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What changed in TORO CO's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of TORO CO's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+409 added−429 removedSource: 10-K (2023-12-20) vs 10-K (2022-12-22)

Top changes in TORO CO's 2023 10-K

409 paragraphs added · 429 removed · 313 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

71 edited+18 added−28 removed86 unchanged
Biggest changeWe provide our employees with access to a variety of innovative, flexible and convenient health and wellness programs. Such programs are designed to support employees’ physical and mental health by providing tools and resources to help them improve or maintain their health status and encourage engagement in healthy behaviors.
Biggest changeSuch programs are designed to support employees’ physical and mental health by providing tools and resources to help them improve or maintain their health status and encourage engagement in healthy behaviors. 12 Table of Contents Diversity, Equity and Inclusion We recognize that our best performance comes when our teams are diverse, and accordingly, diversity, equity and inclusion ("DEI") is core to us.
Our products are marketed and sold worldwide through a network of distributors, dealers, mass retailers, hardware retailers, equipment rental centers, home centers, as well as online (direct to end-users) under the primary trademarks of Toro®, Ditch Witch®, eXmark®, Spartan®, BOSS®, Ventrac®, American Augers®, Trencor®, Pope®, Subsite®, HammerHead®, Radius®, PERROT®, Hayter®, Unique Lighting Systems®, Irritrol®, and Lawn-Boy®, most of which are registered in the United States ("U.S.") and/or in the primary countries outside the U.S. where we market our products branded under such trademarks.
Our products are marketed and sold worldwide through a network of distributors, dealers, mass retailers, hardware retailers, equipment rental centers, and home centers, as well as online and direct to end-users under the primary trademarks of Toro®, Ditch Witch®, eXmark®, Spartan®, BOSS®, Ventrac®, American Augers®, Trencor®, Pope®, Subsite®, HammerHead®, Radius®, Perrot®, Hayter®, Unique Lighting Systems®, Irritrol®, and Lawn-Boy®, most of which are registered in the United States ("U.S.") and/or in the primary countries outside the U.S. where we market our products branded under such trademarks.
Residential Segment We market and sell our Residential segment products to homeowners through a variety of distribution channels, including outdoor power equipment distributors and dealers, mass retailers, hardware retailers, home centers, as well as online (direct to end-users). We also license our trademark on certain home solutions products as a means of expanding our brand presence.
Residential Segment We market and sell our Residential segment products to homeowners through a variety of distribution channels, including outdoor power equipment distributors and dealers, mass retailers, hardware retailers, and home centers, as well as online and direct to end-users. We also license our trademark on certain home solutions products as a means of expanding our brand presence.
Our production levels and inventory management goals are based on estimates of wholesale and 7 Table of Contents retail demand for our products, taking into account production capacity; commodity, component part, and labor availability; timing of shipments; and field inventory levels.
Our production levels and 7 Table of Contents inventory management goals are based on estimates of wholesale and retail demand for our products, taking into account production capacity; commodity, component part, and labor availability; timing of shipments; and field inventory levels.
Residential segment products, such as walk power mowers, zero-turn riding mowers, and snow throwers, are generally sold to home centers, mass retailers, dealers, and hardware retailers, as well as online (direct to end-users). In certain markets, these same products are sold to distributors for resale to hardware retailers and dealers.
Residential segment products, such as walk power mowers, zero-turn riding mowers, and snow throwers, are generally sold to home centers, mass retailers, dealers, and hardware retailers, as well as online and direct to end-users. In certain markets, these same products are sold to distributors for resale to hardware retailers and dealers.
In addition, by selling our products through a network of distributors, dealers, mass retailers, hardware retailers, and home centers, as well as online (direct to end-users), users are offered comprehensive service support during and after the warranty period.
In addition, by selling our products through a network of distributors, dealers, mass retailers, hardware retailers, and home centers, as well as online and direct to end-users, users are offered comprehensive service support during and after the warranty period.
Backlog is one of many indicators of business conditions within the markets and industries that we operate; however, our backlog of orders is considered more representative of business conditions than an indicator of our expectation of our future net sales because the dollar value of our backlog of orders is a gross amount that has not yet been reduced for the variable consideration associated with certain of our sales promotions and incentives programs and because backlog can fluctuate for a number of reasons, including the seasonality of our business, product mix, pricing actions, manufacturing and shipping schedules, cancellation and rescheduling of orders by our customers, and the timing of when orders are originally placed by customers and when we are able to fulfill such orders.
Order backlog is one of many indicators of business conditions within the markets and industries that we operate; however, our order backlog is considered more representative of business conditions than an indicator of our expectation of our future net sales because the dollar value of our order backlog is a gross amount that has not yet been reduced for the variable consideration associated with certain of our sales promotions and incentives programs and because backlog can fluctuate for a number of reasons, including the seasonality of our business, product mix, pricing actions, manufacturing and shipping schedules, cancellation and rescheduling of orders by our customers, and the timing of when orders are originally placed by customers and when we are able to fulfill such orders.
Zero-Turn Riding Mowers Our residential zero-turn riding mower equipment products are designed, manufactured, marketed, and sold under the Toro brand name and are intended to provide innovative and time saving turf cutting solutions by using superior maneuverability to navigate around obstacles more efficiently and effectively than tractor technology.
Zero-Turn Riding Mower Products Our residential zero-turn riding mower equipment products are designed, manufactured, marketed, and sold under the Toro brand name and are intended to provide innovative and time saving turf cutting solutions by using superior maneuverability to navigate around obstacles more efficiently and effectively than tractor technology.
Available Information We are a U.S. public reporting company under the Exchange Act, and file reports, proxy statements, and other information with the SEC. Copies of these reports, proxy statements, and other information can be accessed from the SEC's home page on the Internet at www.sec.gov .
We are a U.S. public reporting company under the Exchange Act, and file reports, proxy statements, and other information with the SEC. Copies of these reports, proxy statements, and other information can be accessed from the SEC's home page on the Internet at www.sec.gov .
We also provide corporate governance and other information, including our sustainability strategy, on our website. The information contained on our website or connected to our website is not incorporated by reference into, and should not be considered part of, this Annual Report on Form 10-K.
We also provide corporate governance and other information, including our sustainability report, on our website. The information contained on our website or connected to our website is not incorporated by reference into, and should not be considered part of, this Annual Report on Form 10-K.
The following is a summary of our products, by market, for our Professional segment and our products for our Residential segment. Professional Segment We design professional turf; landscape and lighting; rental, specialty, and underground construction; snow and ice management; and agricultural products.
The following is a summary of our products, by market, for our Professional segment and our products for our Residential segment. Professional Segment We design professional turf maintenance; landscape and lighting; rental, specialty, and underground construction; snow and ice management; and agricultural products.
Community Involvement At the heart of TTC is our commitment to people, and we believe that a satisfying life comes from contributing to, and engaging with, the communities where we live and work.
Giving and Community Involvement At the heart of TTC is our commitment to people, and we believe that a satisfying life comes from contributing to, and engaging with, the communities where we live and work.
For additional information regarding changing costs of commodities, refer to Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of this Annual Report on Form 10-K in the section entitled "Commodity Cost Risk." Most of the commodities, components, parts, and accessories utilized in our products are generally commercially available from a number of sources, and are in adequate supply.
For additional information regarding changing costs of commodities, refer to Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of this Annual Report on Form 10-K in the section entitled "Commodity Cost Risk." Most of the commodities, components, parts, and accessories utilized in our products are generally commercially available from a number of sources.
For example: • The U.S. EPA, the California Air Resources Board ("CARB"), and similar regulators in other U.S. states and foreign jurisdictions in which we sell our products have phased in, or are phasing in, emission regulations setting maximum emission standards for certain equipment. Specifically, these agencies from time to time adopt increasingly stringent engine emission regulations. Following the U.S.
For example: • The U.S. EPA, the California Air Resources Board ("CARB"), and similar regulators in other U.S. states and international jurisdictions in which we sell our products have phased in, or are phasing in, emission regulations setting maximum emission standards for certain equipment. Specifically, these agencies from time to time adopt increasingly stringent engine emission regulations. Following the U.S.
In addition, weather conditions in key regions can cause disruption in our supply chain, which may impact our ability to procure the commodities, components, parts, and accessories needed to manufacture our products to meet the needs of our customers, and such disruptions may adversely or positively affect sales, demand, and field inventory levels of some of our products.
In addition, weather conditions in key regions can cause disruption in our seasonality trends and supply chain, which may impact our ability to procure the commodities, components, parts, and accessories needed to manufacture our products to meet the needs of our customers, and such disruptions may adversely or positively affect sales, demand, and field inventory levels of some of our products.
Effects of Weather From time to time, seasonal weather conditions in particular geographic regions or markets, specifically severe wet or dry conditions, as well as significant weather events such as fires, hurricanes, tornados, drought, rainfall, unseasonably warm winter months, or other weather events, including those exacerbated by global climate change, may adversely or 9 Table of Contents positively affect sales, demand, and field inventory levels of some of our products.
Effects of Weather From time to time, seasonal weather conditions in particular geographic regions or markets, specifically severe wet or dry conditions, as well as significant weather events such as fires, hurricanes, tornados, drought, rainfall, unseasonably warm winter months, or other weather events, including those exacerbated by global climate change, may adversely or positively affect sales, demand, and field inventory levels of some of our products.
We also sell extended warranty coverage on select products for a prescribed period after the original warranty period expires. Warranty coverage generally does not cover operator abuse or improper use. An authorized distributor or dealer must perform warranty work.
We also sell separately priced extended warranty coverage on select products for a prescribed period after the original warranty period expires. Warranty coverage generally does not cover operator abuse or improper use. An authorized distributor or dealer must perform warranty work.
Equipment products for the landscape contractor market include zero-turn radius riding mowers, heavy-duty walk behind mowers, mid-size walk behind mowers, stand-on mowers, and all-wheel drive articulating tractors, as well as lawn solution, turf renovation, and tree care equipment. These equipment products are primarily sold to distributors and dealers, who then sell to landscape contractors engaged in turf maintenance activities.
Equipment products for the landscape contractor market include zero-turn radius riding mowers, heavy-duty walk behind mowers, mid-size walk behind mowers, stand-on mowers, and all-wheel drive articulating tractors, as well as turf application, turf renovation, and tree care equipment. These equipment products are primarily sold to distributors and dealers, who then sell to landscape contractors engaged in turf maintenance activities.
Community support is core to our culture and our efforts reflect a dedication to action and engagement that enriches the lives, communities, industries and land that we serve. Our community efforts center on four pillars: Employees, Community, Industry and Land. Water. Thrive.
Community support is core to our culture and our efforts reflect a dedication to action and engagement that enriches the lives, communities, industries and land that we serve. Our community efforts center on four areas: Employees, Community, Industry and Land. Water. Thrive.
We are not materially dependent on any one or more of our patents; however, certain TTC trademarks that contribute to our identity and the recognition of our products and services, including but not limited to the Toro® name and logo, are an integral part of our business. We review certain patents issued by the U.S.
We are not materially dependent on any one or more of our patents; however, certain TTC trademarks that contribute to our identity and the recognition of our products and services, including but not limited to the Toro® name and logo, are an integral part of our business. 8 Table of Contents We review certain patents issued by the U.S.
In addition to annual base salaries, our total rewards, which vary by country/region, can include annual incentive opportunities, stock-based compensation awards, a 401(k) plan with employee matching opportunities, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, flexible work schedules, adoption and surrogacy assistance, employee assistance programs, tuition assistance and on-site services, such as health centers and fitness centers, among many others.
In addition to annual base salaries, our total rewards, which vary by country/region, can include annual incentive opportunities, stock-based compensation awards, a 401(k) plan with employee matching opportunities, discretionary profit-sharing contribution to employee retirement plan accounts, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, flexible work schedules, adoption and surrogacy assistance, employee assistance programs, tuition assistance and on-site services, such as health centers and fitness centers, among many others.
Shipments of our Residential segment products tend to be more seasonal, with shipments of lawn and garden products occurring primarily between February and June, depending upon seasonal weather conditions and demand for our products. Shipments of snow thrower products occur primarily between July and January, depending upon pre-season demand, in-season snowfalls, and product availability.
Shipments of our Residential segment products tend to be more seasonal than our Professional segment products, with shipments of lawn and garden products occurring primarily between February and June, depending upon seasonal weather conditions and product demand. Shipments of snow thrower products occur primarily between July and January, depending upon pre-season demand, in-season snowfalls, and product availability.
Thrive. effort, we provide immersion experiences for our employees to work with smallholder farmers in developing countries. Our Land. Water. Thrive. program is designed to improve productivity and agricultural water practices while also strengthening our employees’ empathy and customer-focused approach to problem solving.
Thrive. effort, we provide immersion experiences for our employees to work with smallholder farmers in developing countries to improve land productivity and agricultural water practices while also strengthening our employees’ empathy and customer-focused approach to problem solving.
These channel partners then sell or rent our products primarily to professional users engaged in maintaining turf, such as golf courses, sports fields, municipal properties, as well as residential and commercial landscapes; installing, repairing, and replacing underground pipe and utilities; managing snow and ice demands; irrigating turf and agricultural fields; and creating, renovating, and illuminating landscapes.
These channel partners then sell or rent our products to professional and other users, including homeowners, engaged in maintaining turf, such as golf courses, sports fields, municipal properties, as well as residential and commercial landscapes; installing, repairing, and replacing underground pipe and utilities; managing snow and ice demands; irrigating turf and agricultural fields; and creating, renovating, and illuminating landscapes.
To promote DEI in the workplace, our DEI committee is focused on its strategic pillars of nurturing an inclusive workspace, attracting and maintaining a diverse workforce, and impacting the communities and markets in which our employees live and 12 Table of Contents work.
To promote DEI in the workplace, our DEI committee is focused on its strategic pillars of nurturing an inclusive workspace, attracting and maintaining a diverse workforce, and impacting the communities and markets in which our employees live and work.
With respect to acquired properties and businesses, we conduct due diligence regarding potential exposure to environmental liabilities and overall regulatory compliance but cannot be certain that we have identified or will identify all adverse environmental conditions or non-compliance with applicable laws, rules and regulations.
With respect to acquired properties and businesses, we conduct due diligence regarding 14 Table of Contents potential exposure to environmental liabilities and overall regulatory compliance but cannot be certain that we have identified or will identify all adverse environmental conditions or non-compliance with applicable laws, rules and regulations.
Business Combinations Acquisition of Intimidator Group On January 13, 2022, during the first quarter of fiscal 2022, we acquired the privately held Intimidator Group ("Intimidator").
Business Combination Acquisition of Intimidator Group On January 13, 2022, during the first quarter of fiscal 2022, we acquired the privately held Intimidator Group ("Intimidator").
In fiscal 2022, TTC was recognized for the eighth consecutive year with the WaterSense Excellence Award for our dedication to offering products that are designed to help our customers save water, in addition to other factors, as well as for our excellence in outreach, education, training and public relations.
In fiscal 2023, TTC was recognized for the ninth consecutive year with the WaterSense Excellence Award for our dedication to offering products that are designed to help our customers save water, in addition to other factors, as well as for our excellence in outreach, education, training and public relations.
For additional information regarding the acquisition of Intimidator, refer to Note 2, Business Combinations and Asset Acquisitions , in the Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K. Acquisition of Venture Products, Inc.
For information regarding the acquisition of Intimidator, refer to Note 2, Business Combinations and Asset Acquisitions , in the Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K.
New product development is pursued primarily in the U.S. with the intention of global distribution. Our net sales outside the U.S. were 19.5 percent, 20.9 percent, and 20.1 percent of total consolidated net sales for fiscal 2022, 2021, and 2020, respectively.
New product development is pursued primarily in the U.S. with the intention of global distribution. Our net sales outside the U.S. were 20.8 percent, 19.5 percent, and 20.9 percent of total consolidated net sales for fiscal 2023, 2022, and 2021, respectively.
EPA implementation of Tier 4 emission requirements applicable to diesel engines several years ago, China, the European Union ("EU") and related countries, and the United Kingdom also have adopted similar regulations, and similar emission regulations are also being considered in other global markets, including Australia, in which we sell our products.
EPA implementation of Tier 4 emission requirements applicable to diesel engines several years ago, China, the European Union ("EU") and its member states, and the United Kingdom also have adopted similar regulations, and similar emission regulations are also being considered in other global markets, including Australia, in which we sell our products.
The following sections describe our Professional segment products by market. Golf Market We design, manufacture, market, and sell equipment products under the Toro and Ventrac brands that are intended to provide innovative solutions for golf course turf maintenance.
The following sections describe our Professional segment products by market. 4 Table of Contents Golf Market We design, manufacture, market, and sell equipment products under the Toro and Ventrac brands that are intended to provide innovative solutions for golf course turf maintenance.
The principal competitive factors in our markets are product innovation; quality and reliability; pricing and sales promotion and incentive programs; product support and customer service; warranty; brand awareness; reputation; distribution, shelf space, and product availability; and financing options. We believe we offer total solutions and full service packages with high quality products that have the latest technology and design innovations.
The principal competitive factors in our markets are product innovation; quality and reliability; pricing and sales programs; product support and customer service; warranty; brand and reputation; channel relationships, shelf space, and product availability; and financing options. We believe we offer total solutions and full service packages with high quality products that have the latest technology and design innovations.
We design, manufacture, market and sell professional turf maintenance equipment and services; turf irrigation systems; landscaping equipment and lighting products; snow and ice management products; agricultural irrigation ("ag-irrigation") systems; rental, specialty and underground construction equipment; and residential yard and snow thrower products.
ITEM 1. BUSINESS Introduction We design, manufacture, market and sell professional turf maintenance equipment and services; turf irrigation systems; landscaping equipment and lighting products; snow and ice management products; agricultural irrigation ("ag-irrigation") systems; rental, specialty and underground construction equipment; and residential yard and snow thrower products.
These products primarily consist of stand-on skid steers, walk-behind trenchers, stump grinders, and turf renovation products. We also have a line of Toro-branded rental products that feature concrete and mortar 5 Table of Contents mixers, material handlers, compaction equipment, and other concrete construction equipment.
These products primarily consist of stand-on skid steers, walk-behind trenchers, stump grinders, and turf renovation products. We also have a line of Toro-branded rental products that feature material handlers, compaction equipment, and other concrete construction equipment.
Advertising is purchased by us, through our agency partners, as well as through cooperative programs with distributors, dealers, and retailers. Customer Financing Arrangements Inventory Financing We are party to a joint venture with TCF Inventory Finance, Inc. ("TCFIF"), now doing business as Huntington Distribution Finance, Inc.
Advertising is purchased by us, through our agency partners, as well as through cooperative programs with distributors, dealers, and retailers. Customer Financing Inventory Financing Arrangements We are party to a joint venture with Huntington Distribution Finance, Inc.
Products by Market We strive to be a leader in adapting advanced technologies to products and services that provide innovative solutions for turf care maintenance; landscapes; rental, specialty, and underground construction; snow and ice management; agricultural fields; and residential demands.
Products by Market We strive to be a leader in adapting advanced technologies to products and services that provide innovative solutions for turf maintenance; landscape and lighting; rental, specialty, and underground construction; snow and ice management; agricultural; and residential demands.
Unions and Collective Bargaining Agreements As of October 31, 2022, approximately 13.0 percent of our employees were represented by a union under a collective bargaining agreement. Our collective bargaining agreements typically are for terms of three to five years, and from time to time, our collective bargaining agreements expire and come up for renegotiation.
Unions and Collective Bargaining Agreements As of October 31, 2023, approximately 12.4 percent of our employees were represented by a union under a collective bargaining agreement. Our collective bargaining agreements typically are for terms of three to five years, and from time to time, our collective bargaining agreements expire and come up for renegotiation.
Professional segment products are sold to distributors and dealers primarily for resale to golf courses, sports fields, industrial facilities, contractors, and government customers, and in some markets for resale to dealers. We sell some Professional segment products directly to government customers and municipalities and rental companies, as well as to end-users in certain markets.
Professional segment products are sold to distributors and dealers primarily for resale to golf courses, sports fields, contractors, government customers, and homeowners who prefer professional solutions, and in some markets for resale to dealers. We sell some Professional segment products directly to government customers and municipalities and rental companies, as well as to end-users in certain markets.
CARB continues to propose and discuss implementation of zero emissions equipment regulations that, when implemented, will phase in increasingly stringent requirements on exhaust and other emissions from lawn and garden equipment. • The U.S. federal government, several U.S. states, and certain international jurisdictions in which we sell our products, including the EU and each of its member states, and related countries, have implemented one or more of the following: product life-cycle laws, rules, or regulations, which are intended to reduce waste and environmental and human health impact, and require manufacturers to label, collect, dispose, and recycle certain products, including some of our products, at the end of their useful life, including, but not limited to (i) the Waste Electrical and Electronic Equipment directive, which mandates the labeling, collection, and disposal of specified waste electrical and electronic equipment; (ii) the Restriction on the use of Hazardous Substances directive or similar substance level laws, rules, or regulations, which restrict the use of several specified hazardous materials in the manufacture of specific types of electrical and electronic equipment; (iii) the Registration, Evaluation, Authorization and Restriction of Chemicals directive or similar substance level laws, 13 Table of Contents rules, or regulations that require notification of use of certain chemicals, or ban or restrict the use of certain chemicals; (iv) the Battery Directive, which regulates the manufacture and disposal of batteries; (v) country of origin laws, rules, or regulations, which require certification of the geographic origin of our finished goods products and/or components used in our products through documentation and/or physical markings, as applicable; (vi) energy efficiency laws, rules, or regulations, which are intended to reduce the use and inefficiencies associated with energy and natural resource consumption and require specified efficiency ratings and capabilities for certain products; (vii) outdoor noise laws, which are intended to reduce noise emissions in the environment from outdoor equipment; (viii) conflict minerals laws, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules promulgated by the SEC, which require specific procedures for the determination and disclosure of the use of certain minerals, known as "conflict minerals," which are mined from the Democratic Republic of the Congo and adjoining countries; (ix) other product substance restriction laws, some of which require certain labeling of products, such as California Proposition 65; (x) electromagnetic compatibility laws and regulations, such as the EU Electromagnetic Compatibility directive, and similar laws and regulations in other markets; (xi) wireless product type approvals and licenses in global markets and the EU Radio Equipment Directive and similar laws and regulations related to wireless and radio usage; and (xii) supply chain transparency laws and regulations addressing modern slavery and human trafficking. • Our products may be subject to various federal, state, and international laws, rules, and regulations that are designed to protect users, including rules and regulations of the U.S.
The European Union Corporate Sustainability Reporting Directive applies to both EU and non-EU in-scope entities and would require them to disclose various metrics relating to climate change, biodiversity, workforce, supply chain, and business ethics. • The U.S. federal government, several U.S. states, and certain international jurisdictions in which we sell our products, including the EU and each of its member states, have implemented one or more of the following: product life-cycle laws, rules, or regulations, which are intended to reduce waste and environmental and human health impact, and require manufacturers to label, collect, dispose, and recycle certain products, including some of our products, at the end of their useful life, including, but not limited to (i) the Waste Electrical and Electronic Equipment directive, which mandates the labeling, collection, and disposal of specified waste electrical and electronic equipment; (ii) the Restriction on the use of Hazardous Substances directive or similar substance level laws, rules, or regulations, which restrict the use of several specified hazardous materials in the manufacture of specific types of electrical and electronic equipment; (iii) the Registration, Evaluation, Authorization and Restriction of Chemicals directive or similar substance level laws, rules, or regulations that require notification of use of certain chemicals, or ban or restrict the use of certain chemicals; (iv) the Battery Directive, which regulates the manufacture and disposal of batteries; (v) country of origin laws, rules, or regulations, which require certification of the geographic origin of our finished goods products and/or components used in our products through documentation and/or physical markings, as applicable; (vi) energy efficiency laws, rules, or regulations, which are intended to reduce the use and inefficiencies associated with energy and natural resource consumption and require specified efficiency ratings and capabilities for certain products; (vii) outdoor noise laws, which are intended to reduce noise emissions in the environment from outdoor equipment; (viii) conflict minerals laws, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules promulgated by the SEC, which require specific procedures for the determination and disclosure of the use of certain minerals, known as "conflict minerals," which are mined from the Democratic Republic of the Congo and adjoining countries; (ix) other product substance restriction laws, some of which require certain labeling of products, such as California Proposition 65; (x) electromagnetic compatibility laws and regulations, such as the EU Electromagnetic Compatibility directive, and similar laws and regulations in other markets; (xi) wireless product type approvals and licenses in global markets and the EU Radio Equipment Directive and similar laws and regulations related to wireless and radio usage; and (xii) supply chain transparency laws and regulations addressing modern slavery and human trafficking. • Our products may be subject to various federal, state, and international laws, rules, and regulations that are designed to protect users, including rules and regulations of the U.S.
Our goal is to foster a culture of trust and respect for all stakeholders and create a productive, supportive and thriving work environment for all TTC employees. Number of Employees During fiscal 2022, we employed an average of 11,434 employees. The total number of employees as of October 31, 2022 was 11,287.
Our goal is to foster a culture of trust and respect for all stakeholders and create a productive, supportive and thriving work environment for all TTC employees. Number of Employees During fiscal 2023, we employed an average of 10,982 employees. The total number of employees as of October 31, 2023 was 10,706.
These Other activities consist of earnings (loss) from a wholly-owned domestic distribution company, certain corporate activities, and the elimination of intersegment revenues and expenses. Net sales of our reportable segments and Other activities accounted for the following percentages of our consolidated net sales for fiscal 2022: Professional, 76.0 percent; Residential, 23.7 percent; and Other, 0.3 percent.
These Other activities consist of earnings (loss) from a wholly-owned domestic distribution company, certain corporate activities, and the elimination of intersegment revenues and expenses. Net sales of our reportable segments and Other activities accounted for the following percentages of our consolidated net sales for fiscal 2023: Professional, 80.7 percent; Residential, 18.8 percent; and Other, 0.5 percent.
International Operations We currently manufacture our products in the U.S., Mexico, Australia, the United Kingdom, Italy, Romania, Germany, Poland, and China for sale throughout the world. We maintain sales offices in the U.S., the United Kingdom, Australia, Japan, China, Italy, Poland, Germany, Spain, France and Belgium.
These products are primarily sold to our customers in Australia and New Zealand. International Operations We currently manufacture our products in the U.S., Mexico, the United Kingdom, Italy, Romania, Germany, Poland, Australia, and China for sale throughout the world. We maintain sales offices in the U.S., the United Kingdom, Australia, Japan, China, Italy, Poland, Germany, Spain, France and Belgium.
Environmental Matters and Other Governmental Regulation Our business, operations, facilities, and products are subject to numerous international, federal, state, and other governmental laws, rules, and regulations relating to, among others, climate change; emissions to air, including Tier 4 or similar engine emission regulations; discharges to water; restrictions placed on water usage and water availability; product and associated packaging; use of certain chemicals; restricted substances, including "conflict minerals" disclosure rules; recycling and waste disposal; import and export compliance, including country of origin certification requirements; worker and product user health and safety; energy efficiency; product life-cycles; outdoor noise laws; and the generation, use, handling, labeling, collection, management, storage, transportation, treatment, and disposal of hazardous substances, wastes, and other regulated materials.
Information contained or referenced on our website, including in our Sustainability Report, is not incorporated by reference and does not form a part of this Annual Report on Form 10-K. 13 Table of Contents Environmental Matters and Other Governmental Regulation Our business, operations, facilities, and products are subject to numerous international, federal, state, and other governmental laws, rules, and regulations relating to, among others, climate change; emissions to air, including Tier 4 or similar engine emission regulations; discharges to water; restrictions placed on water usage and water availability; product and associated packaging; use of certain chemicals; restricted substances, including "conflict minerals" disclosure rules; recycling and waste disposal; import and export compliance, including country of origin certification requirements; worker and product user health and safety; energy efficiency; product life-cycles; outdoor noise laws; and the generation, use, handling, labeling, collection, management, storage, transportation, treatment, and disposal of hazardous substances, wastes, and other regulated materials.
ITEM 1. BUSINESS Introduction The Toro Company was incorporated in Minnesota in 1935 as a successor to a business founded in 1914 and reincorporated in Delaware in 1983. Our executive offices are located at 8111 Lyndale Avenue South, Bloomington, Minnesota, 55420-1196, and our telephone number is (952)888-8801. Our website for corporate and investor information is www.thetorocompany.com .
Corporate and Other Available Information The Toro Company was incorporated in Minnesota in 1935 as a successor to a business founded in 1914 and reincorporated in Delaware in 1983. Our executive offices are located at 8111 Lyndale Avenue South, Bloomington, Minnesota, 55420-1196, and our telephone number is (952) 888-8801.
The dollar value of our backlog of orders is equal to the gross sales value that we expect to bill to the customer and is not reduced for expected variable consideration related to certain of our sales promotions and incentives programs.
Order Backlog Our order backlog represents unfulfilled customer orders at a point in time. The dollar value of our order backlog is equal to the gross sales value that we expect to bill to the customer and is not reduced for expected variable consideration related to certain of our sales promotions and incentives programs.
Service and Warranty Our products are warranted to ensure customer confidence in design, workmanship, and overall quality. Standard warranty coverage is generally for specified periods of time and on select products' hours of usage, generally covers parts and labor, and may cover certain other expenses for non-maintenance repairs.
Service and Warranty Our 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 and labor, and other expenses for non-maintenance repairs.
Additionally, we continue to provide financing in the form of open account terms directly 10 Table of Contents to home centers and mass retailers, general line irrigation dealers, certain domestic and international distributors and dealers, ag-irrigation dealers and distributors, government customers, and rental companies.
The purpose of these agreements is to provide end-users of our products alternative financing options when purchasing our products. 10 Table of Contents Open Account Terms Additionally, we continue to provide financing in the form of open account terms directly to home centers and mass retailers, general line irrigation dealers, certain domestic and international distributors and dealers, ag-irrigation dealers and distributors, government customers, and rental companies.
Safety best practices are also regularly featured in our employee newsletters and town halls. Employee Engagement We provide all employees with the opportunity to share their opinions and feedback on our culture through an engagement survey.
In addition to traditional training, we use safety scorecards, standardized signage, and visual management throughout our facilities. Safety best practices are also regularly featured in our employee newsletters and town halls. Employee Engagement We provide all employees with the opportunity to share their opinions and feedback on our culture through an engagement survey.
Sustainability is a constant theme of our enterprise strategic priorities of accelerating profitable growth, driving productivity and operational excellence, and empowering our people. Our focus on alternative power, smart connected, and autonomous solutions, as well as our continued efforts to address sustainability-focused matters, including environmental, social, and governance priorities, are embedded as part of our "Sustainability Endures" initiative.
Sustainability is integrated into our enterprise strategic priorities of accelerating profitable growth, driving productivity and operational excellence, and empowering our people. Our focus on alternative power, smart connected, and autonomous solutions, as well as our continued efforts to address environmental, social, and governance priorities, are embedded as part of our commitment to advancing our sustainability goals.
Initiatives developed by our DEI committee include, but are not limited to, events to celebrate heritage and awareness months, a new grant program for advancing equitable communities and the inception of an employee resource group to support women in the workforce. Compensation and Benefits We believe we provide a competitive total rewards opportunity to attract and retain superior talent.
Initiatives developed by our DEI committee include, but are not limited to, events to celebrate heritage and awareness months, a new grant program for advancing equitable communities and the inception of an employee resource group to support women in the workforce.
Product Safety and Liability We have rigorous product safety standards and continually work to improve the safety and reliability of our products. We monitor for accidents and possible claims and establish liability estimates based on internal evaluations of the merits of individual claims.
Product Safety and Liability We have rigorous product safety standards and continually work to improve the safety and reliability of our products. We monitor for accidents and possible claims and establish liability estimates based on internal evaluations of the merits of individual claims. We purchase insurance coverage for catastrophic product liability claims for incidents that exceed our self-insured retention levels.
We provide mandatory safety trainings each month in our production facilities, which are designed to focus on empowering our employees with the knowledge and tools they need to make safe choices and to mitigate risks. Supervisors also complete safety management courses. In addition to traditional training, we use safety scorecards, standardized signage, and visual management throughout our facilities.
Employee Safety The safety of our employees is paramount to us. We provide mandatory safety trainings each month in our production facilities, which are designed to focus on empowering our employees with the knowledge and tools they need to make safe choices and to mitigate risks. Supervisors also complete safety management courses.
Our Toro-branded home solution equipment products consist of a variety of yard tools that generally include battery, electric, and/or gas-powered options and 6 Table of Contents primarily consist of grass trimmers, hedge trimmers, blower-vacuums, chainsaws, edgers, cultivators, string mowers, and related parts and accessories that are designed to provide innovative yard maintenance solutions to homeowners.
Our Toro-branded home solution equipment products consist of a variety of yard tools that generally include battery, electric, and/or gas-powered options and primarily consist of grass trimmers, hedge trimmers, blower-vacuums, chainsaws, edgers, cultivators, string mowers, and related parts and accessories that are designed to provide innovative yard maintenance solutions to homeowners. 6 Table of Contents Our Pope-branded home solution products consist of garden watering and irrigation products that primarily include hoses; reels, carts and hangers; sprinklers; hand sprays and wands; hose end fittings; tap timers; and various irrigation tools designed to develop and maintain gardens.
("HDF"), a subsidiary of The Huntington National Bank, established as Red Iron Acceptance, LLC ("Red Iron"). TCF Inventory Finance, Inc. changed its name to Huntington Distribution Finance, Inc. on September 1, 2022. The primary purpose of Red Iron is to provide floor plan inventory financing to certain distributors and dealers of certain of our products in the U.S.
("HDF"), a subsidiary of The Huntington National Bank, established as Red Iron Acceptance, LLC ("Red Iron"), the primary purpose of which is to provide inventory financing to certain distributors and dealers of certain of our products in the U.S.
Our Residential segment products generally face a higher volume of competition than our Professional segment products given the relatively low barriers to entry resulting in numerous other manufacturers selling products that compete directly with our products. Internationally, our Residential segment products face more competition because many foreign competitors design, manufacture, market, and sell products in their respective countries.
Our Residential segment products generally face a higher volume of competition than our Professional segment products given the relatively low barriers to entry resulting in numerous other manufacturers selling products that compete directly with our products.
Our four collective bargaining agreements expire in October 2023, October 2025, March 2026, and June 2026. We consider our employee relations to be good and currently do not expect any significant difficulties in renewing these agreements. Employee Safety The safety of our employees is paramount to us.
Our four collective bargaining agreements expire in October 2025, March 2026, June 2026, and October 2026. We consider our employee relations to be good and currently do not expect any significant difficulties in renewing these agreements. We have not experienced any strikes or work stoppages in the past three years.
We provide all employees a wide range of professional development opportunities, both formal and informal, at all stages in their careers. Our formal career development offerings include apprenticeships, job training, mentoring and coaching, leadership development, tuition reimbursement, a diverse curriculum of learning programs, leadership development experiences, vocational training and external partnerships across the globe.
Our formal career development offerings include apprenticeships, job training, mentoring and coaching, leadership development, tuition reimbursement, a diverse curriculum of learning programs, leadership development experiences, vocational training and external partnerships across the globe.
Commercial Irrigation and Lighting Market Irrigation products are designed, manufactured, marketed, and sold under the Toro and Irritrol brands and primarily include rotors; sprinkler bodies and nozzles; plastic, brass, and hydraulic valves; drip tubing and subsurface irrigation; electric control devices; and wired and wireless rain, freeze, climate, and soil sensors.
These products are mainly sold through distributors and dealers who market and sell to end-customers primarily consisting of landscape contractors, municipalities, and other government entities. 5 Table of Contents Commercial Irrigation and Lighting Market Irrigation products are designed, manufactured, marketed, and sold under the Toro and Irritrol brands and primarily include rotors; sprinkler bodies and nozzles; plastic, brass, and hydraulic valves; drip tubing and subsurface irrigation; electric control devices; and wired and wireless rain, freeze, climate, and soil sensors.
Results of the survey are measured and analyzed to enhance the employee experience, promote employee retention, drive change and leverage the overall success of our organization. Talent Development Our key talent philosophy is to develop talent from within and supplement with external hires.
Results of the survey are measured and analyzed to enhance the employee experience, promote employee retention, drive change and leverage the overall success of our organization.
We expect to apply for future patents and trademarks, as appropriate, in connection with the development of innovative new products, services, and enhancements.
Patents and Trademarks We own patents, trademarks, and trade secrets related to our products in the U.S. and certain countries outside the U.S. in which we conduct business. We expect to apply for future patents and trademarks, as appropriate, in connection with the development of innovative new products, services, and enhancements.
We experience this competition primarily in Europe. In addition, fluctuations in the value of the U.S. dollar affect the price of our products in foreign markets, thereby impacting their competitiveness.
Internationally, our Residential segment products face more competition than in the U.S. because many foreign competitors design, manufacture, market, and sell products in their respective countries. We experience this competition primarily in Europe. In addition, fluctuations in the value of the U.S. dollar affect the price of our products in foreign markets, thereby impacting their competitiveness.
Customers, Distribution, and Marketing We market and sell the majority of our products through more than 150 distributors worldwide, as well as a large number of equipment dealers, irrigation dealers and distributors, mass retailers, hardware retailers, equipment rental centers, home centers, and online (direct to end-users) in more than 125 countries.
For example, persistent hot and dry weather patterns or excessive snowfall across key regions may impact the rate at which inventory needs to be replenished either negatively or positively. 9 Table of Contents Customers, Distribution, and Marketing We market and sell the majority of our products through more than 150 distributors worldwide, as well as a large number of equipment dealers, irrigation dealers and distributors, mass retailers, hardware retailers, equipment rental centers, and home centers, as well as online and direct to end-users in more than 125 countries.
Our Vision: To be the most trusted leader in solutions for the outdoor environment. Every day. Everywhere. Our Mission: To deliver superior innovation and to deliver superior customer care. As part of our guiding principles, we believe our success is deeply rooted in caring relationships built on trust and integrity.
Our Mission: To deliver superior innovation and to deliver superior customer care. As part of our guiding principles, we believe our success is deeply rooted in caring relationships built on trust and integrity. We believe these relationships are the foundation of our market leadership in innovation and solutions that make outdoor environments beautiful, productive and sustainable.
Through employee volunteerism and donations, corporate giving and in-kind donations, we aim to enhance and beautify outdoor spaces while also supporting the shared valued of our partner communities and organizations. Our employees around the world volunteer with local charitable organizations and civic projects including supporting the beautification and preservation of outdoor environments, water conservation, community health, housing and youth enrichment.
Our employees around the world volunteer with local charitable and civic organizations to complete beautification, preservation, water conservation, community health, and housing and youth enrichment projects, including supporting the beautification and preservation of outdoor environments, water conservation, community health, housing and youth enrichment.
We believe bringing more diversity to our workforce and our commitment to employee wellness and environmental stewardship create a sense of community, allowing employees to take pride in their jobs and live the TTC values.
We believe bringing more diversity to our workforce and our commitment to employee wellness and environmental stewardship create a sense of community, allowing employees to take pride in their jobs and live the TTC values. 11 Table of Contents Our employees are guided further by our global Code of Conduct, which provides a framework for our actions and is the foundation of our partnership with TTC stakeholders—customers, suppliers, shareholders, communities, employees and others.
Distributors and dealers submit claims for warranty reimbursement and are credited for the cost of repairs, labor, and other expenses as long as the repairs meet our prescribed standards. At the time of sale, we recognize expense and record an accrual by product line for estimated costs in connection with forecasted future warranty claims.
Distributors and dealers submit claims for warranty reimbursement and are credited for the cost of repairs, labor, and other expenses as long as the repairs meet our prescribed standards. Service support outside of the warranty period is provided by authorized distributors and dealers at the customer's expense.
For additional information regarding the Venture Products acquisition, refer to Note 2, Business Combinations and Asset Acquisitions , in the Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K.
For further information on this joint venture, refer to Note 7, Investment in Joint Venture , of the Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K. We are party to inventory financing arrangements with Red Iron, Huntington Commercial Finance Canada, Inc.
We also have floor plan financing agreements with other third-party financial institutions to provide floor plan financing to certain dealers and distributors not financed through Red Iron or HCFC, which include agreements with third-party financial institutions in the U.S. and internationally.
("HCFC"), and other third-party financial institutions (collectively, the "financial institutions") which provide inventory financing to certain dealers and distributors of certain of our products in the U.S. and internationally.
We provide pricing support to foreign customers, invoice in local currency, and execute foreign currency derivative hedging instruments, as appropriate, to remain competitive in international markets. 11 Table of Contents Human Capital Resources and Management Our Purpose, Vision, Mission and Guiding Principles We believe our commitment to our human capital resources is key to: Our Purpose: To help our customers enrich the beauty, productivity and sustainability of the land.
We provide pricing support to foreign customers, invoice in local currency, and execute foreign currency derivative hedging instruments, as appropriate, to remain competitive in international markets.
We believe these relationships are the foundation of our market leadership in innovation and solutions that make outdoor environments beautiful, productive and sustainable. We are committed to fostering a meaningful and enriching culture and engaging employee experience.
We are committed to fostering a meaningful and enriching culture and engaging employee experience.
Removed
The information contained on our websites or connected to our websites is not incorporated by reference into, and should not be considered part of, this Annual Report on Form 10-K.
Added
Our purpose is to help our customers enrich the beauty, productivity, and sustainability of the land.
Removed
Intimidator primarily designs, manufactures, markets, and sells a commercial-grade line of zero-turn mowers under the Spartan Mowers brand, which are intended to provide innovative turf management solutions to landscape contractors and other customers who require a commercial-grade solution. The acquisition of Intimidator broadened our Professional reportable segment and expanded our manufacturing footprint and dealer network.
Added
For further information on these inventory financing arrangements, refer to Note 11, Commitments and Contingencies , of the Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K. End-User Financing We have agreements with third-party financing companies to provide financing options to end-customers throughout the world.
Removed
The acquisition consideration was $399.8 million, subject to contingent consideration for an amount not to exceed $15.0 million through the end of calendar year 2022, in the event of certain qualifying tax changes. The acquisition was funded with borrowings under our existing unsecured senior revolving credit facility and cash provided by operating activities.
Added
Human Capital Resources and Management Our Purpose, Vision, Mission and Guiding Principles We believe our commitment to our human capital resources is key to: Our Purpose: To help our customers enrich the beauty, productivity and sustainability of the land. Our Vision: To be the most trusted leader in solutions for the outdoor environment. Every day. Everywhere.
Removed
On March 2, 2020, during the second quarter of fiscal 2020, we completed our acquisition of Venture Products, Inc. ("Venture Products"), a privately held Ohio corporation and manufacturer of Ventrac-branded products.
Added
Talent Development We strive to equip our teams and talent to deliver on the company's commitments to excellence by providing all employees a wide range of professional development opportunities, both formal and informal, at all stages in their careers.
Removed
Venture Products designs, manufactures, markets, and sells articulating turf, landscape, and snow and ice management equipment for grounds, landscape contractor, golf, municipal, and rural acreage customers and provides innovative product offerings that broadened and strengthened our Professional segment and expanded our dealer network.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeEconomic and Operational Risks • Our net sales and earnings have been and will likely continue to be adversely affected by economic conditions and outlook in the locations in which we conduct business. • If we are unable to enhance existing products and develop and market new products, demand for our products may decrease adversely impacting our net sales and earnings. • Disruption and/or shortages in commodities, components, parts, or accessories has adversely affected and could continue to adversely affect our business. • COVID-19 materially adversely impacted portions of our business, financial condition and operating results, and will likely continue to some extent. • Weather conditions, including conditions exacerbated by global climate change, may impact demand for our products and/or cause disruptions in our operations. 14 Table of Contents • Our Professional segment net sales are dependent on several factors, including golf, infrastructure and construction activity. • Our Residential segment net sales are dependent on several factors, including product placement, consumer confidence and spending levels and changing customer buying patterns. • Changes in our product mix have adversely impacted and could continue to adversely impact our operating results. • We face intense competition, which could harm our business and operating results. • Increases in the cost of commodities, components, parts, and accessories have adversely affected and could continue to adversely affect our profit margins. • We are dependent upon our facilities and those of our suppliers and other third parties. • We are dependent upon a strong, effective labor force. • If we or our distribution channel customers do not maintain appropriate inventory levels, our net sales and other operating results could be negatively impacted. • We are dependent upon our distribution channel customers. • We are dependent upon the availability and terms of credit offered to our customers. • We are dependent upon effective information systems. • Our international operations involve risk. • We may experience disruptions to our operations as result of facility changes and renovations.
Biggest changeEconomic and Operational Risks • Our net sales and earnings have been and will likely continue to be adversely affected by economic conditions and outlook in the locations in which we conduct business. • If we are unable to enhance existing products and develop and market new products, demand for our products may decrease adversely impacting our net sales and earnings. • Disruption and/or shortages in commodities, components, parts, or accessories has adversely affected and could continue to adversely affect our business. • Weather conditions, including conditions exacerbated by global climate change, present chronic and acute physical risks, and have previously impacted, and may continue to impact, demand for some of our products and/or cause disruptions in our operations. • Our Professional segment net sales are dependent on several factors, including golf, infrastructure and construction activity. • Our Residential segment net sales are dependent on several factors, including product placement, consumer confidence and spending levels and changing customer buying patterns. • Changes in our product mix have adversely impacted and could continue to adversely impact our operating results. • We face intense competition, which could harm our business and operating results. • Increases in the cost of commodities, components, parts, and accessories have adversely affected and could continue to adversely affect our profit margins. • We are dependent upon our facilities and those of our suppliers and other third parties. • We are dependent upon a strong, effective labor force. • Our net sales and other operating results are dependent upon us and our channel customers maintaining appropriate inventory levels. • We are dependent upon our channel customers. • We are dependent upon the availability and terms of credit offered to our customers. • We are dependent upon effective information systems. • Our international operations involve risk. • We experience disruptions to our operations from time to time as result of facility changes and renovations. 15 Table of Contents Strategic Risks • Our strategy to pursue acquisitions and alliances, strong customer relations, and new joint ventures, investments, and partnerships and our recent activities in this regard involve risk and may prove to be unsuccessful. • Increased scrutiny regarding our ESG practices could impact our reputation.
Global climate change may exacerbate the frequency and intensity of unfavorable weather conditions, such as fires, hurricanes, tornadoes, drought, water shortages, rainfall, unseasonably warm winter months, or other weather events, many of which have increased in severity in recent years, in geographic areas where our products are manufactured, distributed, sold, and used and where our supply chains our located, and our sales and operating results may be affected to a greater degree than we have previously experienced.
Global climate change may exacerbate the frequency and intensity of unfavorable weather conditions, such as fires, hurricanes, tornadoes, drought, water shortages, rainfall, unseasonably warm winter months, or other weather events, many of which have increased in severity in recent years, in geographic areas where our products are manufactured, distributed, sold, and used and where our supply chains are located, and our sales and operating results may be affected to a greater degree than we have previously experienced.
We are subject to risks relating to the inventory management decisions and operational and sourcing practices of our distribution network. Our distribution channel customers carry inventories of our products as part of their ongoing operations and adjust those inventories based on their assessments of future needs, including anticipated end-customer demand.
We are subject to risks relating to the inventory management decisions and operational and sourcing practices of our distribution network. Our channel customers carry inventories of our products as part of their ongoing operations and adjust those inventories based on their assessments of future needs, including anticipated end-customer demand.
If we are not able to maintain effective distribution channels, if our distribution channel customers are not successful in marketing and selling our products, or if we experience a significant reduction or cancellation or change in the size and timing of orders from our distribution channel customers, our sales could decline and have an adverse effect on our business and operating results.
If we are not able to maintain effective distribution channels, if our channel customers are not successful in marketing and selling our products, or if we experience a significant reduction or cancellation or change in the size and timing of orders from our channel customers, our sales could decline and have an adverse effect on our business and operating results.
We are dependent upon our ability to attract and retain key executive and employees and our ability successfully implement key employee transitions.
We are dependent upon our ability to attract and retain key executive and employees and successfully implement key employee transitions.
Acquisitions, alliances, joint ventures, investments, and partnerships may involve a number of risks, the occurrence of which could adversely affect our business, reputation, financial condition, and operating results, including: • diversion of management's attention to manage and integrate the acquired business; • disruption to our existing operations and plans; • inability to effectively manage our expanded operations; • difficulties, delays, or unanticipated costs in integrating and assimilating information and financial systems, internal controls, operations, manufacturing processes and products or in realizing projected efficiencies, growth prospects, cost savings, and other synergies; • inability to successfully integrate or develop a distribution channel for acquired product lines; • loss of key employees, customers, distributors, or dealers of the acquired businesses or adverse effects on existing business relationships with suppliers, customers, distributors, and dealers; • write-off of significant amounts of goodwill, other indefinite-lived intangible assets, and/or long-lived assets because of deterioration in the performance of an acquired business or product line, adverse market conditions, changes in the competitive landscape, changes in laws or regulations that restrict activities of an acquired business or product line, or other circumstances; • delays or challenges in transitioning distributors and dealers of acquired businesses to available floor plan financing arrangements; • violation of confidentiality, intellectual property, and non-compete obligations or agreements by employees of an acquired business or lack of or inadequate formal intellectual property protection mechanisms in place at an acquired business; • adverse impact on overall profitability if our expanded operations do not achieve, or are delayed in achieving, the growth prospects, net sales, net earnings, cost and/or revenue synergies, or other financial results projected in our valuation models; • reallocation of amounts of capital from other operating initiatives and/or an increase in our leverage and debt service requirements to pay acquisition purchase prices or other business venture investment costs, which could restrict our ability to access additional capital when needed, result in a decrease in our credit rating, or limit our ability to pursue other important elements of our business strategy; • failure by acquired businesses or other business ventures to comply with applicable international, federal, and state product safety or other regulatory standards; • infringement by acquired businesses or other business ventures of valid intellectual property rights of others; • inaccurate assessment of additional post-acquisition or business venture investments, undisclosed, contingent or other liabilities or problems, unanticipated costs associated with an acquisition or other business venture, and despite the existence of representations, warranties and indemnities in any definitive agreement and/or a representation and warranty insurance policy, if applicable, an inability to recover or manage such liabilities and costs; and • impacts as a result of purchase accounting adjustments, incorrect estimates made in the accounting for acquisitions, occurrence of non-recurring charges, or other potential financial accounting or reporting impacts.
Acquisitions, alliances, joint ventures, investments, and partnerships may involve a number of risks, the occurrence of which could adversely affect our business, reputation, financial condition, and operating results, including: • diversion of management's attention to manage and integrate the acquired business; • disruption to our existing operations and plans; • inability to effectively manage our expanded operations; • difficulties, delays, or unanticipated costs in integrating and assimilating information and financial systems, internal controls, operations, manufacturing processes and products or in realizing projected efficiencies, growth prospects, cost savings, and other synergies; • inability to successfully integrate or develop a distribution channel for acquired product lines; • loss of key employees, customers, distributors, or dealers of the acquired businesses or adverse effects on existing business relationships with suppliers, customers, distributors, and dealers; • write-off of significant amounts of goodwill, other indefinite-lived intangible assets, and/or long-lived assets because of deterioration in the performance of an acquired business or product line, adverse market conditions, changes in the competitive landscape, changes in laws or regulations that restrict activities of an acquired business or product line, or other circumstances; • delays or challenges in transitioning distributors and dealers of acquired businesses to available floor plan financing arrangements; • violation of confidentiality, intellectual property, and non-compete obligations or agreements by employees of an acquired business or lack of or inadequate formal intellectual property protection mechanisms in place at an acquired business; 23 Table of Contents • adverse impact on overall profitability if our expanded operations do not achieve, or are delayed in achieving, the growth prospects, net sales, net earnings, cost and/or revenue synergies, or other financial results projected in our valuation models; • reallocation of amounts of capital from other operating initiatives and/or an increase in our leverage and debt service requirements to pay acquisition purchase prices or other business venture investment costs, which could restrict our ability to access additional capital when needed, result in a decrease in our credit rating, or limit our ability to pursue other important elements of our business strategy; • failure by acquired businesses or other business ventures to comply with applicable international, federal, and state product safety or other regulatory standards; • infringement by acquired businesses or other business ventures of valid intellectual property rights of others; • inaccurate assessment of additional post-acquisition or business venture investments, undisclosed, contingent or other liabilities or problems, unanticipated costs associated with an acquisition or other business venture, and despite the existence of representations, warranties and indemnities in any definitive agreement and/or a representation and warranty insurance policy, if applicable, an inability to recover or manage such liabilities and costs; and • impacts as a result of purchase accounting adjustments, incorrect estimates made in the accounting for acquisitions, occurrence of non-recurring charges, or other potential financial accounting or reporting impacts.
Further, our facilities and other operations and those of our distribution channel customers and suppliers have incurred losses and experienced disruptions as a result of certain weather conditions and such losses or disruption may continue due to additional natural disasters, inclement weather, and/or climate change-related events, such as tornadoes, hurricanes, earthquakes, floods, tsunamis, typhoons, drought, fire, other extreme weather conditions, and other natural disasters and events that occur as a result of such events, such as water or other natural resource shortages, rising sea levels, power outages or shortages, or telecommunications failures.
Further, our facilities and other operations and those of our channel customers and suppliers have incurred losses and experienced disruptions as a result of certain weather conditions and such losses or disruption may continue due to additional natural disasters, inclement weather, and/or climate change-related events, such as tornadoes, hurricanes, earthquakes, floods, tsunamis, typhoons, drought, fire, other extreme weather conditions, and other natural disasters and events that occur as a result of such events, such as water or other natural resource shortages, rising sea levels, power outages or shortages, or telecommunications failures.
These adverse economic conditions 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 interest in the game of golf or golf course activity, development, renovation, and improvement; golf course closures; reduced governmental or municipal spending; reduced levels of home ownership, construction, and sales; home foreclosures; negative consumer confidence; reduced consumer spending levels; increased or prolonged high unemployment rates; higher costs, longer lead times, and reduced availability of commodities, components, parts, and accessories, including as a result of transportation-related costs, inflation, changing prices, foreign currency fluctuations, tariffs, and/or duties; inflationary or deflationary pressures; reduced infrastructure spending; the impact of U.S. federal debt, state debt, and sovereign debt defaults and austerity measures by certain European countries; reduced credit availability or unfavorable credit terms for our distributors, dealers, and end-user customers; higher short-term, mortgage, and other interest rates; and general economic and political conditions and expectations.
These adverse economic conditions 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 interest in the game of golf or golf course activity, development, renovation, and improvement; golf course closures; reduced governmental or municipal spending; reduced levels of home ownership, construction, and sales; home foreclosures; negative consumer confidence; reduced consumer spending levels; increased or prolonged high unemployment rates; higher costs, longer lead times, and reduced availability of commodities, components, parts, and accessories, including as a result of transportation-related costs, inflation, changing prices, foreign currency fluctuations, tariffs, and/or duties; inflationary or deflationary pressures; reduced infrastructure spending; the impact of U.S. federal debt, state debt, and sovereign debt defaults and austerity measures by certain European countries; reduced credit availability or unfavorable credit terms for our distributors, dealers, and end-user customers; higher short-term, mortgage, and other interest rates; government shutdowns; and general economic and political conditions and expectations.
In addition, if adverse economic conditions, business conditions or other events cause a decline in sales by our distribution channel customers or weakens their financial condition, our net sales and earnings could be adversely affected. Such situation could adversely affect the ability of such customers to pay amounts owed, which could require us to repurchase financed product.
In addition, if adverse economic conditions, business conditions or other events cause a decline in sales by our channel customers or weakens their financial condition, our net sales and earnings could be adversely affected. Such situation could adversely affect the ability of such customers to pay amounts owed, which could require us to repurchase financed product.
Such events also may result in shortages of commodities, components, parts, or accessories; higher fuel, transportation, and commodity costs; and delays in shipments to our distribution channel customers. Any failure by us, or our suppliers or distribution channel partners, to hire and/or retain an adequate labor force could adversely affect our business, operating results, and reputation.
Such events also may result in shortages of commodities, components, parts, or accessories; higher fuel, transportation, and commodity costs; and delays in shipments to our channel customers. Any failure by us, or our suppliers or channel partners, to hire and/or retain an adequate labor force could adversely affect our business, operating results, and reputation.
General Risk Factors • We may not achieve our financial projections or other business initiatives, which could have an adverse effect on our business, operating results, and financial condition. • If we are unable to attract and retain key executive and other talent or successfully implement key employee transitions, we may be unable to meet strategic objectives and our business could suffer.
General Risk Factors • We may not achieve our financial projections or other business and productivity initiatives, which could have an adverse effect on our business, operating results, and financial condition. • If we are unable to attract and retain key executive and other talent or successfully implement key employee transitions, we may be unable to meet strategic objectives and our business could suffer.
Further, if our price increases are not accepted by our customers and the market, our net sales, profit margins, earnings, and market share could be adversely affected. We are dependent upon the efficient operation of our facilities and those of our suppliers, distribution channel customers, mass retailers, and home centers where our products are sold.
Further, if our price increases are not accepted by our customers and the market, our net sales, profit margins, earnings, and market share could be adversely affected. We are dependent upon the efficient operation of our facilities and those of our suppliers, channel customers, mass retailers, and home centers where our products are sold.
A work slowdown, strike, or similar action could occur at any one of our facilities, or the facilities of our distribution channel customers and suppliers, and such facilities could fail to renew or enter into new collective bargaining agreements or may have to enter into a new collective bargaining agreement at a facility not currently covered by an agreement.
A work slowdown, strike, or similar action could occur at any one of our facilities, or the facilities of our channel customers and suppliers, and such facilities could fail to renew or enter into new collective bargaining agreements or may have to enter into a new collective bargaining agreement at a facility not currently covered by an agreement.
Furthermore, such impacts hinder our ability to meet customer demand, result in the loss of customers, and could cause us to incur charges associated with inventory valuation adjustments for excess and obsolete inventories. Our business and operating results are subject to the inventory management decisions of our distribution channel customers.
Furthermore, such impacts hinder our ability to meet customer demand, result in the loss of customers, and could cause us to incur charges associated with inventory valuation adjustments for excess and obsolete inventories. Our business and operating results are subject to the inventory management decisions of our channel customers.
General Risk Factors We may not achieve our financial projections, sustainability goals or other business initiatives, which could have an adverse effect on our business, operating results, and financial condition. We generally provide financial projections such as our expected revenue growth and adjusted diluted earnings per share.
General Risk Factors We may not achieve our financial projections, sustainability goals, or other business and productivity initiatives, which could have an adverse effect on our business, operating results, and financial condition. We generally provide financial projections such as our expected revenue growth and adjusted diluted earnings per share.
Any weak demand for, or quality issues with, our products may cause our distribution channel customers to reduce or terminate their relationships with us or adversely affect our ability to engage new dealers and distributors or maintain or obtain shelf space at mass retailers and home centers.
Any weak demand for, or quality issues with, our products may cause our channel customers to reduce or terminate their relationships with us or adversely affect our ability to engage new dealers and distributors or maintain or obtain shelf space at mass retailers and home centers.
Our labor needs, and those of our suppliers and distribution channel partners, fluctuate throughout the year and by region. During periods of peak manufacturing activity it is often necessary to sharply increase the number of production staff by utilizing new hires and temporary labor.
Our labor needs, and those of our suppliers and channel partners, fluctuate throughout the year and by region. During periods of peak manufacturing activity it is often necessary to sharply increase the number of production staff by utilizing new hires and temporary labor.
Such adjustments have impacted our inventory management and working capital goals as well as operating results, and such adjustments may impact us in the future. Changes in composition of, financial viability of, and the relationships with, our distribution channel customers could negatively impact our business and operating results.
Such adjustments have impacted our inventory management and working capital goals as well as operating results, and such adjustments may impact us in the future. Changes in composition of, financial viability of, and the relationships with, our channel customers could negatively impact our business and operating results.
Additionally, our distribution channel customers may not commit the necessary resources to market and sell our products as we would expect, and/or they may not be successful in marketing and ultimately selling our products.
Additionally, our channel customers may not commit the necessary resources to market and sell our products as we would expect, and/or they may not be successful in marketing and ultimately selling our products.
In addition, Laws may adversely affect our operating results, including, (i) to address health and safety requirements, (ii) taxation and tax policy changes, tax rate changes, new tax laws, or revised tax law interpretations or guidance, which individually or in 25 Table of Contents combination may cause our effective tax rate to increase or result in tax charges, (iii) changes to, or adoption of new, healthcare laws or regulations, or (iv) changes to U.S. or international trade policies or 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 in the U.S. from China, that could result in additional tariffs, duties or other charges on commodities, components, parts or accessories that we import and/or use in our products.
In addition, Laws may adversely affect our operating results, including, (i) to address health and safety requirements, (ii) taxation and tax policy changes, tax rate changes, new tax laws, or revised tax law interpretations or guidance, which individually or in combination may cause our effective tax rate to increase or result in tax charges, (iii) changes to, or adoption of new, healthcare laws or regulations, or (iv) changes to U.S. or international trade policies or 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 in the U.S. from China, that could result in additional tariffs, duties or other charges on commodities, components, parts or accessories that we import and/or use in our products.
Furthermore, we plan to shift production between our manufacturing facilities from time to time and open new manufacturing and/or distribution facilities to align production capacity with production goals.
Furthermore, we shift production between our manufacturing facilities from time to time and open new manufacturing and/or distribution facilities to align production capacity with production goals.
Production downtime and/or the inability to produce products at our facilities and those of our suppliers or other disruptions have occurred and could continue to occur as a result of several factors, including supply chain challenges, labor shortages, natural disasters, inclement weather, man-made disasters or other external events, such as terrorist acts or acts of war, pandemics and/or epidemics, boycotts and sanctions, widespread criminal activities, or 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 18 Table of Contents of our distribution channel customers, mass retailers or home centers where our products are sold, or suppliers.
Production downtime and/or the inability to produce products at our facilities and those of our suppliers or other disruptions have occurred and could continue to occur as a result of several factors, including supply chain challenges, labor shortages, natural disasters, inclement weather, man-made disasters or other external events, such as terrorist acts or acts of war, pandemics and/or epidemics, boycotts and sanctions, widespread criminal activities, or 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 channel customers, mass retailers or home centers where our products are sold, or suppliers.
Changes in the ownership or control of our distribution channel customers could also adversely affect our relationships with them.
Changes in the ownership or control of our channel customers could also adversely affect our relationships with them.
These risks include: • weakened economic conditions; • pandemics and/or epidemics, including COVID-19; • increased costs of customizing products for foreign countries; • difficulties in managing and staffing international operations and increases in infrastructure costs including legal, tax, accounting, and information technology; • the imposition of additional U.S. and foreign governmental controls or regulations; • new or enhanced trade restrictions and restrictions on the activities of foreign agents, representatives, and distribution channel customers; • withdrawal from or revisions to international trade policies or agreements and the imposition or increases in import and export licensing and other compliance requirements, customs duties and tariffs, import and export quotas and other trade restrictions, license obligations, other non-tariff barriers to trade; • the imposition of U.S. and/or international sanctions against a country, company, person, or entity with whom we do business that would restrict or prohibit our business with the sanctioned country, company, person, or entity; • international pricing pressures; • 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 U.S. from China; • adverse currency exchange rate fluctuations; • longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal systems; • potentially higher tax rates and adverse tax consequences, including restrictions on repatriating cash and/or earnings to the U.S.; • fluctuations in our operating performance based on our geographic mix of sales; • transportation delays and interruptions; • national and international conflicts, including the war between Ukraine and Russia and foreign policy changes, acts of war or terrorist acts; • difficulties in protecting, enforcing or defending intellectual property rights; and • multiple, changing, and often inconsistent enforcement of laws, rules, regulations and standards, including rules relating to taxes, environmental, health and safety matters.
These risks include: • weakened economic conditions; • pandemics and/or epidemics; • increased costs of customizing products for foreign countries; • difficulties in managing and staffing international operations and increases in infrastructure costs including legal, tax, accounting, and information technology; • the imposition of additional U.S. and foreign governmental controls or regulations; • new or enhanced trade restrictions and restrictions on the activities of foreign agents, representatives, and channel customers; • withdrawal from or revisions to international trade policies or agreements and the imposition or increases in import and export licensing and other compliance requirements, customs duties and tariffs, import and export quotas and other trade restrictions, license obligations, other non-tariff barriers to trade; • the imposition of U.S. and/or international sanctions against a country, company, person, or entity with whom we do business that would restrict or prohibit our business with the sanctioned country, company, person, or entity; • international pricing pressures; • 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 U.S. from China; • adverse currency exchange rate fluctuations; • longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal systems; 22 Table of Contents • potentially higher tax rates and adverse tax consequences, including restrictions on repatriating cash and/or earnings to the U.S.; • fluctuations in our operating performance based on our geographic mix of sales; • transportation delays and interruptions; • national and international conflicts, including the war between Ukraine and Russia, the war between Israel and Hamas, geopolitical tensions and foreign policy changes, acts of war or terrorist acts; • difficulties in protecting, enforcing or defending intellectual property rights; and • multiple, changing, and often inconsistent enforcement of laws, rules, regulations and standards, including rules relating to taxes, environmental, health and safety matters.
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.
Our Professional segment includes a variety of products that are sold by distributors or dealers, or directly to government customers, rental companies, construction companies, professional and other users, including homeowners, 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.
We may not be able to compete as effectively and ultimately satisfy the needs and preferences of our customers, unless we 15 Table of Contents can continue to enhance existing products and develop new and innovative products, including by incorporating new, emerging, and/or disruptive technologies that may become preferred by our customers.
We may not be able to compete as effectively and ultimately satisfy the needs and preferences of our customers, unless we can continue to enhance existing products and develop new and innovative products, including by incorporating new, emerging, and/or disruptive technologies that may become preferred by our customers.
Further, the failure of one or more counterparties to our foreign currency exchange rate contracts to fulfill their obligations to us could adversely affect our operating results. We are subject to financial and operating restrictions and counterparty risk as a result of our credit arrangements.
Further, the failure of one or more counterparties to our foreign currency exchange rate contracts to fulfill their obligations to us could adversely affect our operating results. 25 Table of Contents We are subject to financial and operating restrictions and counterparty risk as a result of our credit arrangements.
In connection with our acquisitions and other business combinations, including our January 2022 acquisition of Intimidator and March 2020 acquisition of Venture Products, applicable accounting standards require the net tangible and intangible assets of the acquired business to be recorded on our consolidated balance sheet at their fair values as of the date of acquisition and any excess in the purchase price paid by us over the fair value of net tangible and intangible assets of any acquired business to be recorded as goodwill.
In connection with our acquisitions and other business combinations, including our January 2022 acquisition of Intimidator, applicable accounting standards require the net tangible and intangible assets of the acquired business to be recorded on our consolidated balance sheet at their fair values as of the date of acquisition and any excess in the purchase price paid by us over the fair value of net tangible and intangible assets of any acquired business to be recorded as goodwill.
A recall of some of our products could also result in increased product liability claims. Unforeseen product quality and/or product liability problems in the development and production of new and existing products could also result in loss of market share, decreased demand, reduced sales, rework costs, and higher warranty expense.
A recall of some of our products could also result in increased 28 Table of Contents product liability claims. Unforeseen product quality and/or product liability problems in the development and production of new and existing products could also result in loss of market share, decreased demand, reduced sales, rework costs, and higher warranty expense.
Losing any of our executive officers or other key employees, failure to identify, attract, or retain qualified leaders in the future, ineffective executive officer or other employee transitions, delays or the inability to hire necessary and qualified office or production employees due to employment conditions or otherwise, or any employee work slowdowns, strikes, or similar actions could make it difficult for us to conduct and manage our business and meet key objectives, which could harm our business, financial condition, and results of operations. 27 Table of Contents ITEM 1B.
Losing executive officers or other key employees, failure to identify, attract, or retain qualified leaders in the future, ineffective executive officer or other employee transitions, delays or the inability to hire necessary and qualified office or production employees due to employment conditions or otherwise, or any employee work slowdowns, strikes, or similar actions could make it difficult for us to conduct and manage our business and meet key objectives, which could harm our business, financial condition, and results of operations.
Global supply chain disruptions, COVID-19, natural disasters, antidumping and countervailing duty petitions regarding certain engines imported into the U.S. from China, and other tariffs has, to various and differing degrees, impacted the availability of commodities, components, parts, and accessories used in our products.
Global supply chain disruptions, natural disasters, antidumping and countervailing duty petitions regarding certain engines imported into the U.S. from China, and other tariffs have, to various and differing degrees, impacted the availability of commodities, components, parts, and accessories used in our products.
Any one or a combination of the following factors, among others, 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 and earnings: • reduced revenue for golf courses resulting from a reduction in the level of interest in the game of golf and/or a decrease in rounds played, memberships, and/or food and beverage sales, as applicable; • reduced 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, such as lawn care and snow and ice removal activities; • low or reduced levels of infrastructure improvements and other construction activities; • 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 on acceptable terms 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.
Any one or a combination of the following factors, among others, have in the past resulted and could in the future result in a decrease in spending and demand for our products, resulting in an adverse effect on our Professional segment net sales and earnings: • reduced revenue for golf courses resulting from a reduction in the level of interest in the game of golf and/or a decrease in rounds played, memberships, and/or food and beverage sales, as applicable; • reduced 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, such as lawn care and snow and ice removal activities; • low or reduced levels of infrastructure improvements and other construction activities; • 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 on acceptable terms 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.
We currently manufacture our products and maintain sales offices in the U.S. and other countries for sale throughout the world. Our net sales outside the U.S. were 19.5 percent, 20.9 percent, and 20.1 percent of our total consolidated net sales for fiscal 2022, 2021, and 2020, respectively.
We currently manufacture our products and maintain sales offices in the U.S. and other countries for sale throughout the world. Our net sales outside the U.S. were 20.8 percent, 19.5 percent, and 20.9 percent of our total consolidated net sales for fiscal 2023, 2022, and 2021, respectively.
If we fail to maintain an effective network of distribution channel partners, including distributors, dealers, mass retailers, and home centers, for our products, we may not have adequate market coverage for the optimal level of sales 19 Table of Contents of our products.
If we fail to maintain an effective network of channel partners, including distributors, dealers, mass retailers, and home centers, for our products, we may not have adequate market coverage for the optimal level of sales of our products.
In preparing the Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles ("GAAP"), we must make decisions that impact 24 Table of Contents our operating results and/or financial condition, including selecting the appropriate accounting and/or tax principles to be applied and the assumptions on which to base accounting and tax estimates.
In preparing the Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles ("GAAP"), we must make decisions that impact our results of operations and/or financial condition, including selecting the appropriate accounting and/or tax principles to be applied and the assumptions on which to base accounting and tax estimates.
New and innovative competitive products may beat our products to market; be higher quality or more reliable; be more effective, have more features, and/or be less expensive than our products; incorporate new, emerging, and/or disruptive technologies; obtain better market acceptance; or render our products obsolete.
New and innovative competitive products may beat our products to market; be higher quality or more reliable; be more effective, have more 16 Table of Contents features, and/or be less expensive than our products; incorporate new, emerging, and/or disruptive technologies; obtain better market acceptance; or render our products obsolete.
As we continue to develop internet-connected products and other new, emerging, and/or 20 Table of Contents disruptive technologies, similar risks may also be present in the systems, technology, and software installed within such products.
As we continue to develop internet-connected products and other new, emerging, and/or disruptive technologies, similar risks may also be present in the systems, technology, and software installed within such products.
Managing inventory levels in the current macroeconomic environment is particularly difficult as a result of demand volatility; changes to production operations, locations and schedule; and supply chain challenges limiting our ability to source an adequate supply of commodities, components, parts, and accessories to meet our production requirements.
Managing inventory levels during an uncertain macroeconomic environment is particularly difficult as a result of demand volatility; changes to production operations, locations and schedule; and supply chain challenges limiting our ability to source an adequate supply of commodities, components, parts, and accessories to meet our production requirements.
For additional information regarding our accounting policies, accounting pronouncements adopted, and accounting pronouncements not yet adopted, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in the section entitled "Critical Accounting Policies and Estimates" and Note 1, Summary of Significant Accounting Policies and Related Data, of the Notes to Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.
For additional information regarding our accounting policies and new accounting pronouncements, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in the section entitled "Critical 26 Table of Contents Accounting Policies and Estimates" and Note 1, Summary of Significant Accounting Policies and Related Data, of the Notes to Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.
Financial Risks • We may be required to incur impairment and other charges which would harm our operating results. • Foreign currency exchange rate fluctuations may harm our operating results. • We are dependent upon the availability and cost of our credit arrangements and any downgrade in our credit ratings could adversely affect our access to and increase the cost of such arrangements. • Changes in accounting or tax standards and policies and/or assumptions underlying estimates could harm our operating results.
Financial Risks • We incur impairment, restructuring, and other charges from time to time which harm our operating results. • Foreign currency exchange rate fluctuations may harm our operating results. • We are dependent upon the availability and cost of our credit arrangements and any downgrade in our credit ratings could adversely affect our access to and increase the cost of such arrangements. • Changes in accounting or tax standards and policies and/or assumptions underlying estimates could harm our results of operations.
If we, or our suppliers and distribution channel partners, continue to be unable to hire, train, and/or retain a labor force to adequately staff manufacturing operations, perform service or warranty work, or other necessary activities, we could continue to experience disruptions in our manufacturing and other processes, which have and could continue to adversely impact our business, operating results and reputation.
If we, or our suppliers and channel partners, are unable to hire, train, and/or retain a labor force to adequately staff manufacturing operations, perform service or warranty work, or other necessary activities, we could experience disruptions in our manufacturing and other processes, which have in the past adversely impacted, and could continue to adversely impact, our business, operating results, and reputation.
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 ability to manage our inventory levels to meet our customers' demand for our products and fulfill existing and future sales order backlog is important for our business.
Our net sales and/or working capital are negatively impacted when we underestimate or overestimate demand for our products or do not maintain appropriate inventory levels. Our ability to manage our inventory levels to meet our customers' demand for our products and fulfill existing and future sales order backlog is important for our business.
Several factors, including the implications of withdrawal by the U.S. from, or revisions to, international trade agreements, foreign trade or other policy changes between the U.S. and other countries, weakened international economic conditions or the impact of sovereign debt defaults by certain European countries, could adversely affect our international net sales.
Several factors, including the implications of withdrawal by the U.S. from, or revisions to, international trade agreements, foreign trade or other policy changes between the U.S. and other countries, weakened international economic conditions, the impact of sovereign debt defaults by certain European countries, and current wars and related sanctions and other geopolitical tensions could adversely affect our international net sales.
Changes in accounting or tax standards and policies and/or assumptions utilized in determining accounting or tax estimates could adversely affect our operating results and financial condition.
Changes in accounting or tax standards and policies and/or assumptions utilized in determining accounting or tax estimates could adversely affect our results of operations and financial condition.
Unusually rainy weather or severe drought conditions that result in watering bans, or otherwise, have had an adverse effect on sales of our irrigation products, and lower snowfall accumulations in key markets have had an adverse effect on sales of our Residential snow thrower products and products of our 16 Table of Contents Professional snow and ice management business.
Unusually rainy weather or severe drought conditions that result in watering bans, or otherwise, have had, and may continue to have, an adverse effect on sales of our irrigation products, and lower snowfall accumulations in key markets have had, and may continue to have, an adverse effect on sales of our Residential snow thrower products and products of our Professional snow and ice management business.
In addition, competition could increase if new companies enter the market, existing competitors combine or consolidate their operations or if existing competitors expand their product lines or intensify efforts within existing product lines.
In addition, competition could increase if new companies enter the market, existing 18 Table of Contents competitors combine or consolidate their operations or if existing competitors expand their product lines or intensify efforts within existing product lines.
However, during fiscal 2022, we experienced higher material, freight and manufacturing costs, which adversely affected our margins, and we may not be able to fully offset increased commodity, component, parts, or accessories costs in the future.
However, during the past couple of years, we experienced higher material, freight and manufacturing costs, which adversely affected our margins, and we may not be able to fully offset increased commodity, component, parts, or accessories costs in the future.
Accordingly, our financial performance, including our profit margins and net earnings, have been and will continue to be impacted depending on the mix of products we sell during a given period.
Our Professional segment products generally have higher profit margins than our Residential segment products. Accordingly, our financial performance, including our profit margins and net earnings, have been and will continue to be impacted depending on the mix of products we sell during a given period.
If 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 existing and future sales order backlog, and/or do not produce or maintain appropriate inventory levels, our net sales, margins, net earnings, and/or working capital could continue to be negatively impacted.
Our net sales, margins, net earnings, and/or working capital are negatively impacted when we underestimate or overestimate channel or retail demand for our products, we are not able to manufacture product to fulfill customer demand and existing and future sales order backlog, and/or we do not produce or maintain appropriate inventory levels.
One of our strategies is to drive growth in our businesses and expand our global presence through targeted acquisitions and alliances, strong customer relations, and new joint ventures, investments, and partnerships that add value and complement our existing brands and product portfolio. For example, in January 2022, we acquired Intimidator Group.
One of our strategies is to drive growth in our businesses and expand our global presence through targeted acquisitions and alliances, strong customer relations, and new joint ventures, investments, and partnerships that add value and complement our existing brands and product portfolio.
These factors have resulted in manufacturing inefficiencies and related unfavorable manufacturing variances that have negatively impacted our financial results.
These factors have resulted in, and could continue to result in, manufacturing inefficiencies and related unfavorable manufacturing variances that have negatively impacted, and could continue to impact, our financial results.
Furthermore, our quarterly or annual results can be impacted as a result of the timing of significant sales or promotional events for our Residential products. 17 Table of Contents Changes in product mix could adversely impact our financial performance, including profit margins and net earnings. Our Professional segment products generally have higher profit margins than our Residential segment products.
Furthermore, our quarterly or annual results have in the past and could in the future be impacted as a result of the timing of significant sales or promotional events for our Residential products. Changes in product mix could adversely impact our financial performance, including profit margins and net earnings.
For example, as consumers purchase products at home centers and mass retailers that typically offer broader and lower price points than dealers, demand for and sales of our Residential segment products purchased at mass retailers and home centers have increased.
In addition, as consumers purchase products at home centers and mass retailers that typically offer broader and lower price points than dealers, demand for and sales of our Residential segment products purchased at mass retailers and home centers, as compared to dealers and hardware retailers, have increased, adversely affecting our margins.
Foreign currency exchange rates have affected our net sales, net earnings, and operating results and could continue to result in declines in our reported net sales and net earnings. Currency exchange rate fluctuations may also affect the comparative prices between products we sell and products our foreign competitors sell in the same market, which may decrease demand for our products.
Foreign currency exchange rates have affected our net sales, net earnings, and operating results in the past and could affect them in the future, in some cases materially. Currency exchange rate fluctuations may also affect the comparative prices between products we sell and products our foreign competitors sell in the same market, which may decrease demand for our products.
In addition, we need effective internal controls to provide reliable and accurate financial reports and to effectively prevent fraud. Integrating acquired businesses may make our systems and controls more complex and difficult to manage. We devote significant resources and time to comply with the internal control over financial reporting requirements of the Sarbanes-Oxley Act of 2002.
Integrating acquired businesses may make our systems and controls more complex and difficult to manage. We devote significant resources and time to comply with the internal control over financial reporting requirements of the Sarbanes-Oxley Act of 2002.
These financial projections are based on management’s assumptions and expectations at the time made. Failure to achieve our financial projections could have an adverse effect on our business, operating results, and financial condition. In our fiscal 2021 sustainability report, we set new sustainability goals.
These financial projections are based on management’s assumptions and expectations at the time made. Failure to achieve our financial projections could have an adverse effect on our business, operating results, and financial condition.
Any material change in the availability or terms of credit offered to our customers by our floor plan financing providers, challenges or delays in transferring new distributors and dealers from any business we might acquire or otherwise to our available financing platforms, any termination or disruption of our floor plan arrangements, or any delay in securing replacement credit sources could adversely affect our sales and operating results.
Any material change in the availability or terms of credit offered to our customers by our floor plan financing providers, challenges or delays in transferring new distributors and dealers from any business we might acquire or otherwise to our available financing platforms, any termination or disruption of our floor plan arrangements, or any delay in securing replacement credit sources could adversely affect our sales and operating results. 20 Table of Contents We are dependent upon the effective operation of our information systems, software, or information security practices and those of our business partners or third-party service providers.
The elimination, reduction, or changes in the placement of shelf space assigned to our Residential segment products at mass retailers and home centers could adversely affect our Residential segment net sales. Our Residential segment net sales also depend upon the buying patterns of consumers and changes to buying patterns could result in reduced sales.
The elimination, reduction, or changes in the placement of shelf space assigned to our Residential segment products at mass retailers and home centers have in the past adversely affected and in the future could adversely affect our Residential segment net sales.
Expanding and renovating our facilities could disrupt our business operations, and such effects could include but are not limited to potential interruption in manufacturing processes, delivery of raw materials, shipping finished goods, and data flow; unforeseen construction, scheduling, engineering, environmental, or geological problems; and unanticipated cost increases. 21 Table of Contents Strategic Risks Our strategy to pursue acquisitions and alliances, strong customer relations, and new joint ventures, investments, and partnerships involves risk.
Expanding and renovating our facilities could disrupt our business operations, and such effects could include but are not limited to potential interruption in manufacturing processes, delivery of raw materials, shipping finished goods, and data flow; unforeseen construction, scheduling, engineering, environmental, or geological problems; and unanticipated cost increases.
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.
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. The manufacture, sale, and use of our products expose us to significant risks associated with product quality issues and product liability claims and other litigation from time to time.
In addition, due to limited workforce populations in areas around the locations where we, or our suppliers and distribution channel partners, manufacture products or conduct business, or other factors, we, or our suppliers and distribution channel partners, may not have a sufficient pool of individuals with the right skills and experience available to fulfill labor requirements on a cost-effective basis or otherwise.
In addition, due to limited workforce populations in areas around the locations where we, or our suppliers and channel partners, manufacture products or conduct business, or other factors, we, or our suppliers and channel partners, may not have a sufficient pool of individuals with the right skills and experience available to fulfill labor requirements on a cost-effective basis or otherwise. 19 Table of Contents For example, our labor needs and those of our suppliers and channel partners were negatively impacted by COVID-19, which exacerbated the challenges in retaining and maintaining an adequate production staff.
As a result, there is no assurance that we will succeed in achieving the goals and objectives of our initiatives in the time periods that we anticipate, or ever. The failure to achieve such goals and objectives in the time periods that we anticipate, or at all, could have an adverse effect on our business, operating results and financial condition.
A delay, failure or perceived failure or delay to achieve such goals and objectives in the time periods that we anticipate, or at all, could have an adverse effect on our business, operating results and financial condition, and the public perception of our business.
Our Residential segment products generally face a higher volume of competition than our Professional segment products given the low barriers to entry resulting in numerous other manufacturers selling products that compete directly with our products. Internationally, our Residential segment products typically face more competition because many foreign competitors design, manufacture, market, and sell products in their respective countries.
Our Residential segment products generally face a higher volume of competition than our Professional segment products given the low barriers to entry resulting in numerous other manufacturers selling products that compete directly with our products.
An example of such legislation is California's AB 1346, which is expected to ban the sale of new small off-road engines, such as those installed in certain of our products, including leaf blowers and lawnmowers, in the state of California beginning in 2024.
An example of such legislation is California's AB 1346, which will require most new sales of small off-road engines, such as those installed in certain of our products, including leaf blowers and lawnmowers, sold in the state of California on or after January 1, 2024 to be zero-emission.
Such weather conditions could pose physical risks to our facilities and critical infrastructure in the U.S. and abroad, disrupt the operation of our supply chain and third-party vendors, and may impact operational results. Additionally, increased frequency and intensity of weather events due to climate change could lead to lost sales as customers prioritize basic needs.
Such weather conditions could pose physical risks to our facilities and critical infrastructure in the U.S. and abroad, disrupt the operation of our supply chain and third-party vendors, and may impact our operational results.
Unfavorable ratings may lead to negative investor sentiment, which could negatively impact our stock price. Any failure, or perceived failure, to respond to ESG concerns could harm our business and reputation. Financial Risks We may be required to incur impairment and other charges, which would adversely affect our operating results.
Unfavorable ratings may lead to negative investor sentiment, which could negatively impact our stock price. Any failure, or perceived failure, to respond to ESG concerns could harm our business and reputation.
We are dependent upon the effective operation of our information systems, software, or information security practices and those of our business partners or third-party service providers. We have many information systems and other software that are critical to our business and certain of our products, some of which are managed by third parties.
We have many information systems and other software that are critical to our business and certain of our products, some of which are managed by third parties.
Weather conditions also have disrupted our own manufacturing and distribution facilities and our supply chain, which has impacted our ability to manufacture product to fulfill customer demand, and such disruptions may occur in the future. For example, past drought or unusually wet conditions have had an adverse effect on sales of certain mowing equipment products.
Weather conditions also have disrupted our own manufacturing and distribution facilities and our supply chain, which has impacted our ability to manufacture product to fulfill customer demand, and such disruptions may occur in the future.
Concern over climate change has resulted in, and could continue to result in, new legal or regulatory requirements designed to reduce or mitigate the effects of greenhouse gases.
We are currently subject to rules limiting exhaust and other emissions and other climate-related rules and regulations in certain jurisdictions where we operate. Concern over climate change has resulted in, and could continue to result in, new legal or regulatory requirements designed to reduce or mitigate the effects of greenhouse gases.
Many of the countries in which we manufacture or sell our products, or in which we otherwise have a presence are, to some degree, subject to political, economic, and/or social instability, which has been heightened as a result of COVID-19.
Many of the countries in which we manufacture or sell our products, or in which we otherwise have a presence are, to some degree, subject to political, economic, and/or social instability. As a result, our international operations expose us and our representatives, agents, and channel customers to risks inherent in operating in foreign jurisdictions.
Impairment charges, could be significant and could adversely affect our consolidated operating results and financial condition. 23 Table of Contents Fluctuations in foreign currency exchange rates have adversely affected and could continue to adversely affect our operating results.
Fluctuations in foreign currency exchange rates have adversely affected and could continue to adversely affect our operating results.
Occasionally, we may wind down certain business activities and/or facilities, product lines, and/or perform other organizational restructuring projects in an effort to reduce costs and streamline operations. Such activities involve risks as they may divert management's attention from our core businesses, increase expenses on a short‑term basis and lead to potential issues with employees, customers, or suppliers.
Such activities involve risks as they may divert management's attention from our core businesses, increase expenses on a short‑term basis and lead to potential issues with employees, customers, or suppliers.
Other Laws impacting our supply chain, such as the United Kingdom Modern Slavery Act, or data privacy requirements, such as the EU's General Data Protection Regulation, the California Consumer Privacy Act, and other emerging domestic and global data privacy and cybersecurity laws, may have similar consequences.
Other Laws impacting our supply chain, such as the United Kingdom Modern Slavery Act, or data privacy requirements, such as the EU's General Data Protection Regulation, the California Consumer Privacy Act, and other emerging domestic and global data privacy and cybersecurity laws, may have similar consequences. 27 Table of Contents Climate change legislation, regulations, accords, mitigation efforts, or other legislation may adversely impact our operations and could impact the competitive landscape within our markets and affect demand for our products.
Weather conditions, including conditions exacerbated by global climate change, have previously impacted, and may continue to impact, demand for some of our products and/or cause disruptions in our operations. Weather conditions in a particular geographic region have adversely impacted, and will likely in the future, adversely affect sales, demand, and field inventory levels of some of our products.
Weather conditions, including conditions exacerbated by global climate change, present chronic and acute physical risks, and have previously impacted, and may continue to impact, demand for some of our products and/or cause disruptions in our operations.
We also set goals and objectives for the timing of certain accomplishments, initiatives and milestones regarding our business or operating results. Whether we achieve our goals and objectives of such initiatives can vary due to a number of factors, including the risk factors described in this Annual Report on Form 10-K.
Whether we achieve our goals and objectives of such initiatives can vary due to a number of factors, including the risk factors described in this Annual Report on Form 10-K. It is possible that we may be unsuccessful in the achievement of our goals, on a timely basis or at all.
Increases in the cost of commodities, components, parts, and accessories or our other costs of doing business, have, and could continue to, adversely affect our profit margins and businesses.
Competitors may move manufacturing operations to low cost countries for significant cost and price reductions, and we may not be able to compete, which could harm our business and operating results. Increases in the cost of commodities, components, parts, and accessories or our other costs of doing business, have, and could continue to, adversely affect our profit margins and businesses.
The publication of our sustainability report may result in increased investor, media, employee, and other stakeholder attention to our ESG initiatives, and such stakeholders may not be satisfied with our ESG practices or initiatives. Additionally, organizations that inform investors on ESG matters have developed rating systems for evaluating companies on their approach to ESG.
Furthermore, our stakeholders may not be satisfied with our initiatives or efforts or the speed at which we are progressing towards any such 24 Table of Contents aspirations and goals. Additionally, organizations that inform investors on ESG matters have developed rating systems for evaluating companies on their approach to ESG.
From time to time, we may divest of all or a portion of certain businesses and/or facilities, joint venture or minority equity investment interests, subsidiaries, distributorships, or product categories. Divestitures involve risk, including, potential increased expense associated with the divestitures, and potential issues with the acquirers, customers or suppliers of the divested business, or products.
Failure to successfully complete divestitures or other restructuring activities could negatively affect our operations. From time to time, we may divest of all or a portion of certain businesses and/or facilities, joint venture or minority equity investment interests, subsidiaries, distributorships, or product categories.
These risks, among others, could be heightened if we complete a 22 Table of Contents large acquisition or other business venture or multiple transactions within a relatively short period of time. Failure to successfully complete divestitures or other restructuring activities could negatively affect our operations.
We cannot predict whether such approvals would be forthcoming or the terms on which the lenders would approve such acquisitions. These risks, among others, could be heightened if we complete a large acquisition or other business venture or multiple transactions within a relatively short period of time.
In fiscal 2022, we have excluded Intimidator Group in our assessment in accordance with applicable SEC guidance, and continue to integrate its controls into our internal control over financial reporting. Any difficulties in the assimilation of acquired businesses into our internal control framework could harm our operating results or cause us to fail to meet our financial reporting obligations.
Any difficulties in the assimilation of acquired businesses into our internal control framework could harm our operating results or cause us to fail to meet our financial reporting obligations. Also, some acquisitions may require the consent of the lenders under our credit agreements.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur significant facilities are listed below by location, ownership, and function as of October 31, 2022: Location Reportable Segment Facility Type/Use Ownership United States: Batesville, Arkansas Professional Product manufacturing, warehouse and office Owned/Leased El Cajon, California Professional Product manufacturing, test facility and office Owned/Leased Riverside, California Professional Product manufacturing, test facility and office Owned/Leased Sanford, Florida Professional Product manufacturing Leased Ankeny, Iowa Professional & Residential Distribution center Leased Sterling, Kentucky Professional Product manufacturing Leased Iron Mountain, Michigan Professional Product manufacturing and office Owned/Leased Bloomington, Minnesota Other activities Corporate headquarters and test facility Owned/Leased Brooklyn Center, Minnesota Other activities Distribution facility Leased Shakopee, Minnesota Professional & Residential Component part manufacturing Owned Windom, Minnesota Professional & Residential Product manufacturing Owned/Leased St.
Biggest changeOur significant facilities are listed below by location, ownership, and function as of October 31, 2023: Location Reportable Segment Facility Type/Use Ownership United States: Batesville, Arkansas Professional Manufacturing facility, office, and warehouse Owned/Leased El Cajon, California Professional Manufacturing facility and test site Owned/Leased Riverside, California Professional Office and test site Owned/Leased Sanford, Florida Professional Manufacturing facility Leased Ankeny, Iowa Professional & Residential Distribution center Leased Mount Sterling, Kentucky Professional Manufacturing facility Leased Iron Mountain, Michigan Professional Manufacturing facility, office, and test site Owned/Leased Bloomington, Minnesota Other activities Corporate headquarters and test site Owned/Leased Shakopee, Minnesota Professional & Residential Manufacturing facility Owned Windom, Minnesota Professional & Residential Manufacturing facility Owned/Leased Beatrice, Nebraska Professional Manufacturing facility, office, and test site Owned/Leased Orrville, Ohio Professional Manufacturing facility and office Owned West Salem, Ohio Professional Manufacturing facility and office Owned Perry, Oklahoma Professional Manufacturing facility, office, and test site Owned/Leased El Paso, Texas Professional & Residential Manufacturing facility and distribution center Owned/Leased Weatherford, Texas Professional Manufacturing facility Owned Baraboo, Wisconsin Professional & Residential Distribution center Leased Lake Mills, Wisconsin Professional Manufacturing facility Owned Plymouth, Wisconsin Professional & Residential Distribution center Owned Tomah, Wisconsin Professional Manufacturing facility and distribution center Owned/Leased International Countries: Beverley, Australia Professional Manufacturing facility and office Owned Braeside, Australia Professional & Residential Distribution center Leased Oevel, Belgium Professional & Residential Distribution center Owned/Leased Xiamen City, China Professional & Residential Manufacturing facility Leased Althengstett, Germany Professional Manufacturing facility and office Owned Fiano Romano, Italy Professional Manufacturing facility and office Owned/Leased Juarez, Mexico Professional & Residential Manufacturing facility Leased Monterrey, Mexico Professional & Residential Manufacturing facility Leased Ustron, Poland Professional Manufacturing facility Owned Ploiesti, Romania Professional Manufacturing facility and test site Owned Hertfordshire, United Kingdom Professional & Residential Manufacturing facility, office, and test site Owned
We generally consider each of our current facilities to be in good operating condition, suitable for their respective uses, and adequate for our current and future business needs as our business is presently conducted.
We generally consider our current facilities to be in good operating condition, suitable for their respective uses, and adequate for our current and future business needs as our business is presently conducted.
From time to time, we may determine that certain of our properties exceed our business requirements as we continue to optimize our global business operations and global footprint and such properties may be exited, sold, or utilized in another manner.
However, as a matter of course, we review our facilities from time to time as we continue to optimize our global business operations and footprint and may determine that certain of our facilities should be expanded or exited, sold, or utilized in another manner.
ITEM 2. PROPERTIES Our global business operations require the use of various facilities and other properties for manufacturing, distribution, warehousing, engineering and product testing, sales and marketing, and other corporate activities. As of October 31, 2022, we utilized facilities totaling approximately 9.5 million square feet of space worldwide.
ITEM 2. PROPERTIES Our global business operations require the use of various facilities and other properties for manufacturing, distribution, warehousing, engineering and product testing, sales and marketing, and other corporate activities.
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However, we make ongoing capital investments in our facilities, including expansion efforts when needed, and believe that our historical capital investments in our manufacturing facilities have increased the production capacity of our operations and have enabled us to meet the needs of our customers.
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We also believe that we would be able to obtain replacements for our leased premises at acceptable costs should our existing leases not be renewed in a future period.
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Louis, Missouri Other activities Distribution facility Leased Beatrice, Nebraska Professional Product manufacturing, test facility and office Owned/Leased Orrville, Ohio Professional Product manufacturing and office Owned West Salem, Ohio Professional Product manufacturing and office Owned Perry, Oklahoma Professional Product manufacturing, test facility and office Owned/Leased El Paso, Texas Professional & Residential Component part and product manufacturing and distribution center Owned/Leased Weatherford, Texas Professional Product manufacturing and office Owned Baraboo, Wisconsin Professional & Residential Distribution center Leased Lake Mills, Wisconsin Professional Product manufacturing and office Owned Plymouth, Wisconsin Professional & Residential Distribution center Owned Tomah, Wisconsin Professional Product manufacturing and distribution center Owned/Leased International Countries: Beverley, Australia Professional Product manufacturing Owned Braeside, Australia Professional & Residential Distribution facility Leased Oevel, Belgium Professional & Residential Distribution center Owned/Leased Xiamen City, China Professional & Residential Product and component part manufacturing Leased Althengstett, Germany Professional Product manufacturing Owned Fiano Romano, Italy Professional Product manufacturing Owned/Leased Juarez, Mexico Professional & Residential Product manufacturing Leased Ustron, Poland Professional Product manufacturing Owned Ploiesti, Romania Professional Product manufacturing and test facility Owned Hertfordshire, United Kingdom Professional & Residential Product manufacturing and test facility Owned 28 Table of Contents

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

14 edited+5 added−5 removed1 unchanged
Biggest changeFrom October 2016 to November 2017, he served as Vice President, Sitework Systems. From February 2009 to October 2016, he served as General Manager, Sitework Systems. Kurt D. Svendsen 56, Vice President, Strategy, Corporate and Channel Development Vice President, Strategy, Corporate and Channel Development since November 2020. From June 2013 to October 2020, he served as Vice President, Information Services.
Biggest changeKurt D. Svendsen 57, Vice President, Technology Vice President, Technology since March 2023. From November 2020 to February 2023, he served as Vice President, Strategy, Corporate and Channel Development. From June 2013 to October 2020, he served as Vice President, Information Technology. Joanna M.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 29 Table of Contents INFORMATION ABOUT OUR EXECUTIVE OFFICERS The list below identifies those persons designated by our Board of Directors as executive officers of the company.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 30 Table of Contents INFORMATION ABOUT OUR EXECUTIVE OFFICERS The list below identifies those persons designated by our Board of Directors as executive officers of the company.
From February 2011 through March 2019, she served as Chief Financial Officer for The Charles Machine Works, Inc., an underground construction company acquired by the company in April 2019. Edric C. Funk 50, Group Vice President, Golf, Grounds and Irrigation Businesses Group Vice President, Golf Grounds and Irrigation Businesses since November 2022.
From February 2011 through March 2019, she served as Chief Financial Officer for The Charles Machine Works, Inc., an underground construction company acquired by the company in April 2019. Edric C. Funk 51, Group Vice President, Golf, Grounds, and Irrigation Group Vice President, Golf, Grounds, and Irrigation since November 2022.
From November 2020 through August 2022, she served as Vice President, Human Resources and General Counsel and from January 2020 through October 2020, she served as Vice President, Human Resources, Distributor Development and General Counsel. From December 2016 through December 2019, she served as Vice President, Human Resources and Distributor Development. Angela C.
From November 2020 through August 2022, she served as Vice President, Human Resources, General Counsel, and Corporate Secretary and from January 2020 through October 2020, she served as Vice President, Human Resources, Distributor Development, General Counsel, and Corporate Secretary. From December 2016 through December 2019, she served as Vice President, Human Resources and Distributor Development. Angela C.
Olson 58, Chairman of the Board, President and Chief Executive Officer Chairman of the Board since November 2017 and President and Chief Executive Officer since November 2016. From September 2015 through October 2016, he served as President and Chief Operating Officer.
Olson 59, Chairman of the Board, President and Chief Executive Officer Chairman of the Board since November 2017 and President and Chief Executive Officer since November 2016. From September 2015 through October 2016, he served as President and Chief Operating Officer.
Prior to joining the company, she held several roles at Ecolab, a global provider in water, hygiene and infection prevention solutions and services, serving as Senior Vice President, Human Resources, Global Total Rewards & Talent from February 2022 to July 2022, Senior Vice President, Human Resources, Global Total Rewards from September 2019 to January 2022, Vice President, Human Resources, Global Compensation & Benefits from March 2016 to August 2019, and Vice President, Human Resources, Global Food & Beverage and Global Textile Care from February 2013 to February 2016.
Prior to joining the company, she held several roles at Ecolab, a global provider in water, hygiene and infection prevention solutions and services, serving as Senior Vice President, Human Resources, Global Total Rewards & Talent from February 2022 to July 2022, Senior Vice President, Human Resources, Global Total Rewards from September 2019 to January 2022, and Vice President, Human Resources, Global Compensation & Benefits from March 2016 to August 2019.
The list sets forth each such person's age and position with the company as of December 12, 2022, as well as other positions held by him or her for at least the last five years. There are no family relationships between any director, executive officer, or person nominated to become a director or executive officer of the company.
The list sets forth each such person's age and position with the company as of December 13, 2023, as well as other positions held by the executive for at least the last five years. There are no family relationships between any director, executive officer, or person nominated to become a director or executive officer of the company.
There are no arrangements or understandings between any executive officer and any other person pursuant to which he or she was selected as an officer of the company. 30 Table of Contents Name, Age, and Position Business Experience during the Last Five or More Years Richard M.
There are no arrangements or understandings between any executive officer and any other person pursuant to which such executive officer was selected as an officer of the company. Name, Age, and Position Business Experience during the Last Five or More Years Richard M.
Drake 50, Vice President, Finance Vice President, Finance since July 2022. From April 2020 to June 2022, she served as Vice President, Construction and from April 2019 through March 2020, she served as Senior Managing Director, Integration.
Drake 51, Vice President and Chief Financial Officer Vice President and Chief Financial Officer since March 2023. She previously served as Vice President, Finance from July 2022 to February 2023. From April 2020 to June 2022, she served as Vice President, Construction and from April 2019 through March 2020, she served as Senior Managing Director, Integration.
From November 2017 to October 2019, he served as General Manager, Residential and Landscape Contractor Businesses. From April 2015 to October 2017, he served as Director, Marketing International Business. Margeaux M. King 45, Vice President, Human Resources Vice President, Human Resources since August 2022.
He previously served as Vice President, Residential and Landscape Contractor Businesses from November 2019 to November 2022. From November 2017 to October 2019, he served as General Manager, Residential and Landscape Contractor Businesses. Margeaux M. King 46, Vice President, Human Resources Vice President, Human Resources since August 2022.
Prior to joining Carrier, he held several roles at Rockwell Automation, Inc., an industrial automation and digital transformation company, serving as Vice President of Manufacturing Services from June 2018 to April 2019 and Director of Manufacturing Services from May 2016 to May 2018. Jody M. Christy 54, Vice President, BOSS Vice President, BOSS since December 2018.
Prior to joining Carrier, he held several roles at Rockwell Automation, Inc., an industrial automation and digital transformation company, serving as Vice President of Manufacturing Services from June 2018 to April 2019 and Director of Manufacturing Services from May 2016 to May 2018. Amy E. Dahl 49, Vice President, International Vice President, International since June 2023.
He previously served as General Manager, Sitework Systems from November 2020 to November 2022, and prior to that led the company’s Center for Technology, Research and Innovation from July 2017 to October 2020. Blake M. Grams 55, Vice President, Sustainability, Business Analytics and Process Improvement Vice President, Sustainability, Business Analytics and Process Improvement since December 2021.
He previously served as General Manager, Sitework Systems from November 2020 to November 2022, and prior to that led the company’s Center for Technology, Research and Innovation from July 2017 to October 2020. Gregory S. Janey 45, Group Vice President, Landscapes and Contractor Group Vice President, Landscapes and Contractor since November 2022.
From June 2014 through August 2015, he served as Group Vice President, International Business, Global Ag-Irrigation Business and Distributor Development. Kevin N. Carpenter 48, Vice President, Global Operations and Integrated Supply Chain Vice President, Global Operations and Integrated Supply Chain since November 2021.
From June 2014 through August 2015, he served as Group Vice President, International Business, Global Ag-Irrigation Business and Distributor Development. Jason P. Baab 48, Vice President, Strategy, Corporate Development, and Sustainability Vice President, Strategy, Corporate Development, and Sustainability since July 2023.
Peter D. Moeller 45, Vice President, International Vice President, International since November 2020. From November 2019 to October 2020, he served as Vice President, Sitework Systems. From November 2017 to October 2019, he served as General Manager, Sitework Systems. From April 2015 to October 2017, he served as Managing Director, Business Development and Strategic Planning. Renee J.
Peter D. Moeller 46, Group Vice President, Underground and Specialty Construction Group Vice President, Underground and Specialty Construction since March 2023. From November 2020 to February 2023, he served as Vice President, International. From November 2019 to October 2020, he served as Vice President, Sitework Systems. From November 2017 to October 2019, he served as General Manager, Sitework Systems.
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From June 2016 to November 2018, he served as General Manager, BOSS. At the time of the acquisition of BOSS in November 2014 to May 2016, he served as Director, Engineering for BOSS. Amy E. Dahl 48, Vice President, General Counsel and Corporate Secretary Vice President, General Counsel and Corporate Secretary since August 2022.
Added
Prior to joining the company, he held several roles at Oshkosh Corporation, a global manufacturer of specialty vehicles and equipment, serving as Senior Vice President, Corporate Development, Strategy, and Venture Capital from October 2021 to June 2023 and Vice President from 2017 to September 2021. Kevin N.
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From June 2013 to November 2021, he served as Vice President, Global Operations. Gregory S. Janey 44, Group Vice President, Contractor and Residential Businesses Group Vice President, Contractor and Residential Businesses since November 2022. He previously served as Vice President, Residential and Landscape Contractor Businesses from November 2019 to November 2022.
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Carpenter 49, Vice President, Global Operations and Integrated Supply Chain Vice President, Global Operations and Integrated Supply Chain since December 2021.
Removed
Peterson 61, Vice President, Chief Financial Officer Vice President, Chief Financial Officer since August 2011. She also served as Treasurer from July 2013 to March 2021. Darren L. Redetzke 58, Vice President, Strategic Technologies Vice President, Strategic Technologies since November 2020. From April 2015 to October 2020, he served as Vice President, International Business. Richard W.
Added
She previously served as Vice President, International, General Counsel and Corporate Secretary from March 2023 to June 2023. From August 2022 to February 2023 she served as Vice President, General Counsel and Corporate Secretary.
Removed
Rodier 62, Group Vice President, Construction Businesses Group Vice President, Construction Businesses since November 2022. He previously served as Group Vice President, Construction, Contractor and Residential Business from May 2020 to November 2022. From April 2019 to April 2020, he served as Group Vice President, Construction Businesses. From November 2017 to April 2019, he served as Vice President, Commercial Business.
Added
Totsky 55, Vice President, General Counsel, and Corporate Secretary Vice President, General Counsel, and Corporate Secretary since June 2023.
Removed
Daryn A. Walters 55, Vice President, Exmark and Intimidator Group Vice President, Exmark and Intimidator Group since February 2022. From December 2021 to February 2022, he served as Vice President, Exmark. From November 2018 to December 2021, he served as General Manager, Exmark. 31 Table of Contents PART II
Added
Prior to joining the company, she held several roles at Cooper-Standard Holdings, a leading manufacturer of sealing, fuel and brake delivery, and fluid transfer systems, serving as Senior Vice President, Chief Legal and Transformation Officer and Secretary from November 2022 to May 2023, Senior Vice President, Chief Legal and Compliance Officer and Secretary from July 2019 to October 2022, and Vice President, Deputy General Counsel from October 2016 to June 2019. 31 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThis authorized stock repurchase program has no expiration date but may be terminated by the company's Board of Directors at any time. 32 Table of Contents The Toro Company Common Stock Comparative Performance Graph The information contained in The Toro Company Common Stock Comparative Performance Graph section shall not be deemed to be "soliciting material" or "filed" or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically request that it be treated as soliciting material or incorporate it by reference into a document filed under the Securities Act or the Exchange Act.
Biggest changeFiscal Years Ended October 31 2018 2019 2020 2021 2022 2023 The Toro Company $ 100.00 $ 138.80 $ 149.82 $ 176.04 $ 197.09 $ 153.25 S&P 500 100.00 114.33 125.43 179.25 153.06 168.59 S&P 500 Industrial Machinery Index $ 100.00 $ 121.96 $ 133.77 $ 176.57 $ 153.30 $ 167.86 The information contained in The Toro Company Common Stock Comparative Performance Graph section shall not be deemed to be "soliciting material" or "filed" or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically request that it be treated as soliciting material or incorporate it by reference into a document filed under the Securities Act or the Exchange Act.
Restrictions on our ability to pay dividends are disclosed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Preferred Stock As of October 31, 2022 and 2021, we had 1,000,000 voting shares and 850,000 non-voting shares of preferred stock, par value $1.00 per share, authorized, none of which were outstanding.
Restrictions on our ability to pay dividends are disclosed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Preferred Stock As of October 31, 2023 and 2022, we had 1,000,000 voting shares and 850,000 non-voting shares of preferred stock, par value $1.00 per share, authorized, none of which were outstanding.
The total returns on TTC common stock depicted in the stock performance graph and table are not necessarily indicative of future performance. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among The Toro Company, the S&P 500 Index, and the S&P 500 Industrial Machinery Index *$100 invested on 10/31/17 in stock or index, including reinvestment of dividends.
The total returns on TTC common stock depicted in the stock performance graph and table are not necessarily indicative of future performance. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among The Toro Company, the S&P 500 Index, and the S&P 500 Industrial Machinery Index *$100 invested on 10/31/18 in stock or index, including reinvestment of dividends.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common Stock and Cash Dividends Our common stock is listed for trading on the New York Stock Exchange and trades under the symbol "TTC." As of October 31, 2022 and 2021, we had 175,000,000 shares of common stock, par value $1.00 per share, authorized, and 103,969,805 and 105,205,734 shares of common stock outstanding, respectively.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common Stock and Cash Dividends Our common stock is listed for trading on the New York Stock Exchange and trades under the symbol "TTC." As of October 31, 2023 and 2022, we had 175,000,000 shares of common stock, par value $1.00 per share, authorized, and 103,843,485 and 103,969,805 shares of common stock outstanding, respectively.
In each quarter of fiscal 2022, our Board of Directors declared a common stock cash dividend of $0.30 per share, which was a 14.3 percent increase over our common stock cash dividend of $0.2625 per share paid in each quarter of fiscal 2021.
In each quarter of fiscal 2023, our Board of Directors declared a common stock cash dividend of $0.34 per share, which was a 13.3 percent increase over our common stock cash dividend of $0.30 per share paid in each quarter of fiscal 2022.
As announced on December 13, 2022, our Board of Directors increased our fiscal 2023 first quarter common stock cash dividend by 13.3 percent to $0.34 per share. Future common stock cash dividends will depend upon our financial condition, results of operations, capital requirements, and other factors deemed relevant by our Board of Directors.
As announced on December 12, 2023, our Board of Directors increased our fiscal 2024 first quarter common stock cash dividend by 5.9 percent to $0.36 per share. Future common stock cash dividends will depend upon our financial condition, results of operations, capital requirements, and other factors deemed relevant by our Board of Directors.
Issuer Purchases of Equity Securities The following table sets forth information with respect to shares of our common stock purchased by the company during each of the three fiscal months in our fourth quarter ended October 31, 2022: Period Total Number of Shares (or Units) Purchased 1, 2 Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased As Part of Publicly Announced Plans or Programs 1 Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs 1 July 30, 2022 through September 2, 2022 — $ — — 2,865,158 September 3, 2022 through September 30, 2022 292,502 88.85 292,502 2,572,656 October 1, 2022 through October 31, 2022 47,247 87.09 46,050 2,526,606 Total 339,749 $ 88.61 338,552 1 On December 4, 2018, the company’s Board of Directors authorized the repurchase of 5,000,000 shares of the company’s common stock in open-market or in privately negotiated transactions.
Issuer Purchases of Equity Securities The following table sets forth information with respect to shares of our common stock purchased by the company during each of the three fiscal months in our fourth quarter ended October 31, 2023: Period Total Number of Shares (or Units) Purchased 1, 2, 3 Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased As Part of Publicly Announced Plans or Programs 1, 2 Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs 1, 2 August 5, 2023 through September 1, 2023 — $ — — 6,949,491 September 2, 2023 through September 29, 2023 — — — 6,949,491 September 30, 2023 through October 31, 2023 1,560 86.01 — 6,949,491 Total 1,560 $ 86.01 — 1 On December 4, 2018, the company’s Board of Directors authorized the repurchase of 5,000,000 shares of the company’s common stock in open-market or in privately negotiated transactions.
The company repurchased 338,552 shares under this program during the period indicated above and as a result, 2,526,606 shares remained available to repurchase under this program as of October 31, 2022. 2 Includes 1,197 shares of the company's common stock purchased in open-market transactions at an average price of $95.87 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.
No shares were repurchased under this program during the time period indicated above. 3 Includes 1,560 shares of the company's common stock purchased in open-market transactions at an average price of $86.01 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.
The following stock performance graph and table depict the cumulative total shareholder return (assuming reinvestment of dividends) on $100 invested in each of TTC common stock, the S&P 500 Index, and the S&P 500 Industrial Machinery Index for the five-year period from October 31, 2017 through October 31, 2022.
These 1,560 shares were not repurchased under the company's authorized stock repurchase programs described in notes 1 and 2 above. 32 Table of Contents The Toro Company Common Stock Comparative Performance Graph The following stock performance graph and table depict the cumulative total shareholder return (assuming reinvestment of dividends) on $100 invested in each of TTC common stock, the S&P 500 Index, and the S&P 500 Industrial Machinery Index for the five-year period from October 31, 2018 through October 31, 2023.
These 1,197 shares were not repurchased under the company's authorized stock repurchase program described in footnote 1 above. On December 13, 2022, 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 in privately negotiated transactions.
As a result, 1,949,491 shares remained available to repurchase under this program as of October 31, 2023. 2 On December 13, 2022, the company’s Board of Directors authorized the repurchase of an additional 5,000,000 shares of the company’s common stock in open-market or privately negotiated transactions.
Shareholders As of December 15, 2022, we had 2,541 shareholders of record.
Shareholders As of December 13, 2023, we had 2,450 shareholders of record.
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Fiscal years ending October 31. Fiscal Years Ended October 31 2017 2018 2019 2020 2021 2022 The Toro Company $ 100.00 $ 90.80 $ 126.03 $ 136.03 $ 159.84 $ 178.96 S&P 500 100.00 107.35 122.72 134.64 192.42 164.31 S&P 500 Industrial Machinery Index 100.00 92.27 112.53 123.43 162.92 141.45 ITEM 6. [RESERVED] 33 Table of Contents
Added
This authorized stock repurchase program has no expiration date but may be terminated by the company's Board of Directors at any time. No shares were repurchased under this program during the time period indicated above.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeFinancial Statements and Supplementary Data 52 Management's Report on Internal Control over Financial Reporting 52 Report of Independent Registered Public Accounting Firm 53 Consolidated Statements of Earnings 56 Consolidated Statements of Comprehensive Income 56 Consolidated Balance Sheets 57 Consolidated Statements of Cash Flows 58 Consolidated Statements of Stockholders' Equity 59 Notes to Consolidated Financial Statements 60
Biggest changeFinancial Statements and Supplementary Data 53 Management's Report on Internal Control over Financial Reporting 53 Report of Independent Registered Public Accounting Firm 54 Consolidated Statements of Earnings 57 Consolidated Statements of Comprehensive Income 57 Consolidated Balance Sheets 58 Consolidated Statements of Cash Flows 59 Consolidated Statements of Stockholders' Equity 60 Notes to Consolidated Financial Statements 61
ITEM 6. [Reserved] 33 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 34 Company Overview 34 Results of Operations 35 Business Segments 37 Financial Position 38 Non-GAAP Financial Measures 42 Critical Accounting Policies and Estimates 44 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 49 ITEM 8.
ITEM 6. [Reserved] 33 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 34 Company Overview 34 Results of Operations 36 Business Segments 37 Financial Position 38 Non-GAAP Financial Measures 42 Critical Accounting Policies and Estimates 45 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 51 ITEM 8.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeGAAP to the most directly comparable non-GAAP financial performance measures for the fiscal years ended October 31, 2022 and 2021 (In thousands, except per share and percentage data): Fiscal Years Ended October 31, 2022 October 31, 2021 Gross profit $ 1,504,596 $ 1,338,492 Acquisition-related costs 1 1,650 — Adjusted gross profit $ 1,506,246 $ 1,338,492 Gross margin 33.3 % 33.8 % Acquisition-related costs 1 0.1 % — % Adjusted gross margin 33.4 % 33.8 % Operating earnings $ 575,663 $ 518,280 Acquisition-related costs 1 4,000 — Litigation settlements, net 2 — (11,325) Adjusted operating earnings $ 579,663 $ 506,955 Earnings before income taxes $ 552,546 $ 499,818 Acquisition-related costs 1 4,000 — Litigation settlements, net 2 — (11,325) Adjusted earnings before income taxes $ 556,546 $ 488,493 Net earnings $ 443,342 $ 409,880 Acquisition-related costs 1 3,177 — Litigation settlements, net 2 — (9,022) Tax impact of stock-based compensation 3 (2,303) (8,185) Adjusted net earnings $ 444,216 $ 392,673 Net earnings per diluted share $ 4.20 $ 3.78 Acquisition-related costs 1 0.03 — Litigation settlements, net 2 — (0.08) Tax impact of stock-based compensation 3 (0.03) (0.08) Adjusted net earnings per diluted share $ 4.20 $ 3.62 Effective tax rate 19.8 % 18.0 % Tax impact of stock-based compensation 3 0.4 % 1.6 % Adjusted effective tax rate 20.2 % 19.6 % 1 On January 13, 2022, we completed our acquisition of Intimidator.
Biggest changeGAAP to the most directly comparable non-GAAP financial performance measures for the fiscal years ended October 31, 2023 and 2022 (dollars in millions, except per share and percentage data): 43 Table of Contents Fiscal Years Ended October 31, 2023 October 31, 2022 Gross profit $ 1,577.6 $ 1,504.6 Acquisition-related costs 1 0.2 1.6 Restructuring charges 2 1.2 — Adjusted gross profit $ 1,579.0 $ 1,506.2 Gross margin 34.6 % 33.3 % Acquisition-related costs 1 — % 0.1 % Restructuring charges 2 0.1 % — % Adjusted gross margin 34.7 % 33.4 % Operating earnings $ 430.7 $ 575.7 Acquisition-related costs 1 0.4 4.0 Restructuring charges 2 5.0 — Non-cash impairment charges 3 151.3 — Adjusted operating earnings $ 587.4 $ 579.7 Operating earnings margin 9.5 % 12.8 % Restructuring charges 2 0.1 % — % Non-cash impairment charges 3 3.3 % — % Adjusted operating earnings margin 12.9 % 12.8 % Earnings before income taxes $ 400.5 $ 552.5 Acquisition-related costs 1 0.4 4.0 Restructuring charges 2 5.0 — Non-cash impairment charges 3 151.3 — Adjusted earnings before income taxes $ 557.2 $ 556.5 Income tax provision $ 70.8 $ 109.2 Acquisition-related costs 1 — 0.8 Restructuring charges 2 1.1 — Non-cash impairment charges 3 36.7 — Tax impact of stock-based compensation 4 5.1 2.3 Adjusted income tax provision $ 113.7 $ 112.3 Net earnings $ 329.7 $ 443.3 Acquisition-related costs 1 0.4 3.2 Restructuring charges 2 3.9 — Non-cash impairment charges 3 114.6 — Tax impact of stock-based compensation 4 (5.1) (2.3) Adjusted net earnings $ 443.5 $ 444.2 Net earnings per diluted share $ 3.13 $ 4.20 Acquisition-related costs 1 — 0.03 Restructuring charges 2 0.04 — Non-cash impairment charges 3 1.09 — Tax impact of stock-based compensation 4 (0.05) (0.03) Adjusted net earnings per diluted share $ 4.21 $ 4.20 Effective tax rate 17.7 % 19.8 % Non-cash impairment charges 3 1.5 % — % Tax impact of stock-based compensation 4 1.2 % 0.4 % Adjusted effective tax rate 20.4 % 20.2 % 1 On January 13, 2022, we completed our acquisition of Intimidator.
Customer Financing Arrangements Inventory Financing We are party to inventory financing arrangements with Red Iron, HCFC, and other third-party financial institutions (collectively, the "financial institutions") which provide inventory financing to certain dealers and distributors of certain of our products in the U.S. and internationally.
Customer Financing Inventory Financing Arrangements We are party to inventory financing arrangements with Red Iron, HCFC, and other third-party financial institutions (collectively, the "financial institutions") which provide inventory financing to certain dealers and distributors of certain of our products in the U.S. and internationally.
GAAP, provide investors with useful supplemental financial information to better understand our core operational performance and cash flows. These non-GAAP financial measures, however, should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the most directly comparable U.S. GAAP financial measures.
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.
Our MD&A is presented as follows: • Company Overview • Results of Operations • Business Segments • Financial Position • Non-GAAP Financial Measures • Critical Accounting Policies and Estimates Non-GAAP Financial Measures Throughout this MD&A, we have provided financial measures that are not calculated or presented in accordance with U.S.
Our MD&A is presented as follows: • Company Overview • Results of Operations • Business Segments • Financial Position • Non-GAAP Financial Measures • Critical Accounting Policies and Estimates Non-GAAP Financial Measures Throughout this MD&A, we have provided financial and liquidity measures that are not calculated or presented in accordance with U.S.
Capital Expenditures We make ongoing capital investments in our property, plant, and equipment and believe that in periods of normalized supply chain our historical capital investments in our manufacturing facilities and other capital assets will increase the production capacity and efficiencies of our operations to better enable us to meet the needs of our customers.
Capital Expenditures We make ongoing capital investments in our property, plant, and equipment and believe that in periods of normalized supply chain conditions our historical capital investments in our manufacturing facilities and other capital assets will increase the production capacity and efficiencies of our operations to better enable us to meet the needs of our customers.
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 Annual Report on Form 10-K that are calculated and presented in accordance with U.S. GAAP.
NON-GAAP FINANCIAL MEASURES We have provided in this Annual Report on Form 10-K certain non-GAAP financial measures, which are not calculated or presented in accordance with U.S. GAAP, as information supplemental and in addition to the most directly comparable financial measures that are calculated and presented in accordance with U.S. GAAP.
Under such approach, our determination of variable consideration associated with the estimated expense of certain of our sales promotions and incentives programs is primarily based on the terms of the sales arrangements and sales promotion and incentive programs with customers, historical payment and rebate claims experience, field inventory levels, quantity or mix of products purchased, forecasted sales volumes, types of programs offered, and expectations for the acceptance of sales promotion and incentive programs offered in the future or changes in other relevant trends.
Under such approach, our determination of variable consideration associated with the estimated expense of certain of our sales promotions and incentives programs is primarily based on the terms of the sales arrangements and sales promotion and incentive programs with customers, historical payment and rebate claims experience, field inventory levels, quantity or mix of products purchased, projected sales volumes, types of programs offered, and expectations for the acceptance of sales promotion and incentive programs offered in the future or changes in other relevant trends.
Employee stock-based compensation activity, including the exercise of stock options, can be unpredictable and can significantly impact our net earnings, net earnings per diluted share, and effective tax rate. These amounts represent the discrete tax benefits recorded as excess tax deductions for stock-based compensation during the fiscal years ended October 31, 2022 and 2021.
Employee stock-based compensation activity, including the exercise of stock options, can be unpredictable and can significantly impact our net earnings, net earnings per diluted share, and effective tax rate. These amounts represent the discrete tax benefits recorded as excess tax deductions for stock-based compensation during the fiscal years ended October 31, 2023 and 2022.
Discussion of fiscal 2020 items and the year-over-year comparison of changes in our financial condition and results of operations as of and for the fiscal years ended October 31, 2021 and 2020 can be found in Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," of our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.
Discussion of fiscal 2021 items and the year-over-year comparison of changes in our financial condition and results of operations as of and for the fiscal years ended October 31, 2022 and 2021 can be found in Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," of our Annual Report on Form 10-K for the fiscal year ended October 31, 2022.
As of October 31, 2022, the unrecognized deferred tax liabilities for temporary differences related to our investment in non-U.S. subsidiaries, and any withholding, state, or additional federal taxes upon any future repatriation, are not material and have not been recorded.
As of October 31, 2023, the unrecognized deferred tax liabilities for temporary differences related to our investment in non-U.S. subsidiaries, and any withholding, state, or additional federal taxes upon any future repatriation, are not material and have not been recorded.
Other Activities Net sales for our Other activities consist of sales from a wholly-owned domestic distribution company less intercompany sales from our Professional and Residential business segments to the wholly-owned domestic distribution company. Net sales for our Other activities represented 0.3 percent and 0.5 percent of consolidated net sales for fiscal 2022 and 2021, respectively.
Other Activities Net sales for our Other activities consist of sales from a wholly-owned domestic distribution company less intercompany sales from our Professional and Residential business segments to the wholly-owned domestic distribution company. Net sales for our Other activities represented 0.5 percent and 0.3 percent of consolidated net sales for fiscal 2023 and 2022, respectively.
Unless expressly stated otherwise, the comparisons presented in this MD&A refer to the year-over-year comparison of changes in our financial condition and results of operations as of and for the fiscal years ended October 31, 2022 and 2021.
Unless expressly stated otherwise, the comparisons presented in this MD&A refer to the year-over-year comparison of changes in our financial condition and results of operations as of and for the fiscal years ended October 31, 2023 and 2022.
Specifically, our rebate programs are primarily sensitive to fluctuations in historical payment and rebate claims experience as compared to actual realized payment and rebate claims, field inventory levels, and forecasted wholesale and retail sales volumes and the quantity or mix of products.
Specifically, our rebate programs are primarily sensitive to fluctuations in historical payment and rebate claims experience as compared to actual realized payment and rebate claims, field inventory levels, and projected wholesale and retail sales volumes and the quantity or mix of products.
Our estimate of forecasted sales demand and production requirements is primarily based on actual orders received, historical demand, technological and product life cycle changes, product pricing, economic trends, and competitive factors, such as market and pricing trends for similar products.
Our estimate of projected sales demand and production requirements is primarily based on actual orders received, historical demand, technological and product life cycle changes, product pricing, economic trends, and competitive factors, such as market and pricing trends for similar products.
As of both October 31, 2022 and 2021 we had no outstanding borrowings under the revolving credit facility and $3.1 million outstanding under the sublimit for standby letters of credit, resulting in $596.9 million of unutilized availability under our revolving credit facility.
As of October 31, 2022 we had no outstanding borrowings under the revolving credit facility and $3.1 million outstanding under the sublimit for standby letters of credit, resulting in $596.9 million of unutilized availability under our revolving credit facility.
While the ultimate responsibility for determining estimated fair values of the acquired net assets resides with management, for material 48 Table of Contents acquisitions we may retain the services of certified valuation specialists to assist with assigning estimated fair values to certain acquired assets and assumed liabilities, including intangible assets that are separately identifiable from goodwill, inventory, and property, plant, and equipment.
While the ultimate responsibility for determining estimated fair values of the acquired net assets resides with management, for material acquisitions we may retain the services of certified valuation specialists to assist with assigning estimated fair values to certain acquired assets and assumed liabilities, including intangible assets that are separately identifiable from goodwill, inventory, and property, plant, and equipment.
The non-GAAP financial measures may differ from similar measures used by other companies. 42 Table of Contents Reconciliation of Non-GAAP Financial Performance Measures The following table provides a reconciliation of financial performance measures calculated and reported in accordance with U.S.
The non-GAAP financial measures may differ from similar measures used by other companies. Reconciliation of Non-GAAP Financial Measures The following table provides a reconciliation of financial performance measures calculated and reported in accordance with U.S.
End-user 44 Table of Contents retail financing is similar to floor planning with the difference being that retail financing programs are offered to end-user customers under which we, at our discretion, may pay a portion of interest costs on behalf of end-users for financing purchases of our equipment.
End-user retail financing is similar to floor planning with the difference being that retail financing programs are offered to end-user customers under which we, at our discretion, may pay a portion of interest costs on behalf of end-users for financing purchases of our equipment.
We select guideline public companies that are engaged in the same or similar lines of business and that have reasonably similar qualitative factors as our reporting units, while also considering relevant quantitative factors such as profitability and market capitalization, where applicable.
We select guideline public companies that are engaged in the same or similar lines of business and that have reasonably similar qualitative factors as our reporting units, while also considering relevant quantitative factors such as profitability and market 47 Table of Contents capitalization, where applicable.
Forecasted sales demand and production requirements can also be affected by the significant redesign of our existing products or the replacement of an existing product by an entirely new generation of product.
Projected sales demand and production requirements can also be affected by the significant redesign of our existing products or the replacement of an existing product by an entirely new generation of product.
Inventory Repurchase Agreements We have entered into a limited inventory repurchase agreement with Red Iron and HCFC under which we have agreed to repurchase certain repossessed products, up to a 41 Table of Contents maximum aggregate amount of $7.5 million in a calendar year.
Inventory Repurchase Agreements We have entered into a limited inventory repurchase agreement with Red Iron and HCFC under which we have agreed to repurchase certain repossessed products, up to a maximum aggregate amount of $7.5 million in a calendar year.
Our estimate of the cost of future warranty claims is based primarily on the estimated number of products under warranty, historical average costs incurred to service warranty claims, the trend in the historical ratio of warranty 47 Table of Contents claims to sales, and the historical length of time between the sale and resulting warranty claim.
Our estimate of the cost of future warranty claims is based primarily on the estimated number of products under warranty, historical average costs incurred to service warranty claims, the trend in the historical ratio of warranty claims to sales, and the historical length of time between the sale and resulting warranty claim.
We believe that our accrual for sales promotion and incentive programs is adequate as of October 31, 2022 and historically has been adequate; however, due to the inherent uncertainty in the accrual estimation process, actual results may differ from these estimates if competitive factors dictate the need to enhance or modify sales promotion and incentive programs or if customer usage, product mix, or field inventory levels vary from historical trends.
We believe that our accrual for sales promotion and incentive programs is adequate as of October 31, 2023 and historically has been adequate; however, due to the inherent uncertainty in the accrual estimation process, 46 Table of Contents actual results may differ from these estimates if competitive factors dictate the need to enhance or modify sales promotion and incentive programs or if customer usage, product mix, or field inventory levels vary from historical trends.
Corporate activities include general corporate expenditures, such as finance, human resources, legal, information services, public relations, business development, and similar activities, as well as other unallocated corporate assets and liabilities, such as corporate facilities and deferred tax assets and liabilities. The following information provides perspective on the net sales and operating results of our reportable business segments' and Other activities.
Corporate activities include general corporate expenditures, such as finance, human resources, legal, information technology, public relations, business development, and similar activities, as well as other unallocated corporate assets and liabilities, such as corporate facilities and deferred tax assets and liabilities. The following information provides perspective on the net sales and operating results of our reportable business segments and Other activities.
If the carrying value of a reporting unit exceeds its fair value, an impairment charge would be recognized for the amount by 46 Table of Contents which the carrying value of the reporting unit exceeds the its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.
If the carrying value of a reporting unit exceeds its fair value, an impairment charge would be recognized for the amount by which the carrying value of the reporting unit exceeds the its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.
Intimidator primarily designs, manufactures, markets, and sells a commercial-grade line of zero-turn mowers under the Spartan Mowers brand, which are intended to provide innovative turf management solutions to landscape contractors and other customers who require a commercial-grade solution. The acquisition of Intimidator broadened our Professional reportable segment and expanded our manufacturing footprint and dealer network.
Intimidator primarily designs, manufactures, markets, and sells a commercial-grade line of zero-turn mowers under the Spartan brand, which are intended to provide innovative turf management solutions to landscape contractors and other customers including homeowners who prefer professional solutions. The acquisition of Intimidator broadened our Professional reportable segment and expanded our manufacturing footprint and dealer network.
Rates are generally indexed to the Secured Overnight Financing Rate ("SOFR"), or an alternative variable rate, plus a fixed percentage that differs based on whether the financing is for a distributor or dealer. Rates may also vary based on the product that is financed.
Rates are generally indexed to the Secured Overnight 41 Table of Contents Financing Rate ("SOFR"), or an alternative variable rate, plus a fixed percentage that differs based on whether the financing is for a distributor or dealer. Rates may also vary based on the product that is financed.
We calculate our average net working capital as 38 Table of Contents average net accounts receivable plus average net inventory, less average accounts payable as a percentage of net sales for a twelve month period.
We calculate our average net working capital as average net accounts receivable plus average net inventory, less average accounts payable as a percentage of net sales for a twelve month period.
It is possible that an unfavorable adjustment to our inventory valuation adjustment for excess, slow moving, and obsolete inventory may be required in the future if there is a change in any of the aforementioned factors that adversely impacts our estimates of future demand for our products and we do not adjust our purchases or production schedule accordingly.
It is possible that an unfavorable adjustment to our inventory valuation reserve for excess, slow moving, and obsolete inventory may be required in the future if there is a change in any of the aforementioned factors that adversely 49 Table of Contents impacts our estimates of future demand for our products and we do not modify our purchases or production schedule accordingly.
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.
These non-GAAP financial measures, however, should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the most directly comparable U.S. GAAP financial measures. Reconciliations of non-GAAP financial measures to the most directly comparable reported U.S.
Reconciliation of Non-GAAP Liquidity Measures We define free cash flow as net cash provided by operating activities less purchases of property, plant and equipment. Free cash flow conversion percentage represents free cash flow as a percentage of net earnings.
Reconciliation of Non-GAAP Liquidity Measures We define free cash flow as net cash provided by operating activities less purchases of property, plant, and equipment, net of proceeds from insurance claim. Free cash flow conversion percentage represents free cash flow as a percentage of net earnings.
Refer to Note 1, Summary of Significant Accounting Policies and Related Data , of the Notes to Consolidated Financial Statements within the section entitled "Cost of Sales," for a description of expenses included in cost of sales. Gross profit for fiscal 2022 was $1,504.6 million, up 12.4 percent compared to gross profit of $1,338.5 million in fiscal 2021.
Refer to Note 1, Summary of Significant Accounting Policies and Related Data , of the Notes to Consolidated Financial Statements within the section entitled "Cost of Sales," for a description of expenses included in cost of sales. Gross profit for fiscal 2023 was $1,577.6 million, up 4.9 percent compared to gross profit of $1,504.6 million in fiscal 2022.
The total amount of receivables due from Red Iron to us as of October 31, 2022 and 2021 were $17.7 million and $31.0 million, respectively. The net amount of receivables financed for dealers and distributors under the arrangements with HCFC and the other third-party financial institutions during fiscal 2022 and 2021 was $633.5 million and $460.5 million, respectively.
The total amount of receivables due from Red Iron to us as of October 31, 2023 and 2022 were $34.4 million and $17.7 million, respectively. The net amount of receivables financed for dealers and distributors under the arrangements with HCFC and the other third-party financial institutions during fiscal 2023 and 2022 was $545.4 million and $633.5 million, respectively.
Selling, General and Administrative ("SG&A") Expense SG&A expense increased $108.7 million, or 13.3 percent, in fiscal 2022 compared to fiscal 2021. Refer to Note 1, Summary of Significant Accounting Policies and Related Data , of the Notes to Consolidated Financial Statements within the section entitled "Selling, General and Administrative Expense" for a description of expenses included in SG&A expense.
Selling, General and Administrative ("SG&A") Expense SG&A expense increased $66.7 million, or 7.2 percent, in fiscal 2023 compared to fiscal 2022. Refer to Note 1, Summary of Significant Accounting Policies and Related Data , of the Notes to Consolidated Financial Statements within the section entitled "Selling, General and Administrative Expense" for a description of expenses included in SG&A expense.
We believe that our $134.5 million warranty accrual as of October 31, 2022 is adequate and historically has been adequate; however, due to the inherent uncertainty in the accrual estimation process, including forecasting future warranty claims, costs associated with servicing future warranty claims, and unexpected major rework campaigns that may arise in the future, our actual warranty costs incurred may differ from our warranty accrual estimate.
We believe that our $143.9 million warranty accrual as of October 31, 2023 is adequate and historically has been adequate; however, due to the inherent uncertainty in the accrual estimation process, including projecting future warranty claims, costs associated with servicing future warranty claims, and unexpected major rework campaigns that may arise in the future, our actual warranty costs incurred may differ from our warranty accrual estimate.
The following table summarizes our Results of Operations as a percentage of our consolidated net sales: Fiscal Years Ended October 31 2022 2021 Net sales 100.0 % 100.0 % Cost of sales (66.7) (66.2) Gross margin 33.3 33.8 SG&A expense (20.5) (20.7) Operating earnings 12.8 13.1 Interest expense (0.8) (0.7) Other income, net 0.2 0.2 Earnings before income taxes 12.2 12.6 Provision for income taxes (2.4) (2.2) Net earnings 9.8 % 10.4 % Gross Profit and Gross Margin Gross profit represents net sales less cost of sales and gross margin represents gross profit as a percentage of net sales.
The following table summarizes our results of operations as a percentage of our consolidated net sales: Fiscal Years Ended October 31 2023 2022 Net sales 100.0 % 100.0 % Cost of sales (65.4) (66.7) Gross margin 34.6 33.3 SG&A expense (21.8) (20.5) Non-cash impairment charges (3.3) — Operating earnings 9.5 12.8 Interest expense (1.3) (0.8) Other income, net 0.6 0.2 Earnings before income taxes 8.8 12.2 Provision for income taxes (1.6) (2.4) Net earnings 7.2 % 9.8 % Gross Profit and Gross Margin Gross profit represents net sales less cost of sales and gross margin represents gross profit as a percentage of net sales.
Acquisition-related costs for the fiscal year ended October 31, 2022 represent transaction and integration costs incurred in connection with the acquisition. No acquisition-related costs were incurred for the fiscal year ended October 31, 2021.
Acquisition-related costs for the fiscal year ended October 31, 2023 represent integration costs incurred in connection with the acquisition. Acquisition-related costs for the fiscal year ended October 31, 2022 represent transaction and integration costs incurred in connection with the acquisition.
Cash Dividends In each quarter of fiscal 2022, our Board of Directors declared a common stock cash dividend of $0.30 per share, which was a 14.3 percent increase over our common stock cash dividend of $0.2625 per share paid each quarter in fiscal 2021.
Cash Dividends In each quarter of fiscal 2023, our Board of Directors declared a common stock cash dividend of $0.34 per share, which was a 13.3 percent increase over our common stock cash dividend of $0.30 per share paid each quarter in fiscal 2022.
On December 13, 2022, our Board of Directors increased our fiscal 2023 first quarter common stock cash dividend by 13.3 percent to $0.34 per share. Future common stock cash dividends will depend upon our financial condition, results of operations, capital requirements, and other factors deemed relevant by our Board of Directors.
On December 12, 2023, our Board of Directors increased our fiscal 2024 first quarter common stock cash dividend by 5.9 percent to $0.36 per share. Future common stock cash dividends will depend upon our financial condition, results of operations, capital requirements, and other factors deemed relevant by our Board of Directors.
Although we believe our inventory valuation reserve for excess, slow-moving, and obsolete inventory is adequate at $38.7 million as of October 31, 2022, forecasting sales demand and production requirements involves significant management judgment regarding future events.
Although we believe our inventory valuation reserve for excess, slow-moving, and obsolete inventory is adequate at $43.9 million as of October 31, 2023, projecting sales demand and production requirements involves significant management judgment regarding future events.
The net amount of receivables financed for dealers and distributors under the arrangement with Red Iron during fiscal 2022 and 2021 was $2,627.5 million and $2,282.6 million, respectively. The total amount of net receivables outstanding under the arrangement with Red Iron as of October 31, 2022 and 2021 was $776.1 million and $420.5 million, respectively.
The net amount of receivables financed for dealers and distributors under the arrangement with Red Iron during fiscal 2023 and 2022 was $2,789.5 million and $2,627.5 million, respectively. The total amount of net receivables outstanding under the arrangement with Red Iron as of October 31, 2023 and 2022 was $1,019.0 million and $776.1 million, respectively.
Examples of significant sales promotions and incentive programs that are considered to be variable consideration because the cost of the program is classified as a reduction from gross sales are as follows: • Off-Invoice Discounts: Our off-invoice discounts represent an immediate reduction in the selling price of our products that is realized at the time of sale with no anticipated future cost or consideration provided to the customer. • Rebate Programs: Our rebate programs are generally based on claims submitted from either our direct customers or end-users of our products or are based on our purchase or retail sales goals for our direct customers of certain quantities or mixes of product during a specified time period, depending upon the program.
In other circumstances, the anticipated future cost of a program based on historical or expected future business practice is recorded as SG&A expense because we receive a distinct good or service in exchange for the future consideration provided to the customer under the program. 45 Table of Contents Examples of significant sales promotions and incentive programs that are considered to be variable consideration because the cost of the program is classified as a reduction from gross sales are as follows: • Off-Invoice Discounts: Our off-invoice discounts represent an immediate reduction in the selling price of our products that is realized at the time of sale with no anticipated future cost or consideration provided to the customer. • Rebate Programs: Our rebate programs are generally based on claims submitted from either our direct customers or end-users of our products or are based on our purchase or retail sales goals for our direct customers of certain quantities or mixes of product during a specified time period, depending upon the program.
The following table presents our Professional segment's net sales, earnings, and earnings as a percentage of net sales (dollars in millions): Fiscal Years Ended October 31 2022 2021 Net sales $ 3,429.6 $ 2,929.6 Percentage change from prior year 17.1 % 16.1 % Segment earnings $ 584.0 $ 507.3 Segment earnings as a percentage of segment net sales 17.0 % 17.3 % Professional Segment Net Sales Net sales for our Professional segment in fiscal 2022 increased 17.1 percent compared to fiscal 2021.
The following table presents our Professional segment's net sales, earnings, and earnings as a percentage of net sales (dollars in millions): Fiscal Years Ended October 31 2023 2022 Net sales $ 3,674.6 $ 3,429.6 Percentage change from prior year 7.1 % 17.1 % Segment earnings $ 509.1 $ 584.0 Segment earnings as a percentage of segment net sales 13.9 % 17.0 % Professional Segment Net Sales Net sales for our Professional segment in fiscal 2023 increased 7.1 percent compared to fiscal 2022.
As of October 31, 2022 and 2021, $220.0 million and $151.5 million, respectively, of receivables financed by HCFC and the other third-party financial institutions were outstanding.
As of October 31, 2023 and 2022, $234.7 million and $220.0 million, respectively, of receivables financed by HCFC and the other third-party financial institutions were outstanding.
Cash Flows Cash flows provided by/(used in) operating, investing, and financing activities during the past two fiscal years are shown in the following table (in millions): Cash Provided by/ (Used in) Fiscal Years Ended October 31 2022 2021 Operating activities $ 297.2 $ 555.5 Investing activities (548.2) (128.5) Financing activities 42.2 (503.7) Effect of exchange rates on cash (8.5) 2.4 Net decrease in cash and cash equivalents (217.4) (74.3) Cash and cash equivalents as of the end of the fiscal period $ 188.3 $ 405.6 Cash Flows from Operating Activities Our primary source of funds is cash generated from operations.
Cash Flows Cash flows provided by/(used in) operating, investing, and financing activities during the past two fiscal years are shown in the following table (dollars in millions): Cash Provided by/ (Used in) Fiscal Years Ended October 31 2023 2022 Operating activities $ 306.8 $ 297.2 Investing activities (157.7) (548.3) Financing activities (147.5) 42.2 Effect of exchange rates on cash 3.3 (8.5) Net increase (decrease) in cash and cash equivalents 4.9 (217.4) Cash and cash equivalents as of the end of the fiscal period $ 193.1 $ 188.2 Cash Flows from Operating Activities Our primary source of funds is cash generated from operations.
As of October 31, 2022, we had recorded an accrual for sales promotion and incentive programs of $123.9 million within the Consolidated Balance Sheets.
As of October 31, 2023, we had recorded an accrual for sales promotion and incentive programs of $163.0 million within the Consolidated Balance Sheets.
Our maximum exposure for credit collection under those arrangements as of October 31, 2022 and 2021 was $8.6 million and $11.4 million, respectively.
Our maximum exposure for credit collection under those arrangements as of October 31, 2023 and 2022 was $5.2 million and $8.6 million, respectively.
Our 12 reporting units are the same as our 12 operating segments as defined in Note 3, Segment Data , of the Notes to Consolidated Financial Statements. Nine of our reporting units contained goodwill on their respective balance sheets as of October 31, 2022.
We assess goodwill for impairment at the reporting unit level and our 12 reporting units are the same as our 12 operating segments as defined in Note 3, Segment Data , of the Notes to Consolidated Financial Statements. Nine of our reporting units contained goodwill on their respective balance sheets as of October 31, 2023.
Professional Segment Professional segment net sales represented 76.0 percent and 74.0 percent of consolidated net sales for fiscal 2022 and 2021, respectively.
Professional Segment Professional segment net sales represented 80.7 percent and 76.0 percent of consolidated net sales for fiscal 2023 and 2022, respectively.
The following table presents our Residential segment's net sales, earnings, and earnings as a percentage of net sales (dollars in millions): Fiscal Years Ended October 31 2022 2021 Net sales $ 1,068.6 $ 1,010.1 Percentage change from prior year 5.8 % 23.1 % Segment earnings $ 112.7 $ 121.5 Segment earnings as a percentage of segment net sales 10.5 % 12.0 % Residential Segment Net Sales Net sales for our Residential segment in fiscal 2022 increased by 5.8 percent compared to fiscal 2021.
The following table presents our Residential segment's net sales, earnings, and earnings as a percentage of net sales (dollars in millions): Fiscal Years Ended October 31 2023 2022 Net sales $ 854.2 $ 1,068.6 Percentage change from prior year (20.1) % 5.8 % Segment earnings $ 68.9 $ 112.7 Segment earnings as a percentage of segment net sales 8.1 % 10.5 % Residential Segment Net Sales Net sales for our Residential segment in fiscal 2023 decreased by 20.1 percent compared to fiscal 2022.
Certain events or circumstances that could reasonably be expected to negatively affect the underlying key inputs and assumptions ultimately affect the estimated fair values of our reporting units and indefinite-lived intangible assets, and may require us to assess for impairment on an interim basis.
Certain events or circumstances that could reasonably be expected may negatively affect the underlying key inputs and assumptions and ultimately affect the estimated fair values of our reporting units and indefinite-lived intangible assets.
The following table highlights several key measures of our working capital performance (dollars in millions): Fiscal Years Ended October 31 2022 2021 Average receivables, net $ 351.7 $ 315.3 Average inventories, net $ 914.4 $ 678.0 Average accounts payable $ 494.6 $ 407.1 Average days outstanding for receivables 28.4 29.1 Average inventory turnover (times per fiscal year) 3.3 3.9 As of the end of fiscal 2022, our average net working capital was 17.1 percent compared to 14.8 percent as of the end of fiscal 2021.
The following table highlights several key measures of our working capital performance (dollars in millions): 38 Table of Contents Fiscal Years Ended October 31 2023 2022 Average receivables, net $ 379.2 $ 351.7 Average inventories, net $ 1,134.5 $ 914.4 Average accounts payable $ 450.9 $ 494.6 Average days outstanding for receivables 30.4 28.4 Average inventory turnover (times per fiscal year) 2.6 3.3 As of the end of fiscal 2023, our average net working capital was 23.3 percent compared to 17.1 percent as of the end of fiscal 2022.
We continue to provide financing in the form of open account terms directly to home centers and mass retailers, general line irrigation dealers, certain domestic and international distributors and dealers other than the Canadian distributors and dealers to whom Red Iron or other third-party financing institutions provide financing arrangements, ag-irrigation dealers and distributors, government customers, and rental companies.
Open Account Terms We continue to provide financing in the form of open account terms directly to home centers and mass retailers, general line irrigation dealers, certain domestic and international distributors and dealers, ag-irrigation dealers and distributors, government customers, and rental companies.
Goodwill and indefinite-lived intangible assets are not amortized, but are tested at least annually for impairment during the fourth quarter of our fiscal year unless events or changes in circumstances indicate that impairment may have occurred prior to our annual assessment.
Goodwill is not amortized, but is assessed for impairment at least annually during the fourth quarter of each fiscal year unless events or changes in circumstances indicate that impairment may have occurred prior to the annual assessment.
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.
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. 42 Table of Contents We believe that these non-GAAP financial measures, when considered in conjunction with our Consolidated Financial Statements prepared in accordance with U.S.
The following table provides information with respect to repurchases of our common stock during the past two fiscal years (in millions, except share and per share data): Fiscal Years Ended October 31 2022 2021 Shares of Board authorized common stock purchased 1,525,856 2,989,794 Cost to repurchase common stock $ 140.0 $ 302.3 Average price paid per share $ 91.75 $ 101.10 As of October 31, 2022, 2,526,606 shares remained available for repurchase under our Board authorized stock repurchase program.
The following table provides information with respect to repurchases of our common stock during the past two fiscal years (dollars in millions, except share and per share data): Fiscal Years Ended October 31 2023 2022 Shares of Board authorized common stock purchased 577,115 1,525,856 Cost to repurchase common stock $ 60.0 $ 140.0 Average price paid per share $ 103.97 $ 91.75 As of October 31, 2023, 6,949,491 shares remained available for repurchase under our Board authorized stock repurchase program.
We expect that $32.3 million of cash and cash equivalents held by our foreign subsidiaries will be indefinitely reinvested. Should these cash and cash equivalents be distributed in the future in the form of dividends or otherwise, we may be subject to foreign withholding taxes, state income taxes, and/or additional federal taxes for currency fluctuations.
Should these cash and cash equivalents be distributed in the future in the form of dividends or otherwise, we may be subject to foreign withholding taxes, state income taxes, and/or additional federal taxes for currency fluctuations.
GAAP ("non-GAAP," "adjusted" financial measures), as information supplemental and in addition to the most directly comparable financial measures presented in this Annual Report on Form 10-K 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 Consolidated Financial Statements prepared in accordance with U.S.
GAAP ("non-GAAP financial measures," "adjusted" before specified financial measures, and "non-GAAP liquidity measures"), as information supplemental and in addition to the most directly comparable financial measures presented in this Annual Report on Form 10-K that are calculated and presented in accordance with U.S. GAAP.
Segment earnings for our Professional and Residential reportable segments are defined as earnings from operations plus other income, net. Our remaining activities consisting of a wholly-owned domestic distribution company, Red Iron joint venture, certain corporate activities, and the elimination of intersegment revenues and expenses, are presented as "Other" due to their insignificance.
Our remaining activities consisting of a wholly-owned domestic distribution company, Red Iron joint venture, certain corporate activities, and the elimination of intersegment revenues and expenses, are presented as "Other" due to their insignificance.
GAAP financial measures are included in the section titled "Non-GAAP Financial Measures" within this MD&A. BUSINESS SEGMENTS As more fully described in Note 3, Segment Data , of the Notes to Consolidated Financial Statements, we operate in two reportable business segments: Professional and Residential.
GAAP financial measures are included in the section titled "Non-GAAP Financial Measures." BUSINESS SEGMENTS As more fully described in Note 3, Segment Data , of the Notes to Consolidated Financial Statements, we operate in two reportable business segments: Professional and Residential. Segment earnings for our Professional and Residential reportable segments are defined as earnings from operations plus other income, net.
The WACC rate was increased by 80 basis points with no impairment indicated for any of our reporting units. The terminal growth rate was decreased by 110 basis points with no impairment indicated for any of our reporting units.
Excluding Intimidator, the WACC rate could be increased by over 500 basis points with no impairment indicated for any of our reporting units. Excluding Intimidator, the terminal growth rate could be decreased by 300 basis points with no impairment indicated for any of our reporting units.
If the fair value of the indefinite-lived intangible asset, or asset group, is less than its carrying value, an impairment loss is recognized in an amount equal to the excess. During the fourth quarter of fiscal 2022, we performed a quantitative impairment analysis for our indefinite-lived intangible assets.
If the fair value of the indefinite-lived intangible asset, or asset group, is less than its carrying value, an impairment loss is recognized in an amount equal to the excess.
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, lease payments, purchase commitments, investments, contingent consideration payments, debt repayments, interest payments, quarterly cash dividend payments, and common stock repurchases, all as applicable, for at least the next twelve months.
We believe our current liquidity position, including the funds available through existing, and potential future, financing arrangements and projected cash flows from operations will be sufficient to provide the necessary capital resources for our anticipated working capital needs, payroll, and other administrative costs, capital expenditures, lease payments, purchase commitments, contractual obligations, acquisitions, investments, establishment of new facilities, expansion and renovation of existing facilities, financing receivables from customers that are not financed with Red Iron or other third-party financial institutions, contingent consideration payments, debt repayments, interest payments, quarterly cash dividend payments, and common stock repurchases, all as applicable, for at least the next twelve months.
The following table presents net sales and operating loss for our Other activities (dollars in millions): Fiscal Years Ended October 31 2022 2021 Net sales $ 16.5 $ 19.9 Percentage change from prior year (17.2) % (42.5) % Operating loss $ (144.2) $ (129.0) Other Net Sales Net sales for our Other activities in fiscal 2022 decreased $3.4 million compared to fiscal 2021, primarily driven by lower sales by the wholly-owned domestic distribution company and increased intercompany sales eliminations for sales from our Professional and Residential segments to the wholly-owned domestic distribution company.
The following table presents net sales and operating loss for our Other activities (dollars in millions): Fiscal Years Ended October 31 2023 2022 Net sales $ 24.4 $ 16.5 Percentage change from prior year 47.9 % (17.2) % Operating loss $ (177.5) $ (144.2) Other Net Sales Net sales for our Other activities includes sales from our wholly-owned domestic distribution company net of intersegment sales from the Professional and Residential segments to the distribution company.
Our estimate of the fair value of our reporting units under the income approach requires the use of significant judgment regarding the selection of various inputs and assumptions, including projected operating results and growth rates from our forecasting process, applicable tax rates, estimated capital expenditures and depreciation, estimated changes in working capital, terminal growth rates applied to projected operating results in the terminal period, and a WACC rate.
The fair value of each reporting unit under the quantitative goodwill impairment test was determined using a discounted cash flow model under the income approach which requires the use of significant judgment regarding the selection of various inputs and assumptions, including projected operating results and growth rates from the company's projection process, applicable tax rates, estimated capital expenditures and depreciation, estimated changes in working capital, terminal growth rates applied to projected operating results in the terminal period, and a weighted-average cost of capital ("WACC") rate.
Based on our annual goodwill impairment analysis, we determined there was no impairment of goodwill during fiscal 2022 for any of our reporting units as the fair values of the reporting units exceeded their carrying values, including goodwill.
Based on the fourth quarter annual quantitative goodwill impairment analysis, we determined there was no impairment of goodwill for any of our reporting units as the fair value of each reporting unit exceeded its respective carrying value, including goodwill.
Subsequent to the closing date, results of operations for Intimidator have been included within our Professional segment within our Consolidated Financial Statements and had an incremental impact to our Professional segment net sales and segment earnings for the fiscal year ended October 31, 2022.
Subsequent to the closing date, results of operations for Intimidator have been included within our Professional reportable segment within our Consolidated Financial Statements and had an incremental impact to our Professional reportable segment net sales for the first twelve months post acquisition, or through the first quarter of fiscal 2023.
Interest Expense Interest expense primarily consists of interest costs incurred on outstanding borrowings related to our fixed and variable interest rate debt arrangements, as well as amortization of the debt issuance costs associated with our debt arrangements. Interest expense for fiscal 2022 increased $7.1 million compared to fiscal 2021.
No impairment charges were recognized in fiscal 2022. 36 Table of Contents Interest Expense Interest expense primarily consists of interest costs incurred on outstanding borrowings related to our fixed and variable interest rate debt arrangements, as well as amortization of the debt issuance costs associated with our debt arrangements.
Indebtedness The following is a summary of our indebtedness (in thousands): October 31 2022 2021 Revolving credit facility, due October 2026 $ — $ — $270 million term loan, due October 2026 270,000 270,000 $200 million term loan, due April 2027 200,000 — 3.81% series A senior notes, due June 2029 100,000 100,000 3.91% series B senior notes, due June 2031 100,000 100,000 3.97% senior notes, due June 2032 100,000 — 7.8% debentures, due June 2027 100,000 100,000 6.625% senior notes, due May 2037 124,102 124,040 Less: unamortized debt issuance costs 3,334 2,798 Total long-term debt 990,768 691,242 Less: current portion of long-term debt — — Long-term debt, less current portion $ 990,768 $ 691,242 Principal payments required on our outstanding indebtedness, based on the maturity dates defined within our debt arrangements, for each of the next five fiscal years are as follows: fiscal 2023, $0.0 million; fiscal 2024, $0.0 million; fiscal 2025, $37.0 million; fiscal 2026, $263.0 million; fiscal 2027, $270.0 million; and after fiscal 2027, $425.0 million.
Indebtedness The following is a summary of our indebtedness (dollars in millions): October 31 2023 2022 Revolving credit facility, due October 2026 $ 40.0 $ — $270 million term loan, due October 2026 270.0 270.0 $200 million term loan, due April 2027 200.0 200.0 3.81% series A senior notes, due June 2029 100.0 100.0 3.91% series B senior notes, due June 2031 100.0 100.0 3.97% senior notes, due June 2032 100.0 100.0 7.8% debentures, due June 2027 100.0 100.0 6.625% senior notes, due May 2037 124.2 124.1 Less: unamortized debt issuance costs 2.7 3.3 Long-term debt $ 1,031.5 $ 990.8 Principal payments required on our outstanding indebtedness, based on the maturity dates defined within our debt arrangements, for each of the succeeding fiscal years is as follows (dollars in millions): Succeeding fiscal year Principal payments 2024 $ — 2025 37.0 2026 303.0 2027 270.0 2028 — Thereafter 425.0 Total principal payments $ 1,035.0 Interest payments required on our outstanding indebtedness, assuming no prepayments of indebtedness, for each of the succeeding fiscal years is as follows (dollars in millions): Succeeding fiscal year Interest payments 2024 $ 57.3 2025 56.6 2026 53.7 2027 30.1 2028 20.0 Thereafter 97.6 Interest on variable rate debt was calculated using the interest rate as of October 31, 2023.
While our annual impairment assessment in fiscal 2022 supported the carrying amount of our goodwill and indefinite-lived intangible assets, we may be required to re-evaluate the carrying amount in future periods utilizing different inputs and assumptions that reflect the then current market conditions and expectations regarding our operating performance, which may result in a future impairment that could be material.
While our annual impairment assessment performed in the fourth quarter of fiscal 2023 supported the carrying amount of our goodwill and indefinite-lived intangible assets, we may be required to re-evaluate the carrying amount in future periods utilizing different inputs and assumptions that reflect the then current market conditions and expectations regarding our operating performance, which may result in a future impairment that could be material. 48 Table of Contents Product Warranty Guarantees Our products are warranted to provide assurance that the product will function as expected and to ensure customer confidence in design, workmanship, and overall quality.
This Residential segment earnings decrease as a percentage of Residential segment net sales was primarily driven by higher material, freight, and manufacturing costs, partially offset by net price realization and productivity improvements.
This Residential segment earnings decrease as a percentage of Residential segment net sales was primarily driven by lower sales volume and unfavorable product mix, partially offset by net price realization.
As of October 31, 2022, we had a strong liquidity profile with available liquidity of $785.2 million, consisting of cash and cash equivalents of $188.3 million and availability under our revolving credit facility of $596.9 million.
As of October 31, 2023, we had a strong liquidity profile with available liquidity of $750.5 million, consisting of cash and cash equivalents of $193.1 million and availability under our revolving credit facility of $557.4 million.
COMPANY OVERVIEW Executive Summary Our fiscal 2022 results included the following items of significance that are provided in summary format here and described in greater detail throughout the "Results of Operations," "Business Segments," and "Financial Position" sections of this MD&A: • Consolidated net sales for fiscal 2022 were $4,514.7 million, an increase of 14.0 percent compared to $3,959.6 million in fiscal 2021. • Professional segment net sales for fiscal 2022 were $3,429.6 million, an increase of 17.1 percent compared to $2,929.6 million in fiscal 2021. • Residential segment net sales for fiscal 2022 were $1,068.6 million, an increase of 5.8 percent compared to $1,010.1 million in fiscal 2021. • Gross margin was 33.3 percent in fiscal 2022 compared to 33.8 percent in fiscal 2021, a decrease of 50 basis points. • Adjusted gross margin was 33.4 percent in fiscal 2022 compared to 33.8 percent in fiscal 2021, a decrease of 40 basis points. • SG&A expense as a percentage of net sales in fiscal 2022 was 20.5 percent compared to 20.7 percent in fiscal 2021, an improvement of 20 basis points. • Net earnings for fiscal 2022 were $443.3 million, or $4.20 per diluted share, compared to $409.9 million, or $3.78 per diluted share, in fiscal 2021. • Adjusted net earnings for fiscal 2022 were $444.2 million, or $4.20 per diluted share, compared to $392.7 million, or $3.62 per diluted share, in fiscal 2021. • Field inventory was higher as of the end of fiscal 2022 compared to the end of fiscal 2021 as a result of higher inventory value driven by higher inflation and increased inventory levels to meet expected customer demand.
GAAP financial measures are included in the section titled "Non-GAAP Financial Measures." COMPANY OVERVIEW Executive Summary Our fiscal 2023 results included the following items of significance that are provided in summary format here and described in greater detail throughout the "Results of Operations," "Business Segments," and "Financial Position" sections: • Consolidated net sales for fiscal 2023 were $4,553.2 million, an increase of 0.9 percent compared to $4,514.7 million in fiscal 2022. • Professional segment net sales for fiscal 2023 were $3,674.6 million, an increase of 7.1 percent compared to $3,429.6 million in fiscal 2022. • Residential segment net sales for fiscal 2023 were $854.2 million, a decrease of 20.1 percent compared to $1,068.6 million in fiscal 2022. • Gross margin was 34.6 percent in fiscal 2023, an increase of 130 basis points compared to 33.3 percent in fiscal 2022. • Adjusted gross margin was 34.7 percent in fiscal 2023, an increase of 130 basis points compared to 33.4 percent in fiscal 2022. • SG&A expense as a percentage of net sales in fiscal 2023 was 21.8 percent, an increase of 130 basis points compared to 20.5 percent in fiscal 2022. • Net earnings for fiscal 2023 were $329.7 million, or $3.13 per diluted share, compared to $443.3 million, or $4.20 per diluted share, in fiscal 2022. 34 Table of Contents • Adjusted net earnings for fiscal 2023 were $443.5 million, or $4.21 per diluted share, compared to $444.2 million, or $4.20 per diluted share, in fiscal 2022. • Field inventory was higher as of the end of fiscal 2023 compared to the end of fiscal 2022, primarily driven by channel replenishment and lower than anticipated retail demand from homeowners who prefer professional solutions. • Our order backlog represents unfulfilled customer orders at a point in time.
Our estimate of the fair value for an indefinite-lived intangible asset, or asset group, is determined under the relief from royalty method under the income approach and uses various inputs and assumptions, including projected revenues from our forecasting process, assumed royalty rates that could be payable if we did not own the intangible asset, terminal growth rates applied to forecasted revenues, and a discount rate.
Fair value was determined using the relief-from-royalty method under the income approach which requires the use of significant judgment regarding the selection of various inputs and assumptions, including projected revenues from the company's projection process, assumed royalty rates that could be payable if the company did not own the intangible asset, terminal growth rates applied to projected revenues, applicable tax rates, and a discount rate.
On December 13, 2022, our Board of Directors approved a 5,000,000 share increase in the number of shares available for repurchase under our repurchase program. We currently expect to continue share repurchases in fiscal 2023, depending on our cash balance, debt repayments, common stock price and other market conditions, our anticipated working capital needs, and/or other factors.
We currently expect to continue share repurchases in fiscal 2024, depending on our cash balance, debt repayments, common stock price and other market conditions, our anticipated working capital needs, and/or other factors.
Determining the estimated fair values of our reporting units and indefinite-lived intangible assets, or asset groups, requires considerable judgment and such estimate are sensitive to changes in the underlying inputs and assumptions.
Excluding the Intimidator Spartan trade name, the royalty rate could be decreased by 40 basis points with no impairment indicated for any of our indefinite-lived intangible assets. Determining the estimated fair values of our reporting units and indefinite-lived intangible assets, or asset groups, requires considerable judgment and such estimates are sensitive to changes in the underlying inputs and assumptions.
Other Operating Loss Operating loss for our Other activities increased $15.2 million in fiscal 2022 compared to fiscal 2021.
Net sales for our Other activities in fiscal 2023 increased $7.9 million compared to fiscal 2022. Other Operating Loss Operating loss for our Other activities increased $33.3 million in fiscal 2023 compared to fiscal 2022.
Based on our quantitative impairment analysis, which was also performed in prior fiscal years, we conclude that our indefinite-lived intangible assets were not impaired during fiscal 2022 as the estimated fair value of each of our material indefinite-lived intangible assets exceeded its carrying value, in excess of 25 percent.
Based on our fourth quarter quantitative impairment analysis, we determined that our indefinite-lived intangible assets were not impaired as the estimated fair value of each of our indefinite-lived intangible assets exceeded its carrying value. Further, excluding the Intimidator Spartan trade name, the fair value of each of our indefinite-lived intangible assets exceeded its carrying value in excess of 20 percent.
Fiscal 2022 diluted net earnings per share were $4.20, an increase of 11.1 percent from $3.78 per diluted share in fiscal 2021.
Fiscal 2023 diluted net earnings per share were $3.13, a decrease of 25.5 percent from $4.20 per diluted share in fiscal 2022.
This increase was primarily driven by net price realization and the acquisition of Intimidator. 37 Table of Contents Professional Segment Earnings Professional segment earnings increased 15.1 percent in fiscal 2022 compared to fiscal 2021, but when expressed as a percentage of Professional segment net sales, decreased to 17.0 percent from 17.3 percent.
This increase was primarily driven by higher shipments of underground and specialty construction, and golf and grounds products, net price realization, and the incremental net sales attributable to the acquisition of Intimidator, partially offset by lower shipments of contractor-grade lawn care equipment. 37 Table of Contents Professional Segment Earnings Professional segment earnings decreased 12.8 percent in fiscal 2023 compared to fiscal 2022, and when expressed as a percentage of Professional segment net sales, decreased to 13.9 percent from 17.0 percent.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

10 edited+0 added−1 removed20 unchanged
Biggest changeWe anticipate that the average cost of commodities, components, parts, and accessories purchased, including the impact of inflation and tariff costs, for fiscal 2023 will be slightly higher than the average costs experienced during fiscal 2022. Equity Market Risk Volatility in the trading price of our common stock impacts the compensation costs associated with our stock-based compensation awards.
Biggest changeEquity Market Risk Volatility in the trading price of our common stock impacts the compensation costs associated with our stock-based compensation awards.
Refer to Note 9, Stock-Based Compensation , and Note 1, Summary of Significant Accounting Policies and Related Data , in the Notes to Consolidated Financial Statements for additional information regarding our stock-based compensation awards and our goodwill impairment analysis, respectively. 51 Table of Contents
Refer to Note 9, Stock-Based Compensation , and Note 1, Summary of Significant Accounting Policies and Related Data , in the Notes to Consolidated Financial Statements for additional information regarding our stock-based compensation awards and our goodwill impairment analysis, respectively. 52 Table of Contents
For additional information regarding our derivative instruments, refer to Note 13, Derivative Instruments and Hedging Activities , in the Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K. The foreign currency exchange contracts in the table below have maturity dates in fiscal 2022 through fiscal 2025.
For additional information regarding our derivative instruments, refer to Note 13, Derivative Instruments and Hedging Activities , in the Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K. The foreign currency exchange contracts in the table below have maturity dates in fiscal 2023 through fiscal 2026.
These changes may be affected by several factors, including, demand; inflation; deflation; foreign currency fluctuations; tariffs; duties; trade regulatory actions; industry actions; the inability of suppliers to absorb incremental costs related to inefficiencies, continue 50 Table of Contents operations or otherwise remain in business; financial difficulties; changes to international trade policies, agreements, and/or regulation; and competitor activity, including antidumping and countervailing duties on certain products imported from foreign countries, such as certain engines imported into the U.S. from China.
These changes may be affected by several factors, including, for example, demand; inflation; deflation; changing prices; foreign currency fluctuations; tariffs; duties; trade regulatory actions; industry actions; the inability of suppliers to absorb incremental costs related to inefficiencies, continue operations or otherwise remain in business; financial difficulties; changes to international trade policies, agreements, and/or regulation; and competitor activity, including antidumping and countervailing duties on certain products imported from foreign countries, such as certain engines imported into the U.S. from China.
Interest rate risk for fixed-rate, long-term debt is estimated as the potential increase in the fair value of gross fixed rate debt, resulting from a hypothetical 10 percent decrease in interest rates, and amounts to $21.5 million.
Interest rate risk for fixed-rate, long-term debt is estimated as the potential increase in the fair value of gross fixed rate debt, resulting from a hypothetical 10 percent decrease in interest rates, and amounts to $20.3 million.
As of October 31, 2022, the estimated fair value of gross long-term debt with fixed interest rates was $489.8 million compared to its carrying amount of $524.1 million.
As of October 31, 2023, the estimated fair value of gross long-term debt with fixed interest rates was $478.2 million compared to its carrying amount of $524.2 million.
See further discussion on these market risks below. 49 Table of Contents 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-party customers, sales and loans to wholly-owned foreign subsidiaries, costs associated with foreign plant operations, and purchases from suppliers.
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-party customers, sales and loans to wholly-owned foreign subsidiaries, costs associated with foreign plant operations, and purchases from suppliers.
Our indebtedness as of October 31, 2022 included $524.1 million of gross fixed rate debt that is not subject to variable interest rate fluctuations and $470.0 million of gross variable rate debt under our term loan credit agreements. As of October 31, 2022, we did not have an outstanding balance on our variable-rate revolving credit facility.
Our indebtedness as of October 31, 2023 included $524.2 million of gross fixed rate debt that is not subject to variable interest rate fluctuations and $510.0 million of gross variable rate debt under our term loan credit agreements and revolving credit 51 Table of Contents facility.
Changes in these factors could cause fluctuations in our earnings and cash flows.
Changes in these factors could cause fluctuations in our earnings and cash flows. See further discussion on these market risks below.
As of October 31, 2022, the average contracted rate, notional amount, fair value, and the gain at fair value of outstanding derivative instruments were as follows (in thousands, except average contracted rate): Average Contracted Rate Notional Amount Fair Value Gain at Fair Value Buy U.S. dollar/Sell Australian dollar 0.7071 $ 117,710 $ 128,177 $ 10,467 Buy U.S. dollar/Sell Canadian dollar 1.2813 40,429 42,593 2,164 Buy U.S. dollar/Sell Euro 1.1320 134,432 148,768 14,336 Buy U.S. dollar/Sell British pound 1.2930 32,712 36,263 3,551 Buy Mexican peso/Sell U.S. dollar 22.3457 $ 42,095 $ 44,833 $ 2,738 Our net investment in foreign subsidiaries translated into U.S. dollars is not hedged.
As of October 31, 2023, the average contracted rate, notional amount, fair value, and the gain at fair value of outstanding derivative instruments were as follows (dollars in millions, except average contracted rate): Average Contracted Rate Notional Amount Fair Value Gain at Fair Value Buy U.S. dollar/Sell Australian dollar 0.6796 $ 105.6 $ 112.2 $ 6.6 Buy U.S. dollar/Sell Canadian dollar 1.3317 42.4 43.9 1.5 Buy U.S. dollar/Sell Euro 1.1051 146.6 150.4 3.8 Buy U.S. dollar/Sell British pound 1.2352 43.5 44.1 0.6 Buy Mexican peso/Sell U.S. dollar 20.9278 $ 42.6 $ 46.8 $ 4.2 Our net investment in foreign subsidiaries translated into U.S. dollars is not hedged.
Removed
In fiscal 2022, the average cost of commodities, components, parts, and accessories purchased, including the impact of inflation and tariff costs, was significantly higher compared to the average cost of commodities, components, parts, and accessories purchased in fiscal 2021.

Other TTC 10-K year-over-year comparisons