NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TORO COMPANY AND SUBSIDIARIES
(Dollars
in thousands, except per share data)
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1
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED DATA
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Basis of Presentation and Consolidation
The accompanying consolidated financial statements include the accounts of the company and its wholly owned subsidiaries. The company
uses the equity method to account for investments over which it has the ability to exercise significant influence over operating and financial policies. Consolidated net earnings include the company's
share of the net earnings (losses) of these companies. The cost method is used to account for investments in companies that the company does not control and for which it does not have the ability to
exercise significant influence over operating and financial policies. These investments are recorded at cost. All intercompany accounts and transactions have been eliminated from the consolidated
financial statements.
Stock Split
On August 18, 2016, the company announced that its Board of Directors declared a two-for-one stock split of the company's
common stock, effected in the form of a 100 percent stock dividend. The stock split dividend was distributed or paid on September 16, 2016, to stockholders of record as of
September 1, 2016. Earnings and dividends declared per share and weighted average shares outstanding are presented in this report after the effect of the 100 percent stock dividend. The
two-for-one stock split is reflected in the share amounts in all periods presented in this report.
Accounting Estimates
In preparing the consolidated financial statements in conformity with United States generally accepted accounting principles ("GAAP"),
management must make decisions that impact the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures, including disclosures of contingent assets and liabilities.
Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. Estimates are used in determining, among other
items, sales promotions and incentives accruals, incentive compensation accruals, inventory valuation, warranty reserves, earnout liabilities, allowance for doubtful accounts, pension and
postretirement accruals, self-insurance accruals, useful lives for tangible and intangible assets, and future cash flows associated with impairment testing for goodwill and other long-lived assets.
These estimates and assumptions are based on management's best estimates and judgments at the time they are made. Management evaluates its estimates and assumptions on an ongoing basis using
historical experience and other factors that management believes to be reasonable under the circumstances, including the current economic environment. Management adjusts such estimates and assumptions
when facts and circumstances dictate. As future events and their effects cannot be determined with certainty, actual amounts could differ significantly from those estimated at the time the
consolidated financial statements are prepared. Changes in those estimates will be reflected in the consolidated financial statements in future periods.
Cash and Cash Equivalents
The company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents
and are stated at cost, which approximates fair value. As of October 31, 2016, cash and short-term investments held by the company's foreign subsidiaries that are not available to fund domestic
operations unless repatriated were $105,515.
Receivables
The company's financial exposure to collection of accounts receivable is reduced due to its Red Iron Acceptance, LLC ("Red
Iron") joint venture with TCF Inventory Finance, Inc. ("TCFIF"), as further discussed in Note 3. For receivables not serviced through Red Iron, the company grants credit to customers in
the normal course of business and performs on-going credit evaluations of customers. Receivables are recorded at original carrying amount less reserves for estimated uncollectible accounts, as
described below.
Allowance for Doubtful Accounts
The company estimates the balance of allowance for doubtful accounts by analyzing the age of accounts and notes receivable balances
and applying historical write-off trend rates. The company also estimates separately specific customer balances when it is deemed probable that the balance is uncollectible. Account balances are
charged off against the allowance when all collection efforts have been exhausted.
Inventory Valuations
Inventories are valued at the lower of cost or net realizable value, with cost determined by the last-in, first-out ("LIFO") method
for a majority of the company's inventories. The first-in, first-out ("FIFO") method is used for all other inventories, constituting 33 percent and 26 percent of total inventories as of
October 31,
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2016
and 2015, respectively. The company establishes a reserve for excess, slow-moving, and obsolete inventory that is equal to the difference between the cost and estimated net realizable value for
that inventory. These reserves are based on a review and comparison of current inventory levels to planned production, as well as planned and historical sales of the inventory. During fiscal 2016 and
2015, LIFO layers were reduced, which resulted in charging lower inventory costs prevailing in previous years to cost of sales, thus reducing cost of sales by $60 and $1,348, respectively.
Inventories
as of October 31 were as follows:
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2016
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2015
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Raw materials and work in process
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$
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90,463
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$
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107,086
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Finished goods and service parts
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274,929
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291,468
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Total FIFO value
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365,392
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398,554
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Less: adjustment to LIFO value
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58,358
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64,040
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Total inventories, net
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$
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307,034
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$
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334,514
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Property and Depreciation
Property, plant, and equipment are carried at cost. The company provides for depreciation of plant and equipment utilizing the
straight-line method over the estimated useful lives of the assets. Buildings, including leasehold improvements, are generally depreciated over 10 to 40 years, and equipment over two to seven
years. Tooling costs are generally depreciated over three to five years using the straight-line method. Software and website development costs are generally amortized over two to five years utilizing
the straight-line method. Expenditures for major renewals and improvements, which substantially increase the useful lives of existing assets, are capitalized, and maintenance and repairs are charged
to operating expenses as incurred. Interest is capitalized during the construction period for significant capital projects. During the fiscal years ended October 31, 2016, 2015, and 2014, the
company capitalized $549, $897, and $1,710 of interest, respectively.
Property,
plant, and equipment as of October 31 was as follows:
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2016
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2015
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Land and land improvements
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$
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34,744
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$
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34,240
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Buildings and leasehold improvements
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182,121
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170,342
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Machinery and equipment
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325,595
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315,884
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Tooling
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200,842
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187,652
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Computer hardware and software
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85,173
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81,131
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Construction in process
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9,561
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15,349
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Subtotal
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838,036
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804,598
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Less: accumulated depreciation
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615,998
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579,603
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Total property, plant, and equipment, net
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$
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222,038
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$
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224,995
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During
fiscal years 2016, 2015, and 2014, the company recorded depreciation expense of $53,355, $50,322, and $47,136, respectively.
Goodwill and Indefinite-Life Intangible Assets
Goodwill represents the cost of acquisitions in excess of the fair values assigned to identifiable net assets acquired. Goodwill is
assigned to reporting units based upon the expected benefit of the synergies of the acquisition. Goodwill and some trade names, which are considered to have indefinite lives, are not amortized;
however, the company reviews them for impairment annually during each fiscal fourth quarter or more frequently if changes in circumstances or occurrence of events suggest the fair value may not be
recoverable.
The
company reviewed the fair value of its reporting units that have goodwill on their respective balance sheets and compared these fair values to the respective carrying amounts during the fourth
quarter of fiscal 2016. The company determined that it has nine reporting units, which are the same as its nine operating segments. Seven reporting units contain goodwill on their respective balance
sheets. As of August 26, 2016, the company performed an analysis of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its
carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill impairment test. Based on the company's analysis of qualitative factors, the company determined that
it was not necessary to perform a two-step goodwill impairment test for any of its reporting units.
As
of August 26, 2016, the company also performed an assessment of its indefinite-life intangible assets, which consist of certain trade names. The company's estimate of the fair value of its
trade names are based on a discounted cash flow model using inputs which included: projected revenues from the company's forecasting process; assumed royalty rates that could be payable if the company
did not own the trade name; and a discount rate. Based on this analysis, which was also performed in prior fiscal years, the company concluded its indefinite-life intangible assets were not impaired
during fiscal 2016, 2015, or 2014.
Other Long-Lived Assets
Other long-lived assets include property, plant, and equipment and definite-life intangible assets, which are identifiable assets that
arose from purchase acquisitions consisting primarily of patents, non-compete agreements, customer relationships, trade names, and developed technology and are amortized on a straight-line basis over
periods ranging from 1.5 to 20 years. The company reviews other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or
asset group) may not be recoverable. An impairment loss is recognized when estimated undiscounted future cash flows from the operation or disposition of the asset group are less than the carrying
amount of the asset group. Asset groups have identifiable cash flows and are largely independent of other asset groups. Measurement of an impairment loss is based on the excess of the carrying amount
of the asset group
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over
its fair value. Fair value is measured using a discounted cash flow model or independent appraisals, as appropriate. For long-lived assets to be abandoned, the company tests for potential
impairment. If the company commits to a plan to abandon a long-lived asset before the end of its previously estimated useful life, depreciation estimates are revised.
Based
on the company's impairment analysis for definite-life intangible assets, the company did not have any impairment losses of other long-lived assets. For fiscal 2015, the company wrote down
$1,383 of other long-lived assets. Additionally, based on the company's analysis of estimated useful lives of property, plant, and equipment, the company had $0, $531, and $0 of accelerated
depreciation expense during fiscal 2016, 2015, and 2014, respectively.
Accounts Payable
The company has a customer-managed service agreement with a third party to provide a web-based platform that facilitates participating
suppliers' ability to finance payment obligations from the company with a designated third party financial institution. Participating suppliers may, at their sole discretion, make offers to finance
one or more payment obligations of the company prior to their scheduled due dates at a discounted price to a participating financial institution.
The
company's obligations to its suppliers, including amounts due and scheduled payment dates, are not affected by suppliers' decisions to finance amounts under this arrangement. As of
October 31, 2016 and 2015, $16,249 and $16,101, respectively, of the company's outstanding payment obligations had been placed on the accounts payable tracking system.
Insurance
The company is self-insured for certain losses relating to medical, dental, and workers' compensation claims, and certain product
liability occurrences. Specific stop loss coverages are provided for catastrophic claims in order to limit exposure to significant claims. Losses and claims are charged to operations when it is
probable a loss has been incurred and the amount can be reasonably estimated. Self-insured liabilities are based on a number of factors, including historical claims experience, an estimate of claims
incurred but not reported, demographic and severity factors, and utilizing valuations provided by independent third-party actuaries.
Accrued Warranties
The company provides an accrual for estimated future warranty costs at the time of sale. The company also establishes accruals for
major rework campaigns. The amount of warranty accruals is based primarily on the estimated number of products under warranty, historical average costs incurred to service warranty claims, the trend
in the historical ratio of claims to sales, and the historical length of time between the sale and resulting warranty claim. The company periodically assesses the adequacy of its warranty accruals
based on changes in these factors and records any necessary adjustments if actual claims experience indicates that adjustments are necessary.
The
changes in accrued warranties were as follows:
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Fiscal years ended October 31
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2016
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2015
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Beginning balance
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$
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70,734
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$
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71,080
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Warranty provisions
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44,260
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41,747
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Warranty claims
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(41,102
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)
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(39,730
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)
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Changes in estimates
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(1,734
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)
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(2,363
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)
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Ending balance
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$
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72,158
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$
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70,734
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Derivatives
Derivatives, consisting mainly of forward currency contracts, are used to hedge most foreign currency transactions, including
forecasted sales and purchases denominated in foreign currencies. The company also in the past utilized and may in the future utilize cross currency swaps to offset foreign currency intercompany loan
exposures. Derivatives are recognized on the consolidated balance sheet at fair value. If the derivative is designated as a cash flow hedge, the effective portion of the change in the fair value of
the derivative is recorded as a component of other comprehensive income within the consolidated statements of comprehensive income and the consolidated statements of stockholders' equity, and
recognized in earnings when the hedged item affects earnings. Derivatives that do not meet the requirements for hedge accounting are adjusted to fair value through other income, net in the
consolidated statements of earnings.
Foreign Currency Translation and Transactions
The functional currency of the company's foreign operations is generally the applicable local currency. The functional currency is
translated into U.S. dollars for balance sheet accounts using current exchange rates in effect as of the balance sheet date and for revenue and expense accounts using a weighted-average exchange rate
during the fiscal year. The translation adjustments are deferred as a component of other comprehensive income (loss) within the consolidated statements of comprehensive income and the consolidated
statements of stockholders' equity. Gains or losses resulting from transactions denominated in foreign currencies are included in other income, net in the consolidated statements of earnings.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
50
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income
in the years that those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax
expense in the period that includes the enactment date. A valuation allowance is provided when, in management's judgment, it is more likely than not that some portion or all of the deferred tax asset
will not be realized. The company has reflected the necessary deferred tax assets and liabilities in the accompanying consolidated balance sheets. Management believes the future tax deductions will be
realized principally through carryback to taxable income in prior years, future reversals of existing taxable temporary differences, and future taxable income.
The
company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that
is greater than 50 percent likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The company also records interest
and penalties related to unrecognized tax benefits in income tax expense.
Revenue Recognition
The company recognizes revenue for product sales when persuasive evidence of an arrangement exists, title and risk of ownership passes
to the customer, the sales price is fixed or determinable, and collectability is probable. These criteria are typically met at the time product is shipped, or in the case of certain agreements, when
product is delivered. A provision is made at the time the related revenue is recognized for estimated product returns, floor plan costs, rebates, and other sales promotion expenses. Sales, use,
value-added, and other excise taxes are not recognized in revenue. Freight revenue billed to customers is included in net sales.
The
company ships some of its products to a key retailer's seasonal distribution centers on a consignment basis. The company retains title to its products stored at the seasonal distribution centers.
As the company's products are removed from the seasonal distribution centers by the key retailer and shipped to the key retailer's stores, title passes from the company to the key retailer. At
that time, the company invoices the key retailer and recognizes revenue for these consignment transactions. The company does not offer a right of return for products shipped to the key retailer's
stores from the seasonal distribution centers. From time to time, the company also stores inventory on a consignment basis at other customers' locations. The amount of consignment inventory as of
October 31, 2016 and 2015 was $22,443 and $23,566, respectively.
Revenue
earned from service and maintenance contracts is recognized ratably over the contractual period. Revenue from extended warranty programs is deferred at the time the contract is sold and
amortized into net sales using the straight-line method over the extended warranty period.
Sales Promotions and Incentives
At the time of sale, the company records an estimate for sales promotion and incentive costs. Examples of sales promotion and
incentive programs include off-invoice discounts, rebate programs, volume discounts, retail financing support, commissions, and other sales discounts and promotional programs. The estimates of sales
promotion and incentive costs are based on the terms of the arrangements with customers, historical payment experience, field inventory levels, volume purchases, and expectations for changes in
relevant trends in the future. The expense of each program is classified as a reduction from gross sales or as a component of selling, general, and administrative expense.
Cost of Sales
Cost of sales primarily comprises direct materials and supplies consumed in the manufacture of product, as well as manufacturing
labor, depreciation expense, and direct overhead expense necessary to convert purchased materials and supplies into finished product. Cost of sales also includes inbound freight costs, outbound
freight costs for shipping products to customers, obsolescence expense, cost of services provided, and cash discounts on payments to vendors.
Selling, General, and Administrative Expense
Selling, general, and administrative expense primarily comprises payroll and benefit costs, occupancy and operating costs of
distribution and corporate facilities, warranty expense, depreciation and amortization expense on non-manufacturing assets, advertising and marketing expenses, selling expenses, engineering and
research costs, information systems
costs, incentive and profit sharing expense, and other miscellaneous administrative costs, such as legal costs for internal and outside services that are expensed as incurred.
Cost of Financing Distributor / Dealer Inventory
The company enters into limited inventory repurchase agreements with a third-party financing company and Red Iron. The company has
repurchased immaterial amounts of inventory under these repurchase agreements over the last three fiscal years. However, an adverse change in retail sales could cause this situation to change, and
thereby require the company to repurchase a portion of financed product. See Note 13 for additional information regarding the company's repurchase arrangements.
Included
as a reduction to net sales are costs associated with programs under which the company shares the expense of financing distributor and dealer inventories, referred to as floor plan expenses.
This charge represents interest for a pre-established length of time based on a predefined rate from a contract with third party financing sources to finance distributor and dealer inventory
purchases. These financing arrangements are used by the company as a marketing tool to assist customers to buy inventory. The financing costs for distributor and dealer inventories were $28,773,
$24,130, and $21,080 for the fiscal years ended October 31, 2016, 2015, and 2014, respectively.
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Advertising
General advertising expenditures are expensed the first time advertising takes place. Production costs associated with advertising are
expensed in the period incurred. Cooperative advertising represents expenditures for shared advertising costs that the company reimburses to customers and is classified as a component of selling,
general, and administrative expense. These obligations are accrued and expensed when the related revenues are recognized in accordance with the programs established for various product lines.
Advertising costs were $41,837, $42,843, and $43,590 for the fiscal years ended October 31, 2016, 2015, and 2014, respectively.
Stock-Based Compensation
The company's stock-based compensation awards are generally granted to executive officers, other employees, and non-employee members
of the company's Board of Directors, and include performance share awards that are contingent on the achievement of performance goals of the company, non-qualified stock options, restricted stock
units, and restricted stock awards. Generally, compensation expense equal to the grant date fair value is recognized for these awards over the vesting period and is classified in selling, general and
administrative expense. Stock options granted to executive officers and other employees are subject to accelerated expensing if the option holder meets the retirement definition set forth in The Toro
Company Amended and Restated 2010 Equity and Incentive Plan, as amended and restated (the "2010 plan"). In that case, the fair value of the options is expensed in the fiscal year of grant because
generally the option holder must be employed as of the end of the fiscal year in which the options are granted in order for the options to continue to vest following retirement. Similarly, if a
non-employee director has served on the company's Board of Directors for ten full fiscal years or more, the awards vest immediately upon retirement; and therefore, the fair value of the options
granted is fully expensed on the date of the grant. See Note 10 for additional information regarding stock-based compensation plans.
Net Earnings Per Share
Basic net earnings per share is calculated using net earnings available to common stockholders divided by the weighted-average number
of shares of common stock outstanding during the year plus the assumed issuance of contingent shares. Diluted net earnings per share is similar to basic net earnings per share except that the
weighted-average number of shares of common stock outstanding plus the assumed issuance of contingent shares is increased to include the number of additional shares of common stock that would have
been outstanding assuming the issuance of all potentially dilutive shares, such as common stock to be issued upon exercise of options, contingently issuable shares, and restricted stock units.
Reconciliations
of basic and diluted weighted-average shares of common stock outstanding are as follows:
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(Shares in thousands)
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Basic
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2016
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2015
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2014
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Weighted-average number of shares of common stock
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109,816
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|
|
111,107
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|
112,692
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Assumed issuance of contingent shares
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18
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23
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26
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|
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Weighted-average number of shares of common stock and assumed issuance of contingent shares
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|
109,834
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|
|
111,130
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|
|
112,718
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Diluted
|
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Weighted-average number of shares of common stock and assumed issuance of contingent shares
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|
|
109,834
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|
|
111,130
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|
|
112,718
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Effect of dilutive securities
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|
|
2,153
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|
|
2,384
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|
|
2,537
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Weighted-average number of shares of common stock, assumed issuance of contingent shares, and effect of dilutive securities
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|
|
111,987
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|
|
113,514
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|
|
115,255
|
|
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Share data has been adjusted for all periods presented to reflect a two-for-one stock split effective September 16, 2016.
Incremental shares from options and restricted stock units are computed by the treasury stock method. Options for the purchase of 310,566, 290,120, and 519,850
shares of common stock during fiscal 2016, 2015, and 2014, respectively, were excluded from the computation of diluted net earnings per share because they were anti-dilutive.
Cash Flow Presentation
The consolidated statements of cash flows are prepared using the indirect method, which reconciles net earnings to cash flow from
operating activities. The necessary adjustments include the removal of timing differences between the occurrence of operating receipts and payments and their recognition in net earnings. The
adjustments also remove from operating activities cash flows arising from investing and financing activities, which are presented separately from operating activities. Cash flows from foreign currency
transactions and operations are translated at an average exchange rate for the period. Cash paid for acquisitions is classified as investing activities.
New Accounting Pronouncements Adopted
In February 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-02,
C
onsolidation
(Topic 810), which amends certain requirements for determining whether a variable interest entity must be consolidated. The company adopted
this amended guidance in the fourth quarter of its fiscal 2016. The adoption of this
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guidance
did not change the company's conclusion on consolidation of a variable interest entity.
In
November 2015, the FASB issued ASU No. 2015-17,
Income Taxes
(Topic 740):
Balance Sheet Classification of Deferred
Taxes
. This amended guidance requires an entity to present deferred tax assets and liabilities, along with any related valuation allowance, as non-current on the Consolidated
Balance Sheets. As a result of the new guidance, each jurisdiction will now only have one net non-current deferred tax asset or liability. The new guidance does not change the existing requirement
that only permits offsetting deferred tax assets and liabilities within a single jurisdiction. Entities have the option to apply the new guidance prospectively or retrospectively. This amended
guidance was retrospectively adopted in the fourth quarter of fiscal 2016. Prior periods have been retrospectively adjusted for the adoption of this amended guidance and are reclassified in the
Consolidated Balance Sheets presentation of deferred tax balances as of October 31, 2015 by including $38,095 of previously classified current deferred tax assets as non-current.
On
November 14, 2014, during the first quarter of fiscal 2015, the company acquired substantially all of the assets (excluding accounts receivable) of the BOSS® professional snow
and ice management business of privately held Northern Star Industries, Inc. The purchase price of this acquisition was $229,490, which included a cash payment of $198,329 and issuance of a
note payable at fair value of $31,161. The company funded the acquisition with cash on hand, a $130,000 term loan, and short-term debt under the company's revolving credit facility.
The
purchase price of this acquisition was allocated to the identifiable assets acquired and liabilities assumed based on estimates of their fair value, with the excess purchase price for acquisitions
recorded as goodwill.
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3
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INVESTMENT IN JOINT VENTURE
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In
fiscal 2009, the company and TCF Inventory Finance, Inc. ("TCFIF"), a subsidiary of TCF National Bank, established Red Iron Acceptance, LLC ("Red Iron"), a joint venture in the form
of a Delaware limited liability company that primarily provides inventory financing to certain distributors and dealers of the company's products in the U.S. As of October 31, 2016, the initial
term of Red Iron would have expired on October 31, 2017, unless it would have been extended for an additional two year term. See Note 17 as the Red Iron arrangement, including the
initial term, were amended subsequent to October 31, 2016. Additionally, in connection with the joint venture, the company and an affiliate of TCFIF entered into an arrangement to provide
inventory financing to dealers of the company's products in Canada.
The
company owns 45 percent of Red Iron and TCFIF owns 55 percent of Red Iron. The company accounts for its investment in Red Iron under the equity method of accounting. The company and
TCFIF each contributed a specified amount of the estimated cash required to enable Red Iron to purchase the company's inventory financing receivables and to provide financial support for Red Iron's
inventory financing programs. As of October 31, 2016, Red Iron borrowed the remaining requisite estimated cash utilizing a $450,000 secured revolving credit facility established under a credit
agreement between Red Iron and TCFIF. The company's total investment in Red Iron as of October 31, 2016 and 2015 was $18,719 and $18,979, respectively. The company has not guaranteed the
outstanding indebtedness of Red Iron. The company has agreed to repurchase products repossessed by Red Iron and the TCFIF Canadian affiliate, up to a maximum aggregate amount of $7,500 in a calendar
year.
Under
the repurchase agreement between Red Iron and the company, Red Iron provides financing for certain dealers and distributors. These transactions are structured as an advance in the form of a
payment by Red Iron to the company on behalf of a
distributor or dealer with respect to invoices financed by Red Iron. These payments extinguish the obligation of the dealer or distributor to make payment to the company under the terms of the
applicable invoice. Under separate agreements between Red Iron and the dealers and distributors, Red Iron provides loans to the dealers and distributors for the advances paid by Red Iron to the
company. The net amount of receivables financed for dealers and distributors under this arrangement during fiscal 2016, 2015, and 2014 was $1,713,588, $1,430,855, and $1,280,505, respectively.
Summarized
financial information for Red Iron is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the twelve months ended
October 31
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
31,812
|
|
$
|
27,483
|
|
$
|
22,678
|
|
Net income
|
|
|
21,306
|
|
|
18,598
|
|
|
16,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
Finance receivables, net
|
|
$
|
370,169
|
|
$
|
366,397
|
|
Other assets
|
|
|
4,416
|
|
|
5,928
|
|
Total liabilities
|
|
|
332,985
|
|
|
330,149
|
|
|
|
|
|
|
|
|
|
53
Table of Contents
Other
income (expense) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended October 31
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
827
|
|
$
|
494
|
|
$
|
465
|
|
Retail financing revenue
|
|
|
1,087
|
|
|
1,086
|
|
|
1,077
|
|
Foreign currency exchange rate gain/(loss)
|
|
|
974
|
|
|
(324
|
)
|
|
(1,006
|
)
|
Gain on sale of business
|
|
|
340
|
|
|
|
|
|
|
|
Noncash income from finance affiliate
|
|
|
9,588
|
|
|
8,353
|
|
|
7,262
|
|
Litigation recovery, net
|
|
|
1,300
|
|
|
125
|
|
|
127
|
|
Miscellaneous
|
|
|
1,284
|
|
|
940
|
|
|
789
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income, net
|
|
$
|
15,400
|
|
$
|
10,674
|
|
$
|
8,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
GOODWILL AND OTHER INTANGIBLE ASSETS
|
Goodwill
The changes in the net carrying amount of goodwill for fiscal 2016 and 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
Segment
|
|
|
Residential
Segment
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of October 31, 2014
|
|
$
|
80,946
|
|
$
|
10,905
|
|
$
|
91,851
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill acquired
|
|
|
103,028
|
|
|
|
|
|
103,028
|
|
Translation and other adjustments
|
|
|
792
|
|
|
(138
|
)
|
|
654
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of October 31, 2015
|
|
|
184,766
|
|
|
10,767
|
|
|
195,533
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments
|
|
|
(428
|
)
|
|
(323
|
)
|
|
(751
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of October 31, 2016
|
|
$
|
184,338
|
|
$
|
10,444
|
|
$
|
194,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Intangible Assets
The components of other intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2016
|
|
Weighted-
average
Life
(Years)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
|
|
|
|
|
|
|
|
Patents
|
|
3.1
|
|
$ 15,151
|
|
$(10,866)
|
|
$ 4,285
|
Non-compete agreements
|
|
0.4
|
|
6,886
|
|
(6,681)
|
|
205
|
Customer-related
|
|
16.5
|
|
84,353
|
|
(14,434)
|
|
69,919
|
Developed technology
|
|
1.4
|
|
28,648
|
|
(23,712)
|
|
4,936
|
Trade names
|
|
17.1
|
|
28,715
|
|
(4,235)
|
|
24,480
|
Other
|
|
|
|
800
|
|
(800)
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable
|
|
|
|
164,553
|
|
(60,728)
|
|
103,825
|
|
|
|
|
|
|
|
|
|
Non-amortizable - trade names
|
|
|
|
4,268
|
|
|
|
4,268
|
|
|
|
|
|
|
|
|
|
Total other intangible assets, net
|
|
|
|
$168,821
|
|
$(60,728)
|
|
$108,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2015
|
|
Weighted-
average
Life
(Years)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
|
|
|
|
|
|
|
|
Patents
|
|
3.6
|
|
$ 15,191
|
|
$(10,175)
|
|
$ 5,016
|
Non-compete agreements
|
|
0.9
|
|
6,922
|
|
(6,206)
|
|
716
|
Customer-related
|
|
17.4
|
|
84,599
|
|
(10,316)
|
|
74,283
|
Developed technology
|
|
2.3
|
|
28,804
|
|
(20,530)
|
|
8,274
|
Trade names
|
|
18.0
|
|
28,715
|
|
(2,825)
|
|
25,890
|
Other
|
|
|
|
800
|
|
(800)
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable
|
|
|
|
165,031
|
|
(50,852)
|
|
114,179
|
|
|
|
|
|
|
|
|
|
Non-amortizable - trade names
|
|
|
|
4,831
|
|
|
|
4,831
|
|
|
|
|
|
|
|
|
|
Total other intangible assets, net
|
|
|
|
$169,862
|
|
$(50,852)
|
|
$119,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense for intangible assets for the fiscal years ended October 31, 2016, 2015, and 2014 was $9,550, $11,438, and $6,002, respectively. Estimated amortization expense for the
succeeding fiscal years is as follows: 2017, $9,458; 2018, $7,440; 2019, $6,562; 2020, $6,006; 2021, $5,601; and after 2021, $68,758.
|
|
|
6
|
|
SHORT-TERM CAPITAL RESOURCES
|
As
of October 31, 2016, the company had a $150,000 unsecured senior five-year revolving credit facility that expires in October 2019. Included in this $150,000 revolving credit facility is a
sublimit of $20,000 for standby letters of credit and a sublimit for swingline loans of $20,000. At the election of the company, and the approval of the named borrowers on the revolving credit
facility and the election of the lenders to fund such increase, the aggregate maximum principal amount available under the facility may be increased by an amount up to $100,000 in aggregate. Funds are
available under the revolving credit facility for working capital, capital expenditures, and other lawful purposes, including, but not limited to, acquisitions and stock repurchases. Interest expense
on this credit line is determined based on a LIBOR rate (or other rates quoted by the Administrative Agent, Bank of America, N.A.) plus a basis point spread defined in the credit agreement. The
company's non-U.S. operations also maintain unsecured short-term lines of credit in the aggregate amount of $9,130. These facilities bear interest at various rates depending on the rates in their
respective countries of operation. Under the company's lines of credit, there was no outstanding debt as of October 31, 2016 and October 31, 2015.
The
credit agreement that contains the revolving credit facility and term loan, which is described in more detail in Note 7, contains standard covenants, including, without limitation,
financial covenants, such as the maintenance of minimum interest
54
Table of Contents
coverage
and maximum debt to earnings before interest, tax, depreciation, and amortization ("EBITDA") ratios; and negative covenants, which among other things, limit loans and investments, disposition
of assets, consolidations and mergers, transactions with affiliates, restricted payments, contingent obligations, liens, and other matters customarily restricted in such agreements. Most of these
restrictions are subject to certain minimum thresholds and exceptions. Under the revolving credit facility, the company is not limited in the amount for payments of cash dividends and stock
repurchases as long as the debt to EBITDA ratio from the previous quarter compliance certificate is less than or equal to 3.25, provided that immediately after giving effect of any such proposed
action, no default or event of default would exist. In fiscal 2016, 2015, and 2014, the company was not limited in the amount for payments of cash dividends and stock repurchases as its debt to EBITDA
ratio was below the thresholds. The company was in compliance with all covenants related to the lines of credit described above as of October 31, 2016 and 2015.
A
summary of long-term debt as of October 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
Term loan, due October 25, 2019
|
|
$
|
110,500
|
|
$
|
123,500
|
|
7.800% Debentures, due June 15, 2027
|
|
|
100,000
|
|
|
100,000
|
|
6.625% Senior Notes, due May 1, 2037
|
|
|
123,730
|
|
|
123,668
|
|
4% Unsecured Note, due November 14, 2017
|
|
|
19,677
|
|
|
30,604
|
|
Other
|
|
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
353,907
|
|
|
377,952
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
22,484
|
|
|
23,134
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
$
|
331,423
|
|
$
|
354,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On
November 14, 2014, the company issued a note with the aggregate principal amount of $30,000 to the former owner of the BOSS business, Northern Star Industries, Inc., which was
recorded at fair value of $31,161.
In
October 2014, the company obtained a $130,000 term loan with various banks, which was a part of the new credit agreement that included the new revolving credit facility. Under the credit agreement,
the term loan bears interest based on a LIBOR rate (or other rates quoted by the Administrative Agent, Bank of America, N.A.) plus a basis point spread defined in the credit agreement. The term loan
can be repaid in part or in full at any time without penalty, but in any event must be paid in full by October 2019.
On
April 26, 2007, the company issued $125,000 in aggregate principal amount of 6.625% senior notes due May 1, 2037. The senior notes were priced at 98.513% of par value, and the
resulting discount of $1,859 associated with the issuance of these senior notes is being amortized over the term of the notes using the effective interest rate method. The underwriting fee and direct
debt issue costs totaling $1,524 will be amortized over the life of the notes. Although the coupon rate of the senior notes is 6.625%, the effective interest rate is 6.741% after taking into account
the issuance discount. Interest on the senior notes is payable semi-annually on May 1 and November 1 of each year. The senior notes are unsecured senior obligations of the company and
rank equally with the company's other unsecured and unsubordinated indebtedness. The indentures under which the senior notes were issued contain customary covenants and event of default provisions.
The company may redeem some or all of the senior notes at any time at the greater of the full principal amount of the senior notes being redeemed or the present value of the remaining scheduled
payments of principal and interest discounted to the redemption date on a semi-annual basis at the treasury rate plus 30 basis points, plus, in both cases, accrued and unpaid interest. In the event of
the occurrence of both (i) a change of control of the company, and (ii) a downgrade of the notes below an investment grade rating by both Moody's Investors Service, Inc. and
Standard & Poor's Ratings Services within a specified period, the company would be required to make an offer to purchase the senior notes at a price equal to 101% of the principal amount of the
senior notes plus accrued and unpaid interest to the date of repurchase.
In
June 1997, the company issued $175,000 of debt securities consisting of $75,000 of 7.125% coupon 10-year notes and $100,000 of 7.80% coupon 30-year debentures. The $75,000 of 7.125% coupon 10-year
notes were repaid at maturity during fiscal 2007. In connection with the issuance of $175,000 in long-term debt securities, the company paid $23,688 to terminate three forward-starting interest rate
swap agreements with notional amounts totaling $125,000. These swap agreements had been entered into to reduce exposure to interest rate risk prior to the issuance of the new long-term debt
securities. As of the inception of one of the swap agreements, the company had received payments that were recorded as deferred income to be recognized as an adjustment to interest expense over the
term of the new debt securities. As of the date the swaps were terminated, this deferred income totaled $18,710. The excess termination fees over the deferred income recorded has been deferred and is
being recognized as an adjustment to interest expense over the term of the debt securities issued. As of October 31, 2016, the company had $1,680 remaining in other assets for the excess
termination fees over deferred income.
Principal
payments required on long-term debt in each of the next five fiscal years ending October 31 are as follows: 2017, $22,484; 2018, $23,193; 2019, $84,500; 2020, $0; 2021, $0; and after
2021, $223,730.
55
Table of Contents
Shares
have been adjusted for all periods presented to reflect a two-for-one stock split effective September 16, 2016.
Stock Repurchase Program.
On December 11, 2012, the company's Board of Directors authorized the repurchase of 10,000,000 shares of the company's
common stock in open-market or in privately negotiated transactions. This program has no expiration date but may be terminated by the Board at any time. On December 3, 2015, the company's Board
of Directors authorized the repurchase of up to an additional 8,000,000 shares of the company's common stock in open-market or in privately negotiated transactions. This repurchase program has no
expiration date but may be terminated by the Board at any time.
During
fiscal 2016, 2015, and 2014, the company paid $107,517, $105,964, and $101,674 to repurchase Board of Director authorized shares for repurchase in an aggregate of 2,560,567 shares, 3,122,358
shares, and 3,245,138 shares, respectively. As of October 31, 2016, 7,692,715 shares remained authorized by the Board of Directors for repurchase. The Board of Director authorized shares for
repurchase does not include shares of our common stock surrendered by employees to satisfy minimum tax withholding obligations upon vesting of restricted stock granted under our stock-based
compensation plans.
Treasury Shares.
As of October 31, 2016, the company had 19,700,607 treasury shares at a cost of $1,280,495. On May 17, 2016, the company's
Board of Directors authorized the retirement of 14,000,440 treasury shares, and the retired shares are included in the
company's pool of authorized and unissued shares of common stock. As of October 31, 2015, the company had 46,827,048 treasury shares at a cost of $1,243,729.
Accumulated Other Comprehensive Loss.
Components of accumulated other comprehensive loss ("AOCL"), net of tax, within the consolidated
statements of stockholders' equity are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
$
|
31,430
|
|
$
|
24,328
|
|
$
|
12,536
|
|
Pension and post-retirement benefits
|
|
|
6,359
|
|
|
5,386
|
|
|
5,266
|
|
Derivative instruments
|
|
|
647
|
|
|
129
|
|
|
(2,097)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss
|
|
$
|
38,436
|
|
$
|
29,843
|
|
$
|
15,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
components and activity of AOCL are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Pension and
Postretirement
Benefits
|
|
|
Cash Flow
Derivative
Instruments
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of October 31, 2015
|
|
$
|
24,328
|
|
$
|
5,386
|
|
$
|
129
|
|
$
|
29,843
|
|
Other comprehensive loss (income) before reclassifications
|
|
|
7,102
|
|
|
973
|
|
|
1,116
|
|
|
9,191
|
|
Amounts reclassified from AOCL
|
|
|
|
|
|
|
|
|
(598)
|
|
|
(598)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive (income) loss
|
|
|
7,102
|
|
|
973
|
|
|
518
|
|
|
8,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of October 31, 2016
|
|
$
|
31,430
|
|
$
|
6,359
|
|
$
|
647
|
|
$
|
38,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Pension and
Postretirement
Benefits
|
|
|
Cash Flow
Derivative
Instruments
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of October 31, 2014
|
|
$
|
12,536
|
|
$
|
5,266
|
|
$
|
(2,097)
|
|
$
|
15,705
|
|
Other comprehensive loss (income) before reclassifications
|
|
|
11,792
|
|
|
|
|
|
(7,680)
|
|
|
4,112
|
|
Amounts reclassified from AOCL
|
|
|
|
|
|
120
|
|
|
9,906
|
|
|
10,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive (income) loss
|
|
|
11,792
|
|
|
120
|
|
|
2,226
|
|
|
14,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of October 31, 2015
|
|
$
|
24,328
|
|
$
|
5,386
|
|
$
|
129
|
|
$
|
29,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AOCL
associated with pension and postretirement benefits are included in Note 11. Details of amounts reclassified from accumulated other comprehensive loss to the respective line items in net
earnings for cash flow derivative instruments are included in Note 14.
Earnings
before income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended October 31
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes:
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
292,184
|
|
$
|
254,276
|
|
$
|
239,501
|
|
Non-U.S.
|
|
|
38,276
|
|
|
36,755
|
|
|
16,944
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
330,460
|
|
$
|
291,031
|
|
$
|
256,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
Table of Contents
A
reconciliation of the statutory federal income tax rate to the company's consolidated effective tax rate is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended October 31
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory federal income tax rate
|
|
|
35.0%
|
|
|
35.0%
|
|
|
35.0%
|
|
Domestic manufacturer's deduction
|
|
|
(0.8)
|
|
|
(1.7)
|
|
|
(1.9)
|
|
State and local income taxes, net of federal benefit
|
|
|
1.5
|
|
|
2.2
|
|
|
1.5
|
|
Non-U.S. taxes
|
|
|
(1.8)
|
|
|
(3.1)
|
|
|
(1.2)
|
|
Federal research tax credit
|
|
|
(1.5)
|
|
|
(0.9)
|
|
|
(0.2)
|
|
Other, net
|
|
|
(2.3)
|
|
|
(0.8)
|
|
|
(1.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated effective tax rate
|
|
|
30.1%
|
|
|
30.7%
|
|
|
32.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components
of the provision for income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended October 31
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
77,685
|
|
$
|
75,496
|
|
$
|
75,815
|
|
State
|
|
|
6,929
|
|
|
9,389
|
|
|
5,997
|
|
Non-U.S.
|
|
|
6,295
|
|
|
6,219
|
|
|
3,672
|
|
|
|
|
|
|
|
|
|
|
|
|
Current provision
|
|
$
|
90,909
|
|
$
|
91,104
|
|
$
|
85,484
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
7,283
|
|
$
|
430
|
|
$
|
(3,047)
|
|
State
|
|
|
297
|
|
|
|
|
|
(81)
|
|
Non-U.S.
|
|
|
977
|
|
|
(2,094)
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred benefit
|
|
|
8,557
|
|
|
(1,664)
|
|
|
(2,909)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
99,466
|
|
$
|
89,440
|
|
$
|
82,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
tax effects of temporary differences that give rise to the net deferred income tax assets are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
$
|
37,200
|
|
$
|
41,341
|
|
Warranty and insurance
|
|
|
17,443
|
|
|
12,067
|
|
Advertising and sales allowance
|
|
|
11,185
|
|
|
10,474
|
|
Depreciation
|
|
|
(13,578)
|
|
|
(7,689)
|
|
Other
|
|
|
6,845
|
|
|
12,264
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
59,095
|
|
$
|
68,457
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(1,867)
|
|
|
(1,801)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
57,228
|
|
$
|
66,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
valuation allowance as of October 31, 2016 and 2015 principally applies to capital loss carryforwards and foreign net operating loss carryforwards that are expected to expire prior to
utilization. In fiscal 2016, the valuation allowance increased slightly for certain foreign jurisdictions with existing valuation allowances.
As
of October 31, 2016, the company had net operating loss carryforwards of approximately $8,068 in foreign jurisdictions. The carryforward periods are as follows: $4,858 that do not expire;
and $3,210 that expire between fiscal years 2017 and 2022.
No
provision has been made for U.S. federal income taxes on certain undistributed earnings of foreign subsidiaries the company intends to permanently invest or that may be remitted substantially
tax-free. The total of undistributed earnings that would be subject to federal income tax if remitted under existing law is approximately $117,866 as of October 31, 2016. Determination of the
unrecognized deferred tax liability related to these earnings is not practicable because of the complexities with its hypothetical calculation. Upon distribution of these earnings, the company will be
subject to U.S. taxes and withholding taxes payable to various foreign governments. A credit for foreign taxes already paid would be available to reduce the U.S. tax liability.
A
reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
Balance as of October 31, 2015
|
|
$
|
6,343
|
|
|
|
|
|
|
Increase as a result of tax positions taken during a prior period
|
|
|
683
|
|
Increase as a result of tax positions taken during the current period
|
|
|
453
|
|
Decrease relating to settlements with taxing authorities
|
|
|
(1,666)
|
|
Reductions as a result of statute of limitations lapses
|
|
|
(638)
|
|
|
|
|
|
|
Balance as of October 31, 2016
|
|
$
|
5,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
company recognizes interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. In addition to the liability of $5,175 for unrecognized tax
benefits as of October 31, 2016 was an amount of approximately $1,850 for accrued interest and penalties.
Included
in the balance of unrecognized tax benefits as of October 31, 2016 are potential benefits of $5,089 that, if recognized, would affect the effective tax rate from continuing operations.
The
company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and numerous state and foreign jurisdictions. With few exceptions, the company is no longer subject to U.S.
federal, state and local, and non-U.S. income tax examinations by tax authorities for taxable years before fiscal 2012. The company is under audit in several state jurisdictions, and expects various
statutes of limitation to expire during the next 12 months. Due to the uncertain response of taxing authorities, a range of outcomes cannot be reasonably estimated at this time.
|
|
|
10
|
|
STOCK-BASED COMPENSATION PLANS
|
The
company maintains the 2010 plan for executive officers, other employees, and non-employee members of the company's Board of Directors. The 2010 plan allows the company to grant equity-based
compensation awards, including stock options, restricted stock units, restricted stock, and performance share awards.
57
Table of Contents
Shares
and per share data have been adjusted for all periods presented to reflect a two-for-one stock split effective September 16, 2016.
The
compensation costs related to stock-based awards were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended October 31
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option awards
|
|
$
|
4,606
|
|
$
|
4,704
|
|
$
|
5,142
|
|
Restricted stock and restricted stock units
|
|
|
1,891
|
|
|
1,756
|
|
|
1,653
|
|
Performance share awards
|
|
|
3,676
|
|
|
3,964
|
|
|
4,496
|
|
Unrestricted common stock awards
|
|
|
464
|
|
|
412
|
|
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation cost for stock-based awards
|
|
$
|
10,637
|
|
$
|
10,836
|
|
$
|
11,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related tax benefit from stock-based awards
|
|
$
|
3,936
|
|
$
|
4,009
|
|
$
|
4,329
|
|
|
|
|
|
|
|
|
|
|
|
|
The
number of unissued shares of common stock available for future equity-based grants under the 2010 plan was 6,158,207 as of October 31, 2016. Shares of common stock issued upon exercise or
settlement of stock options, restricted stock units, and performance shares are issued from treasury shares.
During
fiscal 2016, 2015 and 2014, 12,320, 13,360 and 14,000 shares, respectively, of fully vested unrestricted common stock awards were granted to certain members of the company's Board of Directors
as a component of their compensation for their service on the board and is recorded in selling, general, and administrative expense in the consolidated statements of earnings.
Stock Option Awards.
Under the 2010 plan, stock options are granted with an exercise price equal to the closing price of the company's common stock on the
date of grant, as reported by the New York Stock Exchange. Options are generally granted to executive officers, other employees, and non-employee members of the company's Board of Directors on an
annual basis in the first quarter of the company's fiscal year. Options generally vest one-third each year over a three-year period and have a ten-year term. Other options granted to certain employees
vest in full on the three-year anniversary of the date of grant and have a ten-year term. Generally, compensation expense equal to the grant date fair value is generally recognized for these awards
over the vesting period. Stock options granted to executive officers and other employees are subject to accelerated expensing if the option holder meets the retirement definition set forth in the 2010
plan. In that case, the fair value of the options is expensed in the fiscal year of grant because generally the option holder must be employed as of the end of the fiscal year in which the options are
granted in order for the options to continue to vest following retirement. Similarly, if a non-employee director has served on the company's Board of Directors for ten full fiscal years or more, the
awards vest immediately upon retirement, and therefore, the fair value of the options granted is fully expensed on the date of the grant.
The
table below presents stock option activity for fiscal 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Option
Awards
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Contractual
Life (years)
|
|
|
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of October 31, 2015
|
|
|
5,829,442
|
|
$
|
16.60
|
|
|
5.2
|
|
$
|
122,606
|
|
Granted
|
|
|
618,884
|
|
|
38.73
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,491,666)
|
|
|
13.50
|
|
|
|
|
|
|
|
Cancelled/forfeited
|
|
|
(76,676)
|
|
|
34.80
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of October 31, 2016
|
|
|
4,879,984
|
|
$
|
20.07
|
|
|
5.3
|
|
$
|
135,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of October 31, 2016
|
|
|
3,748,816
|
|
$
|
15.61
|
|
|
4.4
|
|
$
|
120,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of October 31, 2016, there was $1,888 of total unrecognized compensation expense related to unvested stock options. That cost is expected to be recognized over a weighted-average period of
1.93 years.
The
table below presents the total market value of stock options exercised and the total intrinsic value of options exercised during the following fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended October 31
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value of stock options exercised
|
|
$
|
61,468
|
|
$
|
27,860
|
|
$
|
19,017
|
|
Intrinsic value of options exercised
1
|
|
|
41,365
|
|
|
18,739
|
|
|
12,311
|
|
|
|
|
|
|
|
|
|
|
|
|
-
1
-
Intrinsic value is calculated as amount by which the stock price at exercise date exceeded the
option exercise price.
The fair value of each stock option is estimated on the date of grant using the Black-Scholes valuation method with the assumptions noted in the table below. The
expected life is a significant assumption as it determines the period for which the risk-free interest rate, volatility, and dividend yield must be applied. The expected life is the average length of
time in which executive officers, other employees, and non-employee directors are expected to exercise their stock options, which is primarily based on historical experience. Separate groups of
employees and non-employee directors that have similar historical exercise behavior are considered separately for valuation purposes. Expected volatilities are based on the movement of the company's
common stock over the most recent historical period equivalent to the expected life of the option. The risk-free interest rate for periods within the contractual life of the option is based on the
U.S. Treasury rate over the expected life at the time of grant. Dividend yield is estimated over the expected life based on the company's historical cash dividends paid, expected future cash dividends
and dividend yield, and expected changes in the company's stock price.
58
Table of Contents
The
table below illustrates the weighted-average valuation assumptions for all employee and non-employee director stock-based compensation for the following fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended October 31
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
Expected life of option in years
|
|
5.97
|
|
5.94
|
|
6.00
|
|
Expected stock price volatility
|
|
24.04%
|
|
29.66%
|
|
34.29%
|
|
Risk-free interest rate
|
|
1.80%
|
|
1.61%
|
|
1.92%
|
|
Expected dividend yield
|
|
1.24%
|
|
1.29%
|
|
1.25%
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value at date of grant
|
|
$8.79
|
|
$8.41
|
|
$9.35
|
|
|
|
|
|
|
|
|
|
Restricted Stock and Restricted Stock Units.
Under the 2010 plan, restricted stock and restricted stock unit awards are generally granted to certain
employees that are not executive officers. Occasionally, restricted stock or restricted stock unit awards may be granted, including to executive officers, in connection with hiring, mid-year
promotions, leadership transition, or retention. Restricted stock and restricted stock unit awards generally vest one-third each year over a three-year period, or vest in full on the three-year
anniversary of the date of grant. Such awards may have performance-based rather than time-based vesting requirements. Compensation expense equal to the grant date fair value, which is equal to the
closing price of the company's common stock on the date of grant multiplied by the number of shares subject to the restricted stock and restricted stock unit awards, is recognized for these awards
over the vesting period.
Factors
related to the company's restricted stock and restricted stock units during the following fiscal years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended October 31
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value at date of grant
|
|
$
|
41.83
|
|
$
|
33.88
|
|
$
|
31.53
|
|
Fair value of restricted stock and restricted stock units vested
|
|
|
1,265
|
|
|
1,702
|
|
|
1,890
|
|
|
|
|
|
|
|
|
|
|
|
|
The
table below summarizes the activity during fiscal 2016 for unvested restricted stock and restricted stock units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock and
Units
|
|
|
Weighted-
Average Fair
Value at Date
of Grant
|
|
|
|
|
|
|
|
|
|
Unvested as of October 31, 2015
|
|
|
183,594
|
|
$
|
31.39
|
|
Granted
|
|
|
52,990
|
|
|
41.83
|
|
Vested
|
|
|
(41,874)
|
|
|
30.21
|
|
Forfeited
|
|
|
(19,370)
|
|
|
33.17
|
|
|
|
|
|
|
|
|
|
Unvested as of October 31, 2016
|
|
|
175,340
|
|
$
|
34.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of October 31, 2016, there was $2,670 of total unrecognized compensation expense related to unvested restricted stock units. That cost is expected to be recognized over a weighted-average
period of 2.14 years.
Performance Share Awards.
The company grants performance share awards to executive officers and other employees under which they are entitled to receive
shares of the company's common stock contingent on the achievement of performance goals of the company and businesses of the company, which are generally measured over a three-year period. The number
of shares of common stock a participant receives will be increased (up to 200 percent of target levels) or reduced (down to zero) based on the level of achievement of performance goals and vest
at the end of a three-year period. Performance share awards are generally granted on an annual basis in the first quarter of the company's fiscal year. Compensation expense is recognized for these
awards on a straight-line basis over the vesting period based on the per share fair value as of the date of grant and the probability of achieving each performance goal.
Factors
related to the company's performance share awards are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended October 31
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value at date of grant
|
|
$
|
38.89
|
|
$
|
32.84
|
|
$
|
29.66
|
|
Fair value of performance share awards vested
|
|
|
7,454
|
|
|
7,989
|
|
|
7,926
|
|
|
|
|
|
|
|
|
|
|
|
|
The
table below summarizes the activity during fiscal 2016 for unvested performance share awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Shares
|
|
|
Weighted-
Average Fair
Value at Date
of Grant
|
|
|
|
|
|
|
|
|
|
Unvested as of October 31, 2015
|
|
|
659,600
|
|
$
|
26.43
|
|
Granted
|
|
|
116,400
|
|
|
38.89
|
|
Vested
|
|
|
(302,800
|
)
|
|
21.03
|
|
Cancelled/forfeited
|
|
|
(52,152
|
)
|
|
32.39
|
|
|
|
|
|
|
|
|
|
Unvested as of October 31, 2016
|
|
|
421,048
|
|
$
|
33.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of October 31, 2016, there was $4,416 of total unrecognized compensation expense related to unvested performance share awards. That cost is expected to be recognized over a weighted-average
period of 1.69 years.
|
|
|
11
|
|
EMPLOYEE RETIREMENT PLANS
|
The
company maintains The Toro Company Investment, Savings, and Employee Stock Ownership Plan for eligible employees. The company's expenses under this plan were $16,986, $17,400, and $15,550 for the
fiscal years ended October 31, 2016, 2015, and 2014, respectively.
In
addition, the company and its subsidiaries have defined benefit, supplemental, and other retirement plans covering certain employees in the U.S. and the United Kingdom. The projected benefit
obligation of these plans as of October 31, 2016 and 2015 was $45,603 and $46,427, respectively, and the net liability amount recognized in the consolidated balance sheets as of
59
Table of Contents
October 31,
2016 and 2015 was $4,243 and $4,829, respectively. The accumulated benefit obligation of these plans as of October 31, 2016 and 2015 was $45,603 and $43,145, respectively.
The funded status of these plans as of October 31, 2016 and 2015 was $12,984 and $11,303, respectively. The fair value of the plan assets as of October 31, 2016 and 2015 was $32,619 and
$35,124, respectively. The net expense recognized in the consolidated financial statements for these plans was $1,220, $2,406, and $1,092 for the fiscal years ended October 31, 2016, 2015, and
2014, respectively.
Amounts
recognized in accumulated other comprehensive loss consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended October 31
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Postretirement
Benefit Plan
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
$
|
5,496
|
|
$
|
554
|
|
$
|
6,050
|
|
Net prior service cost
|
|
|
309
|
|
|
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
5,805
|
|
$
|
554
|
|
$
|
6,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
5,100
|
|
$
|
(66
|
)
|
$
|
5,034
|
|
Net prior service cost (credit)
|
|
|
352
|
|
|
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
5,452
|
|
$
|
(66
|
)
|
$
|
5,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following amounts are included in accumulated other comprehensive loss as of October 31, 2016 and are expected to be recognized as components of net periodic benefit cost during fiscal
2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Postretirement
Benefit Plan
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
121
|
|
$
|
7
|
|
$
|
128
|
|
Net prior service cost
|
|
|
67
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
188
|
|
$
|
7
|
|
$
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognized in net periodic benefit cost and other comprehensive loss consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended October 31
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Postretirement
Benefit Plan
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
$
|
469
|
|
$
|
619
|
|
$
|
1,088
|
|
Prior service cost
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized prior service (credit) cost
|
|
|
(42
|
)
|
|
|
|
|
(42
|
)
|
Amortization of unrecognized actuarial loss (gain)
|
|
|
(73
|
)
|
|
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive loss (income)
|
|
$
|
354
|
|
$
|
619
|
|
$
|
973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and other comprehensive loss
|
|
$
|
976
|
|
$
|
1,217
|
|
$
|
2,193
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
$
|
37
|
|
$
|
(577
|
)
|
$
|
(540
|
)
|
Prior service cost
|
|
|
126
|
|
|
|
|
|
126
|
|
Amortization of unrecognized prior service (credit) cost
|
|
|
(32
|
)
|
|
25
|
|
|
(7
|
)
|
Amortization of unrecognized actuarial loss (gain)
|
|
|
542
|
|
|
(1
|
)
|
|
541
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive loss (income)
|
|
$
|
673
|
|
$
|
(553
|
)
|
$
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and other comprehensive loss
|
|
$
|
2,475
|
|
$
|
51
|
|
$
|
2,526
|
|
|
|
|
|
|
|
|
|
|
|
|
The
company has omitted the remaining disclosures for its defined benefit plans and postretirement healthcare plan as the company deems these plans to be immaterial to its consolidated financial
position and results of operations.
The
company's businesses are organized, managed, and internally grouped into segments based on differences in products and services. Segment selection was based on the manner in which management
organizes segments for making operating and investment decisions and assessing performance. The company has identified nine operating segments and has aggregated those segments into three reportable
segments: Professional, Residential, and Distribution. The aggregation of the company's segments is based on the segments having the following similarities: economic characteristics, types of products
and services, types of production processes, type or class of customers, and method of distribution. The company's Distribution segment, which consists of a company-owned domestic distributorship, has
been combined with the company's corporate activities and elimination of intersegment revenues and expenses and is shown as "Other" due to the insignificance of the segment.
60
Table of Contents
The Professional business segment consists of turf and landscape equipment, snow and ice management equipment, and irrigation products. Turf and landscape equipment products
include sports fields and grounds maintenance equipment, golf course mowing and maintenance equipment, landscape contractor mowing equipment, landscape creation and renovation equipment, rental and
specialty construction equipment, and other maintenance equipment. Snow and ice management equipment products include snowplows, salt and sand spreaders, and related parts and accessories for light
and medium duty trucks, ATVs, UTVs, skid steers, and front-end loaders. Irrigation products consist of sprinkler heads, electric and hydraulic valves, controllers, computer irrigation central control
systems, and micro-irrigation drip tape and hose products, as well as professionally installed lighting products offered through distributors and landscape contractors that also purchase irrigation
products. Professional business segment products are sold mainly through a network of distributors and dealers to professional users engaged in maintaining golf courses, sports fields, municipal
properties, agricultural fields, residential and commercial landscapes, and removing snow, as well as directly to government customers, rental companies, and large retailers.
The
Residential business segment consists of walk power mowers, riding mowers, snow throwers, replacement parts, and home solutions products, including trimmers, blowers, blower-vacuums, and
underground and hose-end retail irrigation products sold in Australia. Residential business segment products are sold to homeowners through a network of distributors and dealers, and through a broad
array of home centers, hardware retailers, and mass retailers, as well as over the internet.
The
Other segment consists of the company's Distribution segment and corporate activities and elimination of intersegment revenues and expenses. Corporate activities include general corporate
expenditures (finance, human resources, legal, information services, public relations, and similar activities) and other unallocated corporate assets and liabilities, such as corporate facilities,
parts inventory, and deferred tax assets.
The
accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1. The company evaluates the performance of its Professional
and Residential business segment results based on earnings from operations plus other income, net. Operating loss for the Other segment includes earnings (loss) from domestic wholly owned distribution
companies, corporate activities, other income, and interest expense. The business segment's operating profits or losses include direct costs incurred at the segment's operating level plus allocated
expenses, such as profit sharing and manufacturing expenses. The allocated expenses represent costs that these operations would have incurred otherwise, but do not include general corporate expenses,
interest expense, and income taxes. The company accounts for intersegment gross sales at current market prices.
The
following table shows summarized financial information concerning the company's reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended
October 31
|
|
|
Professional
|
|
|
Residential
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,705,312
|
|
$
|
669,131
|
|
$
|
17,732
|
|
$
|
2,392,175
|
|
Intersegment gross sales
|
|
|
28,138
|
|
|
354
|
|
|
(28,492
|
)
|
|
|
|
Earnings (loss) before income taxes
|
|
|
352,060
|
|
|
73,691
|
|
|
(95,291
|
)
|
|
330,460
|
|
Total assets
|
|
|
774,762
|
|
|
188,920
|
|
|
423,836
|
|
|
1,387,518
|
|
Capital expenditures
|
|
|
27,296
|
|
|
13,794
|
|
|
9,633
|
|
|
50,723
|
|
Depreciation and amortization
|
|
|
40,715
|
|
|
10,406
|
|
|
12,976
|
|
|
64,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,639,659
|
|
$
|
725,682
|
|
$
|
25,534
|
|
$
|
2,390,875
|
|
Intersegment gross sales
|
|
|
45,634
|
|
|
406
|
|
|
(46,040
|
)
|
|
|
|
Earnings (loss) before income taxes
|
|
|
308,010
|
|
|
84,956
|
|
|
(101,935
|
)
|
|
291,031
|
|
Total assets
|
|
|
805,686
|
|
|
217,093
|
|
|
280,879
|
|
|
1,303,658
|
|
Capital expenditures
|
|
|
29,016
|
|
|
9,953
|
|
|
17,405
|
|
|
56,374
|
|
Depreciation and amortization
|
|
|
42,799
|
|
|
9,131
|
|
|
11,213
|
|
|
63,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,477,578
|
|
$
|
672,443
|
|
$
|
22,670
|
|
$
|
2,172,691
|
|
Intersegment gross sales
|
|
|
41,376
|
|
|
424
|
|
|
(41,800
|
)
|
|
|
|
Earnings (loss) before income taxes
|
|
|
276,305
|
|
|
76,916
|
|
|
(96,776
|
)
|
|
256,445
|
|
Total assets
|
|
|
573,086
|
|
|
172,984
|
|
|
446,345
|
|
|
1,192,415
|
|
Capital expenditures
|
|
|
25,226
|
|
|
12,417
|
|
|
33,495
|
|
|
71,138
|
|
Depreciation and amortization
|
|
|
34,228
|
|
|
8,883
|
|
|
10,027
|
|
|
53,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table presents the details of the Other segment operating loss before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended October 31
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses
|
|
$
|
(95,288
|
)
|
$
|
(95,167
|
)
|
$
|
(88,539
|
)
|
Interest expense
|
|
|
(19,336
|
)
|
|
(18,757
|
)
|
|
(15,426
|
)
|
Other income
|
|
|
19,333
|
|
|
11,989
|
|
|
7,189
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(95,291
|
)
|
$
|
(101,935
|
)
|
$
|
(96,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table presents net sales for groups of similar products and services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended October 31
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
2,001,150
|
|
$
|
2,004,274
|
|
$
|
1,765,845
|
|
Irrigation and lighting
|
|
|
391,025
|
|
|
386,601
|
|
|
406,846
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,392,175
|
|
$
|
2,390,875
|
|
$
|
2,172,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
Table of Contents
Sales
to one customer in the Residential segment accounted for 11 percent of total consolidated gross sales in fiscal 2016, 2015, and 2014.
Geographic Data
The following geographic area data includes net sales based on product shipment destination. Long-lived assets consist of net
property, plant, and equipment, which is determined based on physical location in addition to allocated capital tooling from U.S. plant facilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended
October 31
|
|
|
United
States
|
|
|
Foreign
Countries
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,812,587
|
|
$
|
579,588
|
|
$
|
2,392,175
|
|
Long-lived assets
|
|
|
188,869
|
|
|
33,169
|
|
|
222,038
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,780,240
|
|
$
|
610,635
|
|
$
|
2,390,875
|
|
Long-lived assets
|
|
|
190,262
|
|
|
34,733
|
|
|
224,995
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,550,077
|
|
$
|
622,614
|
|
$
|
2,172,691
|
|
Long-lived assets
|
|
|
169,797
|
|
|
35,398
|
|
|
205,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
COMMITMENTS AND CONTINGENT LIABILITIES
|
Leases
Total rental expense for operating leases was $26,363, $24,986, and $24,329 for the fiscal years ended October 31, 2016, 2015,
and 2014, respectively. As of October 31, 2016, future minimum lease payments under noncancelable operating leases amounted to $96,136 as follows: 2017, $15,002; 2018, $13,540; 2019, $11,597;
2020, $10,580; 2021, $10,042; and after 2021, $35,375.
Customer Financing
Wholesale Financing.
The company is party to a joint venture with TCFIF established as Red Iron. See Note 3 for additional information related to Red Iron.
Some products sold to independent dealers in Australia are financed by a third-party finance company. This third-party financing company purchased $28,887 of receivables from the company during fiscal
2016. As of October 31, 2016, $12,316 of receivables financed by the third-party financing company, excluding Red Iron, was outstanding.
The
company also enters into limited inventory repurchase agreements with third party financing companies and Red Iron for receivables financed by third party financing companies and Red Iron. As of
October 31, 2016, the company was contingently liable to repurchase up to a maximum amount of $10,389 of inventory related to receivables under these financing arrangements. The company has
repurchased only immaterial amounts of inventory under these repurchase agreements since inception.
End-User Financing.
The company has agreements with third party financing companies to provide lease-financing options to golf course and sports fields and grounds
equipment customers in the U.S. and select countries in Europe. The company has no contingent liabilities for residual value or credit collection risk under these agreements with third party financing
companies.
From
time to time, the company enters into agreements where it provides recourse to third party finance companies in the event of default by the customer for lease payments to the third-party finance
company. The company's maximum exposure for credit collection as of October 31, 2016 was $4,904.
Purchase Commitments
As of October 31, 2016, the company had $5,140 of noncancelable purchase commitments with some suppliers for materials and
supplies as part of the normal course of business. The company also entered into a construction agreement for renovations at its corporate facilities located in Bloomington, Minnesota, for a maximum
obligation, subject to certain exceptions, of $3,038. The amount of the remaining obligation as of October 31, 2016 was $2,524.
Letters of Credit
Letters of credit are issued by the company during the normal course of business, as required by some vendor contracts. As of
October 31, 2016 and 2015, the company had $8,984 and $16,245, respectively, in outstanding letters of credit.
Litigation
The company is party to litigation in the ordinary course of business. Such matters are generally subject to uncertainties and to
outcomes that are not predictable with assurance and that may not be known for extended periods of time. Litigation occasionally involves claims for punitive, as well as compensatory, damages arising
out of the use of the company's products. Although the company is self-insured to some extent, the company maintains insurance against certain product liability losses. The company is also subject to
litigation and administrative and judicial proceedings with respect to claims involving asbestos and the discharge of hazardous substances into the environment. Some of these claims assert damages and
liability for personal injury, remedial investigations or clean up and other costs and damages. The company is also typically involved in commercial disputes, employment disputes, and patent
litigation cases in which it is asserting or defending against patent infringement claims. To prevent possible infringement of the company's patents by others, the company periodically reviews
competitors' products. To avoid potential liability with respect to others' patents, the company regularly reviews certain patents issued by the United States Patent and Trademark Office and foreign
patent offices. Management believes these activities help minimize its risk of
62
Table of Contents
being
a defendant in patent infringement litigation. The company is currently involved in patent litigation cases, including cases by or against competitors, where it is asserting and defending
against claims of patent infringement. Such cases are at varying stages in the litigation process. The company records a liability in its consolidated financial statements for costs related to claims,
including future legal costs, settlements and judgments, where the company has assessed that a loss is probable and an amount can be reasonably estimated. If the reasonable estimate of a probable loss
is a range, the company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. The company discloses a
contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that a material loss may have been incurred. In the opinion of
management, the amount of liability, if any, with respect to these matters, individually or in the aggregate, will not materially affect its consolidated results of operations, financial position, or
cash flows.
Concentrations of Credit Risk
Financial instruments, which potentially subject the company to concentrations of credit risk, consist principally of accounts
receivable that are concentrated in the Professional and Residential business segments. The credit risk associated with these segments is limited because of the large number of customers in the
company's customer base and their geographic dispersion, except for the Residential segment that has significant sales to The Home Depot.
Derivative Instruments and Hedging Activities
The company is 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, foreign plant operations, and purchases from suppliers. The company actively manages the exposure of its foreign
currency exchange rate market risk by entering into various hedging instruments, authorized under company policies that place controls on these activities, with counterparties that are highly rated
financial institutions. The company's hedging activities primarily involve the use of forward currency contracts, as well as cross currency swaps that are intended to offset intercompany loan
exposures. The company uses derivative instruments only in an attempt to limit underlying exposure from foreign currency exchange rate fluctuations and to minimize earnings and cash flow volatility
associated with foreign currency exchange rate changes. Decisions on whether to use such contracts are primarily based on the amount of exposure to the currency involved and an assessment of the
near-term market value for each currency. The company's policy does not allow the use of derivatives for trading or speculative purposes. The company also made an accounting policy election to use the
portfolio exception with respect to measuring counterparty credit risk for
derivative instruments, and to measure the fair value of a portfolio of financial assets and financial liabilities on the basis of the net open risk position with each counterparty. The company's
primary currency exchange rate exposures are with the Euro, the Australian dollar, the Canadian dollar, the British pound, the Mexican peso, the Japanese yen, the Chinese Renminbi, and the Romanian
New Leu against the U.S. dollar, as well as the Romanian New Leu against the Euro.
Cash Flow Hedges.
The company recognizes all derivative instruments as either assets or liabilities at fair value on the consolidated balance sheet and formally
documents relationships between cash flow hedging instruments and hedged transactions, as well as its risk-management objective and strategy for undertaking hedge transactions. This process includes
linking all derivatives to the forecasted transactions, such as sales to third parties, foreign plant operations, and purchases from suppliers. Changes in fair values of outstanding cash flow hedge
derivatives, except the ineffective portion, are recorded in other comprehensive income ("OCI"), until net earnings is affected by the variability of cash flows of the hedged transaction. Gains and
losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in net earnings. The consolidated statement of
earnings classification of effective hedge results is the same as that of the underlying exposure. Results of hedges of sales and foreign plant operations are recorded in net sales and cost of sales,
respectively, when the underlying hedged transaction affects net earnings. The maximum amount of time the company hedges its exposure to the variability in future cash flows for forecasted trade sales
and purchases is two years. Results of hedges of intercompany loans are recorded in other income, net as an offset to the remeasurement of the foreign loan balance.
The
company formally assesses, at a hedge's inception and on an ongoing basis, whether the derivatives that are designated as hedges have been highly effective in offsetting changes in the cash flows
of the hedged transactions and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not, or has ceased to be, highly
effective as a hedge, the company discontinues hedge accounting prospectively. When the company discontinues hedge accounting because it is no longer probable, but it is still reasonably possible that
the forecasted transaction will occur by the end of the originally expected period or within an additional two-month period of time thereafter, the gain or loss on the derivative remains in AOCL and
is reclassified to net earnings when the forecasted transaction affects net earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified
time period or within an additional two-month period of time thereafter, the gains and losses that were in AOCL are recognized immediately in net earnings. In all
63
Table of Contents
situations
in which hedge accounting is discontinued and the derivative remains outstanding, the company carries the derivative at its fair value on the consolidated balance sheets, recognizing future
changes in the fair value in other income, net. For the fiscal years ended October 31, 2016 and 2015, there were immaterial gains and losses on contracts reclassified into earnings as a result
of the discontinuance of cash flow hedges. As of October 31, 2016, the notional amount of outstanding forward contracts designated as cash flow hedges was $122,497. During the third quarter of
fiscal 2016, the company terminated its one cross currency interest rate swap instrument outstanding with gains on the instrument recorded in other income.
Derivatives Not Designated as Hedging Instruments.
The company also enters into foreign currency contracts that include forward currency contracts and may include
cross currency swaps to mitigate the remeasurement of specific assets and liabilities on the consolidated balance sheets. These contracts are not designated as hedging instruments. Accordingly,
changes in the fair value of hedges of recorded balance sheet positions, such as cash, receivables, payables, intercompany notes, and other various contractual
claims to pay or receive foreign currencies other than the functional currency, are recognized immediately in other income, net, on the consolidated statements of earnings together with the
transaction gain or loss from the hedged balance sheet position.
The
following table presents the fair value of the company's derivatives and consolidated balance sheet location.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at October 31
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
|
|
|
|
Derivatives Designated as Hedging Instruments
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
|
Forward currency contracts
|
|
$
|
1,535
|
|
$
|
2,102
|
|
Cross currency contract
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
|
Forward currency contracts
|
|
|
432
|
|
|
1,071
|
|
Cross currency contract
|
|
|
|
|
|
2,136
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,967
|
|
$
|
5,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
|
|
|
|
Derivatives Designated as Hedging Instruments
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
|
|
|
|
|
|
Forward currency contracts
|
|
$
|
973
|
|
$
|
1,363
|
|
Cross currency contract
|
|
|
|
|
|
134
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
|
|
|
|
|
|
Forward currency contracts
|
|
|
792
|
|
|
348
|
|
Cross currency contract
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
1,765
|
|
$
|
1,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table presents the impact of derivative instruments on the consolidated statements of earnings and the consolidated statements of comprehensive income for the company's derivatives
designated as cash flow hedging instruments for the fiscal years ended October 31, 2016 and 2015, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Portion
|
|
Ineffective Portion and excluded from
Effectiveness Testing
|
|
|
|
|
Gain (Loss)
Recognized in
OCI on
Derivatives
|
|
Location of
Gain (Loss)
Reclassified from
AOCL into Income
|
|
|
Gain (Loss)
Reclassified from
AOCL into
Income
|
|
Location of Gain
(Loss) Recognized in
Income on Derivatives
|
|
|
Gain (Loss)
Recognized in
Income on
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31
|
|
|
2016
|
|
|
2015
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward currency contracts
|
|
$
|
(961
|
)
|
$
|
(745
|
)
|
Net sales
|
|
$
|
2,094
|
|
$
|
13,067
|
|
Other income, net
|
|
$
|
608
|
|
$
|
747
|
|
Forward currency contracts
|
|
|
181
|
|
|
(1,687
|
)
|
Cost of sales
|
|
|
(2,598
|
)
|
|
(2,806
|
)
|
|
|
|
|
|
|
|
|
Cross currency contracts
|
|
|
255
|
|
|
200
|
|
Other income, net
|
|
|
(94
|
)
|
|
(355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as cash flow hedges
|
|
$
|
(525
|
)
|
$
|
(2,232
|
)
|
Total
|
|
$
|
(598
|
)
|
$
|
9,906
|
|
Total
|
|
$
|
608
|
|
$
|
747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of October 31, 2016, the company anticipates to reclassify approximately $153 of gains from AOCL to earnings during the next twelve months.
64
Table of Contents
The following table presents the impact of derivative instruments on the consolidated statements of earnings for the company's derivatives not designated as hedging instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
October 31
|
|
Location of Gain (Loss)
Recognized in Net Earnings
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward currency contracts
|
|
Other income, net
|
|
|
|
$
|
(4
|
)
|
$
|
7,703
|
|
Cross currency contracts
|
|
Other income, net
|
|
|
|
|
(191
|
)
|
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedges
|
|
|
|
|
|
$
|
(195
|
)
|
$
|
9,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
company entered into an International Swap Dealers Association ("ISDA") Master Agreement with each counterparty that permits the net settlement of amounts owed under their respective contracts.
The ISDA Master Agreement is an industry standardized contract that governs all derivative contracts entered into between the company and the respective counterparty. Under these master netting
agreements, net settlement generally permits the company or the counterparty to determine the net amount payable or receivable for contracts due on the same date or in the same currency for similar
types of derivative transactions. The company records the fair value of its derivative contracts at the net amount in its consolidated balance sheets.
The
following tables show the effects of the master netting arrangements on the fair value of the company's derivative contracts that are recorded in the consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Forward currency contracts
|
|
|
|
|
|
|
Gross Amounts of Recognized Assets
|
|
$
|
2,264
|
|
$
|
3,380
|
Gross Liabilities Offset in the Balance Sheets
|
|
|
(297)
|
|
|
(207)
|
|
|
|
|
|
|
|
Net Amounts of Assets Presented in the Balance Sheets
|
|
|
1,967
|
|
|
3,173
|
|
|
|
|
|
|
|
Cross currency contracts
|
|
|
|
|
|
|
Gross Amounts of Recognized Assets
|
|
|
|
|
|
2,136
|
Gross Liabilities Offset in the Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Amounts of Assets Presented in the Balance Sheets
|
|
|
|
|
|
2,136
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,967
|
|
$
|
5,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Forward currency contracts
|
|
|
|
|
|
|
Gross Amounts of Recognized Liabilities
|
|
$
|
(1,765)
|
|
$
|
(1,711)
|
Gross Assets Offset in the Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Amounts of Liabilities Presented in the Balance Sheets
|
|
|
(1,765)
|
|
|
(1,711)
|
|
|
|
|
|
|
|
Cross currency contracts
|
|
|
|
|
|
|
Gross Amounts of Recognized Liabilities
|
|
|
|
|
|
(134)
|
Gross Assets Offset in the Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Amounts of Liabilities Presented in the Balance Sheets
|
|
|
|
|
|
(134)
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
(1,765)
|
|
$
|
(1,845)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
company categorizes its assets and liabilities into one of three levels based on the assumptions (inputs) used in valuing the asset or liability. Estimates of fair value for financial assets and
financial liabilities are based on the framework established in the accounting guidance for fair value measurements. The framework defines fair value, provides guidance for measuring fair value, and
requires certain disclosures. The framework discusses valuation techniques such as the market approach (comparable market prices), the income approach (present value of future income or cash flow),
and the cost approach (cost to replace the service capacity of an asset or replacement cost). The framework utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value into three broad levels. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment. The three levels
are defined as follows:
-
-
Level 1:
Unadjusted
quoted prices in active markets for identical assets or liabilities.
-
-
Level 2:
Observable
inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets that are not active; or
other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
-
-
Level 3:
Unobservable
inputs reflecting management's assumptions about the inputs used in pricing the asset or liability.
Cash
balances are valued at their carrying amounts in the consolidated balance sheets, which are reasonable estimates of their fair value due to their short-term nature. Forward currency contracts are
valued based on observable market transactions of forward currency prices and spot currency rates as of the reporting date. The fair value of cross currency contracts is determined using discounted
cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based
inputs such as interest rates and foreign currency exchange rates. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, such as collateral
postings, thresholds, mutual puts, and guarantees, are incorporated in the fair values to account for potential nonperformance risk. The unfunded deferred compensation liability is primarily subject
to changes in fixed-income investment contracts based on current yields. For accounts receivable and accounts payable, carrying amounts are a reasonable estimate of fair value given their short-term
nature.
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Assets
and liabilities measured at fair value on a recurring basis, as of October 31, 2016 and 2015, respectively, are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
Inputs Considered as:
|
October 31, 2016
|
|
Fair
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ 273,555
|
|
$ 273,555
|
|
$
|
|
$
|
Forward currency contracts
|
|
1,967
|
|
|
|
1,967
|
|
|
Cross currency contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ 275,522
|
|
$ 273,555
|
|
$ 1,967
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Forward currency contracts
|
|
$ 1,765
|
|
$
|
|
$ 1,765
|
|
$
|
Cross currency contracts
|
|
|
|
|
|
|
|
|
Deferred compensation liabilities
|
|
1,149
|
|
|
|
1,149
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$ 2,914
|
|
$
|
|
$ 2,914
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
Inputs Considered as:
|
October 31, 2015
|
|
Fair
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ 126,275
|
|
$ 126,275
|
|
$
|
|
$
|
Forward currency contracts
|
|
3,173
|
|
|
|
3,173
|
|
|
Cross currency contracts
|
|
2,136
|
|
|
|
2,136
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ 131,584
|
|
$ 126,275
|
|
$ 5,309
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Forward currency contracts
|
|
$ 1,711
|
|
$
|
|
$ 1,711
|
|
$
|
Cross currency contracts
|
|
134
|
|
|
|
134
|
|
|
Deferred compensation liabilities
|
|
1,652
|
|
|
|
1,652
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$ 3,497
|
|
$
|
|
$ 3,497
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
company measures certain assets and liabilities at fair value on a non-recurring basis. Assets acquired and liabilities assumed as part of acquisitions are measured at fair value. Refer to
Note 2 for additional information. There were no transfers between Level 1 and Level 2 during the fiscal years ended October 31, 2016 and 2015.
As
of October 31, 2016, the estimated fair value of long-term debt with fixed interest rates was $293,295 compared to its carrying amount of $243,407. As of October 31, 2015, the
estimated fair value of long-term debt with fixed interest rates was $298,541 compared to its carrying amount of $254,452. The fair value is estimated by discounting the projected cash flows using the
rate at which similar amounts of debt could currently be borrowed. Long-term debt is a Level 2 liability in the fair value hierarchy.
|
|
|
16
|
|
RELATED PARTY TRANSACTION
|
On
November 14, 2014, during the first quarter of fiscal 2015, the company acquired substantially all of the assets (excluding accounts receivable) of the BOSS® professional snow
and ice management business of privately held Northern Star Industries, Inc. The purchase price included a cash payment and issuance of an unsecured promissory note in the aggregate principal
amount of $30 million. Under the terms of the note, interest will accrue at the rate of 4.0% per year and principal payments of $10 million each, together with accrued interest, will be
payable on the first, second, and third anniversaries of the closing date of the acquisition, subject to certain conditions. Effective as of the closing of the acquisition on November 14, 2014
and through May 31, 2016, the company employed David J. Brule II, who is also a minority shareholder of Northern Star Industries, Inc., as an executive officer of the company.
On
November 3, 2016, the company entered into an agreement to acquire Regnerbau Calw GmbH, a privately held manufacturer of professional irrigation equipment. The transaction is subject
to customary closing conditions and currently is expected to close during the company's fiscal 2017 first quarter.
On
November 29, 2016 the company entered into amended agreements for its Red Iron joint venture with TCFIF. The purpose of these amendments is, among other things, to: (i) revise the
term of Red Iron from October 31, 2017 to October 31, 2024, subject to two-year extensions thereafter unless either party provides written notice to the other party of non-renewal at
least one year prior to the end of the then-current term; (ii) provide for an additional exclusivity incentive payment by TCFIF to the company; (iii) extend the maturity date of the
revolving credit facility used by Red Iron primarily to finance the acquisition of inventory of products from the company and its affiliates by its distributors and dealers in the United States from
October 31, 2017 to October 31, 2024 and to increase the amount available under such revolving credit facility from $450,000 to $550,000; (iv) refine the calculations related to
the estimated reserve provided for in the Fourth Amended and Restated Program and Repurchase Agreement with respect to the accounts of certain dealers and distributors; (v) adjust the
percentages in the formula used to calculate the amount of the purchase option that Red Iron Holding Corporation has pursuant to the Limited Liability Company Agreement of Red Iron to acquire the
equity interest of TCFIF Joint Venture I, LLC in Red Iron at the end of the applicable term or in certain termination events; (vi) expand the coverage of the Red Iron program to
additional products of the company and its affiliates; and (vii) certain other non-material amendments.
66
Table of Contents
The
company evaluated all subsequent events and concluded that no additional subsequent events have occurred that would require recognition in the financial statements or disclosure in the notes to
the financial statements.
|
|
|
18
|
|
QUARTERLY FINANCIAL DATA
(Unaudited)
|
Summarized
quarterly financial data for fiscal 2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
October 31, 2016
Quarter
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
486,398
|
|
$
|
836,441
|
|
$
|
600,980
|
|
$
|
468,356
|
|
Gross profit
|
|
|
182,654
|
|
|
303,187
|
|
|
216,617
|
|
|
172,137
|
|
Net earnings
|
|
|
39,261
|
|
|
105,681
|
|
|
55,822
|
|
|
30,230
|
|
Basic net earnings per share
1,2
|
|
|
0.36
|
|
|
0.96
|
|
|
0.51
|
|
|
0.28
|
|
Diluted net earnings per share
1,2
|
|
|
0.35
|
|
|
0.94
|
|
|
0.50
|
|
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
October 31, 2015
Quarter
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
474,211
|
|
$
|
826,242
|
|
$
|
609,615
|
|
$
|
480,807
|
|
Gross profit
|
|
|
168,999
|
|
|
281,972
|
|
|
216,390
|
|
|
168,574
|
|
Net earnings
|
|
|
30,950
|
|
|
93,763
|
|
|
53,324
|
|
|
23,554
|
|
Basic net earnings per share
1,2
|
|
|
0.28
|
|
|
0.84
|
|
|
0.48
|
|
|
0.21
|
|
Diluted net earnings per share
1,2
|
|
|
0.27
|
|
|
0.82
|
|
|
0.47
|
|
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
1
-
Net earnings per share amounts do not equal the full year total due to changes in the number
of shares outstanding during the periods and rounding.
-
2
-
Per share data has been adjusted for all periods presented to reflect a two-for-one stock
split effective September 16, 2016.
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Table of Contents