Company Quick10K Filing
Quick10K
Toro
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$72.99 106 $7,740
10-Q 2019-02-01 Quarter: 2019-02-01
10-K 2018-10-31 Annual: 2018-10-31
10-Q 2018-08-03 Quarter: 2018-08-03
10-Q 2018-05-04 Quarter: 2018-05-04
10-Q 2018-02-02 Quarter: 2018-02-02
10-K 2017-10-31 Annual: 2017-10-31
10-Q 2017-08-04 Quarter: 2017-08-04
10-Q 2017-05-05 Quarter: 2017-05-05
10-Q 2017-02-03 Quarter: 2017-02-03
10-K 2016-10-31 Annual: 2016-10-31
10-Q 2016-07-29 Quarter: 2016-07-29
10-Q 2016-04-29 Quarter: 2016-04-29
10-Q 2016-01-29 Quarter: 2016-01-29
10-K 2015-10-31 Annual: 2015-10-31
10-Q 2015-07-31 Quarter: 2015-07-31
10-Q 2015-05-01 Quarter: 2015-05-01
10-Q 2015-01-30 Quarter: 2015-01-30
10-K 2014-10-31 Annual: 2014-10-31
10-Q 2014-08-01 Quarter: 2014-08-01
10-Q 2014-05-02 Quarter: 2014-05-02
10-Q 2014-01-31 Quarter: 2014-01-31
8-K 2019-03-19 Enter Agreement, Off-BS Arrangement, Shareholder Vote, Regulation FD, Other Events, Exhibits
8-K 2019-02-21 Earnings, Exhibits
8-K 2019-02-14 Enter Agreement, Regulation FD, Exhibits
8-K 2018-12-06 Earnings, Exhibits
8-K 2018-11-12 Officers
8-K 2018-08-23 Earnings, Exhibits
8-K 2018-06-19 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2018-05-24 Earnings, Exhibits
8-K 2018-03-20 Shareholder Vote
8-K 2018-02-22 Earnings, Exhibits
ALL Allstate Life Insurance 32,700
NCMI National Cinemedia 607
FBM Foundation Building Materials 539
AVRO Avrobio 498
GWGH GWG Holdings 380
AI Arlington Asset Investment 278
CFMS Conformis 184
CJJD China Jo-Jo Drugstores 47
BVX Bovie Medical 0
DIRV Directview Holdings 0
TTC 2019-02-01
Part I. Financial Information
Item 1. Financial Statements
Note 1 - Basis of Presentation
Note 2 - Acquisitions
Note 3 - Investment in Joint Venture
Note 4 - Inventories
Note 5 - Goodwill and Other Intangible Assets
Note 6 - Stockholders' Equity
Note 7 - Stock-Based Compensation
Note 8 - per Share Data
Note 9 - Segment Data
Note 10 - Contingencies - Litigation
Note 11 - Warranty Guarantees
Note 12 - Derivative Instruments and Hedging Activities
Note 13 - Fair Value Measurements
Note 14 - Revenue
Note 15 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ttc02012019exhibit311.htm
EX-31.2 ttc02012019exhibit312.htm
EX-32 ttc02012019exhibit32.htm

Toro Earnings 2019-02-01

TTC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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Table of Contents


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

FORM 10-Q

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

For the Quarterly Period Ended February 1, 2019

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

For the Transition Period from           to          

THE TORO COMPANY
(Exact name of registrant as specified in its charter)
Delaware
 
1-8649
 
41-0580470
(State or Other Jurisdiction of Incorporation or Organization)
 
(Commission File Number)
 
(I.R.S. Employer Identification Number)

 8111 Lyndale Avenue South
Bloomington, Minnesota 55420
Telephone Number: (952) 888-8801
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý  No  o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ý  No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
Accelerated filer o
 
 
Non-accelerated filer o
Smaller reporting company o
 
 
 
Emerging growth company o

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

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

The number of shares of the registrant’s common stock outstanding as of February 27, 2019 was 106,110,375.
 


Table of Contents

THE TORO COMPANY
INDEX TO FORM 10-Q
 
 
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

Table of Contents

PART I.  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Unaudited)
(Dollars and shares in thousands, except per share data)
 
 
Three Months Ended
 
 
February 1, 2019
 
February 2, 2018
Net sales
 
$
602,956

 
$
548,246

Cost of sales
 
387,339

 
344,007

Gross profit
 
215,617

 
204,239

Selling, general and administrative expense
 
145,563

 
137,317

Operating earnings
 
70,054

 
66,922

Interest expense
 
(4,742
)
 
(4,818
)
Other income, net
 
4,708

 
4,281

Earnings before income taxes
 
70,020

 
66,385

Provision for income taxes
 
10,480

 
43,781

Net earnings
 
$
59,540

 
$
22,604

 
 
 
 
 
Basic net earnings per share of common stock
 
$
0.56

 
$
0.21

 
 
 
 
 
Diluted net earnings per share of common stock
 
$
0.55

 
$
0.21

 
 
 
 
 
Weighted-average number of shares of common stock outstanding — Basic
 
106,258

 
107,225

 
 
 
 
 
Weighted-average number of shares of common stock outstanding — Diluted
 
107,781

 
109,855


See accompanying Notes to Condensed Consolidated Financial Statements.


THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in thousands) 
 
 
Three Months Ended
 
 
February 1, 2019
 
February 2, 2018
Net earnings
 
$
59,540

 
$
22,604

Other comprehensive income (loss), net of tax:
 
 
 
 

Foreign currency translation adjustments
 
3,431

 
10,872

Derivative instruments, net of tax of $(1,352) and $(579), respectively
 
(4,009
)
 
(2,779
)
Other comprehensive income (loss), net of tax
 
(578
)
 
8,093

Comprehensive income
 
$
58,962

 
$
30,697


See accompanying Notes to Condensed Consolidated Financial Statements.

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THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands, except per share data)
 
 
February 1, 2019
 
February 2, 2018
 
October 31, 2018
ASSETS
 
 

 
 

 
 

Cash and cash equivalents
 
$
249,965

 
$
219,730

 
$
289,124

Receivables, net
 
225,528

 
198,736

 
193,178

Inventories, net
 
416,650

 
439,343

 
358,259

Prepaid expenses and other current assets
 
41,789

 
43,039

 
54,076

Total current assets
 
933,932

 
900,848

 
894,637

 
 
 
 
 
 
 
Property, plant and equipment, gross
 
950,640

 
883,462

 
928,981

Less accumulated depreciation
 
671,370

 
649,014

 
657,522

Property, plant and equipment, net
 
279,270

 
234,448

 
271,459

 
 
 
 
 
 
 
Deferred income taxes
 
39,589

 
44,752

 
38,252

Goodwill
 
227,091

 
205,954

 
225,290

Other intangible assets, net
 
104,017

 
102,366

 
105,649

Other assets
 
38,915

 
28,438

 
35,697

Total assets
 
$
1,622,814

 
$
1,516,806

 
$
1,570,984

 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 

 
 

 
 

Current portion of long-term debt
 
$

 
$
13,000

 
$

Accounts payable
 
281,526

 
266,586

 
256,575

Accrued liabilities
 
283,452

 
292,903

 
276,060

Total current liabilities
 
564,978

 
572,489

 
532,635

 
 
 
 
 
 
 
Long-term debt, less current portion
 
312,551

 
302,465

 
312,549

Deferred income taxes
 
1,410

 
1,839

 
1,397

Other long-term liabilities
 
49,478

 
59,232

 
55,487

 
 
 
 
 
 
 
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 105,746,538 shares as of February 1, 2019, 106,434,655 shares as of February 2, 2018, and 105,600,652 shares as of October 31, 2018
 
105,747

 
106,435

 
105,601

Retained earnings
 
613,165

 
490,373

 
587,252

Accumulated other comprehensive loss
 
(24,515
)
 
(16,027
)
 
(23,937
)
Total stockholders’ equity
 
694,397

 
580,781

 
668,916

Total liabilities and stockholders’ equity
 
$
1,622,814

 
$
1,516,806

 
$
1,570,984


See accompanying Notes to Condensed Consolidated Financial Statements.

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THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
 
 
Three Months Ended
 
 
February 1, 2019
 
February 2, 2018
Cash flows from operating activities:
 
 

 
 

Net earnings
 
$
59,540

 
$
22,604

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 

 
 

Non-cash income from finance affiliate
 
(2,429
)
 
(2,192
)
Contributions to finance affiliate, net
 
(459
)
 
(252
)
Provision for depreciation and amortization
 
15,583

 
15,226

Stock-based compensation expense
 
3,924

 
3,124

Deferred income taxes
 
(1,225
)
 
19,682

Other
 

 
(26
)
Changes in operating assets and liabilities, net of effect of acquisitions:
 
 

 
 

Receivables, net
 
(31,331
)
 
(12,989
)
Inventories, net
 
(52,380
)
 
(107,017
)
Prepaid expenses and other assets
 
8,119

 
(2,588
)
Accounts payable, accrued liabilities, deferred revenue and other long-term liabilities
 
26,643

 
72,523

Net cash provided by operating activities
 
25,985

 
8,095

 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Purchases of property, plant and equipment
 
(14,180
)
 
(10,784
)
Proceeds from asset disposals
 
3

 

Investment in unconsolidated entities
 
(150
)
 

Acquisitions, net of cash acquired
 
(12,498
)
 

Net cash used in investing activities
 
(26,825
)
 
(10,784
)
 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Payments on long-term debt
 

 
(18,017
)
Proceeds from exercise of stock options
 
7,569

 
4,436

Payments of withholding taxes for stock awards
 
(1,872
)
 
(3,077
)
Purchases of Toro common stock
 
(20,043
)
 
(50,066
)
Dividends paid on Toro common stock
 
(23,923
)
 
(21,425
)
Net cash used in financing activities
 
(38,269
)
 
(88,149
)
 
 
 
 
 
Effect of exchange rates on cash and cash equivalents
 
(50
)
 
312

 
 
 
 
 
Net decrease in cash and cash equivalents
 
(39,159
)
 
(90,526
)
Cash and cash equivalents as of the beginning of the fiscal period
 
289,124

 
310,256

Cash and cash equivalents as of the end of the fiscal period
 
$
249,965

 
$
219,730


See accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
(Dollars in thousands, except per share data)
 
 
Common
Stock
 
Retained
Earnings
 
Accumulated Other
Comprehensive Loss
 
Total Stockholders'
Equity
Balance as of October 31, 2018
 
$
105,601

 
$
587,252

 
$
(23,937
)
 
$
668,916

Cash dividends paid on common stock - $0.225 per share
 

 
(23,923
)
 

 
(23,923
)
Issuance of 537,786 shares for stock options exercised and restricted stock units vested
 
538

 
5,627

 

 
6,165

Stock-based compensation expense
 

 
3,924

 

 
3,924

Contribution of stock to a deferred compensation trust
 

 
1,404

 

 
1,404

Purchase of 391,900 shares of common stock
 
(392
)
 
(21,523
)
 

 
(21,915
)
Cumulative transition adjustment due to the adoption of ASU 2014-09
 

 
864

 

 
864

Other comprehensive loss
 

 

 
(578
)
 
(578
)
Net earnings
 

 
59,540

 

 
59,540

Balance as of February 1, 2019
 
$
105,747

 
$
613,165

 
$
(24,515
)
 
$
694,397

 
 
 
 
 
 
 
 
 
Balance as of October 31, 2017
 
$
106,883

 
$
534,329

 
$
(24,120
)
 
$
617,092

Cash dividends paid on common stock - $0.20 per share
 

 
(21,425
)
 

 
(21,425
)
Issuance of 506,991 shares for stock options exercised and restricted stock units vested
 
507

 
2,492

 

 
2,999

Stock-based compensation expense
 

 
3,124

 

 
3,124

Contribution of stock to a deferred compensation trust
 

 
1,437

 

 
1,437

Purchase of 955,308 shares of common stock
 
(955
)
 
(52,188
)
 

 
(53,143
)
Other comprehensive income
 

 

 
8,093

 
8,093

Net earnings
 

 
22,604

 

 
22,604

Balance as of February 2, 2018
 
$
106,435

 
$
490,373

 
$
(16,027
)
 
$
580,781


See accompanying Notes to Condensed Consolidated Financial Statements.

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THE TORO COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
February 1, 2019
 
Note 1 — Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and notes required by United States ("U.S.") generally accepted accounting principles ("GAAP") for complete financial statements. Unless the context indicates otherwise, the terms "company," "Toro," "we," "our," or "us" refer to The Toro Company and its consolidated subsidiaries. All intercompany accounts and transactions have been eliminated from the unaudited Condensed Consolidated Financial Statements.

In the opinion of management, the unaudited Condensed Consolidated Financial Statements include all adjustments, consisting primarily of recurring accruals, considered necessary for the fair presentation of the company's Consolidated Financial Position, Results of Operations, and Cash Flows for the periods presented. Since the company’s business is seasonal, operating results for the three months ended February 1, 2019 cannot be annualized to determine the expected results for the fiscal year ending October 31, 2019.

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

For further information, refer to the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in the company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2018. The policies described in that report are used for preparing quarterly reports.

Accounting Policies

In preparing the Condensed Consolidated Financial Statements in conformity with U.S. GAAP, management must make decisions that impact the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures, including disclosures of contingent assets and liabilities. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. Estimates are used in determining, among other items, sales promotion and incentive accruals, incentive compensation accruals, income tax accruals, inventory valuation, warranty reserves, allowance for doubtful accounts, pension and post-retirement accruals, self-insurance accruals, useful lives for tangible and definite-lived intangible assets, and future cash flows associated with impairment testing for goodwill, indefinite-lived intangible assets and other long-lived assets. These estimates and assumptions are based on management’s best estimates and judgments at the time they are made and are generally derived from management's understanding and analysis of the relevant circumstances, historical experience, and actuarial valuations. 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 Condensed Consolidated Financial Statements are prepared.

New Accounting Pronouncements Adopted

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates ("ASU") No. 2014-09, Revenue from Contracts with Customers that updates the principles for recognizing revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. The guidance also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), which deferred the effective date of this standard by one year. The company adopted ASU 2014-09 effective November 1, 2018, during the first quarter of fiscal 2019, using the modified retrospective method of adoption, which was applied to all contracts for which the company's performance obligations were not completed as of October 31, 2018. In adopting ASU 2014-09, the company elected the following allowable exemptions or practical expedients:

Portfolio approach practical expedient relative to the estimation of variable consideration.

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Shipping and handling practical expedient to account for shipping and handling activities that occur after control of the related good transfers as fulfillment activities.
Costs of obtaining a contract practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset is one year or less.
Immaterial goods or services practical expedient to not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer.
Sales taxes practical expedient to exclude sales taxes and other similar taxes from the transaction price.
Exemption to not disclose the unfulfilled performance obligation balance for contracts with an original length of one year or less.

Upon adoption of ASU 2014-09, the company recognized an immaterial transition adjustment within the company's fiscal 2019 beginning retained earnings balance on the Condensed Consolidated Balance Sheets for the cumulative effect of the change in accounting standard. Results for reporting periods beginning after November 1, 2018 are presented under the guidelines of Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, while prior reporting period amounts have not been adjusted and continue to be reported under ASC 605, Revenue Recognition. The adoption of ASU 2014-09 did not materially impact the amount of revenue recognized or any other financial statement line item as of and for the three months ended February 1, 2019. Additionally, the company identified and implemented the appropriate changes to its business processes, information systems, and internal controls to support the preparation of financial information, which did not materially affect the company's internal controls over financial reporting. Refer to Note 14, Revenue, for the additional disclosures required under ASC 606.

In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Topic 718. The amended guidance was adopted in the first quarter of fiscal 2019 and did not have a material impact on the company's Condensed Consolidated Financial Statements.

Note 2 — Acquisitions

Northeastern U.S. Distribution Company

Effective November 30, 2018, during the first quarter of fiscal 2019, the company completed the acquisition of substantially all of the assets of, and assumed certain liabilities for, a Northeastern U.S. distribution company. The purchase price of this acquisition was allocated to the identifiable assets acquired and liabilities assumed based on estimates of their fair value, with the excess purchase price recorded as goodwill. This acquisition was immaterial based on the company's Consolidated Financial Condition and Results of Operations. Additional purchase accounting disclosures have been omitted given the immateriality of this acquisition in relation to the company's Consolidated Financial Condition and Results of Operations.

L.T. Rich Products, Inc.

Effective March 19, 2018, during the second quarter of fiscal 2018, the company completed the acquisition of substantially all of the assets of, and assumed certain liabilities for, L.T. Rich Products, Inc., a manufacturer of professional zero-turn spreader/sprayers, aerators, and snow and ice management equipment. The addition of these products broadens and strengthens the company’s Professional segment solutions for landscape contractors and grounds professionals. The purchase price of this acquisition was allocated to the identifiable assets acquired and liabilities assumed based on estimates of their fair value, with the excess purchase price recorded as goodwill. This acquisition was immaterial based on the company's Consolidated Financial Condition and Results of Operations. Additional purchase accounting disclosures have been omitted given the immateriality of this acquisition in relation to the company's Consolidated Financial Condition and Results of Operations.

Note 3 — Investment in Joint Venture

In fiscal 2009, the company and TCF Inventory Finance, Inc. ("TCFIF"), a subsidiary of TCF National Bank, established Red Iron Acceptance, LLC ("Red Iron"), a joint venture in the form of a Delaware limited liability company that primarily provides inventory financing to certain distributors and dealers of the company’s products in the U.S. On November 29, 2016, during the first quarter of fiscal 2017, the company entered into amended agreements for its Red Iron joint venture with TCFIF. As a result, the amended term of Red Iron will continue until October 31, 2024, subject to two-year extensions thereafter. Either the company or TCFIF may elect not to extend the amended term, or any subsequent term, by giving one-year written notice to the other party.

The company owns 45 percent of Red Iron and TCFIF owns 55 percent of Red Iron. The company accounts for its investment in Red Iron under the equity method of accounting. The company and TCFIF each contributed a specified amount of the estimated

8

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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 $550 million secured revolving credit facility established under a credit agreement between Red Iron and TCFIF. The company’s total investment in Red Iron as of February 1, 2019 was $25.4 million. The company has not guaranteed the outstanding indebtedness of Red Iron.

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

Under separate agreements between Red Iron and the dealers and distributors, Red Iron provides loans to the dealers and distributors for the advances paid by Red Iron to the company. The net amount of receivables financed for dealers and distributors under this arrangement for the three months ended February 1, 2019 and February 2, 2018 were $428.8 million and $386.3 million, respectively. As of January 31, 2019, Red Iron’s total assets were $501.7 million and total liabilities were $445.2 million.

Note 4 — Inventories

Inventories are valued at the lower of cost or net realizable value, with cost determined by the last-in, first-out ("LIFO") method for a majority of the company's inventories and the 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 planned production, as well as planned and historical sales of the inventory.

Inventories were as follows:
(Dollars in thousands)
 
February 1, 2019
 
February 2, 2018
 
October 31, 2018
Raw materials and work in process
 
$
124,458

 
$
114,150

 
$
115,280

Finished goods and service parts
 
364,393

 
391,994

 
315,179

Total FIFO value
 
488,851

 
506,144

 
430,459

Less: adjustment to LIFO value
 
72,201

 
66,801

 
72,200

Total inventories, net
 
$
416,650

 
$
439,343

 
$
358,259


 
Note 5 — Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill by reportable segment for the first three months of fiscal 2019 were as follows:
(Dollars in thousands)
 
Professional
 
Residential
 
Other
 
Total
Balance as of October 31, 2018
 
$
214,827

 
$
10,463

 
$

 
$
225,290

Goodwill acquired
 

 

 
1,534

 
1,534

Translation adjustments
 
215

 
52

 

 
267

Balance as of February 1, 2019
 
$
215,042

 
$
10,515

 
$
1,534

 
$
227,091




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The components of other intangible assets as of February 1, 2019 were as follows:
(Dollars in thousands)
 
Weighted-Average Useful Life
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
Patents
 
9.9
 
$
18,255

 
$
(12,524
)
 
$
5,731

Non-compete agreements
 
5.5
 
6,891

 
(6,794
)
 
97

Customer-related
 
18.5
 
89,702

 
(24,929
)
 
64,773

Developed technology
 
7.6
 
31,079

 
(28,774
)
 
2,305

Trade names
 
5.0
 
2,319

 
(1,850
)
 
469

Other
 
1.0
 
800

 
(800
)
 

Total amortizable
 
14.2
 
149,046

 
(75,671
)
 
73,375

Non-amortizable - trade names
 
 
 
30,642

 

 
30,642

Total other intangible assets, net
 
 
 
$
179,688

 
$
(75,671
)
 
$
104,017


The components of other intangible assets as of October 31, 2018 were as follows:
(Dollars in thousands)
 
Weighted-Average Useful Life
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
Patents
 
9.9
 
$
18,235

 
$
(12,297
)
 
$
5,938

Non-compete agreements
 
5.5
 
6,872

 
(6,771
)
 
101

Customer-related
 
18.5
 
89,622

 
(23,653
)
 
65,969

Developed technology
 
7.6
 
31,029

 
(28,471
)
 
2,558

Trade names
 
5.0
 
2,307

 
(1,805
)
 
502

Other
 
1.0
 
800

 
(800
)
 

Total amortizable
 
14.3
 
148,865

 
(73,797
)
 
75,068

Non-amortizable - trade names
 
 
 
30,581

 

 
30,581

Total other intangible assets, net
 
 
 
$
179,446

 
$
(73,797
)
 
$
105,649



Amortization expense for definite-lived intangible assets during the first quarter of fiscal 2019 and fiscal 2018 was $1.8 million and $1.9 million, respectively. Estimated amortization expense for the remainder of fiscal 2019 and succeeding fiscal years is as follows: fiscal 2019 (remainder), $5.0 million; fiscal 2020, $6.2 million; fiscal 2021, $5.7 million; fiscal 2022, $5.6 million; fiscal 2023, $5.2 million; fiscal 2024, $4.9 million; and after fiscal 2024, $40.8 million.

Note 6 — Stockholders’ Equity

Accumulated Other Comprehensive Loss

Components of accumulated other comprehensive loss ("AOCL"), net of tax, were as follows:
(Dollars in thousands)
 
February 1, 2019
 
February 2, 2018
 
October 31, 2018
Foreign currency translation adjustments
 
$
26,280

 
$
10,162

 
$
29,711

Pension and post-retirement benefits
 
561

 
2,281

 
561

Cash flow derivative instruments
 
(2,326
)
 
3,584

 
(6,335
)
Total accumulated other comprehensive loss
 
$
24,515

 
$
16,027

 
$
23,937




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The components and activity of AOCL for the first three months of fiscal 2019 and 2018 were as follows:
(Dollars in thousands)
 
Foreign Currency Translation Adjustments
 
Pension and Post-Retirement Benefits
 
Cash Flow Hedging Derivative Instruments
 
Total
Balance as of October 31, 2018
 
$
29,711

 
$
561

 
$
(6,335
)
 
$
23,937

Other comprehensive (income) loss before reclassifications
 
(3,431
)
 

 
5,490

 
2,059

Amounts reclassified from AOCL
 

 

 
(1,481
)
 
(1,481
)
Net current period other comprehensive (income) loss
 
(3,431
)
 

 
4,009

 
578

Balance as of February 1, 2019
 
$
26,280

 
$
561

 
$
(2,326
)
 
$
24,515

 
 
 
 
 
 
 
 
 
(Dollars in thousands)
 
Foreign Currency Translation Adjustments
 
Pension and Post-Retirement Benefits
 
Cash Flow Hedging Derivative Instruments
 
Total
Balance as of October 31, 2017
 
$
21,303

 
$
2,012

 
$
805

 
$
24,120

Other comprehensive (income) loss before reclassifications
 
(11,141
)
 
269

 
3,612

 
(7,260
)
Amounts reclassified from AOCL
 

 

 
(833
)
 
(833
)
Net current period other comprehensive (income) loss
 
(11,141
)
 
269

 
2,779

 
(8,093
)
Balance as of February 2, 2018
 
$
10,162

 
$
2,281

 
$
3,584

 
$
16,027



For additional information on the components reclassified from AOCL to the respective line items within net earnings for the company's cash flow hedging derivative instruments, refer to Note 12, Derivative Instruments and Hedging Activities.

Note 7 — Stock-Based Compensation

The compensation costs related to stock-based awards were as follows:
 
 
Three Months Ended
(Dollars in thousands)
 
February 1, 2019
 
February 2, 2018
Stock option awards
 
$
1,835

 
$
1,175

Restricted stock units
 
693

 
1,005

Performance share awards
 
804

 
414

Unrestricted common stock awards
 
592

 
530

Total compensation cost for stock-based awards
 
$
3,924

 
$
3,124



During the first quarter of fiscal years 2019 and 2018, 10,090 and 8,388 shares, respectively, of fully vested unrestricted common stock awards were granted to certain members of the company's Board of Directors as a component of their compensation for their service on the Board of Directors and are recorded in selling, general and administrative expense in the Condensed Consolidated Statements of Earnings.

Stock Option Awards

Under The Toro Company Amended and Restated 2010 Equity and Incentive Plan, as amended and restated (the "2010 plan"), stock options are granted with an exercise price equal to the closing price of the company’s common stock on the date of grant, as reported by the New York Stock Exchange. Options are generally granted to executive officers, other employees, and non-employee members of the company’s Board of Directors on an annual basis in the first quarter of the company’s fiscal year. Options generally vest one-third each year over a three-year period and have a ten-year term. Other options granted to certain employees vest in full on the three-year anniversary of the date of grant and have a ten-year term. Compensation cost equal to the grant date fair value is generally recognized for these awards over the vesting period. Stock options granted to executive officers and other employees are subject to accelerated expensing if the option holder meets the retirement definition set forth in the 2010 plan. In that case, the fair value of the options is expensed in the fiscal year of grant because generally the option holder must be employed

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as of the end of the fiscal year in which the options are granted in order for the options to continue to vest following retirement. Similarly, if a non-employee director has served on the company’s Board of Directors for ten full fiscal years or more, the awards vest immediately upon retirement, and therefore, the fair value of the options granted is fully expensed on the date of the grant.

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

The table below illustrates the weighted-average valuation assumptions for options granted in the following fiscal periods:
 
 
Fiscal 2019
 
Fiscal 2018
Expected life of option in years
 
6.31
 
6.05
Expected stock price volatility
 
19.84%
 
20.60%
Risk-free interest rate
 
2.77%
 
2.21%
Expected dividend yield
 
1.18%
 
0.97%
Per share weighted-average fair value at date of grant
 
$12.81
 
$14.29


Performance Share Awards

Under the 2010 plan, the company grants performance share awards to executive officers and other employees under which they are entitled to receive shares of the company’s common stock contingent on the achievement of performance goals of the company and businesses of the company, which are generally measured over a three-year period. The number of shares of common stock a participant receives will be increased (up to 200 percent of target levels) or reduced (down to zero) based on the level of achievement of performance goals and will vest at the end of a three-year period. Performance share awards are generally granted on an annual basis in the first quarter of the company’s fiscal year. Compensation cost is recognized for these awards on a straight-line basis over the vesting period based on the per share fair value as of the date of grant and the probability of achieving each performance goal. The per share weighted-average fair value of performance share awards granted during the first quarter of fiscal 2019 and 2018 was $59.58 and $65.40, respectively.

Restricted Stock Unit Awards

Under the 2010 plan, restricted stock unit awards are generally granted to certain employees that are not executive officers. Occasionally, restricted stock unit awards may be granted, including to executive officers, in connection with hiring, mid-year promotions, leadership transition, or retention. Restricted stock unit awards generally vest one-third each year over a three-year period, or vest in full on the three-year anniversary of the date of grant. Such awards may have performance-based rather than time-based vesting requirements. Compensation cost equal to the grant date fair value, which is equal to the closing price of the company’s common stock on the date of grant multiplied by the number of shares subject to the restricted stock unit awards, is recognized for these awards over the vesting period. The per share weighted-average fair value of restricted stock unit awards granted during the first three months of fiscal 2019 and 2018 was $58.53 and $65.93, respectively.


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Note 8 — Per Share Data

Reconciliations of basic and diluted weighted-average shares of common stock outstanding are as follows:
 
 
Three Months Ended
(Shares in thousands)
 
February 1, 2019
 
February 2, 2018
Basic
 
 

 
 

Weighted-average number of shares of common stock
 
106,216

 
107,173

Assumed issuance of contingent shares
 
42

 
52

Weighted-average number of shares of common stock and assumed issuance of contingent shares
 
106,258

 
107,225

 
 
 
 
 
Diluted
 
 

 
 

Weighted-average number of shares of common stock and assumed issuance of contingent shares
 
106,258

 
107,225

Effect of dilutive securities
 
1,523

 
2,630

Weighted-average number of shares of common stock, assumed issuance of contingent shares, and effect of dilutive securities
 
107,781

 
109,855



Incremental shares from options and restricted stock units are computed under the treasury stock method. Options to purchase 786,262 and 305,911 shares of common stock during the first three months of fiscal 2019 and 2018, respectively, were excluded from diluted net earnings per share because they were anti-dilutive.

Note 9 — Segment Data

The company's businesses are organized, managed, and internally grouped into segments based on similarities in products and services. Segment selection is based on the manner in which management organizes segments for making operating and investment decisions and assessing performance. The company has determined it has nine operating segments and has aggregated certain of those operating segments into two reportable segments: Professional and Residential. The aggregation of the company's operating segments is based on the operating segments having the following similarities: economic characteristics, types of products and services, types of production processes, type or class of customers, and method of distribution. The company's remaining activities are presented as "Other" due to their insignificance. These Other activities consist of the company's wholly-owned domestic distribution companies, the company's corporate activities, and the elimination of intersegment revenues and expenses.

The following tables present the summarized financial information concerning the company’s reportable segments:
(Dollars in thousands)
 
 
 
 
 
 
 
 
Three Months Ended February 1, 2019
 
Professional
 
Residential
 
Other
 
Total
Net sales
 
$
455,006

 
$
145,158

 
$
2,792

 
$
602,956

Intersegment gross sales
 
13,609

 
99

 
(13,708
)
 

Earnings (loss) before income taxes
 
87,978

 
13,072

 
(31,030
)
 
70,020

Total assets
 
$
959,768

 
$
235,520

 
$
427,526

 
$
1,622,814

 
 
 
 
 
 
 
 
 
(Dollars in thousands)
 
 
 
 
 
 
 
 
Three Months Ended February 2, 2018
 
Professional
 
Residential
 
Other
 
Total
Net sales
 
$
403,669

 
$
142,507

 
$
2,070

 
$
548,246

Intersegment gross sales
 
6,458

 
56

 
(6,514
)
 

Earnings (loss) before income taxes
 
75,912

 
15,713

 
(25,240
)
 
66,385

Total assets
 
$
904,597

 
$
249,845

 
$
362,364

 
$
1,516,806



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The following table presents the details of operating loss before income taxes for the company's Other activities:
 
 
Three Months Ended
(Dollars in thousands)
 
February 1, 2019
 
February 2, 2018
Corporate expenses
 
$
(28,314
)
 
$
(24,401
)
Interest expense
 
(4,742
)
 
(4,818
)
Other income
 
2,026

 
3,979

Total operating loss
 
$
(31,030
)
 
$
(25,240
)


Note 10 — Contingencies — Litigation

The company is party to litigation in the ordinary course of business. Such matters are generally subject to uncertainties and to outcomes that are not predictable with assurance and that may not be known for extended periods of time. Litigation occasionally involves claims for punitive, as well as compensatory, damages arising out of the use of the company’s products. Although the company is self-insured to some extent, the company maintains insurance against certain product liability losses. The company is also subject to litigation and administrative and judicial proceedings with respect to claims involving asbestos and the discharge of hazardous substances into the environment. Some of these claims assert damages and liability for personal injury, remedial investigations or clean up and other costs and damages. The company is also typically involved in commercial disputes, employment disputes, and patent litigation cases in which it is asserting or defending against patent infringement claims. To prevent possible infringement of the company’s patents by others, the company periodically reviews competitors’ products. To avoid potential liability with respect to others’ patents, the company regularly reviews certain patents issued by the U.S. 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 Condensed Consolidated Financial Statements for costs related to claims, including future legal costs, settlements and judgments, where the company has assessed that a loss is probable and an amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range, the company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. The company discloses a contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that a material loss may have been incurred. In the opinion of management, the amount of liability, if any, with respect to these matters, individually or in the aggregate, will not materially affect its Consolidated Results of Operations, Financial Position, or Cash Flows.

Note 11 — Warranty Guarantees

The company’s products are warranted to provide assurance that the product will function as expected and to ensure customer confidence in design, workmanship, and overall quality. Warranty coverage is generally provided for specified periods of time and on select products’ hours of usage, and generally covers parts, labor, and other expenses for non-maintenance repairs. 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 the company's 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. Service support outside of the warranty period is provided by authorized distributors and dealers at the customer's expense. In addition to the standard warranties offered by the company on its products, the company also sells separately priced extended warranty coverage on select products for a prescribed period after the original warranty period expires. For additional information on the contract liabilities associated with the company's separately priced extended warranties, refer to Note 14, Revenue.


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The changes in accrued warranties were as follows:
 
 
Three Months Ended
(Dollars in thousands)
 
February 1, 2019
 
February 2, 2018
Beginning balance
 
$
76,214

 
$
74,155

Warranty provisions
 
10,556

 
10,570

Warranty claims
 
(10,815
)
 
(9,840
)
Changes in estimates
 
790

 

Ending balance
 
$
76,745

 
$
74,885



Note 12 — Derivative Instruments and Hedging Activities

Risk Management Objective of Using Derivatives

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

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

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

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

Cash Flow Hedging Instruments

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

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

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of sales, respectively. The maximum amount of time the company hedges its exposure to the variability in future cash flows for forecasted trade sales and purchases is two years. Results of cash flow hedges of intercompany loans are recorded in other income, net as an offset to the remeasurement of the foreign loan balance.

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

As of February 1, 2019, the notional amount outstanding of forward contracts designated as cash flow hedging instruments was $255.9 million.

Derivatives Not Designated as Cash Flow Hedging Instruments

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

The following table presents the fair value and location of the company’s derivative instruments on the Condensed Consolidated Balance Sheets:
(Dollars in thousands)
 
February 1, 2019
 
February 2, 2018
 
October 31, 2018
Derivative assets:
 
 

 
 

 
 

Derivatives designated as cash flow hedging instruments:
 
 

 
 

 
 

Prepaid expenses and other current assets
 
 

 
 

 
 

Forward currency contracts
 
$
4,333

 
$
974

 
$
8,596

Derivatives not designated as cash flow hedging instruments:
 
 
 
 
 
 
Prepaid expenses and other current assets
 
 
 
 
 
 
Forward currency contracts
 
1,503

 
180

 
2,305

Total assets
 
$
5,836

 
$
1,154

 
$
10,901

Derivative liabilities:
 
 
 
 
 
 
Derivatives designated as cash flow hedging instruments:
 
 
 
 
 
 
Accrued liabilities
 
 
 
 
 
 
Forward currency contracts
 
$
30

 
$
5,411

 
$

Derivatives not designated as cash flow hedging instruments:
 
 
 
 
 
 
Accrued liabilities
 
 
 
 
 
 
Forward currency contracts
 
3

 
2,678

 
13

Total liabilities
 
$
33

 
$
8,089

 
$
13



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

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