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

FORM 10-Q

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

For the Quarterly Period Ended July 29, 2022

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

For the Transition Period from           to          
Commission File Number: 1-8649

THE TORO COMPANY
(Exact name of registrant as specified in its charter)
Delaware41-0580470
State or Other Jurisdiction of
Incorporation or Organization
I.R.S. Employer Identification No.

 8111 Lyndale Avenue South
Bloomington, Minnesota 55420-1196
Telephone Number: (952) 888-8801
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $1.00 per shareTTCNew York Stock Exchange

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

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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No 
The number of shares of the registrant’s common stock outstanding as of August 25, 2022 was 104,202,639.


THE TORO COMPANY
FORM 10-Q
TABLE OF CONTENTS
 
Description Page Number
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
   
   
   
   
 
   
   
   
   
 

2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains not only historical information, but also forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we or others on our behalf may make forward-looking statements from time to time in oral presentations, including telephone conferences and/or web casts open to the public, in press releases or reports, on our web sites or otherwise. Statements that are not historical are forward-looking and reflect expectations and assumptions that we believe to be reasonable. Forward-looking statements are based on our current expectations of future events, and often can be identified in this report and elsewhere by using words such as "expect," "strive," "outlook," "guidance," "forecast," "goal," "anticipate," "continue," "plan," "estimate," "project," "target," "improve," "believe," "become," "should," "could," "will," "would," "possible," "may," "likely," "intend," "can," "pursue," "potential," "pro forma," variations of such words or the negative thereof, and similar expressions or future dates. Our forward-looking statements generally relate to our future performance, including our anticipated operating results, liquidity requirements and financial condition; the anticipated impacts of the novel coronavirus ("COVID-19" or "virus"), current global supply chain disruptions, Russia's invasion of Ukraine and the related sanctions and geopolitical tensions, the inflationary environment, tight labor market and other macroeconomic factors; our business strategies, priorities, goals, and commitments; acquisitions and business initiatives; and the effect of laws, rules, policies, regulations, tax reform, new accounting pronouncements, and outstanding litigation on our business and future performance.
Forward-looking statements are only projections and involve risks and uncertainties that could cause actual results to differ materially from those projected or implied in the forward-looking statements. The following are some of the factors known to us that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements:
Adverse economic conditions and outlook in the United States and in other countries in which we conduct business, including as a result of COVID-19 or Russia's invasion of Ukraine and the related sanctions and geopolitical tensions, such as but not limited to business closures, slowdowns, suspensions or delays of production and commercial activity; slow or negative economic growth rates or recessionary conditions; reduced or negative consumer confidence; reduced consumer spending levels; increased or prolonged high or low unemployment rates; tight labor market, higher costs, longer lead times and reduced availability of commodities, components, parts, and accessories, including as a result of transportation-related costs, inflation, changing prices, foreign currency fluctuations, tariffs, and/or duties; inflationary or deflationary pressures; slowdowns or reductions in levels of interest in the game of golf or golf course activity, development, renovation or improvement; golf course closures; reduced governmental or municipal spending; reduced infrastructure spending; reduced levels of home ownership, construction or sales; home foreclosures; the impact of U.S. federal debt, state debt and sovereign debt defaults; reduced credit availability or unfavorable credit terms for us or our distributors, dealers, or end-user customers; higher short-term, mortgage, and other interest rates; and general economic and political conditions and expectations;
Continuing effects associated with COVID-19, including its variants, and the macroeconomic effects resulting therefrom, on (i) our business, financial condition, and operating results; (ii) our dealers, distributors, mass retailers, and other channel partners and customers; (iii) our suppliers and companies throughout our supply chain and any such supplier's ability to meet supply commitments, requirements, and/or demands; (iv) our ability to continue to obtain commodities, components, parts, and accessories on a timely basis through our supply chain and at anticipated costs; (v) the financial and credit markets and economic activity generally; (vi) our ability to access lending, capital markets, and other sources of liquidity when needed on reasonable terms or at all; and (vii) other risks described herein and in our U.S. Securities and Exchange Commission ("SEC") reports, which have been and could continue to be heightened as a result of COVID-19;
Continuing disruption and/or shortages in the availability of and the cost of commodities, components, parts, or accessories used in our products;
Our ability to continue to enhance existing products and develop and market new products that respond to customer needs and preferences and achieve market acceptance;
Effect that weather conditions or climate change have on demand for our products and operations, including our supply chain;
Changes in our product mix;
Effect of competition;
Our ability to cost-effectively expand and renovate existing facilities, open and manage new or acquired facilities, move production between manufacturing facilities, and/or any disruption at or near any of our facilities or other operations or those of our suppliers, distribution channel customers, mass retailers, or home centers where our products are sold;
Our ability to retain our executive officers or other key employees, attract and retain other qualified employees or successfully implement executive officer, key employee or other leadership or employee transitions and any failure by us, or our suppliers or distribution channel partners, to hire and/or retain a labor force to enhance existing products and
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develop and market new products, adequately staff manufacturing operations, perform service or warranty work or other necessary activities, or allow employees to adequately and safely perform their jobs;
Our inability to maintain appropriate inventory levels, including as a result of global supply chain disruptions, and if we underestimate or overestimate demand for our products, and the effect of inventory management decisions of our distribution channel customers;
Changes in composition of, financial viability of, and the relationships with, our distribution channel customers;
Risks associated with our credit arrangements and ratings and any material change in the availability or terms of, or termination or disruption of, credit offered to our customers, distributors, and dealers;
Risks associated with our international operations, including but not limited to the effect of foreign currency exchange rate fluctuations and compliance with foreign legal and regulatory requirements, and Russia's invasion of Ukraine and the related sanctions and geopolitical tensions;
Our failure to comply with all applicable legal and regulatory requirements and the effect of product quality issues, product liability claims, and other litigation to which we are or may be subject;
Risks associated with our acquisitions and alliances, joint ventures, investments or partnerships and our failure to successfully complete divestitures or other restructuring activities;
Our ability to obtain and protect our intellectual property and other proprietary rights or operate our business without infringing upon the intellectual property or other proprietary rights of others;
Failure of our information systems or information security practices or those of our business partners or third-party service providers to adequately perform and/or protect sensitive or confidential information;
Our ability to achieve our financial projections or other business initiatives in the time periods that we anticipate or at all;
Changes in accounting or tax standards and policies and/or assumptions utilized in determining accounting tax estimates; and
Impact of increased scrutiny on our environmental, social and governance (“ESG”) practices and SEC rule making on ESG disclosures.
For more information regarding these and other uncertainties and factors that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements or otherwise could materially adversely affect our business, financial condition, or operating results, see our most recently filed Annual Report on Form 10-K, Part I, Item 1A, "Risk Factors;" Part II, Item 1A, "Risk Factors" of this report; and our subsequent filings with the SEC.
All forward-looking statements included in this report are expressly qualified in their entirety by the foregoing cautionary statements. We caution readers not to place undue reliance on any forward-looking statement which speaks only as of the date made and to recognize that forward-looking statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described above, the risks described in our most recent Annual Report on Form 10-K, Part I, Item 1A, "Risk Factors" and Part II, Item 1A, "Risk Factors" of this report, and our subsequent SEC filings, as well as others that we may consider immaterial or do not anticipate at this time. These risks and uncertainties are not exclusive and further information concerning the company and our businesses, including factors that potentially could materially affect our financial results or condition, may emerge from time to time. We make no commitment to revise or update any forward-looking statements in order to reflect actual results, events or circumstances occurring or existing after the date any forward-looking statement is made, or changes in factors or assumptions affecting such forward-looking statements. We advise you, however, to consult any further disclosures we make on related subjects in our future Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K we file with or furnish to the SEC.
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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 EndedNine Months Ended
July 29, 2022July 30, 2021July 29, 2022July 30, 2021
Net sales$1,160,550 $976,836 $3,342,678 $2,998,929 
Cost of sales760,644 645,719 2,236,927 1,949,823 
Gross profit399,906 331,117 1,105,751 1,049,106 
Selling, general and administrative expense236,858 209,178 680,500 604,986 
Operating earnings163,048 121,939 425,251 444,120 
Interest expense(9,182)(7,016)(24,219)(21,662)
Other income, net3,225 2,528 8,262 8,062 
Earnings before income taxes157,091 117,451 409,294 430,520 
Provision for income taxes31,941 21,131 83,509 80,748 
Net earnings$125,150 $96,320 $325,785 $349,772 
Basic net earnings per share of common stock$1.19 $0.90 $3.10 $3.25 
Diluted net earnings per share of common stock$1.19 $0.89 $3.08 $3.21 
Weighted-average number of shares of common stock outstanding — Basic104,827 107,130 104,931 107,667 
Weighted-average number of shares of common stock outstanding — Diluted105,448 108,363 105,754 108,818 

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 EndedNine Months Ended
July 29, 2022July 30, 2021July 29, 2022July 30, 2021
Net earnings$125,150 $96,320 $325,785 $349,772 
Other comprehensive income (loss), net of tax: 
Foreign currency translation adjustments(5,792)(5,314)(21,190)6,685 
Derivative instruments, net of tax of $863; $2,641; $4,895; and $140, respectively
2,472 8,035 16,043 886 
Other comprehensive income (loss), net of tax(3,320)2,721 (5,147)7,571 
Comprehensive income$121,830 $99,041 $320,638 $357,343 

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)
July 29, 2022July 30, 2021October 31, 2021
ASSETS   
Cash and cash equivalents$231,564 $535,330 $405,612 
Receivables, net350,657 301,234 310,279 
Inventories, net939,274 665,648 738,170 
Prepaid expenses and other current assets82,861 43,577 35,124 
Total current assets1,604,356 1,545,789 1,489,185 
Property, plant, and equipment, net531,816 456,992 487,731 
Goodwill583,803 421,958 421,680 
Other intangible assets, net595,141 426,497 420,041 
Right-of-use assets73,349 72,236 66,990 
Investment in finance affiliate31,389 19,272 20,671 
Deferred income taxes961 6,362 5,800 
Other assets19,134 18,943 24,042 
Total assets$3,439,949 $2,968,049 $2,936,140 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current portion of long-term debt$65,000 $104,217 $ 
Accounts payable487,030 411,413 503,116 
Accrued liabilities443,557 427,407 419,620 
Short-term lease liabilities15,675 15,403 14,283 
Total current liabilities1,011,262 958,440 937,019 
Long-term debt, less current portion990,616 587,345 691,242 
Long-term lease liabilities60,921 60,002 55,752 
Deferred income taxes50,332 74,381 50,397 
Other long-term liabilities40,216 50,703 50,598 
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 104,193,673 shares as of July 29, 2022, 106,440,513 shares as of July 30, 2021, and 105,205,734 shares as of October 31, 2021
104,194 106,441 105,206 
Retained earnings1,213,551 1,157,428 1,071,922 
Accumulated other comprehensive loss(31,143)(26,691)(25,996)
Total stockholders’ equity1,286,602 1,237,178 1,151,132 
Total liabilities and stockholders’ equity$3,439,949 $2,968,049 $2,936,140 

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)
 Nine Months Ended
July 29, 2022July 30, 2021
Cash flows from operating activities:  
Net earnings$325,785 $349,772 
Adjustments to reconcile net earnings to net cash provided by operating activities:  
Non-cash income from finance affiliate(5,814)(4,694)
(Contributions to)/Distributions from finance affiliate, net(4,905)5,167 
Depreciation of property, plant and equipment54,269 55,301 
Amortization of other intangible assets24,760 17,493 
Fair value step-up adjustment to acquired inventory535  
Compensation cost for stock-based compensation awards17,105 16,176 
Deferred income taxes 699 
Other3,358 (26)
Changes in operating assets and liabilities, net of the effect of acquisitions:  
Receivables, net(38,118)(42,217)
Inventories, net(173,000)(20,080)
Prepaid expenses and other assets(32,483)(1,019)
Accounts payable, accrued liabilities, and other liabilities(16,929)100,563 
Net cash provided by operating activities154,563 477,135 
Cash flows from investing activities:  
Purchases of property, plant and equipment(75,772)(47,961)
Business combinations, net of cash acquired(402,386)(14,874)
Asset acquisitions, net of cash acquired(7,225)(27,176)
Proceeds from asset disposals197 588 
Proceeds from sale of a business4,605 18,732 
Net cash used in investing activities(480,581)(70,691)
Cash flows from financing activities:  
Borrowings under debt arrangements700,000  
Repayments under debt arrangements(335,000)(100,000)
Proceeds from exercise of stock options4,440 12,535 
Payments of withholding taxes for stock awards(2,308)(1,875)
Purchases of TTC common stock(110,004)(177,152)
Dividends paid on TTC common stock(94,401)(84,677)
Net cash provided by (used in) financing activities162,727 (351,169)
Effect of exchange rates on cash and cash equivalents(10,757)163 
Net (decrease) increase in cash and cash equivalents(174,048)55,438 
Cash and cash equivalents as of the beginning of the fiscal period405,612 479,892 
Cash and cash equivalents as of the end of the fiscal period$231,564 $535,330 

See accompanying Notes to Condensed Consolidated Financial Statements.
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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 April 29, 2022$104,568 $1,146,771 $(27,823)$1,223,516 
Cash dividends paid on common stock - $0.30 per share
— (31,447)— (31,447)
Issuance of 80,153 shares of common stock under stock-based compensation plans
81 2,112 — 2,193 
Stock-based compensation expense— 5,972 — 5,972 
Purchase of 454,482 shares of common stock
(455)(35,007)— (35,462)
Other comprehensive loss— — (3,320)(3,320)
Net earnings— 125,150 — 125,150 
Balance as of July 29, 2022$104,194 $1,213,551 $(31,143)$1,286,602 
Balance as of October 31, 2021$105,206 $1,071,922 $(25,996)$1,151,132 
Cash dividends paid on common stock - $0.90 per share
— (94,401)— (94,401)
Issuance of 233,491 shares of common stock under stock-based compensation plans
234 4,239 — 4,473 
Stock-based compensation expense— 17,105 — 17,105 
Contribution of 33,162 shares of common stock to a deferred compensation trust
(33) — (33)
Purchase of 1,212,390 shares of common stock
(1,213)(111,099)— (112,312)
Other comprehensive loss— — (5,147)(5,147)
Net earnings— 325,785 — 325,785 
Balance as of July 29, 2022$104,194 $1,213,551 $(31,143)$1,286,602 
Balance as of April 30, 2021$107,043 $1,151,786 $(29,412)$1,229,417 
Cash dividends paid on common stock - $0.2625 per share
— (28,075)— (28,075)
Issuance of 64,260 shares of common stock for exercised stock options and vested restricted stock units
65 1,605 — 1,670 
Stock-based compensation expense— 5,831 — 5,831 
Purchase of 666,672 shares of common stock
(667)(70,039)— (70,706)
Other comprehensive income— — 2,721 2,721 
Net earnings— 96,320 — 96,320 
Balance as of July 30, 2021$106,441 $1,157,428 $(26,691)$1,237,178 
Balance as of October 31, 2020$107,583 $1,041,507 $(34,262)$1,114,828 
Cash dividends paid on common stock - $0.7875 per share
— (84,677)— (84,677)
Issuance of 587,723 shares of common stock for exercised stock options and vested restricted stock units and performance share awards
588 10,462 — 11,050 
Stock-based compensation expense— 16,176 — 16,176 
Contribution of 22,700 shares of common stock to a deferred compensation trust
23 1,462 — 1,485 
Purchase of 1,752,579 shares of common stock
(1,753)(177,274)— (179,027)
Other comprehensive income— — 7,571 7,571 
Net earnings— 349,772 — 349,772 
Balance as of July 30, 2021$106,441 $1,157,428 $(26,691)$1,237,178 

See accompanying Notes to Condensed Consolidated Financial Statements.
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THE TORO COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
July 29, 2022
 
1Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and notes required by United States ("U.S.") generally accepted accounting principles ("GAAP") for complete financial statements. Unless the context indicates otherwise, the terms "company," "TTC," "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. Due to seasonality within the industries in which the company's businesses operate, the effect of COVID-19 and the macroeconomic effects resulting therefrom on the Company's business and operating results, among other factors, operating results for the nine months ended July 29, 2022 cannot be annualized to determine the expected results for the fiscal year ending October 31, 2022.
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 calendar quarter end. For comparative purposes, however, the company’s second and third quarters always include exactly 13 weeks of results so that the quarter end date for these two quarters is not necessarily the Friday closest to the calendar month end.
For further information regarding the company's basis of presentation, refer to the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in the company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2021. The policies described in that report are used for preparing the company's quarterly reports on Form 10-Q.
Impact of Russia's Invasion of Ukraine
Beginning in the second quarter of fiscal 2022, in response to Russia's invasion of Ukraine, the company discontinued sales into the Russian and Belarus markets. Prior sales in those markets did not represent a significant share of our overall international business, and the company does not expect this decision to have a material impact on our financial results.
Continuing Impact of COVID-19
COVID-19 is having lingering effects on public health and portions of the global economy. The company continues to see significant pressure on global supply chains rooted mainly in disruptions created by these effects. The continuing implications of COVID-19, including its variants, and the macroeconomic effects resulting therefrom, on the company remain uncertain and will depend on future developments, including any adverse impact due to additional variants of the virus; its impact on market demand for the company's products; its impact on the company's employees, customers, and suppliers; the range of government mandated restrictions and other measures; and the success of the COVID-19 vaccines and their effectiveness against the virus and related variants. This uncertainty could have a material impact on accounting estimates and assumptions utilized to prepare the Condensed Consolidated Financial Statements as of and for the nine months ended July 29, 2022 and in future reporting periods, which could result in a material adverse impact on the company's consolidated financial position, results of operations, and cash flows.
Accounting Policies and Estimates
In preparing the Condensed Consolidated Financial Statements in conformity with U.S. GAAP, management must make decisions that impact the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures, including disclosures of contingent assets and liabilities. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. Estimates are used in determining, among other items, sales promotion and incentive accruals, incentive compensation accruals, income tax accruals, inventory valuation, warranty accruals, allowances for current expected credit losses, pension accruals, self-insurance accruals, legal accruals, right-of-use assets and lease liabilities, useful lives for tangible and finite-lived intangible assets, future cash flows associated with impairment testing for goodwill, indefinite-lived intangible assets and other long-lived assets, and valuations of the assets acquired and liabilities assumed in a business combination or an asset acquisition, when applicable. 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 and current circumstances, historical experience, and actuarial and other independent external third-party specialist valuations, when applicable. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors that management believes to be reasonable under
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the circumstances, including the economic environment. Management adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with certainty, including those impacted by COVID-19 and Russia's invasion of Ukraine and the related sanctions and geopolitical tensions, actual amounts could differ significantly from those estimated at the time the Condensed Consolidated Financial Statements are prepared.
New Accounting Pronouncements Adopted
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The amended guidance also clarifies and simplifies other aspects of the accounting for income taxes under accounting standards codification Topic 740, Income Taxes. The amended guidance was adopted in the first quarter of fiscal 2022 and did not have a material impact on the company's Condensed Consolidated Financial Statements.
In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), which clarified that before applying or upon discontinuing the equity method of accounting for an investment in equity securities, an entity should consider observable transactions that require it to apply or discontinue the equity method of accounting for the purposes of applying the fair value measurement alternative. The amended guidance was adopted in the first quarter of fiscal 2022 and did not have a material impact on the company's Condensed Consolidated Financial Statements.
New Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional guidance to ease the potential burden of accounting for reference rate reform due to the cessation of the London Interbank Offered Rate, commonly referred to as "LIBOR." The temporary guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, relationships, and transactions affected by reference rate reform if certain criteria are met. The guidance was effective upon issuance on March 12, 2020 and the provisions of the temporary optional guidance provided by the ASU may be elected on a prospective basis from the beginning of an interim period that includes the issuance date of the ASU through December 31, 2022, when the reference rate reform activity is expected to be substantially complete. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, to provide supplemental guidance and to further clarify the scope of the amended guidance. At this time, the company does not have receivables, hedging relationships, or operating lease agreements that reference LIBOR or another reference rate expected to be discontinued; and therefore, the company has not applied the optional practical expedients under this ASU to these classes of assets. On October 5, 2021, the company entered into an amended and restated credit agreement and at such time, the company concluded that the optional practical expedients provided by the ASU would not be elected as the required criteria were not met. The amended and restated credit agreement includes a transition clause in the event LIBOR is discontinued and the company's other fixed-rate financing agreements do not reference LIBOR or another reference rate expected to be discontinued. On April 27, 2022, the company amended its October 5, 2021 amended and restated revolving credit agreement to transition the reference rate from LIBOR to Secured Overnight Financing Rate ("SOFR"). As of July 29, 2022, SOFR is the reference rate in effect for all outstanding variable interest borrowings of the company. The company does not expect the transition of LIBOR to have a material impact on the company's Condensed Consolidated Financial Statements; however, a review of other contracts and agreements is underway and is expected to be completed prior to December 31, 2022.
The company believes that all other recently issued accounting pronouncements from the FASB that the company has not noted above, will not have a material impact on its Condensed Consolidated Financial Statements or do not apply to its operations.
2Business Combinations and Asset Acquisitions
Intimidator Group
On January 13, 2022 ("closing date"), pursuant to an equity interest purchase agreement ("equity agreement"), the company acquired the privately-held Intimidator Group ("Intimidator"). Intimidator primarily designs, manufactures, markets, and sells a commercial-grade line of zero-turn mowers under the Spartan Mowers brand, which are intended to provide innovative turf management solutions to landscape contractors and other customers who require a commercial-grade solution. The acquisition of Intimidator broadened the company's Professional reportable segment and expanded its manufacturing footprint and dealer network.
The Intimidator acquisition was structured as an equity purchase, pursuant to which the company acquired 100 percent of the equity interests of the legal entities that comprised Intimidator, with the legal entities continuing as surviving entities and
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wholly-owned subsidiaries of the company. As part of the acquisition, the company also acquired the real property used by Intimidator that was owned by an affiliate of Intimidator. As of the closing date, the aggregate purchase consideration was $398.9 million, subject to certain customary adjustments based on, among other things, the amount of actual cash, debt, and working capital in the business of Intimidator at the closing date. Such customary adjustments were finalized during the third quarter of fiscal 2022 and resulted in an aggregate purchase consideration of $399.8 million ("purchase price"). Additionally, the aggregate purchase consideration remains subject to contingent consideration through the end of calendar year 2022, in the event of certain qualifying tax changes. As a result, the company could be subject to additional cash purchase consideration for an amount not to exceed $15.0 million and remittance of such contingent consideration, if required, is due by March 15, 2023. As of July 29, 2022, no liability was recorded within the Condensed Consolidated Balance Sheets for the contingent consideration as the contingency is not probable or estimable. The company funded the purchase price with borrowings under its existing unsecured senior revolving credit facility and cash provided by operating activities. For additional information regarding the company's unsecured senior revolving credit facility utilized to fund the purchase price, refer to Note 6, Indebtedness.
Purchase Price Allocation
The company accounted for the acquisition in accordance with the accounting standards codification guidance for business combinations, whereby the aggregate purchase price was allocated to the acquired net tangible and intangible assets of Intimidator based on their fair values as of the closing date. As of July 29, 2022, the company has substantially completed its process for measuring the fair values of the assets acquired and liabilities assumed based on information available as of the closing date, with the exception of contingent consideration in the event of certain qualifying tax changes. The company expects to finalize its valuation and complete the allocation of the purchase price as soon as practicable but no later than one year from the closing date of the acquisition, as required.
The following table summarizes the allocation of the purchase price to the fair values assigned to the assets acquired and liabilities assumed. These fair values are based on internal company and independent external third-party valuations and are subject to change as certain asset and liability valuations are finalized:
(Dollars in thousands)January 13, 2022
Cash and cash equivalents$975 
Receivables6,954 
Inventories34,608 
Prepaid expenses and other current assets513 
Property, plant and equipment27,447 
Right-of-use assets344 
Goodwill163,731 
Other intangible assets:
Indefinite-lived trade name99,100 
Finite-lived trade names3,260 
Finite-lived customer-related80,500 
Finite-lived backlog1,340 
Accounts payable(8,535)
Accrued liabilities(9,152)
Short-term lease liabilities(100)
Long-term lease liabilities(244)
Total fair value of net assets acquired400,741 
Less: cash and cash equivalents acquired(975)
Total purchase price$399,766 
The goodwill recognized is primarily attributable to the expected future cash flows, the value of the workforce, and expected synergies, including customer and dealer growth opportunities, expanding existing product lines, and cost reduction initiatives. Key areas of expected cost synergies include increased purchasing power for commodities, components, parts, and accessories and supply chain consolidation. The goodwill resulting from the acquisition of Intimidator was recognized within the company's Professional segment and is the primary driver for the increase in the company's Professional segment goodwill to $573.4 million as of July 29, 2022 as compared to $411.1 million as of October 31, 2021. The acquisition was considered an asset acquisition for income tax purposes and as a result, the goodwill arising from the transaction is deductible. As permitted under the accounting standards codification guidance for business combinations, the company recorded increases to the carrying value of goodwill of $2.9 million and $8.1 million for the three and nine months ended July 29, 2022, respectively, as a result of revising the Intimidator purchase price for certain customary adjustments. Such purchase accounting adjustment did not impact the company's Consolidated Statements of Earnings for the three and nine month periods ended July 29, 2022.
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Other Intangible Assets Acquired
The allocation of the purchase price to the net assets acquired resulted in the recognition of $184.2 million of value for other intangible assets as of the closing date. The fair values of the acquired trade names, customer-related, and backlog intangible assets were determined using the income approach whereby an intangible asset's fair value is equal to the present value of future economic benefits to be derived from ownership of the asset. The useful lives of the other intangible assets were determined based on the period of expected cash flows used to measure the fair value of the intangible assets adjusted as appropriate for entity-specific factors including legal, regulatory, contractual, competitive, economic, and/or other factors that may limit the useful life of the respective intangible asset. As of the closing date, the acquired finite-lived intangible assets had a weighted average useful life of 9.5 years. The fair values of the trade names were determined using the relief from royalty method, which is based on the hypothetical royalty stream that would be received if the company were to license the respective trade name and were based on expected future revenues from the respective trade name. The weighted-average useful life of the finite-lived trade name intangible assets was determined to be 9.8 years as of the closing date. The fair values of the customer-related and backlog intangible assets were determined using the excess earnings method and were based on the expected operating cash flows attributable to the respective intangible asset, which were determined by deducting expected economic costs, including operating expenses and contributory asset charges, from the revenue expected to be generated from the respective intangible asset. As of the closing date of the acquisition, the weighted-average useful life of the customer-related and backlog intangible assets were determined to be 9.6 years and 9 months, respectively.
Results of Operations
Intimidator's results of operations are included within the company's Professional reportable segment in the company's Condensed Consolidated Financial Statements from the closing date. For the three and nine months ended July 29, 2022, the company recognized $54.4 million and $114.9 million of net sales from Intimidator's operations, respectively. Intimidator's operations had an immaterial impact on Professional segment earnings for the three and nine month periods ended July 29, 2022. Unaudited pro forma financial information is not disclosed as the Intimidator acquisition was not considered material to the company's consolidated results of operations.
Asset Acquisitions
Effective June 10, 2022, during the third quarter of fiscal 2022, the company completed the acquisition of certain assets of Voigt Smith Innovation LLC (“VSI”), a manufacturer of liquid deicing equipment, brine makers and applicators, related smart-connected technologies, and hydroseeding products. Effective June 20, 2022, during the third quarter of fiscal 2022, the company completed the acquisition of certain assets of Tornado Global Hydrovacs Ltd. (“Tornado”), a designer and manufacturer of hydrovac trucks. Effective June 21, 2022, during the third quarter of fiscal 2022, the company completed the acquisition of certain assets of River City Manufacturing, Inc. (“RCM”), a manufacturer of custom rock saws. Each of these acquisitions did not meet the definition of a business combination as substantially all of the fair value of the gross assets acquired in each acquisition was concentrated in the respective finite-lived developed technology intangible assets. As a result, the company accounted for each of these transactions as an asset acquisition. In an asset acquisition, goodwill is not recognized, but rather, any excess purchase consideration over the fair value of the net assets acquired is allocated on a relative fair value basis to the identifiable net assets as of the acquisition date and any direct acquisition-related transaction costs are capitalized as part of the purchase consideration. These asset acquisitions were immaterial in relation to the company's Consolidated Financial Condition and Results of Operations and as a result, additional purchase accounting disclosures have been omitted.
3Segment Data
The company's businesses are organized, managed, and internally grouped into segments based on similarities in products and services. Segment selection is based on the manner in which the company's chief operating decision maker organizes segments for making operating and investment decisions and assessing performance. The company has identified twelve operating segments and has aggregated certain of those operating segments into two reportable segments: Professional and Residential. The aggregation of the company's segments is based on the segments having the following similarities: economic characteristics, types of products and services, types of production processes, type or class of customers, and method of distribution. The company's remaining activities are presented as "Other" due to their insignificance. The company's Other activities consist of the company's wholly-owned domestic distribution company, the company's corporate activities, and the elimination of intersegment revenues and expenses.
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The following tables present summarized financial information concerning the company’s reportable business segments and Other activities (in thousands):
Three Months Ended July 29, 2022ProfessionalResidentialOtherTotal
Net sales$886,232 $269,962 $4,356 $1,160,550 
Intersegment gross sales (eliminations)10,436 15 (10,451)— 
Earnings (loss) before income taxes$166,191 $26,348 $(35,448)$157,091 
Nine Months Ended July 29, 2022ProfessionalResidentialOtherTotal
Net sales$2,484,927 $845,039 $12,712 $3,342,678 
Intersegment gross sales (eliminations)23,201 50 (23,251)— 
Earnings (loss) before income taxes424,833 95,203 (110,742)409,294 
Total assets$2,625,481 $407,218 $407,250 $3,439,949 
Three Months Ended July 30, 2021ProfessionalResidentialOtherTotal
Net sales$718,477 $252,117 $6,242 $976,836 
Intersegment gross sales (eliminations)8,241 13 (8,254)— 
Earnings (loss) before income taxes$122,331 $31,548 $(36,428)$117,451 
Nine Months Ended July 30, 2021ProfessionalResidentialOtherTotal
Net sales$2,197,058 $784,852 $17,019 $2,998,929 
Intersegment gross sales (eliminations)24,034 39 (24,073)— 
Earnings (loss) before income taxes406,279 109,642 (85,401)430,520 
Total assets$1,949,681 $327,064 $691,304 $2,968,049 
The following table presents the details of operating loss before income taxes for the company's Other activities:
 Three Months EndedNine Months Ended
(Dollars in thousands)July 29, 2022July 30, 2021July 29, 2022July 30, 2021
Corporate expenses$(30,816)$(33,797)$(94,359)$(78,814)
Interest expense(9,182)(7,016)(24,219)(21,662)
Earnings from wholly-owned domestic distribution companies and other income, net4,550 4,385 7,836 15,075 
Total operating loss$(35,448)$(36,428)$(110,742)$(85,401)
4Revenue
The following tables disaggregate the company's reportable segment net sales by major product type and geographic market (in thousands):
Three Months Ended July 29, 2022ProfessionalResidentialOtherTotal
Revenue by product type:    
Equipment$780,738 $265,469 $1,102 $1,047,309 
Irrigation105,494 4,493 3,254 113,241 
Total net sales$886,232 $269,962 $4,356 $1,160,550 
Revenue by geographic market: 
United States$710,386 $229,666 $4,356 $944,408 
International countries175,846 40,296  216,142 
Total net sales$886,232 $269,962 $4,356 $1,160,550 
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Nine Months Ended July 29, 2022ProfessionalResidentialOtherTotal
Revenue by product type:    
Equipment$2,149,549 $823,536 $6,207 $2,979,292 
Irrigation335,378 21,503 6,505 363,386 
Total net sales$2,484,927 $845,039 $12,712 $3,342,678 
Revenue by geographic market: 
United States$1,969,933 $703,234 $12,712 $2,685,879 
International countries514,994 141,805  656,799 
Total net sales$2,484,927 $845,039 $12,712 $3,342,678 
Three Months Ended July 30, 2021ProfessionalResidentialOtherTotal
Revenue by product type:    
Equipment$609,022 $247,152 $3,164 $859,338 
Irrigation109,455