,017) (12,702)
Proceeds from exercise of stock options 4,436
 3,128
Payments of withholding taxes for stock awards (3,077) (2,716)
Purchases of Toro common stock (50,066) (65,002)
Dividends paid on Toro common stock (21,425) (18,994)
Net cash used in financing activities (88,149) (96,286)
     
Effect of exchange rates on cash and cash equivalents 312
 1,832
     
Net decrease in cash and cash equivalents (90,526) (114,662)
Cash and cash equivalents as of the beginning of the fiscal period 310,256
 273,555
Cash and cash equivalents as of the end of the fiscal period $219,730
 $158,893


See accompanying Notes to Condensed Consolidated Financial Statements.

5

Table of Contents
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
(Dollars in thousands, except per share data)
 Common
Stock		Retained
Earnings		Accumulated Other
Comprehensive Loss		Total Stockholders'
Equity
Balance as of January 29, 2021$107,613 $1,104,285 $(32,176)$1,179,722 
Cash dividends paid on common stock - $0.2625 per share— (28,191)— (28,191)
Issuance of 172,284 shares for exercised stock options and vested restricted stock units173 2,978 — 3,151 
Stock-based compensation expense— 5,829 — 5,829 
Purchase of 742,790 shares of common stock(743)(75,286)— (76,029)
Other comprehensive income— — 2,764 2,764 
Net earnings— 142,171 — 142,171 
Balance as of April 30, 2021$107,043 $1,151,786 $(29,412)$1,229,417 
Balance as of October 31, 2020$107,583 $1,041,507 $(34,262)$1,114,828 
Cash dividends paid on common stock - $0.525 per share— (56,602)— (56,602)
Issuance of 523,463 shares for exercised stock options and vested restricted stock units and performance share awards523 8,857 — 9,380 
Stock-based compensation expense— 10,345 — 10,345 
Contribution of 22,700 shares to a deferred compensation trust23 1,462 — 1,485 
Purchase of 1,085,907 shares of common stock(1,086)(107,235)— (108,321)
Other comprehensive income— — 4,850 4,850 
Net earnings— 253,452 — 253,452 
Balance as of April 30, 2021$107,043 $1,151,786 $(29,412)$1,229,417 
Balance as of January 31, 2020$106,977 $837,194 $(32,121)$912,050 
Cash dividends paid on common stock - $0.25 per share— (26,888)— (26,888)
Issuance of 135,414 shares for exercised stock options and vested restricted stock units136 1,501 — 1,637 
Stock-based compensation expense— 1,407 — 1,407 
Purchase of 1,872 shares of common stock(2)(119)— (121)
Other comprehensive loss— — (1,581)(1,581)
Net earnings— 98,446 — 98,446 
Balance as of May 1, 2020$107,111 $911,541 $(33,702)$984,950 
Balance as of October 31, 2019$106,742 $784,885 $(32,049)$859,578 
Cash dividends paid on common stock - $0.50 per share— (53,744)— (53,744)
Issuance of 388,347 shares for exercised stock options and vested restricted stock units and performance share awards389 5,390 — 5,779 
Stock-based compensation expense— 5,367 — 5,367 
Contribution of stock to a deferred compensation trust— 2,568 — 2,568 
Purchase of 19,612 shares of common stock(20)(1,462)— (1,482)
Other comprehensive loss— — (1,653)(1,653)
Net earnings— 168,537 — 168,537 
Balance as of May 1, 2020$107,111 $911,541 $(33,702)$984,950 

See accompanying Notes to Condensed Consolidated Financial Statements.
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Table of Contents
THE TORO COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
February 2, 2018April 30, 2021
 
Note 1 — Basis of Presentation
1Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and notes required by United States ("U.S.") generally accepted accounting principles (“U.S. GAAP”("GAAP") for complete financial statements. Unless the context indicates otherwise, the terms “company,” “Toro,” “we,” “our”"company," "TTC," "we," "our," or “us”"us" refer to The Toro Company and its consolidated subsidiaries. All intercompany accounts and transactions have been eliminated from the unaudited Condensed Consolidated Financial Statements.

In the opinion of management, the unaudited Condensed Consolidated Financial Statements include all adjustments, consisting primarily of recurring accruals, considered necessary for the fair presentation of the company's financial position, resultsConsolidated Financial Position, Results of operations,Operations, and cash flowsCash Flows for the periods presented. SinceDue to seasonality within the company’sindustries in which the company's business is seasonal,operates and the current COVID-19 pandemic, among other factors, operating results for the threesix months ended February 2, 2018April 30, 2021 cannot be annualized to determine the expected results for the fiscal year ending October 31, 2018.2021.

The company’s fiscal year ends on October 31, and quarterly results are reported based on three-month periods that generally end on the Friday closest tothe calendar quarter end. For comparative purposes, however, the company’s second and third quarters always include exactly 13 weeks of results so that the quarter end date for these two quarters is not necessarily the Friday closest to the calendar month end.

For further information regarding the company's basis of presentation, refer to the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in the company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2017.2020. The policies described in that report are used for preparing the company's quarterly reports.reports on Form 10-Q.
Impact of COVID-19 Pandemic
In March 2020, the World Health Organization declared the novel coronavirus ("COVID-19" or "the pandemic") 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 continuing implications of COVID-19 on the company remain uncertain and will depend on certain future developments, including the duration, scope, and severity of the pandemic; its impact on the market demand for the company's products; its impact on the company's employees, customers, and suppliers; the range of government mandated restrictions and other measures; and the success of the deployment of approved COVID-19 vaccines and their effectiveness. This uncertainty could have a material impact on accounting estimates and assumptions utilized to prepare the Condensed Consolidated Financial Statements as of and for the six months ended April 30, 2021 in future reporting periods, which could result in a material adverse impact on the company's Consolidated Financial Position, Results of Operations, and Cash Flows.
Accounting Policies
and Estimates
In preparing the Condensed Consolidated Financial Statements in conformity with U.S. GAAP, management must make decisions that impact the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures, including disclosures of contingent assets and liabilities. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. Estimates are used in determining, among other items, sales promotion and incentive accruals, incentive compensation accruals, income tax accruals, inventory valuation, warranty reserves, earn-out liabilities, allowanceaccruals, allowances for doubtful accounts,current expected credit losses, pension and post-retirement accruals, self-insurance accruals, legal accruals, right-of-use assets and lease liabilities, useful lives for tangible and definite-livedfinite-lived intangible assets, and future cash flows associated with impairment testing for goodwill, indefinite-lived intangible assets and other long-lived assets.assets, and valuations of the assets acquired and liabilities assumed in a business combination, when applicable. These estimates and assumptions are based on management’s best estimates and judgments at the time they are made.made and are generally derived from management's understanding and analysis of the relevant and current circumstances, historical experience, and actuarial and other independent external third-party specialist valuations, when applicable. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors that management believes to be reasonable under the circumstances, including the current economic environment. Management adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with certainty, including those impacted by COVID-19, actual amounts could differ significantly from those estimated at the time the Condensed Consolidated Financial Statements are prepared. Changes in those estimates will be reflected in the Consolidated Financial Statements in future periods.

7
United States Tax Reform

On December 22, 2017, the United States ("U.S.") enacted Public Law No. 115-97 (“Tax Act”), originally introduced as the Tax Cuts and Jobs Act, to significantly modify the Internal Revenue Code. The Tax Act reduced the U.S. federal corporate tax rate from 35.0 percent to 21.0 percent, created a territorial tax system with an exemption for foreign dividends, and imposed a one-time deemed repatriation tax on a U.S. company's historical undistributed earnings and profitsTable of foreign affiliates. The tax rate change is effective January 1, 2018, resulting in a blended statutory tax rate of 23.3 percent for the fiscal year ended October 31, 2018. Among other provisions, the Tax Act also increased expensing for certain business assets, created new taxes on certain foreign sourced earnings, adopted limitations on business interest expense deductions, repealed deductions for income attributable to domestic production activities, and added other anti-base erosion rules. The effective dates for the provisions set forth in the Tax Act vary as to when the provisions will apply to the company.Contents

In response to the Tax Act, the U.S. Securities and Exchange Commission ("SEC") provided guidance by issuing Staff Accounting Bulletin No. 118 (“SAB 118”). SAB 118 allows companies to record provisional amounts during a measurement period with respect to the impacts of the Tax Act for which the accounting requirements under Accounting Standards Codification ("ASC") Topic 740 are not complete, but a reasonable estimate has been determined. The measurement period under SAB 118 ends when

a company has obtained, prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC Topic 740, but cannot exceed one year.

As of the first quarter of fiscal 2018, the company has not completed the accounting for the effects of the Tax Act. However, the company has estimated the impacts of the Tax Act in its annual effective tax rate, and has recorded provisional amounts for the remeasurement of deferred tax assets and liabilities and the deemed repatriation tax.

While we have recorded provisional amounts for the items expected to most significantly impact our financial statements this year, our evaluation is not complete and, accordingly, we have not yet reached a final conclusion on the overall impacts of the Tax Act. The company needs additional time to obtain, prepare, and analyze information related to the applicable provisions of the Tax Act. The actual impact of the Tax Act may differ from the provisional amounts, due to, among other things, changes in interpretations and assumptions the company has made, guidance that may be issued, and changes in the company's structure or business model.

New Accounting Pronouncements Adopted

In July 2015,June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-11, Inventory2016-13, Financial Instruments - Credit Losses (Topic 330)326): Simplifying the Measurement of Inventory. ThisCredit Losses on Financial Instruments, which modifies the measurement approach for credit losses on financial assets measured on an amortized cost basis from an 'incurred loss' method to an 'expected loss' method. Such modification of the measurement approach for credit losses eliminates the requirement that a credit loss be considered probable, or incurred, to impact the valuation of a financial asset measured on an amortized cost basis. The amended guidance changesrequires the measurement principle for inventoryof expected credit losses to be based on relevant information, including historical experience, current conditions, and a reasonable and supportable forecast that affects the collectability of the related financial asset. This amendment affects trade receivables, off-balance-sheet credit exposures, and any other financial assets not excluded from the lowerscope of cost or marketthis amendment that have the contractual right to the lower of cost or net realizable value.receive cash. The amended guidance was adopted in the first quarter of fiscal 2018.2021, under the modified retrospective transition method. The adoption of thisthe amended guidance did not have ana material impact on the company's Condensed Consolidated Financial Statements.

In August 2017,2018, the FASB issued ASU No. 2017-12, 2018-13, Fair Value Measurement (Topic 820) - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The amended guidance was adopted in the first quarter of fiscal 2021 and did not have a material impact on the company's Condensed Consolidated Financial Statements.
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans (Topic 715), which modifies the disclosure requirements for defined benefit pension plans and other post-retirement plans. The amended guidance was adopted in the first quarter of fiscal 2021 and did not have a material impact on the company's Condensed Consolidated Financial Statements.
New Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The amended guidance also clarifies and simplifies other aspects of the accounting for income taxes under accounting standards codification Topic 740, Income Taxes. The amended guidance will become effective for the company in the first quarter of fiscal 2022. Early adoption is permitted. The company is currently evaluating the impact of this new standard on its Condensed Consolidated Financial Statements.
In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amendsclarified that before applying or upon discontinuing the hedgeequity method of accounting recognition, presentation, and effectiveness assessment requirementsfor an investment in ASC Topic 815.equity securities, an entity should consider observable transactions that require it to apply or discontinue the equity method of accounting for the purposes of applying the fair value measurement alternative. The amended guidance will become effective for the company in the first quarter of fiscal 2022. Early adoption is permitted. The company electedis currently evaluating the impact of this standard on its Condensed Consolidated Financial Statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional guidance to early adopt this amendedease the potential burden of accounting for reference rate reform due to the cessation of the London Interbank Offered Rate, commonly referred to as "LIBOR." The temporary guidance using a modified retrospective basis effective November 1, 2017 ("adoption date"). In accordance with the transitionprovides optional expedients and exceptions for applying U.S. GAAP to contracts, relationships, and transactions affected by reference rate reform if certain criteria are met. The provisions of ASU 2017-12, the companytemporary optional guidance are only available until December 31, 2022, when the reference rate reform activity is requiredexpected to eliminatebe substantially complete. When adopted, entities may apply the separate measurement of ineffectiveness for its cash flow hedging instruments existing as of the adoption date through a cumulative effect adjustment to retained earningsprovisions as of the beginning of the fiscal year of adoption.reporting period when the election is made. The company did not record a cumulative effect adjustment to retained earnings to eliminate prior period ineffectiveness amounts recognized in earnings as no such amounts existed withinis currently evaluating the company’s previously issuedimpact of this standard on its Condensed Consolidated Financial Statements.

Statements and has yet to elect an adoption date.
The company believes that all other recently issued accounting pronouncements from the FASB that the company has not noted above, will not have a material impact on its Condensed Consolidated Financial Statements or do not apply to its operations.
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��2The company no longer separately measuresBusiness Combination and recognizes hedge ineffectiveness within the Consolidated Statements of Earnings. Rather, the company recognizes the entire changeAsset Acquisitions
Venture Products, Inc. ("Venture Products")
On March 2, 2020, the company completed its 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 the company's Professional segment and expanded its dealer network. On the closing date of the acquisition, the company paid preliminary merger consideration of $165.9 million, which consisted of a cash payment of $136.4 million ("initial cash payment") and a $29.5 million holdback to satisfy any indemnification or certain other obligations of Venture Products to the company. The preliminary merger consideration was subject to certain customary adjustments, which were finalized during the third quarter of fiscal 2020 and resulted in an aggregate merger consideration of $163.2 million and at such time, $4.5 million of the holdback set aside for such customary adjustments was released accordingly. During the second quarter of fiscal 2021, $14.9 million of the remaining holdback was released and the remaining holdback of $10.0 million is expected to expire throughout the remainder of fiscal 2021. As of the closing date of the acquisition, the company funded the initial cash payment with borrowings under its unsecured senior revolving credit facility.
The company accounted for the acquisition in accordance with the accounting standards codification guidance for business combinations, whereby the purchase price was allocated to the acquired net tangible and intangible assets of Venture Products based on their fair values as of the closing date of the acquisition. Such fair values were based on internal company and independent external third-party valuations. The following table summarizes the allocation of the purchase price to the fair values assigned to the Venture Products assets acquired and liabilities assumed:
(Dollars in thethousands)March 2, 2020
Cash and cash equivalents$3,476 
Receivables6,342 
Inventories23,000 
Prepaid expenses and other current assets239 
Property, plant and equipment26,976 
Goodwill61,225 
Other intangible assets:
Finite-lived customer-related19,100 
Indefinite-lived trade name56,200 
Accounts payable(4,075)
Accrued liabilities(5,196)
Deferred income tax liabilities(20,586)
Total fair value of highly effectivenet assets acquired166,701 
Less: cash flow hedging instruments included in the assessment of hedge effectiveness in other comprehensive income within accumulated other comprehensive loss (“AOCL”) on the Consolidated Balance Sheets. The amounts recorded in AOCL will subsequently be reclassified to net earnings in the Consolidated Statements of Earnings within the same line item as the underlying exposure when the underlying hedged transaction affects net earnings.and cash equivalents acquired(3,476)
Total purchase price$163,225 
The company no longer recognizes amountsgoodwill recognized is primarily attributable to the value of hedgethe workforce, the reputation of Venture Products, expected future cash flows, and expected synergies, including customer and dealer growth opportunities and integrating and expanding existing product lines. Key areas of expected cost synergies include increased purchasing power for commodities, components, excludedparts, and accessories, and supply chain consolidation. The goodwill resulting from the assessment of effectiveness (“excluded components”) within other income, net, but instead, on a prospective basis, recognizes and presents excluded componentsVenture Products acquisition was recognized within the same line itemcompany's Professional segment and is non-deductible for tax purposes. During the first quarter of fiscal 2021, the company completed its valuation of income taxes to finalize the purchase price allocation, which resulted in a decrease to the carrying amount of goodwill of $1.0 million from the amounts reporting within the company's Annual Report on Form 10-K for the fiscal year ended October 31, 2020. Such purchase accounting adjustment did not impact the company's Condensed Consolidated Statements of Earnings asfor the underlying exposure.three and six month periods ended April 30, 2021.
The company electedallocation of the purchase price to not change its policythe net assets acquired resulted in the recognition of $75.3 million of other intangible assets as of the closing date of the acquisition. The fair values of the acquired trade name and customer-related intangible assets were determined using the income approach whereby an intangible asset's fair value is equal to the present value of future economic benefits to be derived from ownership of the asset. The useful lives of the other intangible assets were determined based on accounting for excluded components and will continuethe period of expected cash flows used to recognize changes inmeasure the fair value of excluded components currently in netthe intangible assets adjusted as appropriate for entity-specific factors including legal, regulatory, contractual, competitive, economic, and/or other factors that may limit the useful life of the respective intangible asset. The fair value of the indefinite-lived trade name was determined using the relief from royalty method, which is based on the hypothetical royalty stream that would be received if the company were to license the trade name and was based on expected future revenues. The fair value of the customer-related intangible asset was
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determined using the excess earnings undermethod and was based on the mark-to-market approach.

In addition, certain provisions in the amended guidance require modification to existing disclosure requirements on a prospective basis. Refer to Note 12, Derivative Instruments and Hedging Activities, for disclosures relatingexpected operating cash flows attributable to the company's derivative instrumentscustomer-related intangible asset, which was determined by deducting expected economic costs, including operating expenses and hedging activities.contributory asset charges, from the revenue expected to be generated from the customer-related intangible asset. As of the closing date of the acquisition, the weighted-average useful life of the customer-related intangible asset was determined to be 16.0 years.

Note 2 — Acquisition

Asset Acquisitions
Effective January 1, 2017,November 4, 2020, during the first quarter of fiscal 2017,2021, the company completed the acquisition of allTurflynx, Lda, a developer of innovative autonomous solutions for turf management and effective March 1, 2021, during the outstanding sharessecond quarter of Regnerbau Calw GmbH ("Perrot")fiscal 2021, the company completed the acquisition of Left Hand Robotics, Inc., a privately held manufacturerdeveloper of professional irrigation equipment. The additioninnovative autonomous solutions for turf and snow management. These acquisitions support the development of alternative power, smart-connected, and autonomous products within the company's Professional and Residential segments. Neither of these products broadened and strengthenedacquisitions met the company's irrigation solutions fordefinition of a business combination as substantially all of the sport, agricultural, and industrial markets. Thefair value of the gross assets acquired in each acquisition was funded with existing foreign cashconcentrated in the respective finite-lived developed technology other intangible asset and cash equivalents. Theas a result, the company accounted for each of these transactions as an asset acquisition. In an asset acquisition, goodwill is not recognized, but rather, any excess purchase priceconsideration over the fair value of this acquisition wasthe net assets acquired is allocated on a relative fair value basis to the identifiable net assets acquiredas of the acquisition date and liabilities assumedany direct acquisition-related transaction costs are capitalized as part of the purchase consideration. These asset acquisitions were immaterial in relation to the company's Consolidated Financial Condition and Results of Operations and as a result, additional purchase accounting disclosures have been omitted.
3Segment Data
The company's businesses are organized, managed, and internally grouped into segments based on estimatessimilarities in products and services. Segment selection is based on the manner in which management organizes segments for making operating and investment decisions and assessing performance. The company has identified 11 operating segments and has aggregated certain of those segments into 2 reportable segments: Professional and Residential. The aggregation of the company's segments is based on the segments having the following similarities: economic characteristics, types of products and services, types of production processes, type or class of customers, and method of distribution. The company's remaining activities are presented as "Other" due to their fair value,insignificance. As further described in Note 7, Divestiture, 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 and six month periods ended April 30, 2021, the company's Other activities consisted of the company's wholly-owned domestic distribution company, the company's corporate activities, and the elimination of intersegment revenues and expenses. For the three and six month periods ended May 1, 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.
The following tables present summarized financial information concerning the company’s reportable segments and Other activities (in thousands):
Three Months Ended April 30, 2021ProfessionalResidentialOtherTotal
Net sales$828,358 $315,035 $5,714 $1,149,107 
Intersegment gross sales (eliminations)9,151 10 (9,161)— 
Earnings (loss) before income taxes$167,132 $45,986 $(35,875)$177,243 
Six Months Ended April 30, 2021ProfessionalResidentialOtherTotal
Net sales$1,478,581 $532,735 $10,777 $2,022,093 
Intersegment gross sales (eliminations)15,793 26 (15,819)— 
Earnings (loss) before income taxes283,948 78,094 (48,973)313,069 
Total assets$1,980,708 $365,040 $650,361 $2,996,109 
Three Months Ended May 1, 2020ProfessionalResidentialOtherTotal
Net sales$661,087 $261,998 $6,313 $929,398 
Intersegment gross sales (eliminations)16,642 34 (16,676)— 
Earnings (loss) before income taxes$106,259 $37,122 $(22,010)$121,371 
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Six Months Ended May 1, 2020ProfessionalResidentialOtherTotal
Net sales$1,255,808 $427,846 $13,227 $1,696,881 
Intersegment gross sales (eliminations)25,413 61 (25,474)— 
Earnings (loss) before income taxes208,733 58,688 (59,911)207,510 
Total assets$2,052,529 $328,068 $430,878 $2,811,475 
The following table presents the details of operating loss before income taxes for the company's Other activities:
 Three Months EndedSix Months Ended
(Dollars in thousands)April 30, 2021May 1, 2020April 30, 2021May 1, 2020
Corporate expenses$(33,714)$(15,441)$(45,017)$(47,883)
Interest expense(7,124)(8,659)(14,646)(16,815)
Earnings from wholly-owned domestic distribution companies and other income, net4,963 2,090 10,690 4,787 
Total operating loss$(35,875)$(22,010)$(48,973)$(59,911)
4Revenue
The following tables disaggregate the company's reportable segment net sales by major product type and geographic market (in thousands):
Three Months Ended April 30, 2021ProfessionalResidentialOtherTotal
Revenue by product type:    
Equipment$706,341 $308,649 $4,330 $1,019,320 
Irrigation122,017 6,386 1,384 129,787 
Total net sales$828,358 $315,035 $5,714 $1,149,107 
Revenue by geographic market: 
United States$620,205 $267,613 $5,714 $893,532 
International Countries208,153 47,422 0 255,575 
Total net sales$828,358 $315,035 $5,714 $1,149,107 
Six Months Ended April 30, 2021ProfessionalResidentialOtherTotal
Revenue by product type:    
Equipment$1,282,116 $514,572 $8,272 $1,804,960 
Irrigation196,465 18,163 2,505 217,133 
Total net sales$1,478,581 $532,735 $10,777 $2,022,093 
Revenue by geographic market: 
United States$1,122,065 $441,995 $10,777 $1,574,837 
International Countries356,516 90,740 0 447,256 
Total net sales$1,478,581 $532,735 $10,777 $2,022,093 
Three Months Ended May 1, 2020ProfessionalResidentialOtherTotal
Revenue by product type:    
Equipment$569,143 $257,400 $3,835 $830,378 
Irrigation91,944 4,598 2,478 99,020 
Total net sales$661,087 $261,998 $6,313 $929,398 
Revenue by geographic market: 
United States$509,277 $231,764 $6,313 $747,354 
International Countries151,810 30,234 0 182,044 
Total net sales$661,087 $261,998 $6,313 $929,398 
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Six Months Ended May 1, 2020ProfessionalResidentialOtherTotal
Revenue by product type:    
Equipment$1,093,052 $409,858 $9,360 $1,512,270 
Irrigation162,756 17,988 3,867 184,611 
Total net sales$1,255,808 $427,846 $13,227 $1,696,881 
Revenue by geographic market: 
United States$963,565 $362,102 $13,227 $1,338,894 
International Countries292,243 65,744 0 357,987 
Total net sales$1,255,808 $427,846 $13,227 $1,696,881 
Contract Liabilities
Contract liabilities relate to deferred revenue recognized for cash consideration received at contract inception in advance of the company's performance under the respective contract and generally relate to the sale of separately priced extended warranty contracts, service contracts, and non-refundable customer deposits. The company recognizes revenue over the term of the contract in proportion to the costs expected to be incurred in satisfying the performance obligations under the separately priced extended warranty and service contracts. For non-refundable customer deposits, the company recognizes revenue as of the point in time in which the performance obligation has been satisfied under the contract with the excess purchase price recordedcustomer, which typically occurs upon change in control at the time a product is shipped. As of April 30, 2021 and October 31, 2020, $23.7 million and $21.9 million, respectively, of deferred revenue associated with outstanding separately priced extended warranty contracts, service contracts, and non-refundable customer deposits was reported within accrued liabilities and other long-term liabilities in the Condensed Consolidated Balance Sheets. For the three and six months ended April 30, 2021, the company recognized $2.3 million and $4.8 million, respectively, of the October 31, 2020 deferred revenue balance within net sales in the Condensed Consolidated Statements of Earnings. The company expects to recognize approximately $5.2 million of the October 31, 2020 deferred revenue amount within net sales throughout the remainder of fiscal 2021, $6.9 million in fiscal 2022, and $5.0 million thereafter.
5Goodwill and Other Intangible Assets, Net
Goodwill
The changes in the carrying amount of goodwill by reportable segment for the first six months of fiscal 2021 were as goodwill. This acquisitionfollows:
(Dollars in thousands)ProfessionalResidentialOtherTotal
Balance as of October 31, 2020$412,061 $10,480 $1,534 $424,075 
Purchase price allocation adjustment(1,027)0 0 (1,027)
Goodwill divested0 0 (1,534)(1,534)
Translation adjustments568 168 0 736 
Balance as of April 30, 2021$411,602 $10,648 $0 $422,250 
Other Intangible Assets, Net
The components of other intangible assets, net as of April 30, 2021, May 1, 2020, and October 31, 2020 were as follows (in thousands):
April 30, 2021Weighted-Average Useful Life in YearsGross Carrying AmountAccumulated AmortizationNet
Patents9.9$18,276 $(14,304)$3,972 
Non-compete agreements5.56,908 (6,856)52 
Customer-related18.2239,838 (55,407)184,431 
Developed technology7.087,551 (38,535)49,016 
Trade names15.37,563 (2,792)4,771 
Backlog and other0.64,390 (4,390)0 
Total finite-lived14.6364,526 (122,284)242,242 
Indefinite-lived - trade names190,687 — 190,687 
Total other intangible assets, net$555,213 $(122,284)$432,929 
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May 1, 2020Weighted-Average Useful Life in YearsGross Carrying AmountAccumulated AmortizationNet
Patents9.9$18,227 $(13,494)$4,733 
Non-compete agreements5.56,865 (6,794)71 
Customer-related18.2239,383 (40,555)198,828 
Developed technology7.651,854 (33,199)18,655 
Trade names15.47,476 (2,304)5,172 
Backlog and other0.64,390 (4,390)0 
Total finite-lived15.5328,195 (100,736)227,459 
Indefinite-lived - trade names190,427 — 190,427 
Total other intangible assets, net$518,622 $(100,736)$417,886 
October 31, 2020Weighted-Average Useful Life in YearsGross Carrying AmountAccumulated AmortizationNet
Patents9.9$18,257 $(13,919)$4,338 
Non-compete agreements5.56,892 (6,831)61 
Customer-related18.2239,634 (48,005)191,629 
Developed technology7.651,995 (35,208)16,787 
Trade names15.47,530 (2,552)4,978 
Backlog and other0.64,390 (4,390)0 
Total finite-lived15.5328,698 (110,905)217,793 
Indefinite-lived - trade names190,512 — 190,512 
Total other intangible assets, net$519,210 $(110,905)$408,305 
For the three and six months ended April 30, 2021, amortization expense for finite-lived intangible assets was immaterial$6.2 million and $11.1 million, respectively. For the three and six months ended May 1, 2020, amortization expense for finite-lived intangible assets was $4.9 million and $9.6 million, respectively. Estimated amortization expense for the remainder of fiscal 2021 and succeeding fiscal years is as follows: fiscal 2021 (remainder), $12.7 million; fiscal 2022, $24.2 million; fiscal 2023, $22.4 million; fiscal 2024, $21.4 million; fiscal 2025, $19.8 million; fiscal 2026, $19.1 million; and after fiscal 2026, $122.6 million.
6Indebtedness
The following is a summary of the company's indebtedness:
(Dollars in thousands)April 30, 2021May 1, 2020October 31, 2020
$600 million revolving credit facility, due June 2023$0 $0 $0 
$200 million term loan, due April 2022100,000 100,000 100,000 
$300 million term loan, due April 2024170,000 180,000 180,000 
$190 million term loan, due June 20230 190,000 90,000 
3.81% series A senior notes, due June 2029100,000 100,000 100,000 
3.91% series B senior notes, due June 2031100,000 100,000 100,000 
7.8% debentures, due June 2027100,000 100,000 100,000 
6.625% senior notes, due May 2037124,009 123,947 123,978 
Less: unamortized discounts, debt issuance costs, and deferred charges2,554 3,171 2,855 
Total long-term debt691,455 890,776 791,123 
Less: current portion of long-term debt99,959 99,868 99,873 
Long-term debt, less current portion$591,496 $790,908 $691,250 
Principal payments required on the company's outstanding indebtedness, based on the maturity dates defined within the company's debt arrangements, for the remainder of fiscal 2021 and succeeding fiscal years are as follows: fiscal 2021 (remainder), $0.0 million; fiscal 2022, $108.5 million; fiscal 2023, $17.0 million; fiscal 2024, $144.5 million; fiscal 2025, $0.0 million; fiscal 2026, $0.0 million; and after fiscal 2026, $425.0 million. As of April 30, 2021, the company reclassified the remaining $100.0 million outstanding balance under the $200.0 million three-year unsecured senior term loan facility, net of the
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related proportionate share of deferred debt issuance costs, to current portion of long-term debt within the Condensed Consolidated Balance Sheets as the maturity date of the $200.0 million three-year unsecured senior term loan facility is April 1, 2022 and is within the next twelve months. During the first six months of fiscal 2021, the company prepaid the remaining $90.0 million of outstanding borrowings under the $190.0 million three-year unsecured senior term loan facility and prepaid $10.0 million of the remaining outstanding borrowings under the $300.0 million five-year unsecured senior term loan facility.
7Divestiture
On November 2, 2020, in the first quarter of fiscal 2021, the company completed the sale of its Northeastern U.S. distribution company. The divestiture was not material based on the company's Consolidated Financial Condition and Results of Operations.


8Inventories, Net
Inventories are valued at the lower of cost or net realizable value, with cost determined by the first-in, first-out ("FIFO") and average cost methods for a majority of the company's inventories. All remaining inventories are valued at the lower of cost or market, with cost determined under the last-in, first-out ("LIFO") method. The company records an inventory valuation adjustment for excess, slow-moving, and obsolete inventory that is equal to the excess of the cost of the inventory over the estimated net realizable value or market value for the inventory depending on the inventory costing method. Such inventory valuation adjustment is based on a review and comparison of current inventory levels to planned production, as well as planned and historical sales of the inventory. The inventory valuation adjustment to net realizable value or market value establishes a new cost basis of the inventory that cannot be subsequently reversed.
Inventories, net were as follows:
(Dollars in thousands)April 30, 2021May 1, 2020October 31, 2020
Raw materials and work in process$242,093 $198,807 $168,759 
Finished goods and service parts468,805 597,431 565,761 
Total FIFO and average cost value710,898 796,238 734,520 
Less: adjustment to LIFO value82,087 82,071 82,087 
Total inventories, net$628,811 $714,167 $652,433 
9Property, Plant and Equipment, Net
Property, plant, and equipment assets are carried at cost less accumulated depreciation. The company generally accounts for depreciation of property, plant, and equipment utilizing the straight-line method over the estimated useful lives of the assets. Buildings, land improvements, and leasehold improvements are generally depreciated over 10 to 40 years, machinery and equipment are generally depreciated over two to 15 years, tooling is generally depreciated over three to five years, and computer hardware and software and website development costs are generally depreciated over two to five years. Expenditures for major renewals and improvements, which substantially increase the useful lives of existing assets, are capitalized. Expenditures for general maintenance and repairs are charged to cost of sales or selling, general and administrative expense within the Condensed Consolidated Statements of Earnings depending on the nature and use of the related asset. Interest is capitalized during the construction period for significant capital projects.
Property, plant and equipment, net was as follows:
(Dollars in thousands)April 30, 2021May 1, 2020October 31, 2020
Land and land improvements$56,674 $55,298 $57,387 
Buildings and leasehold improvements300,321 287,303 301,848 
Machinery and equipment507,438 466,388 499,312 
Tooling232,538 216,177 231,142 
Computer hardware and software102,308 94,026 102,312 
Construction in process64,592 71,309 48,157 
Property, plant, and equipment, gross1,263,871 1,190,501 1,240,158 
Less: accumulated depreciation810,323 736,740 772,239 
Property, plant, and equipment, net$453,548 $453,761 $467,919 
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10Product Warranty Guarantees
The company’s products are warranted to provide assurance that the product will function as expected and to ensure customer confidence in design, workmanship, and overall quality. Standard warranty coverage is generally provided for specified periods of time and on select products’ hours of usage, and generally covers parts, labor, and other expenses for non-maintenance repairs. In addition to the standard warranties offered by the company on its products, the company also sells separately priced extended warranty coverage on select products for a prescribed period after the original warranty period expires. For additional information on the contract liabilities associated with the company's separately priced extended warranties, refer to Note 3 — Investment4, Revenue.
The company recognizes expense and provides an accrual for estimated future warranty costs at the time of sale and also establishes accruals for major rework campaigns. Warranty accruals are based primarily on the estimated number of products under warranty, historical average costs incurred to service warranty claims, the trend in Joint Venturethe historical ratio of claims to sales, and the historical length of time between the sale and resulting warranty claim. The company periodically assesses the adequacy of its warranty accruals based on changes in these factors and records any necessary adjustments if actual claims experience indicates that adjustments are necessary. The changes in accrued warranties were as follows:

 Three Months EndedSix Months Ended
(Dollars in thousands)April 30, 2021May 1, 2020April 30, 2021May 1, 2020
Beginning balance$108,783 $96,623 $107,121 $96,604 
Provisions21,823 17,072 38,518 31,103 
Acquisitions0 2,557 0 2,557 
Claims(15,618)(16,927)(30,804)(31,630)
Changes in estimates4,401 3,559 4,554 4,250 
Ending balance$119,389 $102,884 $119,389 $102,884 
In fiscal 2009, the
11Investment in Finance Affiliate
The company and TCF Inventory Finance, Inc. (“TCFIF”("TCFIF"), a subsidiary of TCF National Bank, establishedare parties to the Red Iron Acceptance, LLC (“Red Iron”), a joint venture in the form of a Delaware limited liability company that("Red Iron"), which was established primarily providesto provide inventory financing to certain distributors and dealers of certain of the company’s products in the United States. On November 29, 2016, during the first quarter of fiscal 2017, the company entered into amended agreements for its Red Iron joint venture with TCFIF. As a result, the amended term of Red Iron will continue until October 31, 2024, subject to two-year extensions thereafter. Either the company or TCFIF may elect not to extend the amended term, or any subsequent term, by giving one-year written notice to the other party.

The company owns 45 percent of Red Iron and TCFIF owns 55 percent of Red Iron. The company accounts for its investment in Red Iron under the equity method of accounting. The company and TCFIF each contributed a specified amount of the estimated cash required to enable Red Iron to purchase the company’s inventoryU.S. These financing receivables and to provide financial support for Red Iron’s inventory financing programs. Red Iron borrows the remaining requisite estimated cash utilizing a $550 million secured revolving credit facility established under a credit agreement between Red Iron and TCFIF. The company’s total investment in Red Iron as of February 2, 2018 was $23.1 million. The company has not guaranteed the outstanding indebtedness of Red Iron.

The company has agreed to repurchase products repossessed by Red Iron and the TCFIF Canadian affiliate, up to a maximum aggregate amount of $7.5 million in a calendar year. Under the repurchase agreement between Red Iron and the company, Red Iron provides financing for certain dealers and distributors. These transactions are structured as an advance in the form of a payment by Red Iron to the company on behalf of a distributor or dealer with respect to invoices financed by Red Iron. These payments extinguish the obligation of the dealer or distributor to make payment to the company under the terms of the applicable invoice.

The company has also entered into a limited inventory repurchase agreement with Red Iron, under which the company has agreed to repurchase certain repossessed products, up to a maximum aggregate amount of $7.5 million in a calendar year. The company's financial exposure under this limited inventory repurchase agreement is limited to the difference between the amount paid for repurchases of repossessed product and the amount received upon the subsequent resale of the repossessed product. The company has repurchased immaterial amounts of inventory under this limited inventory repurchase agreement for the six months ended April 30, 2021 and May 1, 2020.
Under separate agreements between Red Iron and the dealers and distributors, Red Iron provides loans to the dealers and distributors for the advances paid by Red Iron to the company. The net amount of receivables financed for dealers and distributors under this arrangement for the threesix months ended February 2, 2018April 30, 2021 and February 3, 2017May 1, 2020 were $386.3$1,180.9 million and $375.0$886.4 million, respectively.

As of January 31, 2018,April 30, 2021, Red Iron’s total assets were $463.1$499.2 million and total liabilities were $411.8$443.0 million. The total amount of receivables due from Red Iron to the company as of April 30, 2021, May 1, 2020, and October 31, 2020 were $17.1 million, $23.3 million and $12.6 million, respectively.

Note 4 — Inventories

Inventories are valued atThe company owns 45 percent of Red Iron and TCFIF owns 55 percent of Red Iron. The company accounts for its investment in Red Iron under the lowerequity method of cost or net realizable value, with cost determined byaccounting. At inception, the last-in, first-out (“LIFO”) method forcompany and TCFIF each contributed a majorityspecified amount of the company's inventoriesestimated cash required to enable Red Iron to purchase the company’s inventory financing receivables and to provide financial support for Red Iron’s inventory financing programs. Red Iron borrows the first-in, first-out (“FIFO”) method for all other inventories.remaining requisite estimated cash utilizing a $625.0 million secured revolving credit facility established under a credit agreement between Red Iron and TCFIF. The company’s total investment in Red Iron as of April 30, 2021, May 1, 2020, and October 31, 2020 was $25.3 million, $27.8 million, and $19.7 million, respectively. The company establishes a reserve for excess, slow-moving, and obsolete inventory that is equal tohas not guaranteed the difference between the cost and estimated net realizable value for that inventory. These reserves are based on a review and comparisonoutstanding indebtedness of current inventory levels to the planned production, as well as planned and historical salesRed Iron.
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Table of the inventory.

Inventories were as follows:
Contents
(Dollars in thousands) February 2, 2018 February 3, 2017 October 31, 2017
Raw materials and work in process $114,150
 $107,170
 $100,077
Finished goods and service parts 391,994
 353,290
 295,716
Total FIFO value 506,144
 460,460
 395,793
Less: adjustment to LIFO value 66,801
 58,357
 66,801
Total inventories, net $439,343
 $402,103
 $328,992
12Stock-Based Compensation
Note 5 — Goodwill and Other Intangible Assets

The changes in the net carrying amount of goodwill for the first three months of fiscal 2018 were as follows:
(Dollars in thousands) Professional Segment Residential Segment Total
Balance as of October 31, 2017 $194,464
 $10,565
 $205,029
Translation adjustments 793
 132
 925
Balance as of February 2, 2018 $195,257
 $10,697
 $205,954

The components of other intangible assets as of February 2, 2018 were as follows:
(Dollars in thousands) Gross Carrying Amount Accumulated Amortization Net
Patents $15,193
 $(11,775) $3,418
Non-compete agreements 6,924
 (6,807) 117
Customer-related 87,742
 (20,160) 67,582
Developed technology 30,370
 (27,549) 2,821
Trade names 2,384
 (1,689) 695
Other 800
 (800) —
Total amortizable 143,413
 (68,780) 74,633
Non-amortizable - trade names 27,733
 —
 27,733
Total other intangible assets, net $171,146
 $(68,780) $102,366

The components of other intangible assets as of October 31, 2017 were as follows:
(Dollars in thousands) Gross Carrying Amount Accumulated Amortization Net
Patents $15,162
 $(11,599) $3,563
Non-compete agreements 6,896
 (6,775) 121
Customer-related 87,461
 (18,940) 68,521
Developed technology 30,212
 (26,939) 3,273
Trade names 2,330
 (1,637) 693
Other 800
 (800) —
Total amortizable 142,861
 (66,690) 76,171
Non-amortizable - trade names 27,572
 —
 27,572
Total other intangible assets, net $170,433
 $(66,690) $103,743

Amortization expense for intangible assets during the first quarter of fiscal 2018 was $1.9 million, compared to $2.4 million for the same period last fiscal year. Estimated amortization expense for the remainder of fiscal 2018 and succeeding fiscal years is as follows: fiscal 2018 (remainder), $4.8 million; fiscal 2019, $5.8 million; fiscal 2020, $5.3 million; fiscal 2021, $4.9 million; fiscal 2022, $4.7 million; fiscal 2023, $4.7 million; and after fiscal 2023, $44.4 million.
Note 6 — Stockholders’ Equity

Accumulated Other Comprehensive Loss

Components of AOCL, net of tax, are as follows:
(Dollars in thousands) February 2, 2018 February 3, 2017 October 31, 2017
Foreign currency translation adjustments $10,162
 $31,177
 $21,303
Pension and post-retirement benefits 2,281
 6,495
 2,012
Cash flow hedging derivative instruments 3,584
 426
 805
Total accumulated other comprehensive loss $16,027
 $38,098
 $24,120


The components and activity of AOCL for the first three months of fiscal 2018 are as follows:
(Dollars in thousands) 
Foreign 
Currency Translation Adjustments
 Pension and Post-Retirement Benefits Cash Flow Hedging Derivative Instruments Total
Balance as of October 31, 2017 $21,303
 $2,012
 $805
 $24,120
Other comprehensive (income) loss before reclassifications (11,141) 269
 3,612
 (7,260)
Amounts reclassified from AOCL —
 —
 (833) (833)
Net current period other comprehensive (income) loss (11,141) 269
 2,779
 (8,093)
Balance as of February 2, 2018 $10,162
 $2,281
 $3,584
 $16,027

The components and activity of AOCL for the first three months of fiscal 2017 are as follows:
(Dollars in thousands) 
Foreign 
Currency Translation Adjustments
 Pension and Post-Retirement Benefits Cash Flow Hedging Derivative Instruments Total
Balance as of October 31, 2016 $31,430
 $6,359
 $647
 $38,436
Other comprehensive (income) loss before reclassifications (253) 136
 102
 (15)
Amounts reclassified from AOCL —
 —
 (323) (323)
Net current period other comprehensive (income) loss (253) 136
 (221) (338)
Balance as of February 3, 2017 $31,177
 $6,495
 $426
 $38,098

For additional information on the components reclassified from AOCL to the respective line items in net earnings for derivative instruments, refer to Note 12, Derivative Instruments and Hedging Activities.

Note 7 — Stock-Based Compensation

The compensation costs related to stock-based compensation awards were as follows:
Three Months EndedSix Months Ended
(Dollars in thousands) February 2, 2018 February 3, 2017(Dollars in thousands)April 30, 2021May 1, 2020April 30, 2021May 1, 2020
Stock option awards $1,175
 $1,392
Stock option awards$2,598 $2,316 $4,657 $4,094 
Restricted stock units 1,005
 576
Performance share awards 414
 1,112
Performance share awards2,194 (1,885)3,020 (1,338)
Restricted stock unit awardsRestricted stock unit awards1,037 976 1,997 1,918 
Unrestricted common stock awards 530
 538
Unrestricted common stock awards0 0 671 693 
Total compensation cost for stock-based awards $3,124
 $3,618
Total compensation cost for stock-based compensation awardsTotal compensation cost for stock-based compensation awards$5,829 $1,407 $10,345 $5,367 
During the firstsecond quarter of fiscal years 20182020, in response to COVID-19 and 2017, 8,388its current and 11,412 shares, respectively, of fully vested unrestricted common stock awards were granted to certain members ofprojected impact on the company's BoardConsolidated Financial Position, Results of Directors asOperations, and Cash Flows at that time, the probability of achieving the company's performance goals was revised. Such revision impacted the company's performance share awards, which resulted in a component of their compensationreduction in the cumulative expense recorded for their service on the board and are recorded insuch awards within selling, general and administrative expense in the Condensed Consolidated Statements of Earnings.

Earnings for the three and six month periods ended May 1, 2020.
Stock Option Awards

Under The Toro Company Amended and Restated 2010 Equity and Incentive Plan, as amended and restated (the “2010 plan”"2010 plan"), stock options are granted with an exercise price equal to the closing price of the company’s common stock on the date of grant, as reported by the New York Stock Exchange. Options are generally granted to executive officers, other employees, and non-employee members of the company’s Board of Directors ("Board") on an annual basis in the first quarter of the company’s fiscal year. Options generally vest one-third each year over a three-year period and have a ten-year term. Other options granted to certain employees vest in full on the three-year anniversary of the date of grant and have a ten-year term. Compensation expensecost equal to the grant date fair value is generally recognized for these awards over the vesting period. Stock options granted toCompensation cost recognized for other employees not considered executive officers and other employeesnon-employee Board members is net of estimated forfeitures, which are subject to accelerated expensing ifdetermined at the option holder meets the retirement definition set forth in the 2010 plan.

In that case, the fair value of the options is expensed in the fiscal yeartime of grant because generally the option holder must be employed after the last day of the fiscal year in which the stock options are granted in order for the options to continue to vest following retirement. Similarly, if a non-employee director has servedbased on the company’s Board of Directors for ten full fiscal years or more, the awards vest immediately upon retirement, and therefore, the fair value of the options granted is fully expensed on the date of the grant.

historical forfeiture experience.
The fair value of each stock option is estimated on the date of grant using the Black-Scholes valuation method with the assumptions noted in the table below. The expected life is a significant assumption as it determines the period for which the risk-free interest rate, stock price volatility, and dividend yield must be applied. The expected life is the average length of time in which executive officers, other employees, and non-employee directorsBoard members are expected to exercise their stock options, which is primarily based on historical exercise experience. The company groups executive officers and non-employee directorsmembers of the company's Board for valuation purposes based on similar historical exercise behavior. Expected stock price volatilities arevolatility is based on the daily movement of the company’s common stock over the most recent historical period equivalent to the expected life of the option. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate over the expected life at the time of grant. DividendThe expected dividend yield is estimated over the expected life based on the company’s historical cash dividends paid, expected future cash dividends and dividend yield, and expected changes in the company’s stock price.

The following table below illustrates the weighted-average valuation assumptions for options granted in the first six months of the following fiscal periods:
 Fiscal 2018 Fiscal 2017 Fiscal 2021Fiscal 2020
Expected life of option in years 6.05 6.02Expected life of option in years6.216.31
Expected stock price volatility 20.60% 22.15%Expected stock price volatility23.26%19.38%
Risk-free interest rate 2.21% 2.03%Risk-free interest rate0.55%1.79%
Expected dividend yield 0.97% 1.01%Expected dividend yield0.86%0.98%
Per share weighted-average fair value at date of grant $14.29 $12.55Per share weighted-average fair value at date of grant$19.39$15.36
Performance Share Awards

Under the 2010 Plan,plan, the company grants performance share awards to executive officers and other employees under which they are entitled to receive shares of the company’s common stock contingent on the achievement of performance goals of the company, and businesses of the company, which are generally measured over a three-year period. The number of shares of common stock a participant receives willcan be increased (up to 200 percent of target levels) or reduced (down to zero)0) based on the level of achievement of performance goals and will vest at the end of a three-year period. Performance share awards are generally granted on an annual basis in the first quarter of the company’s fiscal year. Compensation expensecost is recognized for these awards on a straight-line basis over the vesting period based on the per share fair value, aswhich is equal to the closing price of the company's common stock on the date of grant, and the probability of achieving each performance goal. The per share weighted-average fair value of
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performance share awards granted during the first quarter of fiscal 20182021 and 20172020 was $65.40$90.59 and $54.52,$77.33, respectively.

NaN performance share awards were granted during the second quarter of fiscal 2021 and 2020.
Restricted Stock Unit Awards

Under the 2010 plan, restricted stock unit awards are generally granted to certain employees that are not executive officers. Occasionally, restricted stock unit awards may be granted, including to executive officers, in connection with hiring, mid-year promotions, leadership transition, or retention. Restricted stock unit awards generally vest one-third each year over a three-year period, or vest in full on the three-year anniversary of the date of grant. Such awards may have performance-based rather than time-based vesting requirements. Compensation expensecost equal to the grant date fair value, whichnet of estimated forfeitures, is recognized for these awards over the vesting period. The grant date fair value is equal to the closing price of the company’scompany's common stock on the date of grant multiplied by the number of shares subject to the restricted stock unit awards is recognized for these awards overand estimated forfeitures are determined on the vesting period.grant date based on historical forfeiture experience. The per share weighted-average fair value of restricted stock unit awards granted during the first threesix months of fiscal 20182021 and 20172020 was $65.93$91.95 and $56.67,$76.12, respectively.

Unrestricted Common Stock Awards

During the first six months of fiscal 2021 and 2020, 8,070 and 8,920 shares, respectively, of fully vested unrestricted common stock awards were granted to certain Board members as a component of their compensation for their service on the Board and were recorded within selling, general and administrative expense in the Condensed Consolidated Statements of Earnings. NaN shares of fully vested unrestricted common stock awards were granted during the second quarter of fiscal 2021 and 2020.
13Stockholders' Equity
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss ("AOCL"), net of tax, within the Condensed Consolidated Statements of Stockholders' Equity were as follows:
(Dollars in thousands)April 30, 2021May 1, 2020October 31, 2020
Foreign currency translation adjustments$12,509 $36,916 $24,508 
Pension benefits5,106 3,949 5,106 
Cash flow derivative instruments11,797 (7,163)4,648 
Total accumulated other comprehensive loss$29,412 $33,702 $34,262 
The components and activity of AOCL, net of tax, for the three and six month periods ended April 30, 2021 and May 1, 2020 were as follows:
(Dollars in thousands)Foreign 
Currency
Translation
Adjustments		Pension
Benefits		Cash Flow Derivative InstrumentsTotal
Balance as of January 29, 2021$14,112 $5,106 $12,958 $32,176 
Other comprehensive income before reclassifications(1,603)— (5,346)(6,949)
Amounts reclassified from AOCL— — 4,185 4,185 
Net current period other comprehensive income(1,603)— (1,161)(2,764)
Balance as of April 30, 2021$12,509 $5,106 $11,797 $29,412 
(Dollars in thousands)Foreign 
Currency
Translation
Adjustments		Pension
Benefits		Cash Flow Derivative InstrumentsTotal
Balance as of October 31, 2020$24,508 $5,106 $4,648 $34,262 
Other comprehensive (income) loss before reclassifications(11,999)— 966 (11,033)
Amounts reclassified from AOCL— — 6,183 6,183 
Net current period other comprehensive (income) loss(11,999)— 7,149 (4,850)
Balance as of April 30, 2021$12,509 $5,106 $11,797 $29,412 
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(Dollars in thousands)Foreign 
Currency
Translation
Adjustments		Pension
Benefits		Cash Flow Derivative InstrumentsTotal
Balance as of January 31, 2020$31,749 $4,861 $(4,489)$32,121 
Other comprehensive (income) loss before reclassifications5,167 — (194)4,973 
Amounts reclassified from AOCL— (912)(2,480)(3,392)
Net current period other comprehensive (income) loss5,167 (912)(2,674)1,581 
Balance as of May 1, 2020$36,916 $3,949 $(7,163)$33,702 
(Dollars in thousands)Foreign 
Currency
Translation
Adjustments		Pension
Benefits		Cash Flow Derivative InstrumentsTotal
Balance as of October 31, 2019$31,025 $4,861 $(3,837)$32,049 
Other comprehensive loss before reclassifications5,891 — 691 6,582 
Amounts reclassified from AOCL— (912)(4,017)(4,929)
Net current period other comprehensive (income) loss5,891 (912)(3,326)1,653 
Balance as of May 1, 2020$36,916 $3,949 $(7,163)$33,702 
For additional information on the components reclassified from AOCL to the respective line items in net earnings for derivative instruments refer to Note 8 — Per Share Data17, Derivative Instruments and Hedging Activities.

14Per Share Data
Reconciliations of basic and diluted weighted-average number of shares of common stock outstanding arewere as follows:
 Three Months EndedSix Months Ended
(Shares in thousands)April 30, 2021May 1, 2020April 30, 2021May 1, 2020
Basic  
Weighted-average number of shares of common stock107,753 107,552 107,927 107,466 
Assumed issuance of contingent shares0 0 10 21 
Weighted-average number of shares of common stock outstanding - Basic107,753 107,552 107,937 107,487 
Diluted  
Weighted-average number of shares of common stock outstanding - Basic107,753 107,552 107,937 107,487 
Effect of dilutive shares1,145 948 1,115 1,094 
Weighted-average number of shares of common stock outstanding - Diluted108,898 108,500 109,052 108,581 
  Three Months Ended
(Shares in thousands) February 2,
2018		 February 3,
2017
Basic  
  
Weighted-average number of shares of common stock 107,173
 108,585
Assumed issuance of contingent shares 52
 42
Weighted-average number of shares of common stock and assumed issuance of contingent shares 107,225
 108,627
Diluted  
  
Weighted-average number of shares of common stock and assumed issuance of contingent shares 107,225
 108,627
Effect of dilutive securities 2,630
 2,147
Weighted-average number of shares of common stock, assumed issuance of contingent shares, and effect of dilutive securities 109,855
 110,774

IncrementalThe effect of dilutive shares from optionsstock option awards and restricted stock units areunit awards is computed under the treasury stock method. OptionsStock option awards to purchase 305,911508,907 and 317,757615,344 shares of common stock during the second quarter of fiscal 2021 and 2020, respectively, were excluded from the computation of diluted net earnings per share of common stock because they were anti-dilutive. Stock option awards to purchase 382,917 and 442,321 shares of common stock during the first threesix months of fiscal 20182021 and 2017,2020, respectively, were excluded from the computation of diluted net earnings per share of common stock because they were anti-dilutive.

15Contingencies
Note 9 — Segment Data

The presentation of segment information reflects the manner in which management organizes segments for making operating decisions and assessing performance. On this basis, the company has determined it has three reportable business segments: Professional, Residential, and Distribution. The Distribution segment, which consists of a wholly-owned domestic distributorship, has been combined with the company’s corporate activities and elimination of intersegment revenues and expenses that is shown as “Other” in the following tables due to the insignificance of the segment.

The following tables present the summarized financial information concerning the company’s reportable segments:
(Dollars in thousands)        
Three Months Ended February 2, 2018 Professional Residential Other Total
Net sales $403,669
 $142,507
 $2,070
 $548,246
Intersegment gross sales 6,458
 56
 (6,514) —
Earnings (loss) before income taxes 75,912
 15,713
 (25,240) 66,385
Total assets $904,597
 $249,845
 $362,364
 $1,516,806
(Dollars in thousands)        
Three Months Ended February 3, 2017 Professional Residential Other Total
Net sales $371,809
 $140,390
 $3,640
 $515,839
Intersegment gross sales 4,556
 74
 (4,630) —
Earnings (loss) before income taxes 68,166
 16,558
 (25,171) 59,553
Total assets $854,384
 $243,145
 $305,384
 $1,402,913

The following table presents the details of the Other segment operating loss before income taxes:
  Three Months Ended
(Dollars in thousands) February 2,
2018		 February 3,
2017
Corporate expenses $(24,401) $(23,961)
Interest expense (4,818) (4,883)
Other income 3,979
 3,673
Total Other segment operating loss $(25,240) $(25,171)

Note 10 — Contingencies — Litigation

The company is party to litigation in the ordinary course of business. Such matters are generally subject to uncertainties and to outcomes that are not predictable with assurance and that may not be known for extended periods of time. Litigation occasionally involves claims for punitive, as well as compensatory, damages arising out of the use of the company’s products. Although the company is self-insured to some extent, the company maintains insurance against certain product liability losses. The company is also subject to litigation and administrative and judicial proceedings with respect to claims involving asbestos and the discharge of hazardous substances into the environment. Some of these claims assert damages and liability for personal injury, remedial investigations or clean up and other costs and damages. The company is also typicallyoccasionally involved in
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commercial disputes, employment disputes, and patent litigation cases in which it is asserting or defending against patent infringement claims. To prevent possible infringement of the company’s patents by others, the company periodically reviews competitors’ products. To avoid potential liability with respect to others’ patents, the company regularly reviews certain patents issued by the United StatesU.S. Patent and Trademark Office and foreign patent offices. ManagementThe company believes these activities help minimize its risk of being a defendant in patent infringement litigation. The company is currently involved in patent litigation cases, including cases by or against competitors, where it is asserting and defending against claims of patent infringement. Such cases are at varying stages in the litigation process.

The company records a liability in its Condensed Consolidated Financial Statements for costs related to claims, including future legal costs, settlements, and judgments, where the company has assessed that a loss is probable and an amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range, the company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. The company discloses a contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that a material loss may have been incurred. In the opinion of management, the amount of liability, if any, with respect to these matters, individually or in the aggregate, will not materially affect its Consolidated Results of Operations, Financial Position, or Cash Flows.

In situations where the company receives, or expects to receive, a favorable ruling related to a litigation settlement, the company follows the accounting standards codification guidance for gain contingencies. The company does not allow for the recognition of a gain contingency within its Condensed Consolidated Financial Statements prior to the settlement of the underlying events or contingencies associated with the gain contingency. As a result, the consideration related to a gain contingency is recorded in the Condensed Consolidated Financial Statements during the period in which all underlying events or contingencies are resolved and the gain is realized.
Litigation Settlement
NoteOn November 19, 2020, Exmark Manufacturing Company Incorporated ("Exmark"), a wholly-owned subsidiary of the company, 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”). In the Infringement Action, Exmark alleged that certain mower decks manufactured by BSPPG infringed an Exmark mower deck patent. Despite favorable judgments in the Infringement Action in favor of Exmark, including with regard to awarded damages, actions by BGG during the second half of calendar 2020 put in jeopardy the certainty and timing of the eventual receipt of the damages awarded to Exmark in the Infringement Action, including (i) the filing by BGG and certain of its subsidiaries for bankruptcy relief under chapter 11 — Warranty Guaranteesof title 11 of the United States Bankruptcy Code (“BGG Bankruptcy”); (ii) the sale of substantially all the assets (but not certain liabilities, including the Infringement Action) of BGG and its subsidiaries to a third-party pursuant to Section 363 of the United States Bankruptcy Code; and (iii) a petition filed by BGG for a panel rehearing of the United States Court of Appeals for the Federal Circuit's decision in the Infringement Action (“Rehearing Petition”).

As a result, on November 19, 2020, Exmark entered into the Settlement Agreement with BGG which provided, among other things, that (i) upon approval by the bankruptcy court, and such approval becoming final and nonappealable, BGG agreed to pay Exmark $33.65 million (“Settlement Amount”), (ii) BGG agreed to immediately withdraw the Rehearing Petition and otherwise not pursue additional appellate review regarding the Infringement Action, and (iii) after receipt of the Settlement Amount, Exmark agreed to release a supersedeas appeal bond that had been obtained by BGG to support payment of the damages awarded to Exmark in the Infringement Action. On November 20, 2020, BGG filed a motion to withdraw the Rehearing Petition and on December 16, 2020, the bankruptcy court approved the Settlement Agreement. 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, the company 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 the company's external legal counsel customary in patent infringement cases equal to approximately 50 percent of the Settlement Amount.
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16Leases
The company’s productscompany enters into contracts that are, warrantedor contain, operating lease agreements for certain property, plant, or equipment assets utilized in the normal course of business, such as buildings for manufacturing facilities, office space, distribution centers, and warehouse facilities; land for product testing sites; machinery and equipment for research and development activities, manufacturing and assembly processes, and administrative tasks; and vehicles for sales, service, marketing, and distribution activities. Contracts that explicitly or implicitly relate to ensure customer confidence in design, workmanship,property, plant, and overall quality. Warranty coverageequipment are assessed at inception to determine if the contract is, generallyor contains, a lease. Such contracts for specified periodsoperating lease agreements convey the company's right to direct the use of, and obtain substantially all of the economic benefits from, an identified asset for a defined period of time in exchange for consideration. The lease term begins and on select products’ hoursis determined upon lease commencement, which is the point in time when the company takes possession of usage,the identified asset, and generally covers parts, labor,includes all non-cancelable periods. Lease expense for the company's operating leases is recognized on a straight-line basis over the lease term and other expenses for non-maintenance repairs. Warranty coverage generallyis recorded within cost of sales or selling, general and administrative expense within the Condensed Consolidated Statements of Earnings as dictated by the nature and use of the underlying asset. The company does not cover operator abuserecognize right-of-use assets and lease liabilities, but does recognize expense on a straight-line basis, for short-term operating leases which have a lease term of 12 months or improper use. An authorized company distributorless and do not include an option to purchase the underlying asset.
Lease payments are determined at lease commencement and generally represent fixed lease payments as defined within the respective lease agreement or, dealer must perform warranty work. Distributorsin the case of certain lease agreements, variable lease payments that are measured as of the lease commencement date based on the prevailing index or market rate. Future adjustments to variable lease payments are defined and dealers submit claims for warranty reimbursementscheduled within the respective lease agreement and are credited fordetermined based upon the cost of repairs, labor, and other expenses as long as the repairs meet the company's prescribed standards. Warranty expense is accruedprevailing market or index rate at the time of salethe adjustment relative to the market or index rate determined at lease commencement. Certain other lease agreements contain variable lease payments that are determined based upon actual utilization of the identified asset. Such future adjustments to variable lease payments and variable lease payments based upon actual utilization of the identified asset are not included within the determination of lease payments at commencement but rather, are recorded as variable lease expense in the period in which the variable lease cost is incurred.
Right-of-use assets represent the company's right to use an underlying asset throughout the lease term and lease liabilities represent the company's obligation to make lease payments arising from the lease agreement. The company accounts for operating lease liabilities at lease commencement and on an ongoing basis as the present value of the minimum remaining lease payments under the respective lease term. Minimum remaining lease payments are generally discounted to present value based the estimated incremental borrowing rate at lease commencement as the rate implicit in the lease is generally not readily determinable. Right-of-use assets are measured as the amount of the corresponding operating lease liability for the respective operating lease agreement, adjusted for prepaid or accrued lease payments, the remaining balance of any lease incentives received, unamortized initial direct costs, and impairment of the operating lease right-of-use asset, as applicable.
The following table presents the lease expense incurred on the company’s operating, short-term, and variable leases:
Three Months EndedSix Months Ended
(Dollars in thousands)April 30, 2021May 1, 2020April 30, 2021May 1, 2020
Operating lease expense$5,117 $5,383 $10,091 $10,217 
Short-term lease expense857 646 1,437 1,328 
Variable lease expense33 59 50 96 
Total lease expense$6,007 $6,088 $11,578 $11,641 
The following table presents supplemental cash flow information related to the company's operating leases:
Six Months Ended
(Dollars in thousands)April 30, 2021May 1, 2020
Operating cash flows for amounts included in the measurement of lease liabilities$9,577 $10,266 
Right-of-use assets obtained in exchange for lease obligations$1,716 $17,042 
The following table presents other lease information related to the company's operating leases:
(Dollars in thousands)April 30, 2021May 1, 2020October 31, 2020
Weighted-average remaining lease term of operating leases in years6.87.47.1
Weighted-average discount rate of operating leases2.74 %2.81 %2.79 %
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The following table reconciles the total undiscounted future cash flows based on the estimated numberanticipated future minimum operating lease payments by fiscal year for the company's operating leases to the present value of products under warranty, historical average costs incurred to service warranty claims,operating lease liabilities recorded within the trend in the historical ratioCondensed Consolidated Balance Sheets as of claims to sales, the historical length of time between the sale and resulting warranty claim, and other minor factors. Special warranty reserves are also accrued for major rework campaigns. Service support outside of the warranty period is provided by authorized distributors and dealers at the customer's expense. The company sells extended warranty coverage on select products for a prescribed period after the original warranty period expires.April 30, 2021:

(Dollars in thousands)April 30, 2021
2021 (remaining)$9,369 
202216,517 
202313,132 
202411,617 
202510,162 
Thereafter23,583 
Total future minimum operating lease payments84,380 
Less: imputed interest7,444 
Present value of operating lease liabilities$76,936 

The changes in accrued warranties were as follows:
  Three Months Ended
(Dollars in thousands) February 2,
2018		 February 3,
2017
Beginning balance $74,155
 $72,158
Warranty provisions 10,570
 9,615
Warranty claims (9,840) (9,794)
Changes in estimates —
 594
Ending balance $74,885
 $72,573

Note 12 — Derivative Instruments and Hedging Activities

17Derivative Instruments and Hedging Activities
Risk Management Objective of Using Derivatives

The company is exposed to foreign currency exchange rate risk arising from transactions in the normal course of business, such as sales to third partythird-party customers, sales and loans to wholly ownedwholly-owned foreign subsidiaries, costs associated with foreign plant operations, and purchases from suppliers. The company’s primary currency exchange rate exposures are with the Euro, the Australian dollar, the Canadian dollar, the British pound, the Mexican peso, the Japanese yen, the Chinese Renminbi, and the Romanian New Leu against the U.S. dollar, as well as the Romanian New Leu against the Euro.

To reduce its exposure to foreign currency exchange rate risk, the company actively manages the exposure of its foreign currency exchange rate risk by entering into various derivative instruments to hedge against such risk, authorized under a company policiespolicy that placeplaces controls on these hedging activities, with counterparties that are highly rated financial institutions. The company’s policy does not allow the use of derivative instruments for trading or speculative purposes. The company has also made an accounting policy election to use the portfolio exception with respect to measuring counterparty credit risk for derivative instruments and to measure the fair value of a portfolio of financial assets and financial liabilities on the basis of the net open risk position with each counterparty.

The company’s hedging activities primarily involve the use of forward currency contracts to hedge most foreign currency transactions, including forecasted sales and purchases denominated in foreign currencies. The company may also utilize forward currency contracts or cross currency swaps to offset intercompany loan exposures. The company uses derivative instruments only in an attempt to limit underlying exposure from foreign currency exchange rate fluctuations and to minimize earnings and cash flow volatility associated with foreign currency exchange rate fluctuations. Decisions on whether to use such derivative instruments are primarily based on the amount of exposure to the currency involved and an assessment of the near-term market value for each currency.

The company recognizes all derivative instruments at fair value on the Condensed Consolidated Balance Sheets as either assets or liabilities. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as a cash flow hedging instrument.

Cash Flow Hedging Instruments

The company formally documents relationships between cash flow hedging instruments and the related hedged transactions, as well as its risk-management objective and strategy for undertaking cash flow hedging instruments. This process includes linking all cash flow hedging instruments to the forecasted transactions, such as sales to third parties,third-parties and costs associated with foreign plant operations, andincluding purchases from suppliers. At the cash flow hedge’s inception and on an ongoing basis, the company formally assesses whether the cash flow hedging instruments have been highly effective in offsetting changes in the cash flows of the hedged transactions and whether those cash flow hedging instruments may be expected to remain highly effective in future periods.

Changes in the fair values of the spot rate component of outstanding, highly effective cash flow hedging instruments included in the assessment of hedge effectiveness are recorded in other comprehensive income within AOCL on the Condensed Consolidated Balance Sheets and are subsequently reclassified to net earnings within the Condensed Consolidated Statements of Earnings during the same period in which the cash flows of the underlying hedged transaction affect net earnings. Changes in the fair values of hedge components excluded from the assessment of effectiveness are recognized immediately in net earnings under the mark-to-market approach. The classification of gains or losses recognized on cash flow hedging instruments and excluded components within the Condensed Consolidated Statements of Earnings is the same as that of the underlying
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exposure. Results of cash flow

hedging instruments, and the related excluded components, of sales and costs associated with foreign plant operations, including purchases from suppliers, are recorded in net sales and cost of sales, respectively. The maximum amount of time the company hedges its exposure to the variability in future cash flows for forecasted trade sales and purchases is two years. Results of cash flow hedges of intercompany loans are recorded in other income, net as an offset to the remeasurement of the foreign loan balance.

When it is determined that a derivative instrument is not, or has ceased to be, highly effective as a cash flow hedge, the company discontinues cash flow hedge accounting prospectively. The gain or loss on the dedesignated derivative instrument remains in AOCL and is reclassified to net earnings within the same Condensed Consolidated Statements of Earnings line item as the underlying exposure when the forecasted transaction affects net earnings. When the company discontinues cash flow hedge accounting because it is no longer probable, but it is still reasonably possible that the forecasted transaction will occur by the end of the originally expected period or within an additional two-month period of time thereafter, the gain or loss on the derivative instrument remains in AOCL and is reclassified to net earnings within the same Condensed Consolidated Statements of Earnings line item as the underlying exposure when the forecasted transaction affects net earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were in AOCL are immediately recognized in net earnings within other income, net in the Condensed Consolidated Statements of Earnings. In all situations in which cash flow hedge accounting is discontinued and the derivative instrument remains outstanding, the company carries the derivative instrument at its fair value on the Condensed Consolidated Balance Sheets, recognizing future changes in the fair value within other income, net in the Condensed Consolidated Statements of Earnings.

As of February 2, 2018,April 30, 2021, the notional amount outstanding of forward currency contracts designated as cash flow hedging instruments was $81.5$261.7 million.

Derivatives Not Designated as Cash Flow Hedging Instruments

The company also enters into foreign currency contracts that include forward currency contracts to mitigate the remeasurement of specific assets and liabilities on the Condensed Consolidated Balance Sheets. These contracts are not designated as cash flow hedging instruments. Accordingly, changes in the fair value of hedges of recorded balance sheet positions, such as cash, receivables, payables, intercompany notes, and other various contractual claims to pay or receive foreign currencies other than the functional currency, are recognized immediately in other income, net, on the Condensed Consolidated Statements of Earnings together with the transaction gain or loss from the hedged balance sheet position.

The following table presents the fair value and location of the company’s derivative instruments on the Condensed Consolidated Balance Sheets:
(Dollars in thousands) February 2, 2018 February 3, 2017 October 31, 2017(Dollars in thousands)April 30, 2021May 1, 2020October 31, 2020
Derivative assets:  
  
  
Derivative assets:   
Derivatives designated as cash flow hedging instruments  
  
  
Derivatives designated as cash flow hedging instruments:Derivatives designated as cash flow hedging instruments:   
Prepaid expenses and other current assets  
  
  
Prepaid expenses and other current assets   
Forward currency contracts $974
 $1,552
 $1,014
Forward currency contracts$1,452 $13,303 $802 
Derivatives not designated as cash flow hedging instruments      
Derivatives not designated as cash flow hedging instruments:Derivatives not designated as cash flow hedging instruments:
Prepaid expenses and other current assets      Prepaid expenses and other current assets
Forward currency contracts 180
 795
 27
Forward currency contracts245 7,270 131 
Total assets $1,154
 $2,347
 $1,041
Total derivative assetsTotal derivative assets$1,697 $20,573 $933 
Derivative liabilities:      Derivative liabilities:
Derivatives designated as cash flow hedging instruments      
Derivatives designated as cash flow hedging instruments:Derivatives designated as cash flow hedging instruments:
Accrued liabilities      Accrued liabilities
Forward currency contracts $5,411
 $1,363
 $1,563
Forward currency contracts$13,923 $0 $2,687 
Derivatives not designated as cash flow hedging instruments      
Derivatives not designated as cash flow hedging instruments:Derivatives not designated as cash flow hedging instruments:
Accrued liabilities      Accrued liabilities
Forward currency contracts 2,678
 141
 703
Forward currency contracts4,100 259 (203)
Total liabilities $8,089
 $1,504
 $2,266
Total derivative liabilitiesTotal derivative liabilities$18,023 $259 $2,484 
The company entered into an International Swap Dealers Association ("ISDA") Master Agreement with each counterparty that permits the net settlement of amounts owed under their respective contracts. The ISDA Master Agreement is an industry standardized contract that governs all derivative contracts entered into between the company and the respective counterparty. Under these master netting agreements, net settlement generally permits the company or the counterparty to determine the net amount payable or receivable for contracts due on the same date or in the same currency for similar types of derivative transactions. The company records the fair value of its derivative instruments at the net amount inon its Condensed Consolidated Balance Sheets.

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The following table showspresents the effects of the master netting arrangements on the fair value of the company’s derivative contractsinstruments that are recorded inon the Condensed Consolidated Balance Sheets:
(Dollars in thousands) February 2, 2018 February 3, 2017 October 31, 2017
Derivative assets:      
Forward currency contracts      
Gross amounts of recognized assets $1,154
 $2,347
 $1,055
Gross liabilities offset in the balance sheets —
 —
 (14)
Net amounts of assets presented in the Consolidated Balance Sheets $1,154
 $2,347
 $1,041
Derivative liabilities:      
Forward currency contracts      
Gross amounts of recognized liabilities $(8,089) $(1,614) $(2,266)
Gross assets offset in the balance sheets —
 110
 —
Net amounts of liabilities presented in the Consolidated Balance Sheets $(8,089) $(1,504) $(2,266)

(Dollars in thousands)April 30, 2021May 1, 2020October 31, 2020
Derivative assets:
Forward currency contracts:
Gross amount of derivative assets$1,697 $20,662 $1,139 
Derivative liabilities offsetting derivative assets0 (89)(206)
Net amount of derivative assets$1,697 $20,573 $933 
Derivative liabilities:
Forward currency contracts:
Gross amount of derivative liabilities$(18,111)$(259)$(3,233)
Derivative assets offsetting derivative liabilities88 0 749 
Net amount of derivative liabilities$(18,023)$(259)$(2,484)
The following table presentstables present the impact and location of the amounts reclassified from AOCL into net earnings on the Condensed Consolidated Statements of Earnings and the impact of derivative instruments on the Condensed Consolidated Statements of Comprehensive Income for the company's derivatives designated as cash flow hedging instruments for the three and six months ended February 2, 2018April 30, 2021 and February 3, 2017:May 1, 2020:
Three Months Ended
Gain (Loss) Reclassified from AOCL into EarningsGain Recognized in OCI on Derivatives
(Dollars in thousands)April 30, 2021May 1, 2020April 30, 2021May 1, 2020
Derivatives designated as cash flow hedging instruments:
Forward currency contracts:
Net sales$(4,115)$2,272 $964 $2,521 
Cost of sales(70)208 197 153 
Total derivatives designated as cash flow hedging instruments$(4,185)$2,480 $1,161 $2,674 
 Three Months EndedSix Months Ended
 Gain (Loss) Reclassified from AOCL into Earnings Gain (Loss) Recognized in OCI on DerivativesGain (Loss) Reclassified from AOCL into EarningsGain (Loss) Recognized in OCI on Derivatives
(Dollars in thousands) February 2, 2018 February 3, 2017 February 2, 2018 February 3, 2017(Dollars in thousands)April 30, 2021May 1, 2020April 30, 2021May 1, 2020
Derivatives designated as cash flow hedging instruments        
Forward currency contracts        
Derivatives designated as cash flow hedging instruments:Derivatives designated as cash flow hedging instruments:
Forward currency contracts:Forward currency contracts:
Net sales $(1,011) $439
 $(2,678) $(372)Net sales$(6,212)$3,477 $(6,730)$3,105 
Cost of sales 178
 (762) (101) (152)Cost of sales29 540 (419)221 
Total derivatives designated as cash flow hedging instruments $(833) $(323) $(2,779) $(524)Total derivatives designated as cash flow hedging instruments$(6,183)$4,017 $(7,149)$3,326 

ForThe company recognized immaterial losses within other income, net on the Condensed Consolidated Statements of Earnings during the second quarter and first quartersix months of fiscal 2018 and fiscal 2017,2021 due to the company did not discontinuediscontinuance of cash flow hedge accounting on anycertain forward currency contracts designated as cash flow hedging instruments. For the second quarter and first six months of fiscal 2020, the company recognized immaterial gains within other income, net on the Condensed Consolidated Statements of Earnings due to the discontinuance of cash flow hedge accounting on certain forward currency contracts designated as cash flow hedging instruments. As of February 2, 2018,April 30, 2021, the company expects to reclassify approximately $4.9$11.7 million of losses from AOCL to earnings during the next twelve months.

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The following table presentstables present the impact and location of derivative instruments on the Condensed Consolidated Statements of Earnings for the company’s derivatives designated as cash flow hedging instruments and the related components excluded from effectiveness testing:
Gain (Loss) Recognized in Earnings on Cash Flow Hedging Instruments
(Dollars in thousands)April 30, 2021May 1, 2020
Three Months EndedNet SalesCost of SalesNet SalesCost of Sales
Condensed Consolidated Statements of Earnings income (expense) amounts in which the effects of cash flow hedging instruments are recorded$1,149,107 $(746,154)$929,398 $(622,681)
Gain (loss) on derivatives designated as cash flow hedging instruments:
Forward currency contracts:
Amount of gain (loss) reclassified from AOCL into earnings(4,115)(70)2,272 208 
Gain on components excluded from effectiveness testing recognized in earnings based on changes in fair value$300 $111 $2,332 $134 
 Gain (Loss) Recognized in Earnings on Cash Flow Hedging Instruments
 February 2, 2018 February 3, 2017Gain (Loss) Recognized in Earnings on Cash Flow Hedging Instruments
(Dollars in thousands) Net Sales Cost of Sales Other Income, Net Net Sales Cost of Sales Other Income, Net(Dollars in thousands)April 30, 2021May 1, 2020
Total Consolidated Statements of Earnings income (expense) amounts in which the effects of cash flow hedging instruments are recorded $548,246
 $(344,007) $4,281
 $515,839
 $(322,359) $3,866
Six Months EndedSix Months EndedNet SalesCost of SalesNet SalesCost of Sales
Condensed Consolidated Statements of Earnings income (expense) amounts in which the effects of cash flow hedging instruments are recordedCondensed Consolidated Statements of Earnings income (expense) amounts in which the effects of cash flow hedging instruments are recorded$2,022,093 $(1,304,104)$1,696,881 $(1,102,076)
Gain (loss) on derivatives designated as cash flow hedging instruments:            Gain (loss) on derivatives designated as cash flow hedging instruments:
Forward currency contracts            
Forward currency contracts:Forward currency contracts:
Amount of gain (loss) reclassified from AOCL into earnings (1,011) 178
 —
 439
 (762) —
Amount of gain (loss) reclassified from AOCL into earnings(6,212)29 3,477 540 
Gain (loss) on components excluded from effectiveness testing recognized in earnings based on changes in fair value $(21) $(25) $—
 $—
 $—
 $397
Gain on components excluded from effectiveness testing recognized in earnings based on changes in fair valueGain on components excluded from effectiveness testing recognized in earnings based on changes in fair value$462 $296 $2,992 $145 
The following table presents the impact and location of derivative instruments on the Condensed Consolidated Statements of Earnings for the company’s derivatives not designated as cash flow hedging instruments:
 Three Months EndedSix Months Ended
(Dollars in thousands)April 30, 2021May 1, 2020April 30, 2021May 1, 2020
Gain (loss) on derivatives not designated as cash flow hedging instruments
Forward currency contracts:
Other income, net$(3,005)$1,557 $(6,483)$1,777 
Total gain (loss) on derivatives not designated as cash flow hedging instruments$(3,005)$1,557 $(6,483)$1,777 
  Three Months Ended
(Dollars in thousands) February 2,
2018		 February 3,
2017
Gain (loss) on derivatives not designated as cash flow hedging instruments    
Forward currency contracts    
Other income, net $(1,816) $1,144
Total gain (loss) on derivatives not designated as cash flow hedging instruments $(1,816) $1,144

Note 13 — Fair Value Measurements

18Fair Value Measurements
The company categorizes its assets and liabilities measured at fair value into one of three levels based on the assumptions (inputs) used in valuing the asset or liability. Estimates of fair value for financial assets and financial liabilities are based on the framework established in the accounting guidance for fair value measurements. The framework defines fair value, provides guidance for measuring fair value, and requires certain disclosures. The framework discusses valuation techniques such as the market approach (comparable market prices), the income approach (present value of future income or cash flows), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The framework utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment.
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The three levels are defined as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs reflecting management’s assumptions about the inputs used in pricing the asset or liability.

Recurring Fair Value Measurements

The company's derivative instruments consist of forward currency contracts that are measured at fair value on a recurring basis. The fair value of such forward currency contracts is determined based on observable market transactions of forward currency prices and spot currency rates as of the reporting date. There were no transfers between levels for the company's recurring fair value measurements during the three months ended February 2, 2018 and February 3, 2017, or the twelve months ended October 31, 2017.

The following tables present, by level within the fair value hierarchy, the company's financial assets and liabilities that are measured at fair value on a recurring basis as of February 2, 2018, February 3, 2017,April 30, 2021, May 1, 2020, and October 31, 2017,2020, according to the valuation technique utilized to determine their fair values:
(Dollars in thousands) Fair Value Measurements Using Inputs Considered as:
April 30, 2021Fair ValueLevel 1Level 2Level 3
Assets:    
Forward currency contracts$1,697 $0 $1,697 $0 
Total assets$1,697 $0 $1,697 $0 
Liabilities:    
Forward currency contracts$18,023 $0 $18,023 $0 
Total liabilities$18,023 $0 $18,023 $0 
(Dollars in thousands)   Fair Value Measurements Using Inputs Considered as:(Dollars in thousands) Fair Value Measurements Using Inputs Considered as:
February 2, 2018 Fair Value Level 1 Level 2 Level 3
May 1, 2020May 1, 2020Fair ValueLevel 1Level 2Level 3
Assets:  
  
  
  
Assets:    
Forward currency contracts $1,154
 $—
 $1,154
 $—
Forward currency contracts$20,573 $0 $20,573 $0 
Total assets $1,154
 $—
 $1,154
 $—
Total assets$20,573 $0 $20,573 $0 
Liabilities:  
  
  
  
Liabilities:
Forward currency contracts $8,089
 $—
 $8,089
 $—
Forward currency contracts$259 $0 $259 $0 
Total liabilities $8,089
 $—
 $8,089
 $—
Total liabilities$259 $0 $259 $0 
(Dollars in thousands)   Fair Value Measurements Using Inputs Considered as:
February 3, 2017 Fair Value Level 1 Level 2 Level 3
Assets:  
  
  
  
Forward currency contracts $2,347
 $—
 $2,347
 $—
Total assets $2,347
 $—
 $2,347
 $—
Liabilities:  
  
  
  
Forward currency contracts $1,504
 $—
 $1,504
 $—
Total liabilities $1,504
 $—
 $1,504
 $—
(Dollars in thousands)   Fair Value Measurements Using Inputs Considered as:(Dollars in thousands) Fair Value Measurements Using Inputs Considered as:
October 31, 2017 Fair Value Level 1 Level 2 Level 3
October 31, 2020October 31, 2020Fair ValueLevel 1Level 2Level 3
Assets:  
  
  
  
Assets:    
Forward currency contracts $1,041
 $—
 $1,041
 $—
Forward currency contracts$933 $0 $933 $0 
Total assets $1,041
 $—
 $1,041
 $—
Total assets$933 $0 $933 $0 
Liabilities:  
  
  
  
Liabilities:    
Forward currency contracts $2,266
 $—
 $2,266
 $—
Forward currency contracts$2,484 $0 $2,484 $0 
Total liabilities $2,266
 $—
 $2,266
 $—
Total liabilities$2,484 $0 $2,484 $0 
Nonrecurring Fair Value Measurements

The company measures certain assets and liabilities at fair value on a nonrecurringnon-recurring basis. Assets and liabilities that are measured at fair value on a nonrecurring basis include long-lived assets, goodwill, and indefinite-lived intangible assets, which arewould generally be recorded at fair value as a result of an impairment charge. Assets acquired and liabilities assumed as part of acquisitionsa business combination or asset acquisition are also measured at fair value.value on a non-recurring basis during the measurement period allowed by the accounting standards codification guidance for business combinations, when applicable. For additional information on the company's business combination and asset acquisitions and the related non-recurring fair value measurement of the assets acquired and liabilities assumed, refer to Note 2, Business Combination and Asset Acquisitions.

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Other Fair Value Measurements

Disclosures
The carrying values of the company's short-term financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and short-term debt, including current maturities of long-term debt, when applicable, approximate their fair values due to their short-term nature. As of April 30, 2021, May 1, 2020 and October 31, 2020, the company's long-term debt included $424.0 million, $423.9 million and $424.0 million, respectively, of gross fixed-rate debt that is not subject to variable interest rate fluctuations. The gross fair value of such long-term debt is determined using Level 2 inputs by discounting the projected cash flows based on quoted market rates at which similar amounts of debt could currently be borrowed. As of April 30, 2021, the estimated gross fair value of long-term debt with fixed interest rates was $511.1 million compared to its gross carrying amount of $424.0 million. As of May 1, 2020, the estimated gross fair value of long-term debt with fixed interest rates was $476.3 million compared to its gross carrying amount of $423.9 million. As of October 31, 2020, the estimated gross fair value of long-term debt with fixed interest rates was $508.2 million compared to its gross carrying amount of $424.0 million.

Note 14 — Subsequent Events

19Subsequent Events
The company has evaluated all subsequent events and concluded that no subsequent events have occurred that would require recognition in the Condensed Consolidated Financial Statements or disclosure in the Notes to the Condensed Consolidated Financial Statements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“("MD&A”&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 in as follows:

•Company Overview
•Results of Operations
•Business Segments
•Financial Position
•Non-GAAP Financial Measures
•Critical Accounting Policies and Estimates
•Forward-Looking Information

We have provided non-GAAP financial measures, which are not calculated or presented in accordance with accounting principles generally accepted in the United States ("GAAP"), as information supplemental and in addition to the financial measures presented in this report that are calculated and presented in accordance with GAAP. This MD&A contains certain non-GAAP financial measures, consisting of adjusted effective tax rate, adjusted net earnings, and adjusted net earnings per diluted share as measures of our operating performance. Management believes these measures may be useful in performing meaningful comparisons of past and present operating results, to understand the performance of our ongoing operations, and how management views the business. Reconciliations of adjusted non-GAAP financial measures to the most directly comparable reported GAAP financial measures are included in the section titled "Non-GAAP Financial Measures" within this MD&A. These measures, however, should not be construed as an alternative to any other measure of performance determined in accordance with GAAP.

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, 2017.2020. This discussion contains various “Forward-Looking Statements”"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”"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 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 and cash flows. 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.
COMPANY OVERVIEW

The Toro Company is in the business of designing, manufacturing, and marketing professional turf maintenance equipment and services,services; turf irrigation systems,systems; landscaping equipment and lighting products,products; snow and ice management products,products; agricultural irrigation systems,systems; rental, specialty, and specialtyunderground construction equipment,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. Sustainability is the foundation of our enterprise strategic priorities of accelerating growth, driving productivity and operational excellence, and empowering our people, and our focus on alternative power, smart connected and autonomous solutions are embedded as part of our "Sustainability Endures"strategy. Our Sustainability Endures strategy 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 classify our operations into three reportable business segments: Professional, Residential, and Distribution. Our Distribution segment, which consists of our wholly owned domestic distributorship, has been combined with our corporate activities and elimination of intersegment revenues and expenses and is presented as “Other."

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 and six month period ended April 30, 2021, the company's Other activities consisted of the company's remaining wholly-owned domestic distribution company, the company's corporate activities, and the elimination of intersegment revenues and expenses. For the three and six month period ended May 1, 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.

RESULTS OF OPERATIONS

United States Tax Reform

Acquisition of Venture Products, Inc. ("Venture Products")
On December 22, 2017,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
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network. The total acquisition consideration was $163.2 million, of which $10.0 million remains from an initial holdback of $29.5 million and is expected to be paid throughout the remainder of fiscal 2021 to the former Venture Products shareholders, subject to any indemnification claims. 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 an incremental impact to our Professional reportable segment net sales and segment earnings for the three and six month periods ended April 30, 2021. For additional information regarding the acquisition, refer to Note 2, Business Combination and Asset Acquisitions, in the Notes to Condensed Consolidated Financial Statements included in Part I. Item 1 of this Quarterly Report on Form 10-Q.
Impact of COVID-19 Pandemic
In March 2020, the World Health Organization declared the novel coronavirus ("COVID-19" or "the pandemic") 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 employees, customers, and suppliers, and caused many challenges for our business and manufacturing operations. While we are seeing positive signs of recovery in the United States, ("the continuing implications of COVID-19 on our business and manufacturing operations remain uncertain and will depend on certain future developments, including the duration, scope, and severity of the pandemic; its impact on the market demand for our products; its impact on our employees, customers, and suppliers; the range of government mandated restrictions and other measures; and the success of the deployment of COVID-19 vaccines and their effectiveness. As a result, 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 Public Law No. 115-97 (“Tax Act”), originally introducedat our facilities and other sites include, but are not limited to, implementing social distancing protocols such as the Tax Cutsreconfiguration of manufacturing processes and Jobs Act,other workspaces, 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 significantly modifythose 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. In general, employees who do not need to be physically present at our facilities and sites to perform their job responsibilities continue to work from home; however, depending on local conditions and mandates and regulations, we expect many of our employees will return to a work-from-office environment in the Internal Revenue Code. The Tax Actnear term. During the first quarter of fiscal 2021, 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. As part of this employee campaign, during the second quarter of fiscal 2021, we obtained approval as a COVID-19 vaccine administrator at certain of our U.S. facilities and began offering the vaccine to our employees and their eligible family members. We expect to continue certain applicable and appropriate 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. While our facilities have remained operational during the second quarter and first six months of fiscal 2021, we continued to experience various degrees of manufacturing cost pressures and inefficiencies. However, such manufacturing cost pressures and inefficiencies were experienced to a lesser extent than those experienced during the second quarter of fiscal 2020 when our manufacturing operations experienced intermittent partial or full factory closures, reduced levels of production at certain facilities, and manufacturing inefficiencies as a result of government mandated measures, reduced demand for products in certain of our Professional segment businesses, and the U.S. federal corporate tax rate from 35.0 percentinitial reconfiguration of certain of our manufacturing processes in order to 21.0 percent, createdimplement social distancing protocols within our facilities. As a territorial tax systemresult, the improvement in our manufacturing operations experienced during the second quarter and first six months of fiscal 2021 as compared to the fiscal 2020 comparable periods had a favorable impact on our gross margins for the three and six month periods ended April 30, 2021.
Although we regularly monitor the adequacy of supply and financial health of the companies in our supply chain and use alternative suppliers when necessary and available, 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, has and could continue to cause a disruption in our ability to procure the commodities, components, and parts required to manufacture our products. Ongoing
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communications continue with our suppliers in an exemptionattempt to identify and mitigate such risks and to proactively manage inventory levels of commodities, components, and parts to align with anticipated demand for foreign dividends,our products and imposedother government actions. During the second quarter of fiscal 2021, we experienced a one-time deemed repatriation tax on a U.S. company's historical undistributed earningsgreater level of disruptions within our global supply chain that limited our ability to procure commodities, components, parts, and profits of foreign affiliates. The tax rate change was effective January 1, 2018, resultingaccessories in a blended statutory tax ratetimely manner to meet manufacturing production requirements than we experienced during the second quarter of 23.3 percentfiscal 2020. As a result, we experienced various degrees of product availability issues throughout our businesses, which limited our ability to meet customer demand and adequately replenish our raw materials, work in process, and finished goods inventory levels. We currently expect a greater level of supply chain disruptions throughout the remainder of fiscal 2021 as compared to prior periods due to a combination of our current inability to source adequate amounts of certain component parts inventory and, in certain cases, the inability of our suppliers to meet our commodity and component parts demand requirements. Additionally, we experienced inflationary cost pressures on commodity costs during the second quarter of fiscal 2021 when compared to prior periods and we expect to continue to experience an inflationary environment for commodity costs throughout the remainder of fiscal 2021, which would put pressure on our gross margins.
During the second quarter of fiscal 2021, we experienced a continued strong rebound in demand for many of the products underlying our Professional segment businesses that were adversely impacted by COVID-19 during the second quarter of fiscal 2020. Most notably, our golf business experienced strong demand as course investments increased and spending patterns began to normalize as budgetary constraints moderated. Additionally, our landscape contractor business continued to build upon the momentum generated during the fourth quarter of fiscal 2020 and first quarter of fiscal 2021 as we continued to experience strong retail demand from contractors and our channel partners worked to replenish their field inventory levels. Our rental and specialty construction business also experienced strong demand due to favorable construction industry trends. While these demand rebounds within our Professional segment are positive, we experienced a reduction of net sales within our underground construction business due to product availability issues that limited our ability to meet demand for our products. Our Residential segment continued to build on the momentum generated during fiscal 2020 and experienced strong retail demand during the second quarter of fiscal 2021 for zero-turn riding mowers, Flex-Force battery-powered home solutions products, and snow thrower products as a result of new and enhanced products, favorable weather conditions, expanded retail placement, and continued investments by homeowners in their properties. 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 has had, and could continue to have, an adverse impact on our gross margins. However, for the three and six month periods ended April 30, 2021 and for the first time since the initial onset of the pandemic during the second quarter of fiscal 2020, we experienced a shift to a greater percentage of Professional segment net sales as a percentage of consolidated net sales when compared to the prior year comparable periods and such shift resulted in a favorable impact to our gross margins. Further, as a result of strong business performance throughout the second half of fiscal 2020, many of the COVID-19 cost reduction measures enacted in fiscal 2020 were discontinued during the first quarter of fiscal 2021. Our balance sheet and liquidity profile remained strong as of April 30, 2021 and we expect to continue our historical practice of prudently managing our expenses and adjusting production levels as needed to align with anticipated sales volumes throughout fiscal 2021. However, given our current expectation of a greater level of supply chain disruptions during the remainder of fiscal 2021 due to a combination of our current inability to source adequate amounts of component parts inventory and the inability of our suppliers to meet our commodity and component parts demand requirements, our ability to effectively and efficiently adjust production levels as needed may be limited.
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, the industries in which we operate, market demand for our products, and/or 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, right-of-use assets, 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, 2018. Among other provisions, the Tax Act also increased expensing for certain business assets, created new taxes on certain foreign sourced earnings, adopted limitations on business interest expense deductions, repealed deductions for income attributable to domestic production activities, and added other anti-base erosion rules. The effective dates2020.
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RESULTS OF OPERATIONS
Overview
Worldwide consolidated net sales for the provisions set forth in the Tax Act vary as to when the provisions will apply to Toro.


In response to the Tax Act, the SEC provided guidance by issuing Staff Accounting Bulletin No. 118 (“SAB 118”). SAB 118 allows companies to record provisional amounts during a measurement period with respect to the impacts of the Tax Act for which the accounting requirements under ASC Topic 740 are not complete, but a reasonable estimate has been determined. The measurement period under SAB 118 ends when a company has obtained, prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC Topic 740, but cannot exceed one year.

As of the firstsecond quarter of fiscal 2018, we have not completed2021 were $1,149.1 million, up 23.6 percent compared to $929.4 million in the accountingsecond quarter of fiscal 2020. For the first six months of fiscal 2021, worldwide consolidated net sales were $2,022.1 million, up 19.2 percent compared to $1,696.9 million from the same period in the prior fiscal year.
Professional segment net sales for the effectssecond quarter of fiscal 2021 were $828.4 million, an increase of 25.3 percent compared to $661.1 million in the second quarter of the Tax Act. However, we have estimatedprior fiscal year. For the impactsfirst six months of fiscal 2021, Professional segment net sales were $1,478.6 million, an increase of 17.7 percent compared to $1,255.8 million in the prior fiscal year comparable period.
Residential segment net sales for the second quarter of fiscal 2021 were $315.0 million, an increase of 20.2 percent compared to $262.0 million in the second quarter of the Tax Actprior fiscal year. For the first six months of fiscal 2021, Residential segment net sales were $532.7 million, an increase of 24.5 percent compared to $427.8 million in its annual effective tax rate, and have recorded provisional amountsthe prior fiscal year comparable period.
Net earnings for the remeasurementsecond quarter of deferred tax assets and liabilities and the deemed repatriation tax.

While we have recorded provisional amountsfiscal 2021 were $142.2 million, or $1.31 per diluted share, compared to $98.4 million, or $0.91 per diluted share, for the items expected to most significantly impact our financial statements this year, our evaluation is not complete and, accordingly, we have not yet reached a final conclusion on the overall impactssecond quarter of the Tax Act. We need additional time to obtain, prepare, and analyze information related to the applicable provisions of the Tax Act. The actual impact of the Tax Act may differ from the provisional amounts, due to, among other things, changes in interpretations and assumptions we have made, guidance that may be issued, and changes in our structure or business model. Please reference the sections below titled "Provision for income taxes" and "Net earnings" within this MD&A for further information regarding the impacts of the Tax Act on usfiscal 2020. Net earnings for the first six months of fiscal 2021 were $253.5 million, or $2.32 per diluted share, compared to $168.5 million, or $1.55 per diluted share, in the comparable fiscal 2020 period.
Non-GAAP net earnings for the second quarter of fiscal 2018.

2021 were $140.3 million, or $1.29 per diluted share, compared to $100.2 million, or $0.92 per diluted share, for the second quarter of fiscal 2020. Non-GAAP net earnings for the first six months of fiscal 2021 were $233.5 million, or $2.14 per diluted share, compared to $169.8 million, or $1.56 per diluted share, in the comparable fiscal 2020 period. Reconciliations of adjusted 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.

Overview

ForWe increased our cash dividend for the firstsecond quarter of fiscal 2018,2021 by 5.0 percent to $0.2625 per share compared to $0.25 per share paid in the second quarter of fiscal 2020 and continued repurchasing shares of our net sales increased 6.3 percent,common stock under our Board authorized repurchase plan during the second quarter of fiscal 2021.
Field inventory levels were lower as of the end of the second quarter of fiscal 2021 compared to the firstsecond quarter of fiscal 2017.2020 across the majority of our businesses as a result of continued strong retail demand for our products that has exceeded product availability, most notably within our Professional segment landscape contractor business and Residential segment.
Net Sales
Worldwide consolidated net sales increased 8.6 percent for the firstsecond quarter comparison,of fiscal 2021 were $1,149.1 million, up 23.6 percent compared to $929.4 million in the second quarter of fiscal 2020. This net sales increase was primarily due to a continued strong channelrebound in demand for many of the products underlying our Professional segment businesses that were adversely impacted by COVID-19 during the second quarter of fiscal 2020, including golf equipment and irrigation products as a result of the normalization of golf course spending patterns and course investments, landscape contractor zero-turn radius riding mowers aheaddue to strong retail demand and low field inventory levels at the end of our key selling season, continued growth in our golffiscal 2020, and grounds business, increased shipments of our rental and specialty construction equipment due to favorable construction industry trends. The net sales increase was also the result of strong retail demand for zero-turn riding mowers due to new and enhanced products, increased sales of Flex-Force battery-powered home solutions products primarily due to successful new product introductions, and increased shipments of snow thrower products as a result of favorable late season weather conditions in key regions and enhanced retail placement. The net sales increase for the second quarter comparison was partially offset by reduced sales of underground construction equipment as a result of product availability issues and continued softened demand in the oil and gas industry.
For the year-to-date period of fiscal 2021, worldwide consolidated net sales were $2,022.1 million, up 19.2 percent compared to $1,696.9 million from the same period in the prior fiscal year. This net sales increase was primarily due to a continued strong rebound in demand for many of the products underlying our Professional segment businesses that were adversely impacted by COVID-19 during the second quarter of fiscal 2020, including landscape contractor zero-turn riding mowers due to continued strong retail demand and increased shipmentslow field inventory levels at the end of our ag-irrigationfiscal 2020, golf equipment and irrigation products as a result of the normalization of golf course spending patterns and course investments, and rental and specialty construction equipment due to favorable weather conditions. Theseconstruction industry trends. The net sales increase was also the result of incremental Professional segment increases werenet sales from our acquisition of Venture Products and strong retail demand in our Residential segment for snow thrower products as a result of favorable winter conditions in key regions and enhanced retail placement, zero-turn-riding mowers due to new and enhanced products, and Flex-Force battery-powered home solutions products primarily due to successful new product introductions. The net sales increase for the year-to-date comparison was partially offset by lower shipmentsreduced sales of our snowunderground construction equipment as a result of product availability issues and ice management products due to lower than average snowfallcontinued softened demand in key customer markets. Residential segment netthe oil and gas industry.
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Net sales were up 1.5in international markets increased by 40.4 percent and 24.9 percent for the firstsecond quarter comparison, mainly due to channel demand for our zero-turn radius mowers in preparation for our key selling season ahead, partially offset by lower residential snow product and service part sales which were impacted by below average snowfall early in the season, paired with below average snow events in the Midwest.

year-to-date periods of fiscal 2021, respectively. Changes in foreign currency exchange rates resulted in an increase ofin our net sales of approximately $3.3$7.9 million and $10.4 million for the firstsecond quarter and year-to-date periods of fiscal 2021, respectively. The international net sales increase for the quarter comparison was mainly driven by increased shipments of golf and grounds equipment, strong demand for both Professional and Residential segment zero-turn riding products, and increased net sales of underground construction equipment. The international net sales increase for the year-to-date period of fiscal 2021 was mainly driven by strong demand for both Professional and Residential segment zero-turn riding products, increased sales of underground construction equipment, incremental net sales as a result of our acquisition of Venture Products, and increased shipments of golf and grounds equipment.
The following table summarizes our Results of Operations as a percentage of consolidated net sales:
 Three Months EndedSix Months Ended
April 30, 2021May 1, 2020April 30, 2021May 1, 2020
Net sales100.0 %100.0 %100.0 %100.0 %
Cost of sales(64.9)(67.0)(64.5)(64.9)
Gross profit35.1 33.0 35.5 35.1 
Selling, general and administrative expense(19.4)(19.5)(19.6)(22.3)
Operating earnings15.7 13.5 15.9 12.8 
Interest expense(0.6)(0.9)(0.7)(1.0)
Other income, net0.3 0.5 0.3 0.4 
Earnings before income taxes15.4 13.1 15.5 12.2 
Provision for income taxes(3.0)(2.5)(3.0)(2.3)
Net earnings12.4 %10.6 %12.5 %9.9 %
Gross Profit and Gross Margin
Gross profit for the second quarter of fiscal 2018.

Due2021 was $403.0 million, up 31.4 percent compared to $306.7 million in the one-time impacts of the Tax Act, the reported firstsecond quarter of fiscal 2018 net earnings were $22.6 million, which2020. Gross margin was lower than35.1 percent for the comparable fiscal 2017 reported net earnings of $45.0 million. Adjusted firstsecond quarter of fiscal 2018 net earnings were $52.1 million,2021 compared to adjusted net earnings33.0 percent for the second quarter of $40.1fiscal 2020, an increase of 210 basis points. Non-GAAP gross profit for the second quarter of fiscal 2021 was $403.0 million, up 30.0 percent compared to $310.0 million in the second quarter of fiscal 2020. Non-GAAP gross margin was 35.1 percent for the second quarter of fiscal 2021 compared to 33.4 percent for the second quarter of fiscal 2020, an increase of 170 basis points. The increase in gross margin and non-GAAP gross margin for the second quarter comparison was primarily driven by productivity improvements, including COVID-19 production downtime and manufacturing inefficiencies in the second quarter of fiscal 2020 that were experienced to a lesser degree in the second quarter of fiscal 2021; improved net price realization as a result of price increases across our product lines; and favorable product mix; partially offset by higher commodity costs.
Gross profit for the year-to-date period of fiscal 2021 was $718.0 million, up 20.7 percent compared to $594.8 million in the same period of fiscal 2020. Gross margin was 35.5 percent for the year-to-date period of fiscal 2021 compared to 35.1 percent for the prior year comparable 2017 period, an increase of 30.0 percent. The adjusted net earnings growth40 basis points. Non-GAAP gross profit for the firstyear-to-date period of fiscal 2021 was $718.0 million, up 20.0 percent compared to $598.5 million in the same period of fiscal 2020. Non-GAAP gross margin was 35.5 percent for the year-to-date period of fiscal 2021 compared to 35.3 percent for the prior year comparable period, an increase of 20 basis points. The increase in gross margin and non-GAAP gross margin for the year-to-date comparison was primarily driven by productivity improvements, including COVID-19 production downtime and manufacturing inefficiencies in the second quarter of fiscal 2018 was primarily attributable2020 that were experienced to increased sales while leveraging selling, general,a lesser degree in the second quarter of fiscal 2021, and administrative expenses ("SG&A"). Lower gross margin partially offset the adjustedimproved net earnings growth, due primarily to higher commodity costs and unfavorableprice realization as a result of price increases across our product mix within our segments,lines, partially offset by favorable foreign currency exchange rate fluctuations.higher commodity costs.
Non-GAAP gross profit and non-GAAP gross margin exclude the impact of acquisition-related costs for our acquisitions of Venture Products and 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, and the impact of management actions, including charges incurred for inventory write-downs related to the wind down of our Toro-branded large horizontal directional drill and riding trencher product line ("Toro underground wind down"). Reconciliations of adjusted 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 2018 by 14.3 percent to $0.20 per share compared to the $0.175 per share cash dividend paid in the first quarter of fiscal 2017.

Inventory levels increased $37.2 million, or 9.3 percent, as of the end of the first quarter of fiscal 2018 mainly driven by higher planned sales for our upcoming key selling season and the impact of foreign currency exchange rates. Accounts receivable increased $14.9 million, or 8.1 percent, largely due to higher sales volume and the impact of foreign currency exchange rates. As of the end of the first quarter of fiscal 2018, field inventory levels were higher for both the Professional and Residential segments due to strong anticipated demand as we move into our key selling season.


Three-Year Employee Initiative - "Vision 2020"

Our current multi-year employee initiative, "Vision 2020", which began with our 2018 fiscal year, focuses on driving profitable growth with an emphasis on innovation and serving our customers, which we believe will generate further momentum for the organization. Through our Vision 2020 initiative, we have set specific goals intended to help us drive organic revenue and operating earnings growth.

Organic Revenue Growth

We intend to pursue strategic growth of our existing businesses and product categories with an organic revenue goal to achieve at least five percent or more of organic revenue growth in each of the three fiscal years of this initiative. For purposes of this goal, we define organic revenue growth as the increase in net sales, less net sales from acquisitions that occurred in the current fiscal year.

Operating Earnings

Additionally, as part of our new Vision 2020 initiative growth goals, we have set an operating earnings goal to increase operating earnings as a percentage of net sales to 15.5 percent or higher by the end of fiscal 2020.

Net Sales

Worldwide consolidated net sales for the first quarter of fiscal 2018 were $548.2 million, up 6.3 percent compared to $515.8 million in the first quarter of fiscal 2017. The net sales increase for the quarter comparison was primarily due to strong channel demand for our Professional segment and Residential segment zero-turn radius riding mowers ahead of our key selling season, sales growth in our golf and grounds business, increased shipments of our rental and specialty construction equipment due to continued strong retail demand, and increased shipments of our ag-irrigation products due to favorable weather conditions. The net sales increase was partially offset by lower sales of our Professional segment and Residential segment snow and ice management products due to lower than average snowfall and snow events in key customer markets.

Net sales in international markets increased by 11.8 percent for the first quarter of fiscal 2018, mainly due to increased shipments of our Professional segment and Residential segment zero-turn radius riding mowers, growth of our golf and grounds business, and sales of Perrot-branded irrigation products. Changes in foreign currency exchange rates positively impacted our international net sales by approximately $3.3 million for the first quarter of fiscal 2018.

The following table summarizes the major operating costs and other income as a percentage of net sales:
  Three Months Ended
  February 2, 2018 February 3, 2017
Net sales 100.0% 100.0%
Cost of sales (62.7) (62.5)
Gross profit 37.3
 37.5
Selling, general and administrative expense (25.1) (25.8)
Operating earnings 12.2
 11.7
Interest expense (0.9) (0.9)
Other income, net 0.8
 0.7
Provision for income taxes (8.0) (2.8)
Net earnings 4.1% 8.7%

Gross Profit

As a percentage of net sales, gross profit for the first quarter of fiscal 2018 was 37.3 percent, down 20 basis points when compared to the first quarter of fiscal 2017. This decrease was primarily due to higher commodity costs and unfavorable product mix within our segments, partially offset by favorable foreign currency exchange rate fluctuations.


Selling, General, and Administrative ("SG&A") Expense

SG&A expense increased $4.4$41.3 million, or 3.322.8 percent, for the firstsecond quarter of fiscal 2018 when compared to2021 and increased $17.9 million, or 4.7 percent, for the first quarteryear-to-date period of fiscal 2017.2021. As a percentage of net sales, SG&A expense decreased 7010 basis points to 25.1 percent
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and 270 basis points for the firstsecond quarter and year-to-date periods of fiscal 2018.2021, respectively. The decrease in SG&A expense as a percentage of net sales for the second quarter comparison was primarily the result of leveraging expense over higher sales volumes and decreased indirect marketing expenses as a result of lower meeting, travel, and entertainment costs, partially offset by higher incentive compensation costs due to improved performance and the reinstatement of certain fiscal 2020 cost-reduction measures. The decrease in SG&A expense as a percentage of net sales for the year-to-date comparison was primarily the result of leveraging expense over higher sales volumes, which further benefited from a favorable net legal settlement with Briggs & Stratton ("BGG") and decreased indirect marketing expenses as a result of lower meeting, travel, and entertainment costs. These decreases for the year-to-date comparison were partially offset by higher incentive compensation costs due to improved performance and the reinstatement of certain fiscal 2020 cost-reduction measures.
Interest Expense
Interest expense decreased $1.5 million and $2.2 million for the second quarter and year-to-date periods of fiscal 2021 compared to the comparable periods of fiscal 2020. These decreases were driven by lower average outstanding borrowings under our debt arrangements and lower average interest rates due to the leveraging of expenses over higher sales volume.

Interest Expense

Interest expense for the first quarter of fiscal 2018 decreased by 1.3 percent.

reduction in LIBOR.
Other Income, Net

Other income, net for the firstsecond quarter of fiscal 20182021 decreased $0.6 million compared to the second quarter of fiscal 2020. This decrease was primarily due to the unfavorable impact of foreign currency exchange rates, partially offset by a settlement charge incurred for the termination of our U.S. defined benefit pension plan recognized in fiscal 2020 that did not reoccur in fiscal 2021. Other income, net for the year-to-date period of fiscal 2021 decreased $1.9 million compared to the same period in fiscal 2020. This decrease was primarily due to the unfavorable impact of foreign currency exchange rates and lower income from our Red Iron joint venture as a result of lower field inventory levels and increased by $0.4 million or 10.7 percent wheninventory turnover at our channel partners due to strong retail demand during the first six months of fiscal 2021 as compared to the first quartersix months of fiscal 2017. This increase was driven mainly by higher interest income on marketable securities,2020, partially offset by foreign currency exchange rate losses.

a settlement charge incurred for the termination of our U.S. defined benefit pension plan recognized in fiscal 2020 that did not reoccur in fiscal 2021.
Provision for Income Taxes

The effective tax rate for the firstsecond quarter of fiscal 20182021 was 66.019.8 percent compared to 24.518.9 percent in the first quarter of 2017. The firstsecond quarter of fiscal 2018 effective tax rate was significantly impacted by the enactment of the Tax Act. This2020. The increase was driven by the provisional remeasurement of deferred tax assets and liabilities, which resulted in a non-cash discrete tax charge of $20.5 million, and the provisional calculation of the deemed repatriation tax, which resulted in a discrete tax charge of $12.6 million, payable over eight years. The unfavorable impact of these one-time charges was partially offset by a benefit of $4.9 million resulting from the reduction in the federal corporate tax rate. The adjusted effective tax rate for the first quarter comparison was primarily due to the geographic mix of earnings. The effective tax rate for the year-to-date period of fiscal 20182021 was 21.519.0 percent compared to an adjusted effective tax rate of 32.718.8 percent in the same period last year.of fiscal 2020. The adjustedincrease in the effective tax rate for the year-to-date comparison was primarily due to the geographic mix of earnings, partially offset by increased tax benefits from excess tax deductions for stock-based compensation.
The non-GAAP effective tax rate for the second quarter of fiscal 2021 was 20.9 percent, compared to a non-GAAP effective tax rate of 20.0 percent in the second quarter of fiscal 2020. The non-GAAP effective tax rate for the year-to-date period of fiscal 2021 was 21.1 percent, compared to a non-GAAP effective tax rate of 20.4 percent in the same period of fiscal 2020. These year-over-year increases were primarily due to the geographic mix of earnings. The non-GAAP effective tax rate excludes one-time charges associated with the Tax Actimpact of $33.1 million and a benefit of $3.6 million for thediscrete tax benefits recorded as excess tax deductiondeductions for share-basedstock-based compensation. Reconciliations of adjusted non-GAAP financial measures to the most directly comparable reported U.S. GAAP financial measures are included in the section titled "Non-GAAP Financial Measures."
Net Earnings
Net earnings for the second quarter of fiscal 2021 were $142.2 million, or $1.31 per diluted share, compared to $98.4 million, or $0.91 per diluted share, for the second quarter of fiscal 2020. Non-GAAP net earnings for the second quarter of fiscal 2021 were $140.3 million, or $1.29 per diluted share, compared to $100.2 million, or $0.92 per diluted share, for the second quarter of fiscal 2020, an increase of 40.2 percent per diluted share. The increase in net earnings and non-GAAP net earnings for the second quarter comparison was primarily driven by productivity improvements, including COVID-19 production downtime and manufacturing inefficiencies in the second quarter of fiscal 2020 that were experienced to a lesser degree in the second quarter of fiscal 2021; improved net price realization as a result of price increases across our product lines; and favorable product mix; partially offset by higher commodity costs.
Net earnings for the first six months of fiscal 2021 were $253.5 million, or $2.32 per diluted share, compared to $168.5 million, or $1.55 per diluted share, for the same period of fiscal 2020. The increase in net earnings for the year-to-date comparison was primarily due to higher sales volumes; productivity improvements, including COVID-19 production downtime and manufacturing inefficiencies in the second quarter of fiscal 2020 that were experienced to a lesser degree in the second quarter of fiscal 2021; improved net price realization as a result of price increases across our product lines; and a favorable net legal settlement with BGG; partially offset by higher commodity costs. Non-GAAP net earnings for the first six months of fiscal 2021 were $233.5 million, or $2.14 per diluted share, compared to $169.8 million, or $1.56 per diluted share, for the same year-to-date period of fiscal 2020, an increase of 37.2 percent per diluted share. The increase in non-GAAP net earnings for the year-to-date comparison was primarily due to higher sales volumes; productivity improvements, including COVID-19 production
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downtime and manufacturing inefficiencies in the second quarter of fiscal 2020 that were experienced to a lesser degree in the second quarter of fiscal 2021; and improved net price realization as a result of price increases across our product lines, partially offset by higher commodity costs.
Non-GAAP net earnings and non-GAAP net earnings per diluted share exclude the impact of the favorable net legal settlement with BGG; acquisition-related costs related to our acquisitions of Venture Products and CMW, including transaction and integration costs and charges incurred related to certain purchase accounting adjustments; the impact of discrete tax benefits recorded as excess tax deductions for stock-based compensation; and management actions, including charges incurred for inventory write-downs related to the Toro underground wind down. Reconciliations of non-GAAP financial measures to the most directly comparable reported U.S. GAAP financial measures are included in the section titled "Non-GAAP Financial Measures" within this MD&A.

Net Earnings

Net earnings for the first quarter of fiscal 2018 were $22.6 million, or $0.21 per diluted share, compared to $45.0 million, or $0.41 per diluted share, for the first quarter of fiscal 2017. The first quarter of fiscal 2018 net earnings were significantly impacted by the enactment of the Tax Act. As previously mentioned, the impact from the enactment of the Tax Act was driven by the provisional remeasurement of deferred tax assets and liabilities, which resulted in a non-cash discrete tax charge of $20.5 million, and the provisional calculation of the deemed repatriation tax, which resulted in a discrete tax charge of $12.6 million, payable over eight years. The unfavorable impact of these one-time charges was partially offset by a benefit of $4.9 million resulting from the reduction in the federal corporate tax rate. Adjusted net earnings for the first quarter of fiscal 2018 were $52.1 million, or $0.48 per diluted share, compared to $40.1 million, or $0.37 per diluted share, for the first quarter of fiscal 2017, an increase of 30.0 percent. The first quarter of fiscal 2018 adjusted net earnings excludes one-time charges associated with the Tax Act of $33.1 million, or $0.30 per diluted share and a benefit of $3.6 million, or $0.03 per diluted share, for the excess tax deduction for share-based compensation. The first quarter of fiscal 2017 adjusted net earnings excludes a benefit of $4.9 million, or $0.04 per diluted share, for the excess tax deduction for share-based compensation. Reconciliations of adjusted non-GAAP financial measures to the most directly comparable reported GAAP financial measures are included in the section titled "Non-GAAP Financial Measures" within this MD&A.

BUSINESS SEGMENTS

We operate in threetwo reportable business segments: Professional Residential, and Distribution. Our Distribution segment, which consists of our wholly-owned domestic distributorship, has been combined with our corporate activities and elimination of intersegment revenues and expenses that is shown as “Other” in the following tables. OperatingResidential. Segment earnings for our Professional and Residential segments are defined as operating earnings from operations plus other income, net. OperatingOur 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 and six month periods ended April 30, 2021, operating loss for “Other” includes operatingour Other activities included earnings (loss), from our wholly-owned domestic distribution company, Red Iron joint venture, corporate activities, other income, net, and interest expense.


For the three and six month periods ended May 1, 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, such as finance, human resources, legal, information services, public relations, and similar activities, as well as other unallocated corporate assets and liabilities, such as corporate facilities and deferred tax assets and liabilities.
The following table summarizestables summarize net sales byfor our reportable business segment:segments and Other activities:
 Three Months Ended
(Dollars in thousands)April 30, 2021May 1, 2020Dollar Value ChangePercentage Change
Professional$828,358 $661,087 $167,271 25.3 %
Residential315,035 261,998 53,037 20.2 
Other5,714 6,313 (599)(9.5)
Total net sales*$1,149,107 $929,398 $219,709 23.6 %
*Includes international net sales of:$255,575 $182,044 $73,531 40.4 %
 Three Months Ended Six Months Ended
(Dollars in thousands) February 2, 2018 February 3, 2017 $ Change % Change(Dollars in thousands)April 30, 2021May 1, 2020Dollar Value ChangePercentage Change
Professional $403,669
 $371,809
 $31,860
 8.6 %Professional$1,478,581 $1,255,808 $222,773 17.7 %
Residential 142,507
 140,390
 2,117
 1.5
Residential532,735 427,846 104,889 24.5 
Other 2,070
 3,640
 (1,570) (43.1)Other10,777 13,227 (2,450)(18.5)
Total net sales* $548,246
 $515,839
 $32,407
 6.3 %Total net sales*$2,022,093 $1,696,881 $325,212 19.2 %
        
*Includes international net sales of: $146,790
 $131,242
 $15,548
 11.8 %*Includes international net sales of:$447,256 $357,987 $89,269 24.9 %
The following table summarizestables summarize segment earnings for our reportable business segment earningssegments and operating (loss) before income taxes:for our Other activities:
 Three Months Ended
(Dollars in thousands)April 30, 2021May 1, 2020Dollar Value ChangePercentage Change
Professional$167,132 $106,259 $60,873 57.3 %
Residential45,986 37,122 8,864 23.9 
Other(35,875)(22,010)(13,865)(63.0)
Total segment earnings$177,243 $121,371 $55,872 46.0 %
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 Three Months Ended Six Months Ended
(Dollars in thousands) February 2, 2018 February 3, 2017 $ Change % Change(Dollars in thousands)April 30, 2021May 1, 2020Dollar Value ChangePercentage Change
Professional $75,912
 $68,166
 $7,746
 11.4 %Professional$283,948 $208,733 $75,215 36.0 %
Residential 15,713
 16,558
 (845) (5.1)Residential78,094 58,688 19,406 33.1 
Other (25,240) (25,171) (69) (0.3)Other(48,973)(59,911)10,938 18.3 
Total earnings before income taxes $66,385
 $59,553
 $6,832
 11.5 %
Total segment earningsTotal segment earnings$313,069 $207,510 $105,559 50.9 %
Professional Segment

Segment Net Sales

Worldwide net sales for our Professional segment infor the firstsecond quarter of fiscal 20182021 increased 8.6 percent. This25.3 percent compared to the second quarter of fiscal 2020. Worldwide net sales for our Professional segment for the year-to-date period of fiscal 2021 increased 17.7 percent compared to the same period of fiscal 2020. The increase wasin Professional segment net sales for the second quarter and year-to-date periods of fiscal 2021 is primarily due to a continued strong channelrebound in demand for many of the products underlying our Professional segment businesses that were adversely impacted by COVID-19 during the second quarter of fiscal 2020. The strong demand experienced during the second quarter of fiscal 2021 was primarily driven by golf equipment and irrigation products as a result of the normalization of golf course spending patterns and course investments, landscape contractor zero-turn radius riding mowers aheaddue to strong retail demand and low field inventory levels at the end of our key selling season, continued growth in our golffiscal 2020, and grounds business with increased shipments of our Reelmaster® and Greensmaster® series mowers, increased shipments of our rental and specialty construction equipment due to favorable construction industry trends. The net sales increase for the second quarter comparison was partially offset by reduced sales of underground construction equipment as a result of product availability issues and continued softened demand in the oil and gas industry.
The strong demand experienced during the year-to-date period of fiscal 2021 was primarily driven by landscape contractor zero-turn riding mowers due to continued strong retail demand and increased shipmentslow field inventory levels at the end of our ag-irrigationfiscal 2020, golf equipment and irrigation products as a result of the normalization of golf course spending patterns and course investments, and rental and specialty construction equipment due to favorable weather conditions when comparedconstruction industry trends. Incremental Professional segment net sales as a result of our acquisition of Venture Products also contributed to the first quarter of fiscal 2017.net sales increase for the year-to-date period. The net sales increase for the year-to-date comparison was partially offset by lower shipmentsreduced sales of our snowunderground construction equipment as a result of product availability issues and ice management products due to lower than average snowfallcontinued softened demand in key customer markets.the oil and gas industry.

OperatingSegment Earnings

OperatingProfessional segment earnings for the Professional segment in the firstsecond quarter of fiscal 20182021 increased by 11.457.3 percent compared to the firstsecond quarter of fiscal 2017,2020, and when expressed as a percentage of net sales, increased to 18.820.2 percent from 18.316.1 percent. As a percentage of net sales, the operatingProfessional segment earnings increase for the second quarter comparison was primarily driven by productivity improvements, including COVID-19 production downtime and manufacturing inefficiencies in the second quarter of fiscal 2020 that were experienced to a lesser degree in the second quarter of fiscal 2021; improved net price realization as a result of price increases across our product lines; reduced SG&A expense as a percentage of net sales due to leveraging SG&A expense over higher sales volume, but was impacted by lower gross margins. The lower gross margins were mainly due to higher commodity costsvolumes; and unfavorable segmentfavorable product mix,mix; partially offset by favorable foreign currency exchange rate fluctuations.higher commodity costs.

Residential Segment

Net Sales

Worldwide net salesProfessional segment earnings for our Residential segment in the first quarteryear-to-date period of fiscal 20182021 increased 1.536.0 percent compared to the prior fiscal year period. This increase was primarily due to channel demand for our zero-turn radius mowers ahead of our key selling season, partially offset by lower residential snow product and service part sales, which were impacted by below average snowfall early in the season, paired with below average snow events in the Midwest.

Operating Earnings

Operating earnings for the Residential segment in the first quartersame period of fiscal 2018 decreased 5.1 percent compared to the first quarter of fiscal 2017,2020, and when expressed as a percentage of net sales, decreasedincreased to 11.019.2 percent from 11.816.6 percent. As a percentage of net sales, the operatingProfessional segment earnings decreaseincrease for the year-to-date comparison was primarily driven by reduced SG&A expense as a percentage of net sales due to leveraging expense over higher sales volumes; productivity improvements, including COVID-19 production downtime and manufacturing inefficiencies in the second quarter of fiscal 2020 that were experienced to a lesser degree in the second quarter of fiscal 2021; and improved net price realization as a result of price increases across our product lines, partially offset by higher commodity costs.
Residential Segment
Segment Net Sales
Worldwide net sales for our Residential segment for the second quarter of fiscal 2021 increased 20.2 percent compared to the second quarter of fiscal 2020. The Residential segment net sales increase for the second quarter comparison was mainly driven by strong retail demand for zero-turn riding mowers due to new and enhanced products, increased sales of Flex-Force battery-powered home solutions products primarily due to successful new product introductions, and increased shipments of snow thrower products as a result of favorable late season weather conditions in key regions and enhanced retail placement.
Worldwide net sales for our Residential segment for the year-to-date period of fiscal 2021 increased 24.5 percent compared to the same period of fiscal 2020. The Residential segment net sales increase for the year-to-date comparison was mainly driven by strong retail demand for snow thrower products as a result of favorable winter conditions in key regions and enhanced retail
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placement, strong retail demand for zero-turn-riding mowers due to new and enhanced products, and increased sales of Flex-Force battery-powered home solutions products primarily due to successful new product introductions.
Segment Earnings
Residential segment earnings for the second quarter of fiscal 2021 increased 23.9 percent compared to the second quarter of fiscal 2020, and when expressed as a percentage of net sales, increased to 14.6 percent from 14.2 percent. As a percentage of net sales, the Residential segment net earnings increase for the second quarter comparison was driven by productivity improvements, including COVID-19 production downtime and manufacturing inefficiencies in the second quarter of fiscal 2020 that were experienced to a lesser degree in the second quarter of fiscal 2021; improved net price realization as a result of price increases across our product lines; and favorable product mix; partially offset by higher commodity costs.
Residential segment earnings for the year-to-date period of fiscal 2021 increased 33.1 percent compared to the same period of fiscal 2020, and when expressed as a percentage of net sales, increased to 14.7 percent from 13.7 percent. As a percentage of net sales, the Residential segment net earnings increase for the year-to-date comparison was driven by reduced SG&A expense driven by higher warranty expense due to

product mix and higher marketing expense, in addition to lower gross margins. Gross margins decreased mainlyas a percentage of net sales due to leveraging expense over higher commodity costssales volumes; productivity improvements, including COVID-19 production downtime and unfavorable segmentmanufacturing inefficiencies in the second quarter of fiscal 2020 that were experienced to a lesser degree in the second quarter of fiscal 2021; and improved net price realization as a result of price increases across our product mix,lines; partially offset by favorable foreign currency exchange rate fluctuations.

higher commodity costs.
Other SegmentActivities

Other Net Sales

NetFor the second quarter and year-to-date periods of fiscal 2021, net sales for theour Other segment includeactivities included sales from our wholly ownedwholly-owned domestic distribution company less sales from the Professional and Residential segments to the distribution company. The Other segmentFor the second quarter and year-to-date periods 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 second quarter and year-to-date periods of fiscal 2021 decreased by $0.6 million and $2.5 million, respectively, compared to the same periods in fiscal 2020. These net sales decreases were due to the sale of our Northeastern U.S. distribution company during the first quarter of fiscal 2018 decreased2021, partially offset by $1.6 million, due to strongreduced intercompany sales eliminations for sales from our Professional segment salesand Residential segments to our wholly ownedremaining wholly-owned domestic distribution company that are eliminated inas a result of the sale of our other segment.Northeastern U.S. distribution company and increased sales from our remaining wholly-owned domestic distribution company driven by strong retail demand.

Other Operating Loss

OperatingThe operating loss for theour Other segment decreased $0.1 millionactivities for the firstsecond quarter of fiscal 2018,2021 increased $13.9 million compared to the second quarter of fiscal 2020. This operating loss increase was primarily due to higher corporateincentive compensation costs due to lower enterprise performance estimates during the second quarter of fiscal 2020 as a result of COVID-19, partially offset by reduced interest expense as a result of lower average outstanding borrowings under our debt arrangements and lower average interest rates due to the reduction in LIBOR.
The operating loss for our Other activities decreased $10.9 million for the year-to-date period of fiscal 2021. This operating loss decrease was primarily driven by a favorable net legal settlement with BGG and reduced interest expense as a result of lower average outstanding borrowings under our debt arrangements and lower average interest rates due to the reduction in LIBOR, partially offset by higher interest incomeincentive compensation costs due to lower enterprise performance estimates during the second quarter of fiscal 2020 as a result of COVID-19. 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 marketable securities.Form 10-Q.
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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. Our average net working capital as a percentage of net sales for the twelve months ended February 2, 2018, was 13.8 percent compared to 15.1 percent for the twelve months ended February 3, 2017. We calculate our average net working capital as average net accounts receivable plus net inventory, less accounts payable for a twelve month period as percentage of rolling twelve month net sales.

Inventory levels were up $37.2 million, or 9.3 percent, as of the end of the first quarter of fiscal 2018 compared to the end of the first quarter of fiscal 2017, mainly driven by higher planned sales for our upcoming key selling season and the impact of foreign currency exchange rates.end-users. Accounts receivable as of the end of the firstsecond quarter of fiscal 2018 increased $14.92021 decreased $9.2 million, or 8.12.3 percent, compared to the end of the second quarter of fiscal 2020, mainly due to the sale of our Northeastern U.S. distribution company during the first quarter of fiscal 2017,2021. Inventory levels were down $85.4 million, or 12.0 percent, as of the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020, primarily due to lower finished goods inventories in certain of our Professional segment businesses as a result of strong demand for our products that has exceeded product availability, partially offset by higher sales volumeraw materials and the impactwork in process inventories in our Residential segment due to timing of foreign currency exchange rates. Our average days sales outstanding for receivables decreased to 30.1 days, based on sales for the last twelve months ended February 2, 2018, compared to 30.8 days for the twelve months ended February 3, 2017. In addition, accountscomponent parts purchases. Accounts payable increased $34.1$94.4 million, or 14.728.8 percent, as of the end of our firstthe second quarter of fiscal 20182021 compared to the end of the firstsecond quarter of fiscal 2017,2020, mainly due to negotiating payment terms with supplierslargely normalized corporate spending activity in the second quarter of fiscal 2021 as compared to the lower corporate spending activity in the second quarter of fiscal 2020 as a componentresult of our working capital initiatives.

COVID-19.
Cash Flow

Cash Flows from Operating Activities
Cash provided by operating activities for the first threesix months of fiscal 2018 decreased $7.22021 was $318.6 million compared to $70.9 million for the first threesix months of fiscal 2017,2020. This increase was primarily due to a higher cash benefit from accrued liabilities due to the timing of payroll processing, higher net earnings that were partially driven by changesa favorable net legal settlement with BGG, and less cash utilized for inventory purchases in working capital, mainly cash usedour Professional segment businesses as a result of strong demand for purchases of inventory. our products that exceeded product availability.
Cash Flows from Investing Activities
Cash used in investing activities decreased $24.7$114.0 million during the first threesix months of fiscal 20182021 compared to the first threesix months of fiscal 2017,2020. This decrease was primarily due to less cash utilized for the acquisitionpartial holdback release for our business combination of Perrot that closedVenture Products during the first quartersix months of fiscal 2017. 2021 than was used for the initial cash consideration transferred on the acquisition date during the first six months of fiscal 2020, as well as cash proceeds from the sale of our Northeastern U.S. distribution company. The decrease was partially offset by cash used for two immaterial asset acquisitions.
Cash Flows from Financing Activities
Cash used in financing activities for the first threesix months of fiscal 2018 decreased $8.12021 was $254.1 million compared to cash provided by financing activities for the first threesix months of fiscal 2017,2020 of $143.1 million. This increase in cash used in financing activities was mainly due to less cash utilizedprovided by borrowings under our debt arrangements during the first six months of fiscal 2020 that did not repeat during the first six months of fiscal 2021 and more cash used for repurchases of shares of our common stock repurchases,under our Board authorized repurchase program as we resumed repurchase activity during the first six months of fiscal 2021, partially offset by higher payments on long-term debt and increased common stock dividends paid.

lower cash used for repayments of outstanding indebtedness.
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.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 February 2, 2018,April 30, 2021, we had available liquidity of $1,094.5 million, consisting of cash and short-term investmentscash equivalents of $497.6 million, of which $123.1 million was held by our foreign subsidiaries, were approximately $154.6 million.


Seasonal cash requirements are financed from operations, cash on hand, and with short-term financing arrangements, includingavailability under our $150.0 million unsecured senior five-year revolving credit facility that expiresof $596.9 million.
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Indebtedness
Our debt arrangements are described in further detail within our most recently filed Annual Report on Form 10-K for the fiscal year ended October 2019. Included in our $150.0 million revolving credit facility31, 2020. The following is a $20.0 million sublimit for standby letterssummary of credit and a $20.0 million sublimit for swingline loans. At our election, and withindebtedness:
(Dollars in thousands)April 30, 2021May 1, 2020October 31, 2020
$600 million revolving credit facility, due June 2023$— $— $— 
$200 million term loan, due April 2022100,000 100,000 100,000 
$300 million term loan, due April 2024170,000 180,000 180,000 
$190 million term loan, due June 2023— 190,000 90,000 
3.81% series A senior notes, due June 2029100,000 100,000 100,000 
3.91% series B senior notes, due June 2031100,000 100,000 100,000 
7.8% debentures, due June 2027100,000 100,000 100,000 
6.625% senior notes, due May 2037124,009 123,947 123,978 
Less: unamortized discounts, debt issuance costs, and deferred charges2,554 3,171 2,855 
Total long-term debt691,455 890,776 791,123 
Less: current portion of long-term debt99,959 99,868 99,873 
Long-term debt, less current portion$591,496 $790,908 $691,250 
During the approvalfirst six months of fiscal 2021, we prepaid 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 $100.0 million. Funds are available under the revolving credit facility for working capital, capital expenditures, and other lawful purposes, including, but not limited to, acquisitions and common stock repurchases. Interest expense on this credit line is determined based on a LIBOR rate (or other rates quoted by the Administrative Agent, Bank of America, N.A.) plus a basis point spread defined in the credit agreement. In addition, our non-U.S. operations maintain short-term lines of credit in the aggregate amount of approximately $9.7 million. These facilities bear interest at various rates depending on the rates in their respective countries of operation. As of February 2, 2018 and February 3, 2017, we had no outstanding short-term debt under these lines of credit. As of February 2, 2018, we had $8.6remaining $90.0 million of outstanding letters of creditborrowings under the $190.0 million three-year unsecured senior term loan facility and $151.1prepaid $10.0 million of unutilized availabilitythe remaining outstanding borrowings under our credit agreements.

Additionally, asthe $300.0 million five-year unsecured senior term loan facility. As of February 2, 2018,April 30, 2021, we had $315.5reclassified the remaining $100.0 million outstanding in long-term debt that includes $100.0balance under the $200.0 million of 7.8 percent debentures due June 15, 2027, $123.8 million of 6.625 percentthree-year unsecured senior notes due May 1, 2037, a $94.3 million term loan and partially offsettingfacility, 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 the maturity date of the $200.0 million three-year unsecured senior term loan facility is April 1, 2022 and deferred chargesis within the next twelve months.
As of $2.6 millionApril 30, 2021, we were in compliance with all covenants related to our outstanding long-term debt. The term loan bears interest based on a LIBOR rate (or other rates quoted by the Administrative Agent, Bank of America, N.A.) plus a basis point spread defined in the credit agreement. The term loan can be repaid in part or in full at any time without penalty, but in any event must be paid in full by October 2019.

Our revolvingfinancing arrangements and term loan credit facility contains standard covenants, including, without limitation, financial covenants, such as the maintenance of minimum interest coverage and maximum debt to earnings before interest, taxes, depreciation, and amortization (“EBITDA”) ratios; and negative covenants, which among other things, limit loans and investments, disposition of assets, consolidations and mergers, transactions with affiliates, restricted payments, contingent obligations, 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 our debt to EBITDA ratio from the previous quarter compliance certificate is less than or equal to 3.25, provided that immediately after giving effect of any such proposed action, no default or event of default would exist. As of February 2, 2018, we were not limited in the amount for payments of cash dividends and common stock repurchases. We wereexpect to be in compliance with all covenants related to our credit agreement for our revolving credit facility as of February 2, 2018, and we expect to be in compliance with all covenantsfinancing arrangements during the remainder of fiscal 2018.2021. If we were out of compliance with any covenant required by this credit agreementour financing arrangements following the applicable cure period, the banks could terminate their commitments unless we could negotiate a covenant waiver from the banks. In addition, our term loan facilities, long-term senior notes, debentures, term loan, 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 short-term debtborrowings under our financing arrangements.
In addition to our long-term debt, our domestic and non-U.S. operations maintain credit agreement. If ourlines for import letters of credit rating falls below investment grade and/or our average debt to EBITDA ratio rises above 1.50, the basis point spread over LIBOR (or other rates quoted by the Administrative Agent, Bank of America, N.A.) we currently pay on outstanding debt under the credit agreement would increase. However, the credit commitment could not be canceled by the banks based solely on a ratings downgrade. Our debt rating for long-term unsecured senior, non-credit enhanced debt was unchanged during the first quarternormal course of business, as required by some vendor contracts. Collectively, these import letters of credit had a maximum availability of $11.2 million and $10.2 million as of April 30, 2021 and May 1, 2020, respectively. We had $3.2 million and $2.2 million outstanding on such import letters of credit as of April 30, 2021 and May 1, 2020, respectively.
Capital Expenditures
Within the MD&A included in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal 2018 by Standardyear ended October 31, 2020, we announced that capital expenditures for fiscal 2021 were expected to be approximately $115.0 million. As of the date of the filing of this Quarterly Report on Form 10-Q and Poor’s Ratings Group at BBBgiven our strong Condensed Consolidated Balance Sheet and by Moody’s Investors Service at Baa3.

future growth expectations, we are increasing our planned capital expenditures for fiscal 2021 to approximately $130.0 million. This increase reflects our priorities of investing in key technology areas and ensuring we have capacity to meet our future growth expectations.
Cash Dividends

Our Board of Directors approved a cash dividend of $0.20$0.2625 per share for the firstsecond quarter of fiscal 20182021 that was paid on January 10, 2018.April 20, 2021. This was an increase of 14.35 percent over our cash dividend of $0.175$0.25 per share for the firstsecond quarter of fiscal 2017.2020. We currently expect to continue paying our quarterly cash dividend to shareholders for the remainder of fiscal 2021, as evidenced by our May 18, 2021 announcement that our Board of Directors approved a cash dividend of $0.2625 per share for the third quarter of fiscal 2021 that is to be paid on July 14, 2021 to shareholders of record on June 22, 2021.

Share Repurchases
During the first six months of fiscal 2021, we repurchased 1,073,495 shares of our common stock in the open market under our Board authorized repurchase program, thereby reducing our total shares outstanding. As of April 30, 2021, 5,968,761 shares remained available for repurchase under our Board authorized repurchase program. We currently expect to continue
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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, the price of our common stock, and/or other factors.
Customer Financing Arrangements and Contractual Obligations

Our Red Ironcustomer 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 for the fiscal year ended October 31, 2020. There have been no material changes to our end-user customer financing arrangements during the first six months of fiscal 2021.
Wholesale Financing
We are party to a joint venture with TCFIF providesTCF 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. Some independent internationalThe net amount of receivables financed for dealers continueand distributors under this arrangement for the six month period ended April 30, 2021 and May 1, 2020 was $1,180.9 million and $886.4 million, respectively.
Under a separate agreement, TCF Commercial Finance Canada, Inc. ("TCFCFC") provides inventory financing to finance theirdealers of certain of our products in Canada. We also have floor plan financing agreements with a third party finance company. This third partyother third-party financial institutions to provide floor plan financing company purchased $8.7to 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 and TCFCFC financed $216.1 million and $173.9 million of receivables from usfor such dealers and distributors during the first three months of fiscal 2018.six month periods ended April 30, 2021 and May 1, 2020, respectively. As of February 2, 2018, $12.9April 30, 2021 and May 1, 2020, $147.4 million and $203.6 million, respectively, of receivables financed by a third partythe third-party financing company,companies and TCFCFC, excluding Red Iron, were outstanding. See
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 April 30, 2021 and May 1, 2020, we were contingently liable to repurchase up to a maximum amount of $103.4 million and $145.6 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 six month period ended April 30, 2021 and May 1, 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 for further details regarding our customer financing arrangements andthe fiscal year ended October 31, 2020. There have been no material changes to such contractual obligations.


Inflation

We are subject to the effects of inflation, deflation, and changing prices. Inobligations during the first threesix months of fiscal 2018,2021, with the average costexception of commoditiesthe repayment of the remaining outstanding borrowings under the $190.0 million term loan during the first quarter of fiscal 2021 and components purchased were higher compared to the average costprepayment of commodities$10.0 million of the remaining outstanding borrowings under the $300.0 million five-year unsecured senior term loan facility during the second quarter of fiscal 2021.
Off-Balance Sheet Arrangements
We have off-balance sheet arrangements with Red Iron and components purchasedother third-party financial institutions in which inventory receivables for certain dealers and distributors are financed by Red Iron, TCFCFC, 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 for the fiscal year ended October 31, 2020. There have been no material changes to such off-balance sheet arrangements during the first threesix months of fiscal 2017. We intend to continue to closely follow2021 with the costexception of commodities and components that affect our product lines, and we anticipate thatthose described in the average cost for some commodities and components to be higher for the remaindersection titled "Wholesale Financing" within this MD&A.
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Table of fiscal 2018, as compared to fiscal 2017. Historically, we have mitigated, and we currently expect that we would mitigate, any commodity cost increases, in part, by collaborating with suppliers, reviewing alternative sourcing options, substituting materials, utilization of Lean methods, engaging in internal cost reduction efforts, and increasing prices on some of our products, all as appropriate.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. SuchWe use these non-GAAP financial measures in making operating decisions because we believe they provide meaningful supplemental information regarding our core operational performance and cash flows, as a measure of our liquidity, 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 and cash flows. 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.

Reconciliation of Non-GAAP Financial Performance Measures
The following table provides reconciliationsa reconciliation of financial performance measures calculated and reported in accordance with U.S. GAAP to the most directly comparable non-GAAP financial performance measures for the three and six month periods ended April 30, 2021 and May 1, 2020:
Three Months EndedSix Months Ended
(Dollars in thousands, except per share data)April 30, 2021May 1, 2020April 30, 2021May 1, 2020
Gross profit$402,953 $306,717 $717,989 $594,805 
Acquisition-related costs2
— 2,393 — 2,863 
Management actions3
— 857 — 857 
Non-GAAP gross profit$402,953 $309,967 $717,989 $598,525 
Gross margin35.1 %33.0 %35.5 %35.1 %
Acquisition-related costs2
— %0.3 %— %0.1 %
Management actions3
— %0.1 %— %0.1 %
Non-GAAP gross margin35.1 %33.4 %35.5 %35.3 %
Operating earnings$180,716 $125,795 $322,181 $216,924 
Litigation settlement, net1
— — (17,075)— 
Acquisition-related costs2
— 3,004 — 5,022 
Management actions3
— 857 — 857 
Non-GAAP operating earnings$180,716 $129,656 $305,106 $222,803 
Earnings before income taxes$177,243 $121,371 $313,069 $207,510 
Litigation settlement, net1
— — (17,075)— 
Acquisition-related costs2
— 3,004 — 5,022 
Management actions3
— 857 — 857 
Non-GAAP earnings before income taxes$177,243 $125,232 $295,994 $213,389 
Net earnings$142,171 $98,446 $253,452 $168,537 
Litigation settlement, net1
(17)— (13,472)— 
Acquisition-related costs2
— 2,365 — 3,998 
Management actions3
— 682 — 682 
Tax impact of stock-based compensation4
(1,871)(1,342)(6,449)(3,377)
Non-GAAP net earnings$140,283 $100,151 $233,531 $169,840 
Diluted EPS$1.31 $0.91 $2.32 $1.55 
Litigation settlement, net1
— — (0.13)— 
Acquisition-related costs2
— 0.02 — 0.04 
Tax impact of stock-based compensation4
(0.02)(0.01)(0.05)(0.03)
Non-GAAP diluted EPS$1.29 $0.92 $2.14 $1.56 
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Three Months EndedSix Months Ended
April 30, 2021May 1, 2020April 30, 2021May 1, 2020
Effective tax rate19.8 %18.9 %19.0 %18.8 %
Tax impact of stock-based compensation4
1.1 %1.1 %2.1 %1.6 %
Non-GAAP effective tax rate20.9 %20.0 %21.1 %20.4 %
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 six month period ended April 30, 2021. The Infringement Action and Settlement Amount did not impact the three month period ended April 30, 2021. Refer to Note 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. Acquisition-related costs for the three and six month periods ended May 1, 2020 represent transaction costs incurred for our acquisition of Venture Products, as well as adjusted non-GAAP financial measures. We believe these measures may be usefulintegration costs and charges incurred for the take-down of the inventory fair value step-up amount resulting from purchase accounting adjustments related to the acquisitions of Venture Products and CMW. No acquisition-related costs were incurred during the three and six month periods ended April 30, 2021. For additional information regarding the acquisition of Venture Products, refer to Note 2, Business Combination and Asset Acquisitions, within the Notes to Condensed Consolidated Financial Statements included within Part I, Item 1, "Financial Statements" of this Quarterly Report on Form 10-Q. For additional information regarding the acquisition of CMW, refer to Note 2, Business Combinations, of the Notes to Consolidated Financial Statements included in performing meaningful comparisons of pastPart II, Item 8, "Financial Statements and present operating results, to understand the performanceSupplementary Data," of our most recent Annual Report on Form 10- K for the fiscal year ended October 31, 2020.
3    During the third quarter of fiscal 2019, we announced the wind down of our Toro-branded large horizontal directional drill and riding trencher product line ("Toro underground wind down"). Management actions represent inventory write-down charges incurred during the three and six month periods ended May 1, 2020 for the Toro underground wind down. No charges were incurred for the Toro underground wind down for the three and six month periods ended April 30, 2021. For additional information regarding the Toro underground wind down, refer to Note 7, Management Actions, of the Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of our most recent Annual Report on Form 10- K for the fiscal year ended October 31, 2020.
4    The accounting standards codification guidance governing employee stock-based compensation requires that any excess tax deduction for stock-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 stock-based compensation during the three and six month periods ended April 30, 2021 and May 1, 2020.
Reconciliation of Non-GAAP Liquidity Measures
We define non-GAAP free cash flow as net cash provided by operating activities less purchases of property, plant and equipment. Non-GAAP free cash flow conversion percentage represents non-GAAP free cash flow as a percentage of net earnings. We consider non-GAAP free cash flow and non-GAAP free cash flow conversion percentage to be liquidity measures that provide useful information to management and investors about our ability to convert net earnings into cash resources that can be used to pursue opportunities to enhance shareholder value, fund ongoing operations, and how management views theprospective business initiatives, and strengthen our Consolidated Balance Sheets, after reinvesting in necessary capital expenditures required to maintain and grow our business. The following istable provides a reconciliation of our net earnings, diluted earnings per share ("EPS"),cash provided by operating activities, the most directly comparable GAAP financial measure, to non-GAAP free cash flow for the six month period ended April 30, 2021 and effective tax rate to our adjusted net earnings, adjusted diluted EPS, and adjusted effective tax rate:May 1, 2020:
Six Months Ended
(Dollars in thousands)April 30, 2021May 1, 2020
Net cash provided by operating activities$318,619 $70,885 
Less: Purchases of property, plant and equipment26,198 27,167 
Non-GAAP free cash flow292,421 43,718 
Net earnings$253,452 $168,537 
Non-GAAP free cash flow conversion percentage115.4 %25.9 %
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(Dollars in thousands) Net Earnings Diluted EPS Effective Tax Rate
Three Months Ended February 2,
2018		 February 3,
2017		 February 2,
2018		 February 3,
2017		 February 2,
2018		 February 3,
2017
As Reported - GAAP $22,604
 $44,990
 $0.21
 $0.41
 66.0 % 24.5%
Impacts of tax reform1:
            
Net deferred tax asset revaluation2
 20,513
 —
 0.19
 —
 (30.9)% —%
Deemed repatriation tax3
 12,600
 —
 0.11
 —
 (19.0)% —%
Benefit of the excess tax deduction for share-based compensation4
 (3,576) (4,868) (0.03) (0.04) 5.4 % 8.2%
As Adjusted - Non-GAAP $52,141
 $40,122
 $0.48
 $0.37
 21.5 % 32.7%

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1
The actual impact of the U.S. tax reform may differ from our estimates, due to, among other things, changes in interpretations and assumptions we have made, guidance that may be issued, and changes in our structure or business model.

2
Signed into law on December 22, 2017, the Tax Act, reduced the U.S. federal corporate tax rate from 35.0 percent to 21.0 percent, effective January 1, 2018, resulting in a blended U.S. federal statutory tax rate of 23.3 percent for the fiscal year ended October 31, 2018.  This reduction in rate requires the remeasurement of our net deferred taxes as of the date of enactment which resulted in a non-cash charge of $20.5 million.

3
The Tax Act imposed a one-time deemed repatriation tax on our historical undistributed earnings and profits of foreign affiliates which resulted in a one-time charge of $12.6 million as of February 2, 2018, payable over eight years.

4
In the first quarter of fiscal 2017, we adopted Accounting Standards Update No. 2016-09, Stock-based Compensation: Improvements to Employee Share-based Payment Accounting, which requires that any excess tax deduction for share-based compensation be immediately recorded within income tax expense. During the first quarter of fiscal 2018, we recorded a discrete tax benefit of $3.6 million as an excess tax deduction for share-based compensation. The Tax Act reduced the U.S. federal corporate tax rate which reduced the tax benefit related to share-based compensation by $1.6 million as of February 2, 2018.


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, 2017.2020. Refer to Part II, Item 7, Management’s"Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations", 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, 20172020 for a discussion of our critical accounting policies and estimates.

New Accounting Pronouncements to be Adopted

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates ("ASU") No. 2014-09, Revenue from Contracts with Customers that updates the principles for recognizing revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. The guidance also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), which deferred the effective date of this standard by one year. We expect to adopt this guidance on November 1, 2018, as required, based on the new effective date. The guidance permits the use of either a retrospective or cumulative effect transition method. We have elected to use a cumulative effect transition method for adoption of the amended guidance. We expect to adopt this guidance on November 1, 2018, as required, based on the new effective date. We are currently assessing our contracts with customers and developing related financial disclosures in order to evaluate the impact of the amended guidance on our existing revenue recognition policies, procedures, and internal controls. The majority of our revenue arrangements generally consist of a single performance obligation to transfer promised goods or services. While we have not identified any material differences in the amount and timing of revenue recognition related to ASU 2014-09, our evaluation is not complete and, accordingly, we have not yet reached a conclusion on the overall impacts of adopting ASU 2014-09.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which, among other things, requires lessees to recognize most leases on-balance sheet. The standard requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. In January 2018, the FASB issued ASU No. 2018-01, Leases (Topic 842):Land Easement Practical Expedient for Transition to Topic 842, which provides an optional transition practical expedient to not evaluating existing or expired land easements under the amended lease guidance. ASU No. 2016-02, as augmented by ASU No. 2018-01, will become effective for us commencing in the first quarter of fiscal 2020. Entities are required to use a modified retrospective approach, with early adoption permitted. We are currently reviewing the revised guidance, assessing our leases, and related impact on our Consolidated Financial Statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill impairment test. The amended guidance will become effective for us commencing in the first quarter of fiscal 2021. We are currently evaluating the impact of this new standard on our Consolidated Financial Statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Topic 718. The amended guidance will become effective for us commencing in the first quarter of fiscal 2019. Early adoption is permitted. We are currently evaluating the impact of this new standard on our Consolidated Financial Statements.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which provides for the reclassification of the stranded tax effect of remeasuring deferred tax balances related to items within accumulated other comprehensive income ("AOCI") to retained earnings resulting from the Tax Act. The amendment also includes disclosure requirements regarding an entity's accounting policy for releasing income tax effects from AOCI. The amended guidance will become effective for us commencing in the first quarter of fiscal 2020. We are currently evaluating the impact of this new standard on our Consolidated Financial Statements.

We believe that all other recently issued accounting pronouncements from the FASB that we have not noted above, will not have a material impact on our Consolidated Financial Statements or do not apply to our operations.


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”Act"), and Section 21E under the Securities Exchange Act of 1934, as amended (“("Exchange Act”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"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" "outlook," "guidance," "forecast," "goal," "optimistic," "anticipate," "continue," "plan," "estimate," "project," "believe," "should," "could," "will," "would," "possible," "may," "likely," "intend," "can," "seek," "potential," "pro forma,”" or the negative thereof and similar expressions or future dates. Our forward-looking statements generally relate to our future performance, including our anticipated operating results, liquidity requirements, financial condition, and financial condition;anticipated impacts of COVID-19; our business strategies and goals; 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 adversely affectcontinue to impact demand for our products, and ultimately, our net sales and earnings, whichearnings. 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; slow down or reductions in levels of golf course development, renovation, and improvement; golf course closures; reduced levels of home ownership, construction, and sales; home foreclosures; negative consumer confidence; reduced consumer spending levels; increased unemployment rates; prolonged high unemployment rates; higher commodity and component costs and fuel prices; inflationary or deflationary pressures; 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 the impacts 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, their effectiveness and their rate of adoption; 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 without disruption 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 we have enacted and may enact in the future 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
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financial covenants in our debt agreements if the material economic conditions resulting from COVID-19 lead to substantially increased indebtedness and/or lower EBITDA for us; and the continued exacerbation 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 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 and/or inflation, 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 unfavorable weather conditions exacerbated by global climate changes, or otherwise, may reducehave 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 and operating results, or may affect the timing of demand for some of our products and mayotherwise adversely affect net sales andour operating results in subsequent periods.results.
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•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.
Increases in the cost, or disruption in the availability, of raw materials, components, parts and accessories containing various commodities that we purchase, such as steel, aluminum, petroleum and natural gas-based resins, linerboard, copper, lead, rubber, engines, transmissions, transaxles, hydraulics, electric motors, and other commodities and components, and increases in our other costs of doing business, such as transportation costs or increased tariffs, duties or other charges as a result of changes to international trade agreements may adversely affect our profit margins and businesses.
Our Professional segment net sales are dependent upon certain factors, including golf course revenues and the amount of investment in golf course renovations and improvements; the level of new golf course development and golf course closures; the extent to which property owners outsource their lawn care and snow and ice removal activities; residential and commercial construction activity; continued acceptance of, and demand for, ag-irrigation solutions; the timing and occurrence of winter weather conditions; demand for our products in the rental and specialty construction markets; availability of cash or credit to Professional segment customers on acceptable terms to finance new product purchases; and the amount of government revenues, budget, and spending levels for grounds maintenance equipment.
•Our Residential segment net sales are dependent upon consumers buying our products at dealers, mass retailers, dealers, and home centers, such as The Home Depot, Inc.;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, canhave 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, if we experience 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 April 30, 2021, we had goodwill of $422.3 million and other intangible assets of $432.9 million. These amounts are maintained in various reporting units and together comprise 28.5 percent of our total assets as of April 30, 2021. If we determine that our goodwill or other intangible assets 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 particularly if we are not ableof operations and financial condition.
•Failure to successfully integrate such acquisitions and alliances, joint ventures, and partnerships.

If previouscomplete divestitures or future acquisitions do not produce the expected results or integration into our operations takes more time than expected, our business could be harmed. We cannot guarantee previous or future acquisitions, alliances, joint ventures or partnerships will in fact produce any benefits.
Our ability to manage our inventory levels to meet our customers' demand for our products is important for our business. If we underestimate or overestimate demand for our products and do not maintain appropriate inventory levels, our net sales and/or working capital could be negatively impacted.
Our business and operating results are subject to the inventory management decisions of our distribution channel customers. Any adjustments in the carrying amount of inventories by our distribution channel customers may impact our inventory management and working capital goals as well as operating results.
Changes in the composition of, financial viability of, and/or the relationships with, our distribution channel customersother restructuring activities could negatively impactaffect our business and operating results.operations.
•We face intense competition in all of our product lines with numerous manufacturers, including from some competitors 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, or the United Kingdom’s process for exiting the European Union;conditions; and may not be successful or produce desired levels of net sales. In addition, a portion of our international net sales are financed by third parties. The termination of our agreements with these third parties, any material change to the terms of our agreements with these third parties or in the availability or terms of credit offered to our international customers by these third parties, or any delay in securing replacement credit sources, could adversely affect our sales and operating results.
If we are unable to continue to enhance existing products, as well as develop and market new products, that respond to customer needs and preferences and achieve market acceptance, including by incorporating new or emerging technologies that may become preferred by our customers, we may experience a decrease in demand for our products, and our net sales could be adversely affected.
•Any disruption, including as a result of natural or man-made disasters, inclement weather, including as a result of climate change-related events, work slowdowns, strikes, pandemics and/or epidemics, including COVID-19, protests and/or social unrest, or other events, at or in proximity to any of our facilities or in our manufacturing or other operations, or those of our distribution channel customers, mass retailers or home centers where our products are sold, or suppliers, or our inability to cost-effectively expand existing facilities, open and manage new facilities, and/or move production between manufacturing facilities has and could continue to adversely affect our business and operating results.
•Our production labor needs, and those of our suppliers and distribution channel partners, fluctuate throughout the year and anyby 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 production labor force, including to adequately staff our manufacturing operations, perform service or warranty work, or other necessary activities or by our productionsuch 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 partythird-party service providers, fail to adequately perform and/or protect sensitive or confidential information, or if we, our business partners, or third partythird-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,
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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. OurIn addition, our products may infringe the valid proprietary rights of others.
•Our company, business, properties, and products are subject to governmental regulationlaws, 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. Governmental regulationLaws, 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 (i)laws and regulations to address COVID-19, (ii) taxation and tax policy changes, tax rate changes, new tax laws, new or revised taxta law interpretations or guidance, including as a result of the Tax Act, (ii)(iii) changes to, or adoption of new, healthcare laws or regulations, or (iii)(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 raw materials,commodities, components, parts, or accessories we import.
•Changes in accounting or tax standards, policies, or assumptions in applying accounting or tax policies could adversely affect our financial statements, including our financial results and financial condition.
•Climate change legislation, regulations, or accords may adversely impact our operations.

•Costs of complying with the various environmental laws related to our ownership and/or lease of real property, such as clean-up costs and liabilities that may be associated with certain hazardous waste disposal activities, could adversely affect our financial condition and operating results.
•Legislative enactments could impact the competitive landscape within our markets and affect demand for our products.
•We operate in many different jurisdictions and we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-corruption laws. The continued expansion of our international operations could increase the risk of violations of these laws in the future.
•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.
As a result of our Red Iron joint venture, we•We are dependent upon the joint ventureavailability 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 the joint venture,our floor plan arrangements, challenges or delays in transferring new distributors and dealers from any business we might acquire or otherwise to this financing platform,available floor plan platforms, any termination or disruption of our joint venture relationshipfloor 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 thesuch terms, of our credit arrangements and indentures, 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 such as the goals of our "Vision 2020" initiative, 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.”"Risk Factors" and Part II, Item 1A, "Risk Factors" of this report.

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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,”"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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk stemming from changes in foreign currency exchange rates, interest rates, and commodity costs. We are also exposed to equity market risk pertaining to the trading price of our common stock. Changes in these factors could cause fluctuations in our earnings and cash flows. There have been no material changes to the market risk information regarding interest rate risk and equity market risk included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2017.2020. Refer below for further discussion on foreign currency exchange rate risk and commodity cost risk.

Additionally, refer to Part II, Item 7A, Quantitative"Quantitative and Qualitative Disclosures about Market RiskRisk", within our most recent Annual Report on Form 10-K for the fiscal year ended October 31, 20172020 for a complete discussion of our market risk.


Refer below for further discussion on foreign currency exchange rate risk, interest rate risk, and commodity cost risk.
Foreign Currency Exchange Rate Risk

We are exposed to foreign currency exchange rate risk arising from transactions in the normal course of business, such as sales to third partythird-party customers, sales and loans to wholly ownedwholly-owned foreign subsidiaries, costs associated with foreign plant operations, and purchases from suppliers. Our primary foreign currency exchange rate exposures are with the Euro, the Australian dollar, the Canadian dollar, the British pound, the Mexican peso, the Japanese yen, the Chinese Renminbi, and the Romanian New Leu against the U.S. dollar, andas well as the Romanian New Leu against the Euro, including exposure as a result of the volatility and uncertainty that may arise as a result of the United Kingdom’s process for exiting the European Union.Euro. Because our products are manufactured or sourced primarily from the United StatesU.S. and Mexico, a stronger U.S. dollar and Mexican peso generally have a negative impact on our results from operations, while a weaker U.S. dollar and Mexican peso generally have a positive effect.

To reduce our exposure to foreign currency exchange rate risk, we actively manage the exposure of our foreign currency exchange rate risk by entering into various derivative instruments to hedge against such risk, authorized under a company policiespolicy that placeplaces controls on these hedging activities, with counterparties that are highly rated financial institutions. Decisions on whether to use such derivative instruments are primarily based on the amount of exposure to the currency involved and an assessment of the near-term market value for each currency. Our worldwide foreign currency exchange rate exposures are reviewed monthly. The gains and losses on our derivative instruments offset the changes in values of the related underlying exposures. Therefore, changes in the values of our derivative instruments are highly correlated with changes in the market values of underlying hedged items both at inception and over the life of the derivative instrument. For additional information regarding our derivative instruments, see Note 1217, Derivative Instruments and Hedging Activities, in our Notes to Condensed Consolidated Financial Statements under the heading "Derivative Instruments and Hedging Activities" included in Item 1 of this Quarterly Report on Form 10-Q.

The foreign currency exchange contracts in the table below have maturity dates in fiscal 20182021 through fiscal 2019.2023. All items are non-trading and stated in U.S. dollars. Certain derivative instruments we hold do not meetAs of April 30, 2021, the cash flow hedge accounting criteria; therefore, changes in their fair value are recorded in other income, net.

The average contracted rate, notional amount, pre-taxfair value, and the gain (loss) at fair value of outstanding derivative instruments in accumulated other comprehensive loss ("AOCL"), and fair value impact of derivative instruments in other income, net, as of, and for the fiscal period ended, February 2, 2018 were as follows:
(Dollars in thousands, except average contracted rate) Average Contracted Rate Notional Amount Pre-Tax Gain (Loss) in AOCL Fair Value Impact Gain (Loss)
Buy US dollar/Sell Australian dollar 0.7744
 $34,023.4
 $(722.3) $(909.7)
Buy US dollar/Sell Canadian dollar 1.3003
 7,267.5
 (424.9) (17.0)
Buy US dollar/Sell Euro 1.1839
 74,110.6
 (3,251.5) (1,704.2)
Buy US dollar/Sell British pound 1.3475
 31,328.4
 (1,104.9) (926.1)
Buy Mexican peso/Sell US dollar 21.5331
 $8,436.8
 $663.1
 $722.2

(Dollars in thousands, except average contracted rate)Average Contracted RateNotional AmountFair ValueGain (Loss) at Fair Value
Buy U.S. dollar/Sell Australian dollar0.7205 $102,675 $94,263 $(8,412)
Buy U.S. dollar/Sell Canadian dollar1.3163 31,717 29,540 (2,177)
Buy U.S. dollar/Sell Euro1.1831 151,991 146,915 (5,076)
Buy U.S. dollar/Sell British pound1.3263 45,729 43,371 (2,358)
Buy Mexican peso/Sell U.S. dollar22.2578 $21,779 $23,476 $1,697 
Our net investment in foreign subsidiaries translated into U.S. dollars is not hedged. Any changes in foreign currency exchange rates would be reflected as a foreign currency translation adjustment, a component of accumulated other comprehensive loss in stockholders’ equity on the Condensed Consolidated Balance Sheets, and would not impact net earnings.

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Interest Rate Risk
Our interest rate risk relates primarily to fluctuations in LIBOR-based interest rates on our revolving credit facility and term loan credit agreements, as well as the potential increase in the fair value of our fixed-rate long-term debt resulting from a potential decrease in interest rates. We generally do not use interest rate swaps to mitigate the impact of fluctuations in interest rates. We have no earnings or cash flow exposure due to interest rate risks on our fixed-rate long-term debt obligations. Our indebtedness as of April 30, 2021 includes $424.0 million of gross fixed-rate long-term debt that is not subject to variable interest rate fluctuations and $270.0 million of gross LIBOR-based borrowings under our term loan credit agreements. As of April 30, 2021, we did not have an outstanding balance on our LIBOR-based revolving credit facility.
Commodity Cost Risk

Some raw materialsMost of the commodities, components, parts, and accessories used in our productsmanufacturing process and end-products, or to be sold as standalone end-products, are exposed to commodity cost changes. These changes may be affected by several factors, including, for example, as a result of inflation, deflation, changing prices, foreign currency fluctuations, tariffs, duties, trade regulatory actions, industry actions, the inability of suppliers to absorb incremental costs resulting from COVID-19 related inefficiencies, continue operations or otherwise remain in business as a result of COVID-19 financial difficulties, or otherwise, changes to international trade policies, agreements, and/or regulation and competitor activity, including antidumping and countervailing duty petitions on certain products imported from foreign countries, including current petitions regarding certain engines imported into the U.S. from China.
Our primary commodity cost exposures for commodities, components, parts, and accessories are with steel, aluminum, petroleum and natural gas-based resins, and linerboard. In addition, we are a purchaser of components and parts containing various commodities, including steel, aluminum, copper, lead, rubber, linerboard, engines, transmissions, transaxles, hydraulics, electric motors, and others, thatfor use in our products. Our largest spend for commodities, components, parts, and accessories are integrated into our end products.generally for steel, engines, hydraulic components, transmissions, resin, aluminum, and electric motors, all of which we purchase from several suppliers around the world. We generally purchase commodities, components, parts, and componentsaccessories based upon market prices that are established with vendorssuppliers as part of the purchase process and generally attempt to obtain firm pricing from most of our suppliers for volumes consistent with planned production. Additionally,production and estimates of wholesale and retail demand for our products.
In any given period, we enter into fixed-price contracts for future purchases of natural gas in the normal course of operationsstrategically work to mitigate any potential unfavorable impact as a meansresult of changes to manage natural gas price risks. Further information regarding changing coststhe cost of commodities, is presentedcomponents, parts, and accessories that affect our product lines. Historically, we have mitigated, and we currently expect that we would continue to mitigate, any commodity, components, parts, and accessories cost increases, in Item 2part, by collaborating with suppliers, reviewing alternative sourcing options, substituting materials, utilizing Lean methods, engaging in internal cost reduction efforts, utilizing tariff exclusions and duty drawback mechanisms, and increasing prices on some of this Quarterly Report on Form 10-Q,our products, all as appropriate. However, to the extent that commodity and component costs increase and we do not have firm pricing from our suppliers, or our suppliers are not able to honor such prices, we may experience a decline in our gross margins to the section titled “Inflation.”extent we are not able to increase selling prices of our products or obtain manufacturing efficiencies to offset increases in commodity, components, parts, and accessories costs. In the first six months of fiscal 2021, the average cost of commodities, components, parts, and accessories purchased, including the impact of inflation and tariff costs, was higher compared to the first six months of fiscal 2020. We anticipate that the average cost of commodities, components, parts, and accessories purchased, including the impact of inflation and tariff costs, for the remainder of fiscal 2021 will be significantly higher than the average costs experienced during the comparable period of fiscal 2020.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Securities

Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we are required to apply our judgment in evaluating the cost-benefit relationship of possible internal controls.
Our management evaluated, with the participation of our Chairman of the Board, President and Chief Executive Officer and our Vice President, Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered inby this Quarterly Report on Form 10-Q. Based on that evaluation, our Chairman of the Board, President and Chief Executive Officer and our Vice President, Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in
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the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including ourthe Chairman of the Board, President and Chief Executive Officer and Vice President, Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure. Thererequired disclosures.
Changes in Internal Control Over Financial Reporting
On March 2, 2020, during the second quarter of fiscal 2020, we completed the acquisition of Venture Products. Prior to this acquisition, Venture Products was a privately-held company not subject to the Sarbanes-Oxley Act of 2002, the rules and regulations of the SEC, or other corporate governance requirements to which public companies may be subject. In accordance with guidance issued by the SEC, companies are permitted to exclude acquisitions from their final assessment of internal control over financial reporting during the year of acquisition. As part of our ongoing integration activities, we are in the process of incorporating internal controls over significant processes specific to Venture Products that we believe are appropriate and necessary to account for the acquisition and to consolidate and report our financial results. We expect to complete our integration activities related to internal control over financial reporting for Venture Products during fiscal 2021. Accordingly, we expect to include Venture Products within our assessment of internal control over financial reporting as of October 31, 2021.
With the exception of internal control related integration activities associated with the company's acquisition of Venture Products, there was no change in our internal control over financial reporting that occurred during our first quarterthe three month period ended February 2, 2018April 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are a party to litigation in the ordinary course of business. Litigation occasionally involvesbusiness, including claims for punitive, as well as compensatory, damages arising out of the use of our products. Although we are self-insured to some extent, we maintain insurance against certain product liability losses. We are also subject toproducts; litigation and administrative and judicial proceedings with respect to claims involving asbestos and the discharge of hazardous substances into the environment. Some of these claims assert damagesenvironment; and liability for personal injury, remedial investigations or clean-up, and other costs and damages. We are also typically involved in commercial disputes, employment disputes, and patent litigation cases in the ordinary course of business. To prevent possible infringement of our patents by others, we periodically review competitors’ products. To avoid potential liability with respect to others’ patents, we regularly review certain patents issued by the United States Patent and Trademark Office and foreign patent offices. We believe these activities help us minimize our risk of being a defendant in patent infringement litigation. We are currently involved in patent litigation cases, including cases by or against competitors, where we are asserting and defending against claims of patent infringement. Such cases are at varying stages in the litigation process.

cases. For a description of our material legal proceedings, see Note 1015, Contingencies, in our Notes to Condensed Consolidated Financial Statements under the heading “Contingencies - Litigation”headings titled "Litigation" and "Litigation Settlement" included in Item 1 of this Quarterly Report on Form 10-Q, which is incorporated into this Part II. Item 1 by reference.

ITEM 1A. RISK FACTORS

We are affected by risks specific to us, as well as factors that affect all businesses operating in a global market. The significantmaterial risk factors known to us that could materially adversely affect our business, financial condition, orreputation, industry, operating results, or financial position or could cause our actual results to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statement made in this report, are described in our most recently filed Annual Report on Form 10-K, (ItemPart I, Item 1A. Risk Factors)."Risk Factors." There has been no material change in those risk factors.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth information with respect to shares of ourthe company's common stock purchased by the company during each of the three fiscal months in our firstthe company's second quarter ended February April 30, 2021:
Period
Total Number of Shares (or Units) Purchased1,2
Average Price Paid per Share (or Unit)
Total Number of Shares (or Units) 
Purchased As Part of Publicly Announced Plans or Programs1
Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs1
January 30, 2021 through February 26, 2021— $— — 6,709,378 
February 27, 2021 through April 2, 2021680,816 102.18 680,816 6,028,562 
April 3, 2021 through April 30, 202160,614 104.43 59,801 5,968,761 
Total741,430 $102.36 740,617  
1    On December 3, 2015, the company’s Board of Directors authorized the repurchase of 8,000,000 shares of the company’s common stock in open-market or privately negotiated transactions. On December 4, 2018, the company’s Board of Directors authorized the repurchase of up to an additional 5,000,000 shares of the company’s common stock in open-market or privately negotiated transactions. This authorized stock repurchase program has no expiration date but may be terminated by the company’s Board of Directors at any time. The company repurchased 740,617 shares under this authorized stock repurchase program during the period indicated above and 5,968,761 shares remained available to repurchase under this authorized stock repurchase program as of April 30, 2021.
2    2018:Includes 813 units (shares) of the company’s common stock purchased in open-market transactions at an average price of $114.00 per share on behalf of a rabbi trust formed to pay benefit obligations of the company to participants in the company's deferred compensation plans. These 813 shares were not repurchased under the company’s authorized stock repurchase program described in footnote 1 above.
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Period 
Total Number of Shares (or Units) Purchased1,2
 Average Price Paid per Share (or Unit) 
Total Number of Shares (or Units) 
Purchased As Part of Publicly Announced Plans or Programs1
 
Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs1
November 1, 2017 through December 1, 2017 293,499
 $62.54
 293,499
 4,688,379
December 2, 2017 through December 29, 2017 188,016
 65.07
 188,016
 4,500,363
December 30, 2017 through February 2, 2018 294,199
 66.55
 292,619
 4,207,744
Total 775,714
 $64.68
 774,134
  
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ITEM 6. EXHIBITS
1
(a)		On December 3, 2015, the company’s BoardExhibit No.Description
2.1
Agreement and Plan of Directors authorized the repurchase of 8,000,000 shares of the company’s common stock in open-market or in privately negotiated transactions. This program has no expiration date but may be terminated by the company’s Board of Directors at any time. The company repurchased 774,134 shares during the period indicated above under this program and 4,207,744 shares remained available to repurchase under this programMerger dated as of February 2, 2018.

2
Includes 1,580 units (shares) of the company’s common stock purchased in open-market transactions at an average price of $66.00 per share14, 2019, by and among The Toro Company, The Charles Machine Works, Inc., Helix Company, Inc., and Agent 186 LLC as Shareholders’ Agent (incorporated by reference to Exhibit 2.1 to Registrant’s Current Report on behalf of a rabbi trust formed to pay benefit obligations of the company to participants in deferred compensation plans. These 1,580 shares were not repurchased under the company’s repurchase program described in footnote 1 above.

Form 8-K dated February 14, 2019, Commission File No. 1-8649).

ITEM 6.  EXHIBITS
(a)Exhibit No.2.2 (1)Description
Fourth Amendment to Agreement to Form Joint Venture dated as of March 26, 2021 and effective as of March 2, 2020 by and between The Toro Company and TCF Inventory Finance, Inc. (filed herewith).
3.1 and 4.1
Restated Certificate of Incorporation of The Toro Company (incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated June 17, 2008, Commission File No. 1-8649).
3.2 and 4.2
Certificate of Amendment to Restated Certificate of Incorporation of The Toro Company (incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated March 12, 2013, Commission File No. 1-8649).
3.3 and 4.3
Amended and Restated Bylaws of The Toro Company (incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated July 19, 2016, Commission File No. 1-8649).
4.4Indenture dated as of January 31, 1997, between RegistrantThe Toro Company and First National Trust Association, as Trustee, relating to The Toro Company’s 7.80% Debentures due June 15, 2027 (incorporated by reference to Exhibit 4(a) to Registrant’s Current Report on Form 8-K dated June 24, 1997, Commission File No. 1-8649). (Filed on paper - hyperlink is not required pursuant to Rule 105 of Regulation S-T).
4.5
Indenture dated as of April 20, 2007, between RegistrantThe Toro Company and The Bank of New York Trust Company, N.A., as Trustee, relating to The Toro Company’s 6.625% Notes due May 1, 2037 (incorporated by reference to Exhibit 4.3 to Registrant’s Registration Statement on Form S-3 filed with the Securities and Exchange Commission on April 23, 2007, Registration No. 333-142282).
4.6
First Supplemental Indenture dated as of April 26, 2007, between RegistrantThe Toro Company and The Bank of New York Trust Company, N.A., as Trustee, relating to The Toro Company’s 6.625% Notes due May 1, 2037 (incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated April 23, 2007, Commission File No. 1-8649).
4.7
Form of The Toro Company 6.625% Note due May 1, 2037 (incorporated by reference to Exhibit 4.2 to Registrant’s Current Report on Form 8-K dated April 23, 2007, Commission File No. 1-8649).
31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002) (filed herewith).
31.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002) (filed herewith).
32
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101
The following financial information from The Toro Company’s Quarterly Report on Form 10-Q for the quarterly period ended February 2, 2018,April 30, 2021, filed with the SEC on March 7, 2018,June 3, 2021, formatted in Inline eXtensible Business Reporting Language (XBRL)(Inline XBRL): (i) Condensed Consolidated Statements of Earnings for the three-monththree and six month periods ended February 2, 2018April 30, 2021 and February 3, 2017,May 1, 2020, (ii) Condensed Consolidated Statements of Comprehensive Income for the three-monththree and six month periods ended February 2, 2018April 30, 2021 and February 3, 2017,May 1, 2020, (iii) Condensed Consolidated Balance Sheets as of February 2, 2018, February 3, 2017,April 30, 2021, May 1, 2020, and October 31, 2017,2020, (iv) Condensed Consolidated Statement of Cash Flows for the three-monthsix month periods ended February 2, 2018April 30, 2021 and February 3, 2017,May 1, 2020, (v) Condensed Consolidated Statements of Stockholders' Equity for the three and (v)six month periods ended April 30, 2021 and May 1, 2020, and (vi) Notes to Condensed Consolidated Financial Statements (filed herewith).
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

(1)     Confidential portions of this exhibit have been redacted in compliance with Item 601(b)(10) of Regulation S-K.

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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


THE TORO COMPANY
(Registrant)

Date: March 7, 2018June 3, 2021By:/s/ Renee J. Peterson
Renee J. Peterson
Vice President, Treasurer and Chief Financial Officer
(duly authorized officer, principal financial officer, and principal accounting officer)



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