(Commission File Number) (I.R.S. Employer Identification Number) (Do not check if a smaller reporting company) Three Months Ended January 29, January 30, 2016 2015 Net sales $ 486,398 $ 474,211 Cost of sales 303,744 305,212 Gross profit 182,654 168,999 Selling, general, and administrative expense 128,815 124,577 Operating earnings 53,839 44,422 Interest expense (4,654 ) (4,716 ) Other income, net 4,512 2,267 Earnings before income taxes 53,697 41,973 Provision for income taxes 14,436 11,023 Net earnings $ 39,261 $ 30,950 Basic net earnings per share of common stock $ 0.71 $ 0.55 Diluted net earnings per share of common stock $ 0.70 $ 0.54 Weighted-average number of shares of common stock outstanding — Basic 55,014 56,043 Weighted-average number of shares of common stock outstanding — Diluted 56,163 57,242 Three Months Ended January 29, January 30, 2016 2015 Net earnings $ 39,261 $ 30,950 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments (4,791 ) (8,126 ) Derivative instruments, net of tax of $338 and $2,450, respectively (1,059 ) 2,778 Other comprehensive loss (5,850 ) (5,348 ) Comprehensive income $ 33,411 $ 25,602 Condensed Consolidated Financial Statements. January 29, January 30, October 31, 2016 2015 2015 ASSETS Cash and cash equivalents $ 118,140 $ 82,914 $ 126,275 Receivables, net 190,297 205,287 177,013 Inventories, net 422,036 364,390 334,514 Prepaid expenses and other current assets 36,983 41,084 34,782 Deferred income taxes 37,633 40,414 38,095 Total current assets 805,089 734,089 710,679 Property, plant, and equipment 811,222 777,116 804,598 Less accumulated depreciation 589,699 562,333 579,603 221,523 214,783 224,995 Long-term deferred income taxes 28,367 25,629 28,568 Other assets 27,510 24,029 24,873 Goodwill 195,222 194,934 195,533 Other intangible assets, net 116,123 128,704 119,010 Total assets $ 1,393,834 $ 1,322,168 $ 1,303,658 LIABILITIES AND STOCKHOLDERS’ EQUITY Current portion of long-term debt $ 23,398 $ 20,340 $ 23,134 Short-term debt 52,912 47,000 222 Accounts payable 211,216 195,569 152,017 Accrued liabilities 262,888 245,299 268,361 Total current liabilities 550,414 508,208 443,734 Long-term debt, less current portion 341,127 364,662 354,818 Deferred revenue 11,246 10,812 11,365 Other long-term liabilities 31,118 24,646 31,576 Stockholders’ equity: Preferred stock, par value $1.00 per share, authorized 1,000,000 voting and 850,000 non-voting shares, none issued and outstanding — — — Common stock, par value $1.00 per share, authorized 175,000,000 shares; issued and outstanding 54,482,554 shares as of January 29, 2016, 55,646,389 shares as of January 30, 2015, and 54,650,916 shares as of October 31, 2015 54,483 55,646 54,651 Retained earnings 441,139 379,247 437,357 Accumulated other comprehensive loss (35,693 ) (21,053 ) (29,843 ) Total stockholders’ equity 459,929 413,840 462,165 Total liabilities and stockholders’ equity $ 1,393,834 $ 1,322,168 $ 1,303,658 Condensed Consolidated Financial Statements. Three Months Ended January 29, January 30, 2016 2015 Cash flows from operating activities: Net earnings $ 39,261 $ 30,950 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Non-cash income from finance affiliate (1,878 ) (1,460 ) Provision for depreciation and amortization, and impairment loss 15,741 14,849 Stock-based compensation expense 2,477 2,684 Increase in deferred income taxes — (152 ) Other (464 ) (21 ) Changes in operating assets and liabilities, net of effect of acquisitions: Receivables, net (12,614 ) (50,390 ) Inventories, net (92,918 ) (80,283 ) Prepaid expenses and other assets (4,584 ) (4,745 ) Accounts payable, accrued liabilities, deferred revenue, and other long-term liabilities 56,219 65,177 Net cash provided by (used in) operating activities 1,240 (23,391 ) Cash flows from investing activities: Purchases of property, plant, and equipment (10,680 ) (10,099 ) Proceeds from asset disposals 60 23 Distributions from (contributions to) finance affiliate, net 765 (385 ) Proceeds from sale of a business 1,500 — Acquisition, net of cash acquired — (197,782 ) Net cash used in investing activities (8,355 ) (208,243 ) Cash flows from financing activities: Increase in short-term debt 51,789 25,717 Repayments of long-term debt (13,442 ) (130 ) Excess tax benefits from stock-based awards 3,362 3,140 Proceeds from exercise of stock options 2,495 2,379 Purchases of Toro common stock (27,485 ) (14,678 ) Dividends paid on Toro common stock (16,496 ) (14,014 ) Net cash provided by financing activities 223 2,414 Effect of exchange rates on cash and cash equivalents (1,243 ) (2,739 ) Net decrease in cash and cash equivalents (8,135 ) (231,959 ) Cash and cash equivalents as of the beginning of the fiscal period 126,275 314,873 Cash and cash equivalents as of the end of the fiscal period $ 118,140 $ 82,914 Supplemental disclosure of cash flow information: Debt issued in connection with an acquisition $ — $ 31,161 Condensed Consolidated Financial Statements. 2017. Fiscal 2016 Fiscal 2015 Expected life of option in years 5.98 5.94 Expected stock price volatility 24.06% 29.66% Risk-free interest rate 1.81% 1.61% Expected dividend yield 1.24% 1.29% Grant date per share weighted-average fair value $17.58 $16.81 periods: Three Months Ended January 29, January 30, (Shares in thousands) 2016 2015 Basic Weighted-average number of shares of common stock 54,977 55,997 Assumed issuance of contingent shares 37 46 Weighted-average number of shares of common stock and assumed issuance of contingent shares 55,014 56,043 Diluted Weighted-average number of shares of common stock and assumed issuance of contingent shares 55,014 56,043 Effect of dilutive securities 1,149 1,199 Weighted-average number of shares of common stock, assumed issuance of contingent shares, and effect of dilutive securities 56,163 57,242 January 29, January 30, October 31, (Dollars in thousands) 2016 2015 2015 Raw materials and work in process $ 115,373 $ 123,677 $ 107,086 Finished goods and service parts 370,703 308,208 291,468 Total FIFO value 486,076 431,885 398,554 Less: adjustment to LIFO value 64,040 67,495 64,040 Total $ 422,036 $ 364,390 $ 334,514 Professional Residential (Dollars in thousands) Segment Segment Total Balance as of October 31, 2015 $ 184,766 $ 10,767 $ 195,533 Translation adjustments (168 ) (143 ) (311 ) Balance as of January 29, 2016 $ 184,598 $ 10,624 $ 195,222 (Dollars in thousands) Weighted-average Gross Carrying Accumulated Net Patents 9.9 $ 15,167 $ (10,334 ) $ 4,833 Non-compete agreements 5.5 6,901 (6,326 ) 575 Customer-related 19.1 84,502 (11,346 ) 73,156 Developed technology 7.6 28,739 (21,300 ) 7,439 Trade names 19.2 28,715 (3,215 ) 25,500 Other 800 (800 ) — Total amortizable 164,824 (53,321 ) 111,503 Non-amortizable - trade names 4,620 — 4,620 Total other intangible assets, net $ 169,444 $ (53,321 ) $ 116,123 October 31, 2015 Weighted-average Gross Carrying Accumulated Net Patents 9.9 $ 15,191 $ (10,175 ) $ 5,016 Non-compete agreements 5.5 6,922 (6,206 ) 716 Customer-related 19.1 84,599 (10,316 ) 74,283 Developed technology 7.6 28,804 (20,530 ) 8,274 Trade names 19.2 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 Three Months Ended January 29, January 30, (Dollars in thousands) 2016 2015 Beginning balance $ 70,734 $ 71,080 Warranty provisions 8,940 8,420 Warranty claims (8,527 ) (8,572 ) Addition from an acquisition — 786 Ending balance $ 71,147 $ 71,714 (Dollars in thousands) Three months ended January 29, 2016 Professional Residential Other Total Net sales $ 338,836 $ 144,284 $ 3,278 $ 486,398 Intersegment gross sales 5,717 68 (5,785 ) — Earnings (loss) before income taxes 61,592 16,739 (24,634 ) 53,697 Total assets 854,106 263,407 276,321 1,393,834 Three months ended January 30, 2015 Professional Residential Other Total Net sales $ 339,706 $ 134,743 $ (238 ) $ 474,211 Intersegment gross sales 10,520 84 (10,604 ) — Earnings (loss) before income taxes 55,659 13,727 (27,413 ) 41,973 Total assets 866,760 214,652 240,756 1,322,168 Three Months Ended January 29, January 30, (Dollars in thousands) 2016 2015 Corporate expenses $ (24,783 ) $ (21,970 ) Interest expense (4,654 ) (4,716 ) Other 4,803 (727 ) Total $ (24,634 ) $ (27,413 ) January 29, January 30, October 31, (Dollars in thousands) 2016 2015 2015 Foreign currency translation adjustments $ 29,393 $ 20,818 $ 24,328 Pension and postretirement benefits 5,112 5,110 5,386 Derivative instruments 1,188 (4,875 ) 129 Total accumulated other comprehensive loss $ 35,693 $ 21,053 $ 29,843 (Dollars in thousands) Foreign Pension and Cash Flow Total Balance as of October 31, 2015 $ 24,328 $ 5,386 $ 129 $ 29,843 Other comprehensive loss before reclassifications 5,065 (274 ) 165 4,956 Amounts reclassified from AOCL — — 894 894 Net current period other comprehensive loss (income) $ 5,065 $ (274 ) $ 1,059 $ 5,850 Balance as of January 29, 2016 $ 29,393 $ 5,112 $ 1,188 $ 35,693 (Dollars in thousands) Foreign Pension and Cash Flow Total Balance as of October 31, 2014 $ 12,536 $ 5,266 $ (2,097 ) $ 15,705 Other comprehensive loss before reclassifications 8,282 (156 ) (4,456 ) 3,670 Amounts reclassified from AOCL — — 1,678 1,678 Net current period other comprehensive loss (income) $ 8,282 $ (156 ) $ (2,778 ) $ 5,348 Balance as of January 30, 2015 $ 20,818 $ 5,110 $ (4,875 ) $ 21,053 Asset Derivatives Liability Derivatives January 29, 2016 January 30, 2015 January 29, 2016 January 30, 2015 Balance Balance Balance Balance Sheet Fair Sheet Fair Sheet Fair Sheet Fair (Dollars in thousands) Location Value Location Value Location Value Location Value Derivatives Designated as Hedging Instruments Forward currency contracts Prepaid expenses $ 3,393 Prepaid expenses $ 9,125 Accrued liabilities $ 2,967 Accrued liabilities $ — Cross currency contract Prepaid expenses 142 Prepaid expenses — Accrued liabilities — Accrued liabilities 440 Derivatives Not Designated as Hedging Instruments Forward currency contracts Prepaid expenses 1,347 Prepaid expenses 4,901 Accrued liabilities 235 Accrued liabilities — Cross currency contract Prepaid expenses 2,218 Prepaid expenses 1,930 Accrued liabilities — Accrued liabilities — Total Derivatives $ 7,100 $ 15,956 $ 3,202 $ 440 Location of Gain (Loss) Gain (Loss) Location of Gain Recognized in Income Recognized in Income Gain (Loss) (Loss) Reclassified Gain (Loss) on Derivatives on Derivatives Recognized in OCI on from AOCL Reclassified from (Ineffective Portion (Ineffective Portion and Derivatives into Income AOCL into Income and excluded from Excluded from (Effective Portion) (Effective Portion) (Effective Portion) Effectiveness Testing) Effectiveness Testing) (Dollars in thousands) January 29, January 30, January 29, January 30, January 29, January 30, For the three months ended 2016 2015 2016 2015 2016 2015 Forward currency contracts $ 565 $ 4,178 Net sales $ 1,080 $ 2,004 Other income, net $ (12 ) $ 227 Forward currency contracts (1,659 ) (1,384 ) Cost of sales (314 ) (313 ) Cross currency contracts 34 (18 ) Other income, net 128 (13 ) Total $ (1,060 ) $ 2,776 $ 894 $ 1,678 Gain (Loss) Recognized in Net Earnings Three Months Ended Location of Gain (Loss) January 29, January 30, (Dollars in thousands) Recognized in Net Earnings 2016 2015 Forward currency contracts Other income, net $ 1,337 $ 8,261 Cross currency contracts Other income, net 130 1,135 $ 1,467 $ 9,396 Assets Liabilities Gross Amounts Gross Liabilities Net Amounts Gross Amounts Gross Assets Net Amounts of (Dollars in thousands) of Recognized Offset in the of Assets Presented of Recognized offset in the Liabilities Presented January 29, 2016 Assets Balance Sheet in the Balance Sheet Liabilities Balance Sheet in the Balance Sheet Forward currency contracts $ 4,740 $ — $ 4,740 $ (3,202 ) $ — $ (3,202 ) Cross currency contracts 2,360 — 2,360 — — — $ 7,100 $ — $ 7,100 $ (3,202 ) $ — $ (3,202 ) Assets Liabilities Gross Amounts Gross Liabilities Net Amounts Gross Amounts Gross Assets Net Amounts of (Dollars in thousands) of Recognized Offset in the of Assets Presented of Recognized offset in the Liabilities Presented January 30, 2015 Assets Balance Sheet in the Balance Sheet Liabilities Balance Sheet in the Balance Sheet Forward currency contracts $ 15,781 $ (1,755 ) $ 14,026 $ — $ — $ — Cross currency contracts 1,930 — 1,930 (440 ) — (440 ) $ 17,711 $ (1,755 ) $ 15,956 $ (440 ) $ — $ (440 ) (Dollars in thousands) January 29, 2016 Fair Value Level 1 Level 2 Level 3 Assets: Cash and cash equivalents $ 118,140 $ 118,140 $ — — Forward currency contracts 4,740 — 4,740 — Cross currency contracts 2,360 — 2,360 — Total assets $ 125,240 $ 118,140 $ 7,100 — Liabilities: Forward currency contracts $ 3,202 — $ 3,202 — Deferred compensation liabilities 1,524 — 1,524 — Total liabilities $ 4,726 — $ 4,726 — January 30, 2015 Fair Value Level 1 Level 2 Level 3 Assets: Cash and cash equivalents $ 82,914 $ 82,914 $ — — Forward currency contracts 14,026 — 14,026 — Cross currency contracts 1,930 — 1,930 Total assets $ 98,870 $ 82,914 $ 15,956 — Liabilities: Cross currency contracts $ 440 — $ 440 — Deferred compensation liabilities 2,016 — 2,016 — Total liabilities $ 2,456 — $ 2,456 — 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 — 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 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. — Subsequent Events reflect a two-for-one stock split effective September 16, 2016. points for the first quarter comparison. 2016. we move into our key selling season. a percentage of net sales to Three Months Ended January 29, January 30, 2016 2015 Net sales 100.0 % 100.0 % Cost of sales (62.4 ) (64.4 ) Gross margin 37.6 35.6 SG&A expense (26.5 ) (26.2 ) Operating earnings 11.1 9.4 Interest expense (1.0 ) (1.0 ) Other income, net 1.0 0.4 Provision for income taxes (3.0 ) (2.3 ) Net earnings 8.1 % 6.5 % net sales: productivity improvements and segment mix. sales volumes. $0.2 million. company in the first quarter of fiscal 2016. 2017 net earnings per diluted share were benefited by approximately $0.01 per share. Three Months Ended January 29, January 30, (Dollars in thousands) 2016 2015 $ Change % Change Professional $ 338,836 $ 339,706 $ (870 ) (0.3 )% Residential 144,284 134,743 9,541 7.1 Other 3,278 (238 ) 3,516 NM Total* $ 486,398 $ 474,211 $ 12,187 2.6 % * Includes international sales of: $ 127,246 $ 142,901 $ (15,655 ) (11.0 )% Three Months Ended January 29, January 30, (Dollars in thousands) 2016 2015 $ Change % Change Professional $ 61,592 $ 55,659 $ 5,933 10.7 % Residential 16,739 13,727 3,012 21.9 Other (24,634 ) (27,413 ) 2,779 10.1 Total $ 53,697 $ 41,973 $ 11,724 27.9 % Segment commodity prices. Segment commodity prices. Segment 29, 2016. We calculate our average net working capital as net receivables plus net inventories, less accounts payable for a twelve month period as percentage of rolling twelve month net sales. As of February 3, 2017, cash and short-term investments held by our foreign subsidiaries was approximately $98.4 million. 2016. borrowings. May 1, 2037, on the new effective date. The guidance permits the use of either a statements or do not apply to our operations. Euro, including exposure as a result of the volatility and uncertainty that may arise as a result of the United Kingdom’s process for exiting the European Union. Dollars in thousands Average Notional Value in Fair Value Buy US dollar/Sell Australian dollar 0.7163 $ 44,461.2 $ 1,038.4 $ 937.5 Buy US dollar/Sell Canadian dollar 1.3304 15,145.3 905.3 17.7 Buy US dollar/Sell Euro 1.1186 86,326.2 1,171.8 1,177.9 Buy US dollar/Sell British pound 1.4453 25,437.9 633.7 443.6 Buy Euro/Sell US dollar 1.0894 7,802.2 — 2,217.6 Buy Mexican peso/Sell US dollar 16.5241 21,967.9 (3,216.6 ) (665.5 ) Buy Euro/Sell Romanian New Leu 4.5411 9,260.0 (221.1 ) (141.7 ) reporting that occurred during our Period Total Number of Average Total Number of Maximum Number November 1, 2015 through November 27, 2015 — $ — — 1,159,314 November 28, 2015 through January 1, 2016 172,971 76.06 172,971 4,986,343 January 2, 2016 through January 29, 2016 205,289 68.47 203,870 4,782,473 Total 378,260 $ 71.94 376,841 Exhibit No. Restated Certificate of Incorporation of The Toro Company (incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated June 17, 2008, Commission File No. 1-8649). 3.2 and 4.2 Certificate of Amendment to Restated Certificate of Incorporation of The Toro Company (incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated March 3.3 and 4.3 Amended and Restated Bylaws of The Toro Company (incorporated by reference to Exhibit 4.4 Specimen Form of Common Stock Certificate (incorporated by reference to Exhibit 4(c) to Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 1, 2008, Commission File No. 1-8649). 4.5 Indenture dated as of January 31, 1997, between Registrant and First National Trust Association, as Trustee, relating to The Toro Company’s 7.80% Debentures due June 15, 2027 (incorporated by reference to Exhibit 4(a) to Registrant’s Current Report on Form 8-K dated June 24, 1997, Commission File No. 1-8649). 4.6 Indenture dated as of April 20, 2007, between Registrant and The Bank of New York Trust Company, N.A., as Trustee, relating to The Toro Company’s 6.625% Notes due May 1, 2037 (incorporated by reference to Exhibit 4.3 to Registrant’s Registration Statement on Form S-3 filed with the Securities and Exchange Commission on April 23, 2007, Registration No. 333-142282). 4.7 First Supplemental Indenture dated as of April 26, 2007, between Registrant and The Bank of New York Trust Company, N.A., as Trustee, relating to The Toro Company’s 6.625% Notes due May 1, 2037 (incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated April 23, 2007, Commission File No. 1-8649). 4.8 Form of The Toro Company 6.625% Note due May 1, 2037 (incorporated by reference to Exhibit 4.2 to Registrant’s Current Report on Form 8-K dated April 23, 2007, Commission File No. 1-8649). The Toro Company Amended and Restated 2010 Equity and Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.1 to Registrant’s Annual Report on Form 10-K for the fiscal year ended October 31, 2016, Commission File No. 1-8649). 31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002) (filed herewith). 32 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). /s/ Renee J. Peterson and Chief Financial OfficerxQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934January 29, 2016February 3, 2017Delaware1-864941-0580470Delaware 1-8649 41-0580470 (State of Incorporation) number:Number: (952) 888-8801xý No oxý No oxýFebruary 23, 2016March 1, 2017 was 54,451,695.107,582,096.Item Three Months Ended February 3,
2017 January 29,
2016Net sales $ 515,839 $ 486,398 Cost of sales 322,359 303,744 Gross profit 193,480 182,654 Selling, general, and administrative expense 132,910 128,815 Operating earnings 60,570 53,839 Interest expense (4,883 ) (4,654 ) Other income, net 3,866 4,512 Earnings before income taxes 59,553 53,697 Provision for income taxes 14,563 14,436 Net earnings 44,990 39,261 Basic net earnings per share of common stock $ 0.41 $ 0.36 Diluted net earnings per share of common stock $ 0.41 $ 0.35 Weighted-average number of shares of common stock outstanding — Basic 108,627 110,029 Weighted-average number of shares of common stock outstanding — Diluted 110,774 112,326 Three Months Ended February 3,
2017 January 29,
2016Net earnings $ 44,990 $ 39,261 Other comprehensive income (loss) , net of tax: Foreign currency translation adjustments 117 (4,791 ) Derivative instruments, net of tax of $285 and $338, respectively 221 (1,059 ) Other comprehensive income (loss) 338 (5,850 ) Comprehensive income $ 45,328 $ 33,411 notesNotes to condensed consolidated financial statements. February 3,
2017 January 29,
2016 October 31,
2016ASSETS �� Cash and cash equivalents $ 158,893 $ 118,140 $ 273,555 Receivables, net 183,850 190,297 163,265 Inventories, net 402,103 422,036 307,034 Prepaid expenses and other current assets 36,470 36,983 35,155 Total current assets 781,316 767,456 779,009 Property, plant, and equipment, gross 855,826 811,222 838,036 Less accumulated depreciation 628,909 589,699 615,998 Property, plant, and equipment, net 226,917 221,523 222,038 Long-term deferred income taxes 56,864 66,000 57,228 Other assets 25,788 24,352 23,422 Goodwill 201,246 195,222 194,782 Other intangible assets, net 110,782 116,123 108,093 Total assets $ 1,402,913 $ 1,390,676 $ 1,384,572 LIABILITIES AND STOCKHOLDERS’ EQUITY Current portion of long-term debt $ 22,960 $ 23,398 $ 22,484 Short-term debt — 52,912 — Accounts payable 232,440 211,216 174,668 Accrued liabilities 263,724 262,888 266,687 Total current liabilities 519,124 550,414 463,839 Long-term debt, less current portion 315,314 337,969 328,477 Deferred revenue 25,172 11,246 11,830 Other long-term liabilities 30,267 31,118 30,391 Stockholders’ equity: Preferred stock, par value $1.00 per share, authorized 1,000,000 voting and 850,000 non-voting shares, none issued and outstanding — — — Common stock, par value $1.00 per share, authorized 175,000,000 shares; issued and outstanding 107,575,440 shares as of February 3, 2017, 108,965,108 shares as of January 29, 2016, and 108,427,393 shares as of October 31, 2016 107,575 108,965 108,427 Retained earnings 443,559 386,657 480,044 Accumulated other comprehensive loss (38,098 ) (35,693 ) (38,436 ) Total stockholders’ equity 513,036 459,929 550,035 Total liabilities and stockholders’ equity $ 1,402,913 $ 1,390,676 $ 1,384,572 notesNotes to condensed consolidated financial statements. Three Months Ended February 3,
2017 January 29,
2016Cash flows from operating activities: Net earnings $ 44,990 $ 39,261 Adjustments to reconcile net earnings to net cash provided by operating activities: Non-cash income from finance affiliate (1,943 ) (1,878 ) Provision for depreciation, amortization, and impairment loss 16,516 15,741 Stock-based compensation expense 3,618 2,477 Decrease in deferred income taxes 393 — Other (98 ) (464 ) Changes in operating assets and liabilities, net of effect of acquisitions: Receivables, net (19,380 ) (12,614 ) Inventories, net (90,560 ) (92,918 ) Prepaid expenses and other assets (4,272 ) (4,655 ) Accounts payable, accrued liabilities, deferred revenue, and other long-term liabilities 66,128 59,581 Net cash provided by operating activities 15,392 4,531 Cash flows from investing activities: Purchases of property, plant, and equipment (11,620 ) (10,680 ) Proceeds from asset disposals — 60 Distributions from finance affiliate, net (98 ) 765 Proceeds from sale of a business — 1,500 Acquisition, net of cash acquired (23,882 ) — Net cash (used in) investing activities (35,600 ) (8,355 ) Cash flows from financing activities: Increase in short-term debt — 51,789 Repayments of long-term debt (12,702 ) (13,371 ) Proceeds from exercise of stock options 3,128 2,495 Purchases of Toro common stock (67,718 ) (27,485 ) Dividends paid on Toro common stock (18,994 ) (16,496 ) Net cash (used in) financing activities (96,286 ) (3,068 ) Effect of exchange rates on cash and cash equivalents 1,832 (1,243 ) Net (decrease) in cash and cash equivalents (114,662 ) (8,135 ) Cash and cash equivalents as of the beginning of the fiscal period 273,555 126,275 Cash and cash equivalents as of the end of the fiscal period $ 158,893 $ 118,140 notesNotes to condensed consolidated financial statements.January 29, 2016February 3, 2017, cannot be annualized to determine the expected results for the fiscal year ending October 31, 2016.2015.2016. The policies described in that report are used for preparing quarterly reports.promotionspromotion and incentivesincentive accruals, incentive compensation accruals, inventory valuation, warranty reserves, earn-out 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.DivestitureIn April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-03, On November 27, 2015,Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This amended guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability. This amended guidance was retrospectively adopted in the first quarter of fiscal 2017. Prior periods have been retrospectively adjusted for the adoption of this amended guidance and are reclassified in the consolidated balance sheets presentation as a direct deduction from the carrying amount of the related debt liability. The adoption of this guidance did not have a material impact on the company's consolidated financial statements.saleacquisition of its Northwestern U.S. distribution company.all the outstanding shares of Regnerbau Calw GmbH (Perrot), a privately held manufacturer of professional irrigation equipment. The divestitureaddition of these products broadens and strengthens the company's irrigation solutions for the sport, agricultural, and industrial markets. The acquisition was funded with existing foreign cash and cash equivalents.materialyet finalized the purchase accounting for the acquisition, but expects to finalize such purchase accounting in fiscal 2017. This acquisition was immaterial based on the company’scompany's consolidated financial condition and results of operations. February 3,
2017 January 29,
2016 October 31,
2016(Dollars in thousands) Raw materials and work in process $ 107,170 $ 115,373 $ 90,463 Finished goods and service parts 353,290 370,703 274,929 Total FIFO value 460,460 486,076 365,392 Less: adjustment to LIFO value 58,357 64,040 58,358 Total inventories, net $ 402,103 $ 422,036 $ 307,034 (Dollars in thousands) Professional Segment Residential Segment Total Balance as of October 31, 2016 $ 184,338 $ 10,444 $ 194,782 Goodwill acquired 6,151 — 6,151 Translation adjustments 268 45 313 Balance as of February 3, 2017 $ 190,757 $ 10,489 $ 201,246 (Dollars in thousands) Gross Carrying Amount Accumulated Amortization Net Patents $ 15,142 $ (11,040 ) $ 4,102 Non-compete agreements 6,879 (6,742 ) 137 Customer-related 87,285 (15,517 ) 71,768 Developed technology 30,058 (24,519 ) 5,539 Trade names 29,469 (4,575 ) 24,894 Other 800 (800 ) — Total amortizable 169,633 (63,193 ) 106,440 Non-amortizable - trade names 4,342 — 4,342 Total other intangible assets, net $ 173,975 $ (63,193 ) $ 110,782 (Dollars in thousands) Gross Carrying Amount Accumulated Amortization Net Patents $ 15,151 $ (10,866 ) $ 4,285 Non-compete agreements 6,886 (6,681 ) 205 Customer-related 84,353 (14,434 ) 69,919 Developed technology 28,648 (23,712 ) 4,936 Trade names 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 February 3,
2017 January 29,
2016 October 31,
2016(Dollars in thousands) Foreign currency translation adjustments $ 31,177 $ 29,393 $ 31,430 Pension and post-retirement benefits 6,495 5,112 6,359 Derivative instruments 426 1,188 647 Total accumulated other comprehensive loss $ 38,098 $ 35,693 $ 38,436 (Dollars in thousands) Total Balance as of October 31, 2016 $ 31,430 $ 6,359 $ 647 $ 38,436 Other comprehensive loss (income) before reclassifications (253 ) 136 102 (15 ) Amounts reclassified from AOCL — — (323 ) (323 ) Net current period other comprehensive loss (income) (253 ) 136 (221 ) (338 ) Balance as of February 3, 2017 $ 31,177 $ 6,495 $ 426 $ 38,098 (Dollars in thousands) Total Balance as of October 31, 2015 $ 24,328 $ 5,386 $ 129 $ 29,843 Other comprehensive loss (income) before reclassifications 5,065 (274 ) 165 4,956 Amounts reclassified from AOCL — — 894 894 Net current period other comprehensive loss (income) 5,065 (274 ) 1,059 5,850 Balance as of January 29, 2016 $ 29,393 $ 5,112 $ 1,188 $ 35,693 periods. Fiscal 2017 Fiscal 2016 Expected life of option in years 6.02 5.98 Expected stock price volatility 22.15% 24.06% Risk-free interest rate 2.03% 1.81% Expected dividend yield 1.01% 1.24% Weighted-average fair value at date of grant $12.55 $8.79 Thequarterthree months of each of fiscal 2017 and 2016 was $54.52 and 2015 was $77.77 and $65.68,$38.89, respectively.and restricted stock unit awards granted during the first quarterthree months of fiscal 2017 and 2016 was $56.67 and 2015 was $77.24 and $62.62,$38.62, respectively. Three Months Ended February 3,
2017 January 29,
2016(Shares in thousands) Basic Weighted-average number of shares of common stock 108,585 109,955 Assumed issuance of contingent shares 42 74 Weighted-average number of shares of common stock and assumed issuance of contingent shares 108,627 110,029 Diluted Weighted-average number of shares of common stock and assumed issuance of contingent shares 108,627 110,029 Effect of dilutive securities 2,147 2,297 Weighted-average number of shares of common stock, assumed issuance of contingent shares, and effect of dilutive securities 110,774 112,326 restricted stock, and restricted stock units are computed by the treasury stock method. Options to purchase 199,281317,757 and 198,770398,562 shares of common stock during the first quarterthree months of fiscal 20162017 and 2015,2016, respectively, were excluded from the computation of diluted net earnings per share because they were anti-dilutive.InventoriesInventories are valued at the lower of cost or net realizable value, with cost determined by the last-in, first-out (“LIFO”) method for most inventories and first-in, first-out (“FIFO”) method for all other inventories. 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 the planned production, as well as planned and historical sales of the inventory.Inventories were as follows:GoodwillThe changes in the net carrying amount of goodwill for the first quarter of fiscal 2016 were as follows:Other Intangible AssetsThe components of other intangible assets were as follows:
January 29, 2016
Life (Years)
Amount
Amortization
Life (Years)
Amount
AmortizationAmortization expense for intangible assets during the first quarter of fiscal 2016 was $3.2 million. Estimated amortization expense for the remainder of fiscal 2016 and succeeding fiscal years is as follows: fiscal 2016 (remainder), $7.7 million; fiscal 2017, $9.5 million; fiscal 2018, $7.4 million; fiscal 2019, $6.6 million; fiscal 2020, $6.0 million; fiscal 2021, $5.6 million; and after fiscal 2021, $68.7 million.Investment in Joint VentureIn 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 provides inventory financing, including floor plan and open account receivable financing, to distributors and dealers of the company’s products in the U.S. and to select distributors of the company’s products in Canada. The initial term of Red Iron will continue until October 31, 2017, subject to unlimited automatic two-year extensions thereafter. Either the company or TCFIF may elect not to extend the initial term or any subsequent term by giving one-year notice to the other party. 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. Each of the company and TCFIF 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. Red Iron borrows the remaining requisite estimated cash utilizing a $450 million secured revolving credit facility established under a credit agreement between Red Iron and TCFIF. The company’s total investment in Red Iron as of January 29, 2016 was $20.1 million. The company has not guaranteed the outstanding indebtedness of Red Iron. The company has agreed to repurchase products repossessed by Red Iron and the TCFIF Canadian affiliate, up to a maximum aggregate amount of $7.5 million in a calendar year. In addition, the company has provided recourse to Red Iron for certain outstanding receivables, which amounted to a maximum amount of $0.6 million as of January 29, 2016.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 new receivables financed for dealers and distributors under this arrangement for the three months ended January 29, 2016 and January 30, 2015 was $336.1 million and $239.2 million, respectively.As of January 29, 2016, Red Iron’s total assets were $399.4 million and total liabilities were $354.8 million.Warranty GuaranteesThe company’s products are warranted to ensure customer confidence in design, workmanship, and overall quality. Warranty coverage is for specified periods of time and on select products’ hours of usage, and generally covers parts, labor, and other expenses for non-maintenance repairs. Warranty coverage generally does not cover operator abuse or improper use. An authorized company distributor or dealer must perform warranty work. Distributors and dealers submit claims for warranty reimbursement and are credited for the cost of repairs, labor, and other expenses as long as the repairs meet prescribed standards. Warranty expense is accrued at the time of sale based 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, the historical length of time between the sale and resulting warranty claim, and other minor factors. Special warranty reserves are also accrued for major rework campaigns. The company sells extended warranty coverage on select products for a prescribed period after the factory warranty period expires.Warranty provisions, claims, and changes in estimates for the first quarter of each of fiscal 2016 and 2015 were as follows:ourthe company-owned domestic distributorship, has been combined with the company’s corporate activities and elimination of intersegment revenues and expenses that is shown as “Other” in the following tables due to the insignificance of the segment.(Dollars in thousands) Three months ended February 3, 2017 Professional Residential Other Total Net sales $ 371,809 $ 140,390 $ 3,640 $ 515,839 Intersegment gross sales 4,556 74 (4,630 ) — Earnings (loss) before income taxes 68,166 16,558 (25,171 ) 59,553 Total assets 854,384 243,145 305,384 1,402,913 (Dollars in thousands) Three months ended January 29, 2016 Professional Residential Other Total Net sales $ 338,836 $ 144,284 $ 3,278 $ 486,398 Intersegment gross sales 5,717 68 (5,785 ) — Earnings (loss) before income taxes 61,592 16,739 (24,634 ) 53,697 Total assets 854,106 263,407 273,163 1,390,676 Stockholders’ EquityAccumulated Other Comprehensive LossComponents of accumulated other comprehensive loss (“AOCL”), net of tax, are as follows: Three Months Ended February 3,
2017 January 29,
2016(Dollars in thousands) Corporate expenses $ (23,961 ) $ (24,783 ) Interest expense, net (4,883 ) (4,654 ) Other 3,673 4,803 Total $ (25,171 ) $ (24,634 ) The components and activity of AOCL for the first three months of fiscal 2016 are as follows:
Currency
Translation
Adjustments
Postretirement
Benefits
Derivative
InstrumentsThe components and activity of AOCL for the first three months of fiscal 2015 are as follows:
Currency
Translation
Adjustments
Postretirement
Benefits
Derivative
InstrumentsDerivative Instruments and Hedging ActivitiesThe 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 are recorded in net sales, and foreign plant operations and purchases of suppliers are recorded in cost of sales 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 istwo 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 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 sheet, recognizing future changes in the fair value in other income, net. For the first quarter of fiscal 2016, there were no gains or losses on contracts reclassified into earnings as a result of the discontinuance of cash flow hedges. As of January 29, 2016, the notional amount outstanding of forward contracts designated as cash flow hedges was $131.4 million. Additionally, the company has one cross currency interest rate swap instrument outstanding as of January 29, 2016 for a fixed pay notional of 36.6 million Romanian New Leu and receive floating notional of 8.5 million Euros.Derivatives not designated as hedging instruments. The company also enters into foreign currency contracts that include forward currency contracts and cross currency swaps to mitigate the remeasurement of specific assets and liabilities on the consolidated balance sheet. 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.The following table presents the impact of derivative instruments on the consolidated statements of earnings for the company’s derivatives designated as cash flow hedging instruments for the three months ended January 29, 2016 and January 30, 2015, respectively.As of January 29, 2016, the company expects to reclassify approximately $0.7 million of gains from AOCL to earnings during the next twelve months.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.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:Fair Value MeasurementsThe 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 1Unadjusted 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 ofthe 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.Assets and liabilities measured at fair value on a recurring basis, as of January 29, 2016, January 30, 2015, and October 31, 2015 are summarized below:There were no transfers between Level 1 and Level 2 during the three months ended January 29, 2016, January 30, 2015, or the twelve months ended October 31, 2015.ContingenciesContingencies — Litigation Three Months Ended February 3,
2017 January 29,
2016(Dollars in thousands) Beginning balance $ 72,158 $ 70,734 Warranty provisions 9,615 8,940 Warranty claims (9,794 ) (8,527 ) Changes in estimates 594 — Ending balance $ 72,573 $ 71,147 Related Party TransactionCash flow hedges.On November 14, 2014, during 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 statements 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.2015,2017, there were immaterial losses on forward contracts reclassified into earnings as a result of the discontinuance of cash flow hedges. As of February 3, 2017, the notional amount outstanding of forward contracts designated as cash flow hedges was $104.2 million. Fair Value at Fair Value at Fair Value at (Dollars in thousands) February 3, 2017 January 29, 2016 October 31, 2016 Asset Derivatives Derivatives Designated as Hedging Instruments Prepaid expenses and other current assets Forward currency contracts $ 1,552 $ 3,393 $ 1,535 Cross currency contract — 142 — Derivatives Not Designated as Hedging Instruments Prepaid expenses and other current assets Forward currency contracts 795 1,347 432 Cross currency contract — 2,218 — Total Assets $ 2,347 $ 7,100 $ 1,967 Liability Derivatives Derivatives Designated as Hedging Instruments Accrued liabilities Forward currency contracts $ 1,363 $ 2,967 $ 973 Derivatives Not Designated as Hedging Instruments Accrued liabilities Forward currency contracts 141 235 792 Total Liabilities $ 1,504 $ 3,202 $ 1,765 Effective Portion (Dollars in thousands) February 3,
2017 January 29,
2016 February 3,
2017 January 29,
2016 February 3,
2017 January 29,
2016For the three months ended Forward currency contracts $ (372 ) $ 565 Net sales $ 439 $ 1,080 Other income, net $ 397 $ (12 ) Forward currency contracts (152 ) (1,659 ) Cost of sales (762 ) (314 ) Cross currency contracts — 34 Other income, net — 128 Total derivatives designated as cash flow hedges $ (524 ) $ (1,060 ) Total $ (323 ) $ 894 Total $ 397 $ (12 ) acquiredexpects to reclassify approximately $0.3 million of losses from AOCL to earnings during the next twelve months. Three Months Ended Location of Gain (Loss) February 3,
2017 January 29,
2016(Dollars in thousands) Forward currency contracts Other income, net $ 1,144 $ 1,337 Cross currency contracts Other income, net — 130 Total derivatives not designated as hedges $ 1,144 $ 1,467 (Dollars in thousands) February 3, 2017 January 29, 2016 October 31, 2016 Assets Forward currency contracts Gross Amounts of Recognized Assets $ 2,347 $ 4,740 $ 2,264 Gross Liabilities Offset in the Balance Sheets — — (297 ) Net Amounts of Assets Presented in the Balance Sheets 2,347 4,740 1,967 Cross currency contracts Gross Amounts of Recognized Assets — 2,360 — Net Amounts of Assets Presented in the Balance Sheets — 2,360 — Total Assets $ 2,347 $ 7,100 $ 1,967 Liabilities Forward currency contracts Gross Amounts of Recognized Liabilities $ (1,614 ) $ (3,202 ) $ (1,765 ) Gross Assets Offset in the Balance Sheets 110 — — Net Amounts of Liabilities Presented in the Balance Sheets (1,504 ) (3,202 ) (1,765 ) Total Liabilities $ (1,504 ) $ (3,202 ) $ (1,765 ) allthe full term of the assets (excluding accounts receivable)or liabilities.BOSS® professional snow and ice management businessreporting date. The fair value of privately held Northern Star Industries, Inc. The purchase price included across currency contracts is determined using discounted cash payment and issuanceflow analysis on the expected cash flows of an unsecured promissory note ineach derivative. This analysis reflects the aggregate principal amount of $30 million. Under thecontractual terms of the note,derivatives, including the period to maturity, and uses observable market-based inputs such as interest will accrue atrates and foreign currency exchange rates. In addition, credit valuation adjustments, which consider the rateimpact of 4.0% per yearany credit enhancements to the contracts, such as collateral postings, thresholds, mutual puts, and principal payments of $10 million each, together with accrued interest, will be payable onguarantees, are incorporated in the first, second, and third anniversaries of the closing date of the acquisition,fair values to account for potential nonperformance risk. The unfunded deferred compensation liability is primarily subject to certain conditions. Effectivechanges 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.(Dollars in thousands) Fair Value Measurements Using Inputs Considered as: February 3, 2017 Fair Value Level 1 Level 2 Level 3 Assets: Cash and cash equivalents $ 158,893 $ 158,893 $ — $ — Forward currency contracts 2,347 — 2,347 — Total Assets $ 161,240 $ 158,893 $ 2,347 $ — Liabilities: Forward currency contracts $ 1,504 $ — $ 1,504 $ — Deferred compensation liabilities 1,017 — 1,017 — Total Liabilities $ 2,521 $ — $ 2,521 $ — (Dollars in thousands) Fair Value Measurements Using Inputs Considered as: January 29, 2016 Fair Value Level 1 Level 2 Level 3 Assets: Cash and cash equivalents $ 118,140 $ 118,140 $ — $ — Forward currency contracts 4,740 — 4,740 — Cross currency contracts 2,360 — 2,360 — Total Assets $ 125,240 $ 118,140 $ 7,100 $ — Liabilities: Forward currency contracts $ 3,202 $ — $ 3,202 $ — Deferred compensation liabilities 1,524 — 1,524 — Total Liabilities $ 4,726 $ — $ 4,726 $ — (Dollars in thousands) 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 — Total Assets $ 275,522 $ 273,555 $ 1,967 $ — Liabilities: Forward currency contracts $ 1,765 $ — $ 1,765 $ — Deferred compensation liabilities 1,149 — 1,149 — Total Liabilities $ 2,914 $ — $ 2,914 $ — closing ofthree months ended February 3, 2017 and January 29, 2016, or the acquisition on Novembertwelve months ended October 31, 2016.2014, the company hired David J. Brule II, who is also a minority shareholder of Northern Star Industries, Inc., as an executive officer of the company. During the first quarter of fiscal 2016, the first principal payment of $10 million plus interest was paid in accordance with the terms of the note.NatureCompany Overviewover the Internet. Our businesses are organized into three reportable business segments: Professional, Residential, and Distribution. Our Distribution segment, which consists of our company-owned domestic distributorship, has been combined with our corporate activities and is shown as “Other.” online.This Management’s Discussion Shares and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the MD&A included in Part II, Item 7 of our Annual Report on Form 10-Kper share data have been adjusted for the fiscal year ended October 31, 2015. This discussion contains various “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and we refer readersall periods presented to the section titled “Forward-Looking Information” located at the end of Part I, Item 2 of this report for more information.2016,2017, our net sales were up 2.6increased 6.1 percent with a net earnings increase of 14.6 percent, each as compared to the first quarter of fiscal 2015. Residential2016. Professional segment net sales increased 7.1 percent, driven by strong demand and higher preseason shipments of zero-turn radius riding mowers due to improved product availability. The sales increase in our residential segment was partially offset by lower sales of snow thrower products due to a lack of snow fall in key markets in the first quarter of fiscal 2016, as well as a decline in shipments of walk power mowers. Professional segment net sales decreased slightly by 0.3 percent due to unfavorable foreign currency exchange rates, which was also the main contributing factor for a decline in international sales of golf and grounds equipment for the first quarter comparison. Additionally, BOSS sales decreased due to a lack of snow fall in key markets in the first quarter of fiscal 2016. These decreases were offset by continued growth and demand for our landscape contractor and specialty construction equipment products due primarily to our new and innovative product offerings. Additionally, overall international net sales were down 11.0 percent for the fiscal first quarter comparison mainly due to unfavorable currency exchange rates.Our net earnings increased 26.99.7 percent for the first quarter of fiscal 2016 compared2017, primarily due to new product releases in our landscape contractor business, increased demand for our professional snow and ice management products, along with continued growth in our golf and grounds, micro-irrigation, and specialty construction businesses. Residential segment net sales were down 2.7 percent for the first quarter of fiscal 2015. Our gross margin rate increased 200 basis points, which was2017, primarily due to zero-turn radius riding mowers returning to a more normal shipment pattern, partially offset by an increasehigher demand of residential snow products.3070 basis points. Additionally, an increase in other income contributed to our improvement in net earnings.2016.7 percent to $0.30$0.175 per share compared to the $0.25$0.15 per share quarterly cash dividend paid in the first quarter of fiscal 2015.increased $57.6decreased $19.9 million, or 15.84.7 percent, as of the end of the first quarter of fiscal 2016 compared2017 due primarily to the end ofbetter inventory control initiatives during the first quarter of fiscal 2015 due to higher snow thrower and BOSS inventory levels as a result of unfavorable weather conditions, as well as increased residential segment riding products and landscape contractor inventory due to the timing of production in anticipation of strong demand this fiscal year.2017. Receivables decreased $15.0$6.4 million, or 7.33.4 percent, largely due to additional customers financing receivables with Red Irontiming of sales for the first quarter comparison. Field inventory levels were up slightly as of the end of the first quarter of fiscal 2016 compared to the end of the first quarter of fiscal 2015. Field inventory levels were also up as of the end of the first quarter of fiscal 2016 compared to the end of the first quarter of fiscal 2015 primarily2017, due to higher field inventory levelsstrong demand and anticipated increased sales of residential snow thrower and ridingnew products as well as higher landscape contractor field inventory levels in anticipation of strong retail demand in fiscal 2016.secondfinal year of this three-year initiative, which is intended to help us drive revenue and earnings growth and further improve productivity, while also continuing our century-long commitment to innovation, relationships, and excellence. Through our Destination PRIME initiative, we intend to strive to achieve our goals by pursuing a progression of annual milestones. Our organic revenue growth goal is to achieve five percent or more of organic revenue growth each fiscal year during this initiative. We define organic revenue growth as the increase in net sales, less net sales from acquisitions that occurred in the current fiscal year. Our operating earnings goal is to raise operating earnings as a percentage of net sales to more than 13 percent by the end of fiscal 2017. Additionally, our working capital goal is to drive down average net working capital asless than 13 percent or less by the end of fiscal 2017. We define average net working capital as net accounts receivable plus net inventory less trade payablesaccounts payable as a percentage of net sales for a twelve month period.Net EarningsNet earnings for the first quarter of fiscal 2016 were $39.3 million, or $0.70 per diluted share, compared to $31.0 million, or $0.54 per diluted share, for the first quarter of fiscal 2015, resulting in a net earnings per diluted share increase of 29.6 percent. The primary factors contributing to the net earnings increase included higher net sales, an increase in our gross margin rate, and recovery for a litigation settlement, partially offset by higher SG&A expense. Our fiscal 2016 first quarter diluted net earnings per share were benefited by approximately $0.01 per share compared to fiscal 2015 first quarter diluted net earnings per share as a result of reduced shares outstanding from repurchases of our common stock.The following table summarizes our results of operations as a percentage of our net sales:20162017 were $486.4$515.8 million, up 6.1 percent compared to $474.2$486.4 million in the first quarter of fiscal 2015, an2016. This increase was driven primarily by new product releases of 2.6 percent.Professional segment landscape contractor equipment, favorable snowfalls and icy weather conditions which increased demand of Professional segment snow and ice management products and Residential segment snow thrower products, and continued growth in our golf and grounds, micro-irrigation, and specialty construction businesses. This increase in net sales increasedwas partially offset by 7.1 percentlower Residential segment shipments of zero-turn radius riding mowers, as shipments returned to a more normal pattern in the first quarter of fiscal 2017 compared to the first quarter of fiscal 2015 due to higher preseason shipments of zero-turn radius riding mowers as a result of improved product availability after production delays from supply inefficiencies negatively affected sales in fiscal 2015 and such production delays were not repeated in fiscal 2016. Partially offsetting the residential segment sales increase were lower sales of snow thrower products due to a lack of snow fall during the first quarter of fiscal 2016, a decrease in shipments of walk power mowers, and unfavorable currency exchange rates. Professional segment net sales in the first quarter of fiscal 2016 slightly decreased by 0.3 percent compared to the first quarter of fiscal 2015 due to unfavorable foreign currency exchange rates, which was also the main contributing factor for a decline in international sales of golf and grounds equipment for the first quarter comparison. Additionally, BOSS sales declined due to lower snow falls in key markets in the first quarter of fiscal 2016. However, these decreases were offset by continued growth and demand for our landscape contractor equipment and higher sales of specialty construction equipment driven by strong demand for new products we introduced. Net sales for our other segment were up $3.5 million due to a decrease in sales that are eliminated for shipments to our company-owned distribution companies as a result of the sale of our Northwestern U.S. distribution company early in the first quarter of fiscal 2016. Our overall internationaldown 11.0up 3.1 percent primarily from unfavorable foreign currency exchange rate fluctuations that resulted in a decline of approximately $14 million of our overall net sales for the first quarter of fiscal 2016 compared2017, mainly due to new project wins for our golf business, as well as growth of our micro-irrigation business. This increase was partially offset by unfavorable foreign currency exchange rate fluctuations.first quartermajor operating costs and other income as a percentage of fiscal 2015. Three Months Ended February 3,
2017 January 29,
2016Net sales 100.0 % 100.0 % Cost of sales 62.5 62.4 Gross margin 37.5 37.6 SG&A expense 25.8 26.5 Operating earnings 11.7 11.1 Interest expense (0.9 ) (1.0 ) Other income, net 0.7 0.9 Provision for income taxes 2.8 2.9 Net earnings 8.7 % 8.1 % 2016 increased 2002017 decreased 10 basis points to 37.637.5 percent compared to 35.637.6 percent in the first quarter of fiscal 2015. This increase2016. The decrease for the first quarter fiscal 2017 comparison was primarily attributabledue to the purchase accounting impact of the incremental charge for the sale of inventory that was written-up to fair value related to the acquisition of the BOSS business in fiscal 2015, productivity improvements, lowerunfavorable foreign currency exchange rate fluctuations and higher commodity prices, and improved price realization. These increases were partially offset by unfavorable currency exchange rate fluctuations.2016 increased $4.2 million, or 3.4 percent, compared to the same period last fiscal year.2017. As a percentage of net sales, SG&A expense decreased 70 basis points for the first quarter of fiscal 2017. The decrease as a percentage of net sales increased 30 basis points to 26.5 percent infor the first quarter of fiscal 2016 compared to 26.2 percent in the first quarter of fiscal 2015. This increasecomparison was primarily due to the leveraging of expenses over higher employee incentive compensation expense, increased expenses for advertising, and higher warehousing costs from increased inventory levels.2016 decreased2017 increased slightly by 1.3 percent compared to the first quarter of fiscal 2015 due to repayments of long-term debt.2016 was $4.52017 decreased $0.6 million compared to $2.3 million for the same period last fiscal year, an increase of $2.2 million.year. The increasedecrease for the first quarter comparison was primarily due to a prior year litigation recovery from a litigation settlement, higher earnings from our equity investment in Red Iron, and a gain on the sale of our Northwestern U.S. distribution company.20162017 was 26.924.5 percent compared to 26.326.9 percent in the first quarter of fiscal 2015.2016. The increasedecrease was primarily driven by the adoption of ASU 2016-09 Stock-based Compensation in the first quarter quarter of fiscal 2017, which resulted in a discrete tax ratebenefit of $4.9 million related to stock-based compensation. The favorable impact of this benefit was partially offset by the resultretroactive reenactment of a slightly lower rate benefit from the federaldomestic research tax credit extension year over year dueof $2.3 million in the prior year.higher pre-tax earnings in$39.3 million, or $0.35 per diluted share, for the first quarter of fiscal 2016, as comparedresulting in a net earnings per diluted share increase of 17.1 percent. The primary factors contributing to the net earnings increase for the first quarter comparison included increased net sales, a decrease in our SG&A expense as a percentage of net sales, and a lower effective tax rate. In addition, as a result of reduced shares outstanding from repurchases of our common stock, first quarter fiscal 2015. Three Months Ended (Dollars in thousands) February 3, 2017 January 29, 2016 $ Change % Change Professional $ 371,809 $ 338,836 $ 32,973 9.7 % Residential 140,390 144,284 (3,894 ) (2.7 )% Other 3,640 3,278 362 11.0 % Total* $ 515,839 $ 486,398 $ 29,441 6.1 % * Includes international sales of: $ 131,242 $ 127,246 $ 3,996 3.1 % Three Months Ended (Dollars in thousands) February 3, 2017 January 29, 2016 $ Change % Change Professional $ 68,166 $ 61,592 $ 6,574 10.7 % Residential 16,558 16,739 (181 ) (1.1 )% Other (25,171 ) (24,634 ) (537 ) (2.2 )% Total $ 59,553 $ 53,697 $ 5,856 10.9 % the professionalour Professional segment in the first quarter of fiscal 20162017 increased 9.7 percent. Professional segment net sales were positively impacted by the release of new products in our landscape contractor business, including the Toro-branded TITAN® HD and the Exmark-branded Radius® zero-turn radius riding mowers. We also experienced increased demand for our BOSS® snow and ice management products driven by more favorable snowfalls and icy weather conditions in many of our key markets. Additionally, we saw higher growth in our golf and grounds business with increased shipments of our GTX utility vehicle, as well as the success of our Aqua-Traxx® micro-irrigation tape products with flow control and our specialty construction compact utility loaders. This net sales increase for the first quarter of fiscal 2017 was slightly down 0.3offset by the impact of unfavorable foreign currency exchange rate fluctuations.2015 mainly due2016, and increased slightly to unfavorable foreign currency exchange rates fluctuations, which was also the main contributing factor for18.3 percent as a decline in internationalpercentage of net sales of golf and grounds equipment for the first quarter comparison. Sales of BOSS products decreased for the first quarter of fiscal 2016 compared to the first quarter of fiscal 2015 due to a lack of snow fall in key markets in the first quarter of fiscal 2016. Partially offsetting these negative factors for professional segment net sales for the first quarter comparison were higher sales of landscape contractor equipment due primarily to continued growth and demand for our innovative product offerings and newly introduced products as contractors continued to invest in equipment for the upcoming spring and summer season. Sales of specialty construction equipment products were also up for the first quarter of fiscal 20162017 compared to the same period last fiscal year due primarily to demand for our new product offerings and continued growth of the rental market. Field inventory levels of professional segment products were higher as of the end of the first quarter of fiscal 2016 compared to the end of the first quarter of fiscal 2015 due primarily to strong preseason shipments of landscape contractor equipment in anticipation of retail demand in fiscal 2016.Operating Earnings. Operating earnings for the professional segment were $61.6 million in the first quarter of fiscal 2016 compared to $55.7 million in the first quarter of fiscal 2015, an increase of 10.7 percent. Expressed as a percentage of net sales, professional segment operating margin increased to 18.2 percent in the first quarter of fiscal 2016 compared2016. This increase was primarily due to 16.4 percent in the first quarter of fiscal 2015. These profit increases in operating earnings and margin were drivenleveraging SG&A expenses over higher sales volumes, but was partially offset by higherlower gross margins in the first quarter of fiscal 2016 compared to the same period last fiscal year mainly due to the purchase accounting impact of the incremental charge for the sale of inventory that was written-up to fair value related to the acquisition of the BOSS business in fiscal 2015 that was not repeated this fiscal quarter, productivity improvements, lower commodity prices, and improved price realization, slightly offset by unfavorable foreign currency exchange rate fluctuations. SG&A expense as a percentage of net sales increased due tofluctuations and slightly higher fixed SG&A costs over flat sales volumes.residentialResidential segment in the first quarter of fiscal 2016 were up 7.1 percent compared to2017 decreased 2.7 percent. The sales decrease in the first quarter of fiscal 2015. This sales increasecomparison was primarily attributable to higher preseason shipments ofimpacted by a shift in demand for zero-turn radius riding mowers along with improved product availability after production delays from supply inefficiencies that negatively impacted saleswas experienced in fiscal 2015 and such production delays were not repeated in fiscal 2016. Partially offsetting the increase was lower sales of snow thrower products duecomparable period last year. Demand for zero-turn radius riding mowers returned to a lack of snow fall in key markets during the first quarter of fiscal 2016. Lower shipments of walk power mowers and unfavorable currency exchange rates also dampened the residential segment sales increasemore normal shipment pattern in the first quarter of fiscal 20162017. This decrease in net sales was partially offset by increased demand of our snow products due to more favorable snowfalls across the Midwest and increased shipments of our walk power mowers in southern climates of the U.S, when compared to the same period last fiscalprior year. Field inventory levels of residential segment products were up as of the end of the first quarter of fiscal 2016 compared to the end of the first quarter of fiscal 2015 due to strong preseason demand for zero-turn radius riding mowers from improved product availability and influenced, in part, by last year’s supply inefficiencies, as well as higher inventory levels of snow throwers.Earnings.Earnings. Operating earnings for the residentialResidential segment were $16.7 million in the first quarter of fiscal 2016 compared to $13.7 million in the first quarter of fiscal 2015, an increase of 21.92017 decreased 1.1 percent. Expressed as a percentage of net sales, residentialResidential segment operating marginsearnings increased to 11.8 percent from 11.6 percent inwhen compared to the first quarter of fiscal 2016 compared to 10.2 percent in2016. The operating earnings decrease for the first quarter of fiscal 2015. These increases in operating earnings and margincomparison was primarily driven by higher SG&A expenses, which were primarily attributablepartially offset by higher gross margins. Gross margins increased for the quarter comparison, mainly due to gross profit increases from lower commodity prices and freight costs, slightlyproductivity improvements, partially offset by unfavorable changes in foreign currency exchange rates. Leveraging SG&A costs overrate fluctuations and slightly higher sales volumes also contributed to the improvement in operating earnings and margin for the residential segment.Sales.Sales. Net sales for the otherOther segment include sales from our wholly owned domestic distribution companiescompany less sales from the professionalProfessional and residentialResidential segments to thosethe distribution companies.company. The otherOther segment net sales in the first quarter of fiscal 2017 increased $3.5 millionslightly by $0.4 million.2016 compared to2017 increased $0.5 million. The increase in operating loss for the first quarter of fiscal 2015 due2017 comparison was primarily attributable to a decrease in sales that are eliminated for shipments to our company-owned distribution companies as a result of the sale of our Northwestern U.S. distribution company early in the first quarter of fiscal 2016.Operating Loss. Operating loss for the other segment was down by $2.8 million, or 10.1 percent, for the first quarter of fiscal 2016 compared to the first quarter of fiscal 2015. The lower operating loss was primarily attributable to recovery from a litigation settlement, higher earnings from our equity investment in Red Iron, and a gain on the sale of our Northwestern U.S. distribution company.2016,2017, we plan to place an increasedcontinued emphasis on improving asset utilization with a focus on reducing the amount of working capital in the supply chain, adjusting production plans, and maintaining or improving order replenishmentJanuary 29, 2016February 3, 2017, was 16.415.1 percent compared to 15.516.4 percent for the twelve months ended January 30, 2015.up $57.6down $19.9 million, or 15.84.7 percent, as of the end of the first quarter of fiscal 20162017 compared to the end of the first quarter of fiscal 20152016 due primarily to higher snow throwerinventory control initiatives centered on production management, increased emphasis on finished goods inventory and BOSS inventory levels from unfavorable weather conditions. Residential riding products and landscape contractor equipment inventory levels were also up due primarilyimproved monitoring of product replenishment to the timing of production in anticipation of strong demand this fiscal year.our end users. Receivables as of the end of the first quarter of fiscal 20162017 decreased $15.0$6.4 million, or 7.33.4 percent, compared to the end of the first quarter of fiscal 2015 as a result2016 primarily due to timing of additional customers financing receivablessales for channels not financed with Red Iron. Our average days sales outstanding for receivables decreased to 33.430.8 days based on sales for the last twelve months ended January 29, 2016,February 3, 2017, compared to 34.833.4 days for the twelve months ended January 30, 2015.29, 2016. In addition, accounts payable increased as of the end of our first quarter of fiscal 20162017 compared to the end of the first quarter of fiscal 2015,2016 by $15.6$21.2 million, or 8.010.0 percent, due to working capital initiatives and increased purchases of commodities and components.$0.30$0.175 per share for the first quarter of fiscal 20162017 that was paid on January 11, 2016.12, 2017. This was an increase of 2016.7 percent over our cash dividend of $0.25$0.15 per share for the first quarter of fiscal 2015.Flow.Flow We historically have used more operating cash in the first quarter compared to other fiscal quarters due to the seasonality of our business.. Cash provided by operating activities for the first three months of fiscal 2016 was $1.22017 increased $10.9 million compared to cash used in operating activities in the first three months of fiscal 2015 of $23.4 million, an improvement of $24.6 million.2016. This three month comparison change was mainly due mainly to a decrease in accounts receivable and higher net earnings, partially offset by a higher increase in inventory levelsimproved working capital. Cash used for investing activities increased $27.2 million during the first quarter comparison. Cash used in investing activities for the first quarterthree months of fiscal 2016 decreased $199.9 million2017 compared to the first quarterthree months of fiscal 20152016, primarily due to cash utilized for thean acquisition of the BOSS business in the first quarter of fiscal 2015.2017. Cash provided byused for financing activities for the first quarterthree months of fiscal 2016 decreased $2.22017 increased $93.2 million compared to the first quarterthree months of fiscal 2015 as a result of repayments of long-term debt2016 mainly due to more cash used for common stock repurchases and an increase in cash utilized for share repurchases,common stock dividends paid, partially offset by additional borrowings offiscal 2016 short-term debt.$10.9$9.1 million. These facilities bear interest at various rates depending on the rates in their respective countries of operation. As of January 29, 2016,February 3, 2017, we had $52.9 millionno outstanding short-term debt under these lines of credit compared to $47.0$52.9 million outstanding short-term debt as of January 30, 2015.29, 2016. As of January 29, 2016,February 3, 2017, we had $11.4$6.8 million of outstanding letters of credit and $96.6$152.3 million of unutilized availability under our credit agreements.January 29, 2016,February 3, 2017, we had $364.5$338.3 million outstanding in long-term debt that includes $100.0 million in aggregate principal amount of 7.8% debentures due June 15, 2027, $125.0$123.7 million in aggregate principal amount of 6.625% senior notes due, and a $120.3$107.3 million term loan.loan, and partially offsetting debt issuance costs and deferred charges of $2.9 million related to our outstanding long-term debt. The term loan bears interest$20.0$10.2 million in aggregate principala note due to the former owners of the BOSS business.earnings before interest, taxes, depreciation, and amortization (“EBITDA”)EBITDA ratio from the previous quarter compliance certificate is less than or equal to 3.25, provided that immediately after giving effect of any such proposed action, no default or event of default would exist. As of January 29, 2016,February 3, 2017, we were not limited in the amount for payments of cash dividends and stock repurchases. We were in compliance with all covenants related to our credit agreement for our revolving credit facility as of January 29, 2016,February 3, 2017, and we expect to be in compliance with all covenants during the remainder of fiscal 2016.2017. If we were out of compliance with any debt covenant required by this credit agreement following the applicable cure period, the banks could terminate their commitments unless we could negotiate a covenant waiver from the banks. In addition, our long-term senior notes, debentures, term loan, and any amounts outstanding under the revolving credit facility could become due and payable if we were unable to obtain a covenant waiver or refinance our short-term debt under our credit agreement. If our credit rating falls below investment grade and/or our average debt to EBITDA ratio rises above 1.50, the basis point spread over LIBOR (or other rates quoted by the Administrative Agent, Bank of America, N.A.) we currently pay on outstanding debt under the credit agreement would increase. However, the credit commitment could not be cancelled by the banks based solely on a ratings downgrade. Our debt rating for long-term unsecured senior, non-credit enhanced debt was unchanged during the first quarter of fiscal 20162017 by Standard and Poor’s Ratings Group at BBB and by Moody’s Investors Service at Baa3.including floor plan and open accounts receivable financing, to certain distributors and dealers of our products in the U.S. and to select distributors of our products in Canada to enable our distributors and dealers tothat enables them carry representative inventories of our products. Some independent international dealers continue to finance their products with a third party finance company. This third party financing company purchased $8.1$7.4 million of receivables from us during the first quarterthree months of fiscal 2016.2017. As of January 29, 2016, $11.8February 3, 2017, $11.1 million of receivables financed by a third party financing company, excluding Red Iron, were outstanding. See our most recently filed Annual Report on Form 10-K for further details regarding our customer financing arrangements and contractual obligations.quarterthree months of fiscal 2016,2017, average prices paid for commodities and components we purchase were slightly lowerhigher compared to the average prices paid for commodities and components in the first quarterthree months of fiscal 2015.2016. We intend to continue to closely follow prices of commodities and components that affect our product lines, and we anticipate average prices paid for some commodities and components to be slightly lowerhigher for the remainder of fiscal 20162017 as compared to fiscal 2015.2016. Historically, we have mitigated, and we currently expect to continue to mitigate, commodity price increases, in part, by collaborating with suppliers, reviewing alternative sourcing options, substituting materials, engaging in internal cost reduction efforts, and increasing prices on some of our products, all as appropriate.Critical Accounting Policies and Estimates20152016 for a discussion of our critical accounting policies.Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”)ASU No. 2014-09, Revenue from Contracts with Customersthat updates the principles for recognizing revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. The guidance also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), which deferred the effective date of this standard by one year. We expect to adopt this guidance on November 1, 2018, as required, basedandbut plan to select a transition method no later than the fourth quarter of fiscal 2017. We are currently evaluatingassessing our contracts with customers and related financial disclosures to evaluate the impact of the amended guidance on our existing revenue recognition policies and procedures.In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810), which amends certain requirements for determining whether a variable interest entity must be consolidated. The amended guidance will become effective for us commencing in the first quarter of fiscal 2017. Early adoption is permitted. We anticipate the adoption of this guidance will not have a material impact on our consolidated financial position.In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability. The amended guidance will become effective for us commencing in the first quarter of fiscal 2017. Early adoption is permitted. We anticipate the adoption of this guidance will not have a material impact on our consolidated financial position.In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This amended guidance requires customers to determine whether or not an arrangement contains a software license element. If the arrangement contains a software element, the related fees paid should be accounted for as an acquisition of a software license. If the arrangement does not contain a software license, it is accounted for as a service contract. The amended guidance will become effective for us commencing in the first quarter of fiscal 2017. Early adoption is permitted. We anticipate the adoption of this guidance will not have a material impact on our consolidated financial statements., Inventory (Topic 330): Simplifying the Measurement of Inventory. This amended guidance changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value. The amended guidance will become effective for us commencing in the first quarter of fiscal 2018. Early adoption is permitted. We are currently evaluating the impact of this amended guidance on our consolidated financial statements.November 2015,February 2016, the FASB issued ASU No. 2015-172016-02, Leases, Income Taxes (Topic 740): Balance Sheet Classificationwhich, among other things, requires lessees to recognize most leases on-balance sheet. The standard requires the recognition of Deferred Taxes. This amended guidance requires an entity to present deferred taxlease assets and lease liabilities by lessees for those leases classified as noncurrent in the statement of financial position.operating leases under previous GAAP. The amended guidance will become effective for us commencing in the first quarter of fiscal 2018.2020. Entities are required to use a modified retrospective approach, with early adoption permitted. We are reviewing the revised guidance and assessing the impact on our consolidated financial statements.amended guidancenew standard on our consolidated financial statements.No new accounting pronouncement that has beenbut not yetASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business in Accounting Standards Codification 805. The amended guidance will become effective for us duringcommencing in the first quarter of fiscal 2016 has had or2019. Early adoption is expected topermitted. We are currently evaluating the impact of this new standard.statements.Forward-Looking Information· Economic·· already affected our operating results and could continue to result in declines in our reported net sales and net earnings.·costs.·costs or increased tariffs, duties or other charges as a result of changes to international trade agreements may adversely affect our profit margins and business.professionalProfessional segment net sales are dependent upon certain factors, including golf course revenues and the amount of investment in golf course renovations and improvements; the level of new golf course development and golf course closures; the level of homeownersproperty owners who outsource their lawn care;care and snow and ice removal activities; the level of residential and commercial construction; continued acceptance of and demand for micro-irrigation solutions for agricultural markets; the integrationtiming and occurrence of the BOSS business into our professional segment;winter weather conditions; demand for our products in the rental and specialty construction market; availability of cash or credit to professionalProfessional segment customers on acceptable terms to finance new product purchases; and the amount of government revenues, budget, and spending levels for grounds maintenance equipment.·residentialResidential segment net sales are dependent upon consumers buying our products at dealers, mass retailers, and home centers, such as The Home Depot, Inc.,; the amount of product placement at mass retailers and home centers; consumer confidence and spending levels, and changing buying patterns of customers.·professionalProfessional segment products generally have higher profit margins than our residentialResidential segment products.·strongerstrong customer relations, and new joint ventures and partnerships, all of which arecould be risky and could harm our business reputation, financial condition, and operating results, particularly if we are not able to successfully integrate such acquisitions and alliances, joint ventures, and partnerships. If previous or future acquisitions do not produce the expected results or integration into our operations takes more time than expected, our business could be harmed. We cannot guarantee previous or future acquisitions, alliances, joint ventures or partnerships will in fact produce any benefits.·customer’scustomers' demand for our products is important for our business. If we underestimate or overestimate demand for our products and do not maintain appropriate inventory levels, our net sales and/or working capital could be negatively impacted.···resources,resources; expose us to difficulties presented by international economic, political, legal, regulatory, accounting, and business factors;factors, including implications of withdrawal by the U.S. from, or revision to, international trade agreements, foreign policy changes between the U.S. and other countries, weakened international economic conditions, or the United Kingdom’s process for exiting the European Union; and may not be successful or produce desired levels of net sales. In addition, a portion of our international net sales are financed by third parties. The termination of our agreements with these third parties, any material change to the terms of our agreements with these third parties or in the availability or terms of credit offered to our international customers by these third parties, or any delay in securing replacement credit sources, could adversely affect our sales and operating results.···employee population fluctuates duringlabor needs fluctuate throughout the year, with ana sharp increase in the number of our production employees,staff, some of which may be new to our manufacturing processes and safety protocols, during periods of peak manufacturing activity and any failure by suchour production employeeslabor force to adequately and safely perform their jobs or our inability to properly train such production employees could adversely affect our business, operating results, and reputation.··· or (ii) healthcare laws or regulations, such as the Patient Protection and Affordable Care Act, which may cause us to incur higher employee healthcare and other costs.·costs, or (iii) changes to international trade agreements that could result in additional duties or other charges on raw materials, whole goods or components we import.····raisedcould raise reputational and other risks. We have, and we expect that we will continue to, incur additional costs and expenses, which may be significant in order to comply with these rules. Since our supply chain is complex, ultimately we may not be able to sufficiently verify the origin of the conflict minerals used in our products through the due diligence procedures that we implement or we may identify through our due diligence procedures that some or all of the conflict minerals in our products are sourced from covered regions, which may adversely affect our reputation with our customers, shareholders, and other stakeholders.·· and attract and retain other qualified personnel, or successfully implement executive officer, key employee or other qualified personnel transitions, we may not be able to meet strategic objectives and our business could suffer.· including floor plan and open account receivable financing, to certain distributors and dealers of our products. Any material change in the availability or terms of credit offered to our customers by the joint venture, challenges or delays in transferring new distributors and dealers from any business we might acquire to this financing platform, any termination or disruption of our joint venture relationship or any delay in securing replacement credit sources could adversely affect our net sales and operating results.···initiative;initiative or any quarterly financial guidance; natural or man-made disasters or global pandemics that may result in shortages of raw materials and components, higher fuel and commodity costs, delays in shipments to customers, and increases in insurance premiums; financial viability of our distributors and dealers, changes in distributorundertakemake no obligationcommitment to revise or update any forward-looking statements in order to reflect actual results, events or circumstances occurring or existing after the date any forward-looking statement is made, or changes in factors or assumptions affecting such forward-looking statements. We advise you, however, to consult any further disclosures we make on related subjects in our future Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K we file with or furnish to the Securities and Exchange Commission.Itemrecently filedrecent Annual Report on Form 10-K for discussion on equity market risk.Risk.Risk. In the normal course of business, we actively manage the exposure of our 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. Our hedging activities involve primarily the use of forward currency contracts. We may also utilize cross currency swaps to offset intercompany loan exposures. We use derivative instruments only in an attempt to limit underlying exposure from currency fluctuations and to minimize earnings and cash flow volatility associated with foreign currency exchange rate changesfluctuations and not for trading purposes. We are exposed to foreign currency exchange rate risk arising from transactions in the normal course of business, such as sales to third party customers, sales and loans to wholly owned foreign subsidiaries, foreign plant operations, and purchases from suppliers. Because our products are manufactured or sourced primarily from the U.S.United States and Mexico, a stronger U.S. dollar and Mexican peso generally have a negative impact on our results from operations, while a weaker dollar and peso generally have a positive effect. Our primary foreign currency exchange rate exposures are with the Euro, the Australian dollar, the Canadian dollar, the British pound, the Mexican peso, the Japanese yen, the Chinese Renminbi, and the Romanian New Leu against the U.S. dollar, as well asand the Romanian New Leu against the Euro.change,fluctuate, to protect the value of existing foreign currency assets, liabilities, anticipated sales, and probable commitments. Decisions on whether to use such contracts are made based on the amount of exposures to the currency involved and an assessment of the near-term market value for each currency. Worldwide foreign currency exchange rate exposures are reviewed monthly. The gains and losses on these contracts offset changes in values of the related exposures. Therefore, changes in values of these hedge instruments are highly correlated with changes in market values of underlying hedged items both at inception of the hedge and over the life of the hedge contract. Additional information regarding gains and losses on our derivative instruments is presented in the Notes to Condensed Consolidated Financial Statements (Unaudited) in Item 1 of this Quarterly Report on Form 10-Q, in the sectionNote 12 entitled “Derivative Instruments and Hedging Activities.”20162017 and 2017.2018. All items are non-trading and stated in U.S. dollars. Some derivative instruments we enter into do not meet the cash flow hedging criteria; therefore, changes in fair value are recorded in other income, net.January 29, 2016February 3, 2017 were as follows:
(except average contracted rate)
Contracted
Rate
Amount
Accumulated
Other
Comprehensive
Income (Loss)
Impact
(Loss) Gain Buy US dollar/Sell Australian dollar 0.7478 41,817.7 14.9 (676.1 ) Buy US dollar/Sell Canadian dollar 1.3008 6,342.4 18.1 82.8 Buy US dollar/Sell Euro 1.1178 67,334.4 1,312.9 1,537.1 Buy US dollar/Sell British pound 1.2928 38,345.9 311.0 484.5 Buy Mexican peso/Sell US dollar 20.1013 21,035.9 (1,345.7 ) (620.1 ) Risk.Risk. Our market risk on interest rates relates primarily to LIBOR-based short-term debt and a term loan from commercial banks, as well as the potential increase in fair value of our fixed-rate long-term debt resulting from a potential decrease in interest rates. Included in long-term debt is $223.8 million of fixed-rate debt that is not subject to variable interest rate fluctuations, a fixed-rate promissory note for the principal amount of $20.0 million issued to the former owners of the BOSS business, and a $120.3 million LIBOR-based term loan, which is subject to market risk based on changes in LIBOR rates. We have no earnings or cash flow exposure due to market risks on our fixed-rate long-term debt obligations. We generally do not use interest rate swaps to mitigate the impact of fluctuations in interest rates. See our most recently filed Annual Report on Form 10-K (Item 7A Quantitative and Qualitative Disclosures about Market Risk). There has been no material change in this information.RiskRisk.. Some raw materials used in our products are exposed to commodity price changes. The primary commodity price exposures are with steel, aluminum, petroleum and natural gas-based resins, and linerboard. In addition, we are a purchaser of components and parts containing various commodities, including steel, aluminum, copper, lead, rubber, and others that are integrated into our end products. Further information regarding rising prices for commodities is presented in Item 2 of this Quarterly Report on Form 10-Q, in the section entitled “Inflation.”Itemfiscalfirst quarter ended January 29, 2016February 3, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.Item, including cases by or against competitors, where we are asserting and defending against claims of patent infringement. Such cases are at varying stages in the litigation process.“Contingencies“Contingencies - Litigation” included in Item 1 of this Quarterly Report on Form 10-Q, which is incorporated into this Part II. Item 1 by reference.ItemItem20162017 stock repurchase activity:
Shares (or Units)
Purchased (1,2,3)
Price
Paid per
Share
(or Unit)
Shares (or Units)
Purchased
As Part of Publicly
Announced Plans
or Programs (1)
of Shares (or Units)
that May
Yet Be Purchased
Under the Plans or
Programs (1)Period November 1, 2016 through December 2, 2016 296,400 $ 48.22 296,400 7,396,315 December 3, 2016 through December 30, 2016 445,661 55.90 445,661 6,950,654 December 31, 2016 through February 3, 2017 493,883 57.42 492,124 6,458,530 Total 1,235,944 54.67 1,234,185 11, 2012,3, 2015, the company’s Board of Directors authorized the repurchase of 5,000,000an additional 8,000,000 shares of the company’s common stock in open-market or in privately negotiated transactions. This program has no expiration date but may be terminated by the company’s Board of Directors at any time. The company repurchased 376,8411,234,185 shares during the period indicated above under this program and 782,4736,458,530 shares remain available to repurchase under this program. On December 3, 2015, the company’s Board of Directors authorized the repurchase of an additional 4,000,000 shares of the company’s common stock in open-market or in privately negotiated transactions. This program has no expiration datebut may be terminated by the company’s Board of Directors at any time. No shares were repurchased under this program during the time period indicated above.(3)Includes 1,4191,759 units (shares) of the company’s common stock purchased in open-market transactions at an average price of $68.45$56.34 per share on behalf of a rabbi trust formed to pay benefit obligations of the company to participants in deferred compensation plans. These 1,4191,759 shares were not repurchased under the company’s repurchase program described in footnotes 1 and 2 above.(a)Exhibits(a) Description 2.1 (1) Second Amendment to Agreement to Form Joint Venture dated November 29, 2016 by and between The Toro Company and TCF Inventory Finance, Inc. (incorporated by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K dated November 29, 2016, Commission File No. 1-8649).* 2.2 (1) Third Amendment to Limited Liability Company Agreement of Red Iron Acceptance, LLC dated November 29, 2016 by and between Red Iron Holding Corporation and TCFIF Joint Venture I, LLC (incorporated by reference to Exhibit 2.2 to Registrant’s Current Report on Form 8-K dated November 29, 2016, Commission File No. 1-8649).* 2.3 (1) Fourth Amended and Restated Program and Repurchase Agreement dated as of November 29, 2016 by and between The Toro Company and Red Iron Acceptance, LLC (incorporated by reference to Exhibit 2.3 to Registrant’s Current Report on Form 8-K dated November 29, 2016, Commission File No. 1-8649). 3.1 and 4.1 13,12, 2013, Commission File No. 1-8649).3.23.1 to Registrant’s Current Report on Form 8-K dated June 17, 2008,July 19, 2016, Commission File No. 1-8649).31.110.2 Form of Nonemployee Director Stock Option Agreement between The Toro Company and its Non-Employee Directors under The Toro Company Amended and Restated 2010 Equity and Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.11 to Registrant’s Annual Report on Form 10-K for the fiscal year ended October 31, 2016, Commission File No. 1-8649). 10.3 Form of Nonqualified Stock Option Agreement between The Toro Company and its officers and other employees under The Toro Company Amended and Restated 2010 Equity and Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.14 to Registrant’s Annual Report on Form 10-K for the fiscal year ended October 31, 2016, Commission File No. 1-8649). 10.4 Form of Performance Share Award Agreement between The Toro Company and its officers and other employees under The Toro Company Amended and Restated 2010 Equity and Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.17 to Registrant’s Annual Report on Form 10-K for the fiscal year ended October 31, 2016, Commission File No. 1-8649). 10.5 Form of Annual Performance Award Agreement between The Toro Company and its officers and other employees under The Toro Company Amended and Restated 2010 Equity and Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.18 to Registrant’s Annual Report on Form 10-K for the fiscal year ended October 31, 2016, Commission File No. 1-8649). 10.6 Form of Restricted Stock Award Agreement between The Toro Company and its officers and other employees under The Toro Company Amended and Restated 2010 Equity and Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.19 to Registrant’s Annual Report on Form 10-K for the fiscal year ended October 31, 2016, Commission File No. 1-8649). 10.7 Form of Restricted Stock Unit Award Agreement between The Toro Company and its officers and other employees under The Toro Company Amended and Restated 2010 Equity and Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.21 to Registrant’s Annual Report on Form 10-K for the fiscal year ended October 31, 2016, Commission File No. 1-8649). 10.8 The Toro Company Supplemental Benefit Plan, Amended and Restated Effective January 1, 2017 (filed herewith). 10.9 The Toro Company Deferred Compensation Plan, Amended and Restated Effective January 1, 2017 (filed herewith). 10.10 The Toro Company Deferred Compensation Plan for Officers, Amended and Restated Effective January 1, 2017 (filed herewith). 10.11 The Toro Company Deferred Compensation Plan for Non-Employee Directors, Amended and Restated Effective January 1, 2017 (filed herewith). 10.12 Second Amendment to Credit and Security Agreement dated November 29, 2016 by and between Red Iron Acceptance, LLC and TCF Inventory Finance, Inc. (incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated November 29, 2016, Commission File No. 1-8649). 31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002) (filed herewith). 101101 January 29, 2016,February 3, 2017, filed with the SEC on March 2, 2016,8, 2017, formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Statements of Earnings for the three-month periods ended February 3, 2017 and January 29, 2016, and January 30, 2015, (ii) Condensed Consolidated Statements of Comprehensive Income for the three-month periods ended February 3, 2017 and January 29, 2016, and January 30, 2015, (iii) Condensed Consolidated Balance Sheets as of February 3, 2017, January 29, 2016, January 30, 2015, and October 31, 2015,2016, (iv) Condensed Consolidated Statement of Cash Flows for the three-month periods ended February 3, 2017 and January 29, 2016, and January 30, 2015, and (v) Notes to Condensed Consolidated Financial Statements (filed herewith).registrantRegistrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.Date: March 2, 20168, 2017ByRenee J. Peterson Vice President, Treasurer (duly authorized officer and principal financial officer)