10-Q

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 August 2, 2013

THE TORO COMPANY

(Exact name of registrant as specified in its charter)

Delaware	1-8649	41-0580470
(State of Incorporation)	(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  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company 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  x

The number of shares of Common Stock outstanding as of August 26, 2013 was 57,156,252.

THE TORO COMPANY

INDEX TO FORM 10-Q

		Page Number
PART I.	FINANCIAL INFORMATION:
Item 1.	Financial Statements
	Condensed Consolidated Statements of Earnings (Unaudited) — Three and Nine Months Ended August 2, 2013 and August 3, 2012	3
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) — Three and Nine Months Ended August 2, 2013 and August 3, 2012	4
	Condensed Consolidated Balance Sheets (Unaudited) — August 2, 2013, August 3, 2012, and October 31, 2012	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) — Nine Months Ended August 2, 2013 and August 3, 2012	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7-15
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16-25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25-26
Item 4.	Controls and Procedures	26-27
PART II.	OTHER INFORMATION:
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 6.	Exhibits	29
	Signatures	30

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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 Ended						Nine Months Ended
	August 2,			August 3,			August 2,			August 3,
	2013			2012			2013			2012
Net sales	$	509,918		$	504,076		$	1,659,065		$	1,619,396
Cost of sales	331,887			325,954			1,062,916			1,059,201
Gross profit	178,031			178,122			596,149			560,195
Selling, general, and administrative expense	119,451			117,137			373,894			358,689
Operating earnings	58,580			60,985			222,255			201,506
Interest expense	(3,909		)	(4,198		)	(12,307		)	(12,791		)
Other income, net	2,982			2,681			7,420			5,231
Earnings before income taxes	57,653			59,468			217,368			193,946
Provision for income taxes	17,556			18,919			67,473			64,656
Net earnings	$	40,097		$	40,549		$	149,895		$	129,290
Basic net earnings per share of common stock	$	0.70		$	0.69		$	2.58		$	2.17
Diluted net earnings per share of common stock	$	0.68		$	0.67		$	2.53		$	2.13
Weighted-average number of shares of common stock outstanding — Basic	57,653			59,045			58,091			59,642
Weighted-average number of shares of common stock outstanding — Diluted	58,913			60,336			59,266			60,829

See accompanying notes to condensed consolidated financial statements.

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THE TORO COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)

	Three Months Ended						Nine Months Ended
	August 2,			August 3,			August 2,			August 3,
	2013			2012			2013			2012
Net earnings	$	40,097		$	40,549		$	149,895		$	129,290
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(5,583		)	(3,181		)	(5,037		)	(4,936		)
Derivative instruments, net of tax of $(37), $(282), $596, and $266, respectively	(128		)	(92		)	546			845
Other comprehensive income (loss), net	(5,711		)	(3,273		)	(4,491		)	(4,091		)
Comprehensive income	$	34,386		$	37,276		$	145,404		$	125,199

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)

	August 2,			August 3,			October 31,
	2013			2012			2012
ASSETS
Cash and cash equivalents	$	161,180		$	143,058		$	125,856
Receivables, net	202,148			197,023			147,410
Inventories, net	258,929			234,790			251,117
Prepaid expenses and other current assets	27,426			24,436			24,437
Deferred income taxes	62,324			62,368			63,314
Total current assets	712,007			661,675			612,134
Property, plant, and equipment	710,825			666,301			683,107
Less accumulated depreciation	530,882			488,578			502,584
	179,943			177,723			180,523
Deferred income taxes	98			76			—
Other assets	19,351			20,646			18,477
Goodwill	91,951			92,070			92,000
Other intangible assets, net	27,780			34,338			32,065
Total assets	$	1,031,130		$	986,528		$	935,199
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt	$	—		$	1,858		$	1,858
Accounts payable	124,244			124,168			124,806
Accrued liabilities	284,702			278,797			251,458
Total current liabilities	408,946			404,823			378,122
Long-term debt, less current portion	223,528			223,467			223,482
Deferred revenue	10,547			11,289			11,143
Deferred income taxes	2,898			1,380			2,280
Other long-term liabilities	6,592			7,822			7,770
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 as of August 2, 2013 and 100,000,000 shares as of August 3, 2012 and October 31, 2012; issued and outstanding 57,142,923 shares as of August 2, 2013, 58,771,336 shares as of August 3, 2012, and 58,266,482 shares as of October 31, 2012	57,143			58,771			58,266
Retained earnings	335,941			289,892			264,110
Accumulated other comprehensive loss	(14,465		)	(10,916		)	(9,974		)
Total stockholders’ equity	378,619			337,747			312,402
Total liabilities and stockholders’ equity	$	1,031,130		$	986,528		$	935,199

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
	August 2,			August 3,
	2013			2012
Cash flows from operating activities:
Net earnings	$	149,895		$	129,290
Adjustments to reconcile net earnings to net cash provided by operating activities:
Noncash income from finance affiliate	(5,658		)	(4,521		)
Provision for depreciation and amortization	39,204			37,929
Stock-based compensation expense	7,927			7,465
Decrease (increase) in deferred income taxes	183			(443		)
Other	28			(117		)
Changes in operating assets and liabilities, net of effect of acquisitions:
Receivables, net	(56,762		)	(51,640		)
Inventories, net	(12,048		)	(6,428		)
Prepaid expenses and other assets	(1,539		)	(6,114		)
Accounts payable, accrued liabilities, deferred revenue, and other long-term liabilities	36,910			59,986
Net cash provided by operating activities	158,140			165,407
Cash flows from investing activities:
Purchases of property, plant, and equipment	(34,390		)	(28,158		)
Proceeds from asset disposals	344			114
Distributions from finance affiliate, net	2,977			1,777
Acquisitions, net of cash acquired	—			(9,663		)
Net cash used in investing activities	(31,069		)	(35,930		)
Cash flows from financing activities:
Repayments of short-term debt	(415		)	(922		)
Repayments of long-term debt	(1,769		)	(1,892		)
Excess tax benefits from stock-based awards	5,196			8,080
Proceeds from exercise of stock options	8,146			17,337
Purchases of Toro common stock	(76,003		)	(67,354		)
Dividends paid on Toro common stock	(24,453		)	(19,748		)
Net cash used in financing activities	(89,298		)	(64,499		)
Effect of exchange rates on cash and cash equivalents	(2,449		)	(2,806		)
Net increase in cash and cash equivalents	35,324			62,172
Cash and cash equivalents as of the beginning of the fiscal period	125,856			80,886
Cash and cash equivalents as of the end of the fiscal period	$	161,180		$	143,058
Supplemental disclosures of cash flow information:
Long-term debt issued in connection with an acquisition	$	—		$	100

See accompanying notes to condensed consolidated financial statements.

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THE TORO COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

August 2, 2013

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 U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. Unless the context indicates otherwise, the terms “company” and “Toro” refer to The Toro Company and its consolidated subsidiaries. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments, consisting primarily of recurring accruals, considered necessary for a fair presentation of the financial position and results of operations. Since the company’s business is seasonal, operating results for the nine months ended August 2, 2013 cannot be annualized to determine the expected results for the fiscal year ending October 31, 2013.

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 included in the company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2012. The policies described in that report are used for preparing quarterly reports.

Common Shares Authorized

On March 12, 2013, following approval by the company’s shareholders at its 2013 annual meeting of shareholders, the company amended its Restated Certificate of Incorporation by filing a Certificate of Amendment to Restated Certificate of Incorporation with the Secretary of State of Delaware to increase the number of authorized shares of common stock from 100,000,000 to 175,000,000.

Accounting Policies

In preparing the 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 promotions and incentives accruals, incentive compensation accruals, inventory valuation, warranty reserves, earnout liabilities, allowance for doubtful accounts, pension and postretirement accruals, self-insurance accruals, useful lives for tangible and intangible assets, and future cash flows associated with impairment testing for goodwill and other long-lived assets. These estimates and assumptions are based on management’s best estimates and judgments at the time they are made. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors that management believes to be reasonable under the circumstances, including the current economic environment. Management adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with certainty, actual amounts could differ significantly from those estimated at the time the consolidated financial statements are prepared. Changes in those estimates will be reflected in the consolidated financial statements in future periods.

Stock-Based Compensation

Stock Option Awards

Under the company’s incentive 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 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 non-officer employees vest in full on the three-year anniversary of the date of grant and have a ten-year term. Compensation expense equal to the grant date fair value is generally recognized for these awards over the vesting period. Stock options granted to officers and other employees are subject to accelerated expensing if the option holder meets the retirement definition set forth in the plan. In that case, the fair value of the options is expensed in the fiscal year of grant because the option holder must be employed as of the end of the fiscal year in which the options are granted in order for the options to continue to vest following retirement. Similarly, if a non-employee director has served on the company’s Board of

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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, volatility, and dividend yield must be applied. The expected life is the average length of time in which officers, other employees, and non-employee directors are expected to exercise their stock options, which is primarily based on historical experience. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. Expected volatilities are based on the movement of the company’s common stock over the most recent historical period equivalent to the expected life of the option. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate over the expected life at the time of grant. Dividend yield is estimated over the expected life based on the company’s historical cash dividends paid, expected future cash dividends and dividend yield, and expected changes in the company’s stock price.

The following table illustrates the assumptions for options granted in the following fiscal periods.

	Fiscal 2013	Fiscal 2012
Expected life of option in years	6	6
Expected volatility	35.18% - 35.19%	34.87% - 35.02%
Weighted-average volatility	35.19%	35.01%
Risk-free interest rate	0.88%	1.20%
Expected dividend yield	1.04% - 1.07%	1.31% - 1.40%
Weighted-average dividend yield	1.07%	1.32%
Grant date per share weighted-average fair value	$13.03	$8.56

Performance Share Awards

The company grants performance share awards under the company’s incentive plan 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, 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 expense is recognized for these awards on a straight-line basis over the vesting period based on the per share fair value as of the date of grant and the probability of achieving each performance goal. The per share fair value of performance share awards granted during the first nine months of fiscal 2013 and 2012 was $42.06 and $28.24, respectively.

Restricted Stock and Restricted Stock Unit Awards

Under the company’s incentive plan, restricted stock and restricted stock unit awards are generally granted to certain non-officer employees. Occasionally, restricted stock or restricted stock unit awards may be granted in connection with hiring, mid-year promotions, leadership transition, or retention. In fiscal 2013, the company began granting restricted stock unit awards. Restricted stock and restricted stock unit awards generally vest one-third each year over a three-year period or vest in full on the three-year anniversary of the date of grant, but such awards may have performance-based rather than time-based vesting requirements. Compensation expense equal to the grant date fair value, which is equal to the closing price of the company’s common stock on the date of grant multiplied by the number of shares subject to the restricted stock and restricted stock unit awards, is recognized for these awards over the vesting period. The per share weighted-average fair value of restricted stock awards granted during the first nine months of fiscal 2013 and 2012 was $46.22 and $33.61, respectively.

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Per Share Data

Reconciliations of basic and diluted weighted-average shares of common stock outstanding are as follows:

	Three Months Ended		Nine Months Ended
	August 2,	August 3,	August 2,	August 3,
(Shares in thousands)	2013	2012	2013	2012
Basic
Weighted-average number of shares of common stock	57,653	59,045	58,059	59,633
Assumed issuance of contingent shares	—	—	32	9
Weighted-average number of shares of common stock and assumed issuance of contingent shares	57,653	59,045	58,091	59,642
Diluted
Weighted-average number of shares of common stock and assumed issuance of contingent shares	57,653	59,045	58,091	59,642
Effect of dilutive securities	1,260	1,291	1,175	1,187
Weighted-average number of shares of common stock, assumed issuance of contingent shares, and effect of dilutive securities	58,913	60,336	59,266	60,829

Options to purchase an aggregate of 204,461 and 2,247 shares of common stock outstanding during the third quarter of fiscal 2013 and 2012, respectively, were excluded from the diluted net earnings per share. Options to purchase an aggregate of 328,703 and 32,414 shares of common stock outstanding during the year-to-date periods through the third quarter of fiscal 2013 and 2012, respectively, were excluded from the diluted net earnings per share calculations. These exclusions are made if the exercise prices of these options are greater than the average market price of the company’s common stock for the period, if the number of shares the company can repurchase under the treasury stock method exceeds the weighted average shares outstanding in the options, or if the company has a net loss, as the effects are anti-dilutive.

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 most inventories and first-in, first-out (“FIFO”) method for all other inventories. The company establishes a reserve for excess, slow-moving, and obsolete inventory that is equal to the difference between the cost and estimated net realizable value for that inventory. These reserves are based on a review and comparison of current inventory levels to the planned production, as well as planned and historical sales of the inventory.

Inventories were as follows:

	August 2,		August 3,		October 31,
(Dollars in thousands)	2013		2012		2012
Raw materials and work in process	$	80,176	$	83,649	$	91,465
Finished goods and service parts	242,560		212,142		223,459
Total FIFO value	322,736		295,791		314,924
Less: adjustment to LIFO value	63,807		61,001		63,807
Total	$	258,929	$	234,790	$	251,117

Goodwill

The changes in the net carrying amount of goodwill for the first nine months of fiscal 2013 were as follows:

	Professional			Residential
(Dollars in thousands)	Segment			Segment			Total
Balance as of October 31, 2012	$	80,984		$	11,016		$	92,000
Translation adjustments	(3		)	(46		)	(49		)
Balance as of August 2, 2013	$	80,981		$	10,970		$	91,951

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Other Intangible Assets

The components of other amortizable intangible assets were as follows:

(Dollars in thousands) August 2, 2013	Estimated Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net
Patents	1.5-13	$	9,593	$	(8,431	)	$	1,162
Non-compete agreements	1.5-10	6,305		(4,282		)	2,023
Customer-related	1.5-13	8,248		(4,400		)	3,848
Developed technology	1.5-10	27,765		(12,624		)	15,141
Trade names	1.5-5	1,515		(790		)	725
Other		800		(800		)	—
Total amortizable		54,226		(31,327		)	22,899
Non-amortizable - trade names		4,881		—			4,881
Total other intangible assets, net		$	59,107	$	(31,327	)	$	27,780

October 31, 2012	Estimated Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net
Patents	1.5-13	$	9,593	$	(8,031	)	$	1,562
Non-compete agreements	1.5-10	6,303		(3,656		)	2,647
Customer-related	1.5-13	8,312		(3,826		)	4,486
Developed technology	1.5-10	27,727		(10,196		)	17,531
Trade names	1.5-5	1,515		(557		)	958
Other		800		(800		)	—
Total amortizable		54,250		(27,066		)	27,184
Non-amortizable - trade names		4,881		—			4,881
Total other intangible assets, net		$	59,131	$	(27,066	)	$	32,065

Amortization expense for intangible assets during the first nine months of fiscal 2013 was $4.5 million. Estimated amortization expense for the remainder of fiscal 2013 and succeeding fiscal years is as follows: fiscal 2013 (remainder), $1.4 million; fiscal 2014, $5.3 million; fiscal 2015, $5.1 million; fiscal 2016, $4.6 million; fiscal 2017, $3.7 million; fiscal 2018, $1.7 million; and after fiscal 2018, $1.1 million.

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 provides inventory financing, including floor plan and open account receivable financing, to distributors and dealers of the company’s products in the United States and to select distributors of the company’s products in Canada. In fiscal 2012, the company and TCFIF entered into amendments to certain of the agreements pertaining to Red Iron, among other things, to extend the initial term of Red Iron until October 31, 2017, subject to unlimited automatic two-year extensions thereafter. Either the company or TCFIF may elect not to extend the initial term or any subsequent term by giving one-year notice to the other party of its intention not to extend the term. Additionally, in connection with the joint venture, the company and an affiliate of TCFIF entered into an arrangement to provide inventory financing to dealers of the company’s products in Canada.

The company owns 45 percent of Red Iron and TCFIF owns 55 percent of Red Iron. The company accounts for its investment in Red Iron under the equity method of accounting. Each of the company and TCFIF contributed a specified amount of the estimated cash required to enable Red Iron to purchase the company’s inventory financing receivables and to provide financial support for Red Iron’s inventory financing programs. Red Iron borrows the remaining requisite estimated cash utilizing a $450 million secured revolving credit facility established under a credit agreement between Red Iron and TCFIF. The company’s total investment in Red Iron as of August 2, 2013 was $15.2 million. The company has not guaranteed the outstanding indebtedness of Red Iron. The company has agreed to repurchase products repossessed by Red Iron and the TCFIF Canadian affiliate, up to a maximum aggregate amount of $7.5 million in a calendar year. In addition, the company has provided recourse to Red Iron for certain outstanding receivables, which amounted to a maximum amount of $0.4 million as of August 2, 2013.

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

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Iron to the company. The net amount of new receivables financed for dealers and distributors under this arrangement for the nine months ended August 2, 2013 and August 3, 2012 was $962.5 million and $920.3 million, respectively.

As of July 31, 2013, Red Iron’s total assets were $302.5 million and total liabilities were $268.7 million.

Warranty Guarantees

The company’s products are warranted to ensure customer confidence in design, workmanship, and overall quality. Warranty coverage is for specified periods of time and on select products’ hours of usage, and generally covers parts, labor, and other expenses for non-maintenance repairs. Warranty coverage generally does not cover operator abuse or improper use. An authorized company distributor or dealer must perform warranty work. Distributors and dealers submit claims for warranty reimbursement and are credited for the cost of repairs, labor, and other expenses as long as the repairs meet prescribed standards. Warranty expense is accrued at the time of sale based on the estimated number of products under warranty, historical average costs incurred to service warranty claims, the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting warranty claim, and other minor factors. Special warranty reserves are also accrued for major rework campaigns. The company sells extended warranty coverage on select products for a prescribed period after the factory warranty period expires.

Warranty provisions, claims, changes in estimates, and additions from acquisitions for the first nine months of fiscal 2013 and 2012 were as follows:

	Nine Months Ended
	August 2,			August 3,
(Dollars in thousands)	2013			2012
Beginning balance	$	69,848		$	62,730
Warranty provisions	33,875			32,268
Warranty claims	(24,624		)	(23,656		)
Changes in estimates	(1,928		)	2,183
Additions from acquisitions	—			200
Ending balance	$	77,171		$	73,725

Segment Data

The presentation of segment information reflects the manner in which management organizes segments for making operating decisions and assessing performance. On this basis, the company has determined it has three reportable business segments: Professional, Residential, and Distribution. The Distribution segment, which consists of company-owned domestic distributorships, has been combined with the company’s corporate activities and elimination of intersegment revenues and expenses that is shown as “Other” in the following tables due to the insignificance of the segment.

The following table shows the summarized financial information concerning the company’s reportable segments:

(Dollars in thousands)
Three months ended August 2, 2013	Professional		Residential		Other			Total
Net sales	$	343,866	$	155,452	$	10,600		$	509,918
Intersegment gross sales	7,628		149		(7,777		)	—
Earnings (loss) before income taxes	60,508		15,070		(17,925		)	57,653

Three months ended August 3, 2012	Professional		Residential		Other			Total
Net sales	$	361,120	$	135,894	$	7,062		$	504,076
Intersegment gross sales	12,012		90		(12,102		)	—
Earnings (loss) before income taxes	70,537		10,048		(21,117		)	59,468

Nine months ended August 2, 2013	Professional		Residential		Other			Total
Net sales	$	1,169,446	$	477,789	$	11,830		$	1,659,065
Intersegment gross sales	34,401		354		(34,755		)	—
Earnings (loss) before income taxes	233,521		51,903		(68,056		)	217,368
Total assets	573,089		177,495		280,546			1,031,130

Nine months ended August 3, 2012	Professional		Residential		Other			Total
Net sales	$	1,100,899	$	505,399	$	13,098		$	1,619,396
Intersegment gross sales	31,134		2		(31,136		)	—
Earnings (loss) before income taxes	211,329		51,174		(68,557		)	193,946
Total assets	548,381		179,452		258,695			986,528

11

The following table summarizes the components of the loss before income taxes included in “Other” shown above:

	Three Months Ended						Nine Months Ended
	August 2,			August 3,			August 2,			August 3,
(Dollars in thousands)	2013			2012			2013			2012
Corporate expenses	$	(18,985	)	$	(19,805	)	$	(61,304	)	$	(60,991	)
Interest expense, net	(3,909		)	(4,198		)	(12,307		)	(12,791		)
Other	4,969			2,886			5,555			5,225
Total	$	(17,925	)	$	(21,117	)	$	(68,056	)	$	(68,557	)

Derivative Instruments and Hedging Activities

The company is exposed to foreign currency exchange rate risk arising from transactions in the normal course of business, such as sales to third party customers, sales and loans to wholly owned foreign subsidiaries, foreign plant operations, and purchases from suppliers. The company actively manages the exposure of its foreign currency exchange rate market risk by entering into various hedging instruments, authorized under company policies that place controls on these activities, with counterparties that are highly rated financial institutions. The company’s hedging activities primarily involve the use of forward currency contracts, as well as a cross currency swaps that are intended to offset intercompany loan exposures. The company uses derivative instruments only in an attempt to limit underlying exposure from foreign currency exchange rate fluctuations and to minimize earnings and cash flow volatility associated with foreign currency exchange rate changes. Decisions on whether to use such contracts are primarily based on the amount of exposure to the currency involved and an assessment of the near-term market value for each currency. The company’s policy does not allow the use of derivatives for trading or speculative purposes. The company also has made an accounting policy election to use the portfolio exception with respect to measuring counterparty credit risk for derivative instruments, and to measure the fair value of a portfolio of financial assets and financial liabilities on the basis of the net open risk position with each counterparty. The company’s primary foreign currency exchange rate exposures are with the Euro, the Australian dollar, the Canadian dollar, the British pound, the Mexican peso, the Japanese yen, the Chinese Yuan, and the Romanian New Leu against the U.S. dollar, as well as the Romanian New Leu against the Euro.

Cash flow hedges. The company recognizes all derivative instruments as either assets or liabilities at fair value on the consolidated balance sheet and formally documents relationships between cash flow hedging instruments and hedged transactions, as well as its risk-management objective and strategy for undertaking hedge transactions. This process includes linking all derivatives to the forecasted transactions, such as sales to third parties and foreign plant operations. Changes in fair values of outstanding cash flow hedge derivatives, except the ineffective portion, are recorded in other comprehensive income (“OCI”), until net earnings is affected by the variability of cash flows of the hedged transaction. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in net earnings. The consolidated statement of earnings classification of effective hedge results is the same as that of the underlying exposure. Results of hedges of sales and foreign plant operations are recorded in net sales and cost of sales, respectively, when the underlying hedged transaction affects net earnings. The maximum amount of time the company hedges its exposure to the variability in future cash flows for forecasted trade sales and purchases is two years. Results of hedges of intercompany loans are recorded in other income, net as an offset to the remeasurement of the foreign loan balance.

The company formally assesses, at a hedge’s inception and on an ongoing basis, whether the derivatives that are designated as hedges have been highly effective in offsetting changes in the cash flows of the hedged transactions and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not, or has ceased to be, highly effective as a hedge, the company discontinues hedge accounting prospectively. When the company discontinues hedge accounting because it is no longer probable, but it is still reasonably possible that the forecasted transaction will occur by the end of the originally expected period or within an additional two-month period of time thereafter, the gain or loss on the derivative remains in accumulated other comprehensive loss (“AOCL”) and is reclassified to net earnings when the forecasted transaction affects net earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were in AOCL are recognized immediately in net earnings. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the company carries the derivative at its fair value on the consolidated balance sheet, recognizing future changes in the fair value in other income, net. For the third quarter and year-to-date periods of fiscal 2013, there were no losses on contracts reclassified into earnings as a result of the discontinuance of cash flow hedges. As of August 2, 2013, the notional amount outstanding of forward contracts designated as cash flow hedges was $80.4 million. Additionally, the company has one cross currency interest rate swap instrument outstanding as of August 2, 2013 for a fixed pay notional of 36.6 million Romanian New Leu and receive floating notional of 8.5 million Euro.

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

The following table presents the fair value of the company’s derivatives and consolidated balance sheet location.

Asset Derivatives

Liability Derivatives

August 2, 2013

August 3, 2012

August 2, 2013

August 3, 2012

Balance

Balance

Balance

Balance

Sheet

Fair

Sheet

Fair

Sheet

Fair

Sheet

Fair

(Dollars in thousands)

Location

Value

Location

Value

Location

Value

Location

Value

Derivatives Designated as Hedging Instruments

Forward currency contracts

Prepaid expenses

$

796

Prepaid expenses

$

3

Accrued liabilities

$

178

Accrued liabilities

$

—

Cross currency swaps

Prepaid expenses

—

Prepaid expenses

624

Accrued liabilities

428

Accrued liabilities

—

Derivatives Not Designated as Hedging Instruments

Forward currency contracts

Prepaid expenses

2,305

Prepaid expenses

970

Accrued liabilities

178

Accrued liabilities

175

Cross currency swaps

Prepaid expenses

83

Prepaid expenses

1,019

Accrued liabilities

—

Accrued liabilities

—

Total Derivatives

$

3,184

$

2,616

$

784

$

175

The following table presents the impact of derivative instruments on the consolidated statements of earnings for the company’s derivatives designated as cash flow hedging instruments for the three and nine months ended August 2, 2013 and August 3, 2012, respectively.

														Location of Gain (Loss)	Gain (Loss)
							Location of Gain							Recognized in Income	Recognized in Income
	Gain (Loss)						(Loss) Reclassified	Gain (Loss)						on Derivatives	on Derivatives
	Recognized in OCI on						from AOCL	Reclassified from						(Ineffective Portion	(Ineffective Portion and
	Derivatives						into Income	AOCL into Income						and excluded from	Excluded from
	(Effective Portion)						(Effective Portion)	(Effective Portion)						Effectiveness Testing)	Effectiveness Testing)
(Dollars in thousands)	August 2,			August 3,				August 2,			August 3,				August 2,		August 3,
For the three months ended	2013			2012				2013			2012				2013		2012
Forward currency contracts	$	459		$	(463	)	Net sales	$	(114	)	$	1,033		Other income, net	$	5	$	394
Forward currency contracts	(491		)	(16		)	Cost of sales	185			(475		)
Cross currency contracts	(97		)	387			Other income, net	126			386
Total	$	(129	)	$	(92	)		$	197		$	944

	August 2,			August 3,				August 2,			August 3,				August 2,		August 3,
For the nine months ended	2013			2012				2013			2012				2013		2012
Forward currency contracts	$	1,133		$	(222	)	Net sales	$	(1,456	)	$	2,738		Other income, net	$	706	$	597
Forward currency contracts	110			675			Cost of sales	426			(1,120		)
Cross currency contracts	(702		)	387			Other income, net	(713		)	386
Total	$	541		$	840			$	(1,743	)	$	2,004

As of August 2, 2013, the company expects to reclassify approximately $0.1 million of losses from AOCL to earnings during the next 12 months.

The following table presents the impact of derivative instruments on the consolidated statements of earnings for the company’s derivatives not designated as hedging instruments.

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		Gain (Loss) Recognized in Net Earnings
		Three Months Ended					Nine Months Ended
	Location of Gain (Loss)	August 2,			August 3,		August 2,			August 3,
(Dollars in thousands)	Recognized in Net Earnings	2013			2012		2013			2012
Forward currency contracts	Other income, net	$	3,227		$	2,233	$	2,267		$	6,930
Cross currency swaps	Other income, net	(100		)	899		(281		)	997
		$	3,127		$	3,132	$	1,986		$	7,927

Fair Value Measurements

The company categorizes its assets and liabilities into one of three levels based on the assumptions (inputs) used in valuing the asset or liability. Estimates of fair value for financial assets and financial liabilities are based on the framework established in the accounting guidance for fair value measurements.  The framework defines fair value, provides guidance for measuring fair value and requires certain disclosures.  The framework discusses valuation techniques such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost).  The framework utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.  Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment. The three levels are defined as follows:

Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs reflecting management’s assumptions about the inputs used in pricing the asset or liability.

Cash and cash equivalents are valued at their carrying amounts in the consolidated balance sheets, which are reasonable estimates of their fair value due to their short-term maturities. Forward currency contracts are valued based on observable market transactions of forward currency prices and spot currency rates as of the reporting date. The fair value of cross currency contracts is determined using discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs such as interest rates and foreign currency exchange rates. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contracts such as collateral postings, thresholds, mutual puts, and guarantees, are incorporated in the fair values to account for potential nonperformance risk. The unfunded deferred compensation liability is primarily subject to changes in fixed-income investment contracts based on current yields. For accounts receivable and accounts payable, carrying amounts are a reasonable estimate of fair value given their short-term nature.

Assets and liabilities measured at fair value on a recurring basis, as of August 2, 2013, August 3, 2012, and October 31, 2012 are summarized below:

(Dollars in thousands)
August 2, 2013	Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	161,180	$	161,180	$	—	—
Forward currency contracts	3,101		—		3,101		—
Cross currency contracts	83		—		83		—
Total assets	$	164,364	$	161,180	$	3,184	—
Liabilities:
Forward currency contracts	$	356	—		$	356	—
Cross currency contracts	428		—		428		—
Deferred compensation liabilities	2,982		—		2,982		—
Total liabilities	$	3,766	—		$	3,766	—

August 3, 2012	Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	143,058	$	143,058	$	—	—
Forward currency contracts	2,616		—		2,616		—
Total assets	$	145,674	$	143,058	$	2,616	—
Liabilities:
Forward currency contracts	$	175	—		$	175	—
Deferred compensation liabilities	3,738		—		3,738		—
Total liabilities	$	3,913	—		$	3,913	—

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October 31, 2012	Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	125,856	$	125,856	$	—	—
Forward currency contracts	995		—		995		—
Cross currency contracts	1,046		—		1,046		—
Total assets	$	127,897	$	125,856	$	2,041	—
Liabilities:
Forward currency contracts	$	2,114	—		$	2,114	—
Deferred compensation liabilities	3,547		—		3,547		—
Total liabilities	$	5,661	—		$	5,661	—

There were no transfers between Level 1 and Level 2 during the three and nine months ended August 2, 2013 and August 3, 2012, or the fiscal year ended October 31, 2012.

Contingencies

Litigation

General. The company is party to litigation in the ordinary course of business. Litigation occasionally involves claims for punitive as well as compensatory damages arising out of use of the company’s products. Although the company is self-insured to some extent, the company maintains insurance against certain product liability losses. The company is also subject to litigation and administrative and judicial proceedings with respect to claims involving asbestos and the discharge of hazardous substances into the environment. Some of these claims assert damages and liability for personal injury, remedial investigations or clean up and other costs and damages. The company is also typically involved in commercial disputes, employment disputes, and patent litigation cases in which it is asserting or defending against patent infringement claims. To prevent possible infringement of the company’s patents by others, the company periodically reviews competitors’ products. To avoid potential liability with respect to others’ patents, the company regularly reviews certain patents issued by the United States Patent and Trademark Office (“USPTO”) and foreign patent offices. Management believes these activities help minimize its risk of being a defendant in patent infringement litigation.

Canadian Lawnmower Engine Horsepower Marketing and Sales Practices Litigation. In March 2010, individuals who claim to have purchased lawnmowers in Canada filed class action litigation against the company and other defendants that, similar to the class action litigation previously filed by plaintiffs in the United States and settled by the company pursuant to a settlement agreement that became final in February 2011, (i) contains allegations under applicable Canadian law that the horsepower labels on the products the plaintiffs purchased were inaccurate, (ii) seeks certification of a class of all persons in Canada who, beginning January 1, 1994 purchased a lawnmower containing a gas combustible engine up to 30 horsepower that was manufactured or sold by the company and other defendants, and (iii) seeks under applicable Canadian law unspecified compensatory and punitive damages, attorneys’ costs and fees, and equitable relief.

Management continues to evaluate this Canadian litigation and, in the event the company is unable to favorably resolve this litigation, while management does not currently believe that this litigation would have a material adverse effect on the company’s annual consolidated operating results or financial condition, an unfavorable resolution or outcome could be material to the company’s consolidated operating results for a particular period.

Subsequent Events

The company evaluated all subsequent events and concluded that no additional subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements.

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Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Nature of Operations

The Toro Company is in the business of designing, manufacturing, and marketing professional turf maintenance equipment and services, landscape equipment and lighting, turf irrigation systems, agricultural micro-irrigation systems, rental and construction equipment, and residential yard and snow removal products. We sell our products worldwide through a network of distributors, dealers, hardware retailers, home centers, mass retailers, and over the Internet. Our businesses are organized into three reportable business segments: Professional, Residential, and Distribution. Our Distribution segment, which consists of our company-owned domestic distributorships, has been combined with our corporate activities and is shown as “Other.” We strive to provide innovative, well-built, and dependable products supported by an extensive service network. A significant portion of our revenues has historically been, and we expect will continue to be, attributable to new and enhanced products. We define new products as those introduced in the current and previous two fiscal years.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the MD&A included in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended October 31, 2012.

RESULTS OF OPERATIONS

Overview

For the third quarter and year-to-date periods of fiscal 2013, our net sales increased 1.2 percent and 2.4 percent, respectively, compared to the same periods in the prior fiscal year. Sales for our professional segment decreased 4.8 percent in the third quarter of fiscal 2013 compared to the third quarter of fiscal 2012 due primarily to strong sales in the first quarter of fiscal 2013 for products subject to Tier 4 diesel engine emission requirements that historically shipped to our customers in the second and third fiscal quarters. For the year-to-date period of fiscal 2013 compared to the year-to-date period of fiscal 2012, professional segment sales were up 6.2 percent, driven mainly by strong demand for our landscape contractor equipment, successful introduction of new products, higher global sales of our micro-irrigation products from continued market growth and demand for drip irrigation solutions in agricultural markets, and price increases on some products. Additionally, increased sales and demand in the rental market, as well as incremental net sales from acquisitions, contributed to our professional segment net sales growth in the year-to-date period of fiscal 2013. Residential segment sales increased 14.4 percent in the third quarter of fiscal 2013 compared to the third quarter of fiscal 2012 as improved weather conditions this fiscal year drove higher demand for walk power mowers, riding products, and Pope irrigation products in Australia, as well as our recently introduced lithium-ion battery-powered trimmer products. However, for the year-to-date period of fiscal 2013 compared to the same period in fiscal 2012, residential segment sales were down 5.5 percent primarily as a result of lower shipments of snow thrower products due to poor preseason demand and lack of snowfall during the past two winter seasons in key markets. In addition, shipments of walk power mowers were down for the year-to-date comparison due to adverse spring weather conditions that negatively impacted demand and our sales during the key selling period. Overall, retail demand was strong for both professional and residential segments for the third quarter of fiscal 2013 compared to the third quarter in the prior fiscal year, which also contributed to a slight decline in field inventory levels as of the end of the third quarter of fiscal 2013 compared to the end of the third quarter of fiscal 2012.

Our net earnings decreased slightly in the third quarter of fiscal 2013 compared to the third quarter of fiscal 2012; however, for the year-to-date period of fiscal 2013 compared to the same period last fiscal year, net earnings increased 15.9 percent primarily from an improvement of our gross margin rate of 130 basis points and a decrease in our tax rate due to the retroactive reenactment of the domestic research and development tax credit. However, our selling, general, and administrative (SG&A) expense as a percentage of net sales was up by 20 basis points and 40 basis points in the third quarter and year-to-date periods of fiscal 2013, respectively, compared to the same periods last fiscal year.

Our overall financial condition remained strong while we placed emphasis on improving working capital management. Our inventory levels were up 10.3 percent as of the end of the third quarter of fiscal 2013 compared to the end of the third quarter of fiscal 2012 as we continued to work through inventory previously built in anticipation of strong demand for products impacted by Tier 4 diesel engine emission requirements, plus higher inventory levels of micro-irrigation products and an increase in inventory to support our rental and construction businesses. Our receivables increased 2.6 percent, as of the end of the third quarter of fiscal 2013 compared to the end of the third quarter of fiscal 2012 due to higher sales volumes. Consistent with dividends declared to date in fiscal 2013, we increased our third quarter cash dividend by 27.3 percent from $0.11 to $0.14 per share compared to the quarterly cash dividend paid in the third quarter of fiscal 2012.

Our multi-year initiative, “Destination 2014” will take us to our centennial in 2014 and into our second century. This is our third year of this four-year initiative, which is intended to focus our efforts on driving our legacy of excellence through building caring relationships and engaging in innovation. Through our Destination 2014 initiative financial goals, we strive to achieve $100 million in organic revenue growth each fiscal year and 12 percent operating earnings as a percentage of net sales by the end of

16

fiscal 2014. We define organic revenue growth as the increase in net sales, less net sales from acquisitions that occurred in the most recent four quarters.

In January 2013, we entered into an agreement to acquire a Chinese micro-irrigation company, subject to applicable regulatory approvals and other customary closing conditions. We expect to close the transaction by the end of fiscal 2013.

Our financial results for the first nine months of fiscal 2013 were solid, and we are cautiously optimistic about the remainder of the fiscal year. Our ongoing focus is on generating customer demand and aggressively driving retail sales for our innovative products, while keeping production closely aligned with expected shipment volumes. We will continue to keep a cautionary eye on the global economic environment, retail demand, field inventory levels, commodity prices, weather conditions, competitive actions, expenses, and other factors identified below under the heading “Forward-Looking Information,” which could cause our actual results to differ from our anticipated outlook.

Net Earnings

Net earnings for the third quarter of fiscal 2013 were $40.1 million, or $0.68 per diluted share, compared to $40.5 million, or $0.67 per diluted share, for the third quarter of fiscal 2012, resulting in a net earnings per diluted share increase of 1.5 percent. Year-to-date net earnings in fiscal 2013 were $149.9 million, or $2.53 per diluted share, compared to $129.3 million, or $2.13 per diluted share, in the same comparable period last fiscal year, resulting in a net earnings per diluted share increase of 18.8 percent. The primary factors contributing to our earnings improvement for the year-to-date comparison included an increase in our gross margin rate, higher sales volumes, and a decrease in our effective tax rate, somewhat offset by an increase in SG&A expense. In addition, third quarter and year-to-date fiscal 2013 net earnings per diluted share were benefited by approximately $0.02 per share and $0.07 per share, respectively, compared to the same periods in fiscal 2012, as a result of reduced shares outstanding from repurchases of our common stock.

The following table summarizes the major operating costs and other income as a percentage of net sales:

	Three Months Ended				Nine Months Ended
	August 2, 2013		August 3, 2012		August 2, 2013		August 3, 2012
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	(65.1	)	(64.7	)	(64.1	)	(65.4	)
Gross margin	34.9		35.3		35.9		34.6
SG&A expense	(23.4	)	(23.2	)	(22.5	)	(22.1	)
Operating earnings	11.5		12.1		13.4		12.5
Interest expense	(0.8	)	(0.8	)	(0.7	)	(0.8	)
Other income, net	0.6		0.5		0.4		0.3
Provision for income taxes	(3.4	)	(3.8	)	(4.1	)	(4.0	)
Net earnings	7.9	%	8.0	%	9.0	%	8.0	%

Net Sales

Worldwide consolidated net sales for the third quarter of fiscal 2013 were $509.9 million, up 1.2 percent compared to the third quarter of fiscal 2012. For the year-to-date period of fiscal 2013, net sales were $1,659.1 million, up 2.4 percent from the same period in the prior fiscal year. Worldwide professional segment net sales decreased 4.8 percent in the third quarter of fiscal 2013 compared to the third quarter of fiscal 2012 due primarily to strong sales in the first quarter of fiscal 2013 for products subject to Tier 4 diesel engine emission requirements that historically shipped to our customers in the second and third fiscal quarters. Specifically, additional Tier 4 emission requirements began to phase in for our products manufactured after January 1, 2013, having diesel engines greater than 25 but less than 75 horsepower. As a result, we implemented price increases on our products having technologies required to conform to Tier 4 diesel engine emission requirements in order to cover the additional cost associated with such technologies. Consequently, our professional segment net sales in the first quarter of fiscal 2013 were significantly higher than we experienced in the past because of strong demand during the first quarter of fiscal 2013 for products subject to Tier 4 diesel engine emission requirements. For the year-to-date period of fiscal 2013 compared to the year-to-date period of fiscal 2012, professional segment sales were up 6.2 percent, also driven by strong demand for our landscape contractor equipment, successful introduction of new products, higher global sales of our micro-irrigation products from continued market growth and demand for drip irrigation solutions in agricultural markets, and price increases on some products. Additionally, increased sales and demand in the rental market, as well as incremental net sales from acquisitions of approximately $6.4 million for the year-to-date period of fiscal 2013, contributed to our professional segment net sales growth in fiscal 2013. Worldwide residential segment net sales increased 14.4 percent in the third quarter of fiscal 2013 compared to the third quarter of fiscal 2012 as improved weather conditions this fiscal year compared to the severe drought weather conditions in third quarter of fiscal 2012 drove higher demand for our walk power mowers and riding products. Our recently introduced line of

17

lithium-ion battery-powered string and hedge trimmers also contributed to our residential segment net sales for both the quarter and year-to-date periods of fiscal 2013. Additionally, Pope products in Australia were up due to increased demand for irrigation products as a result of dry weather conditions. However, for the year-to-date period of fiscal 2013 compared to the same period in fiscal 2012, residential segment net sales were down 5.5 percent primarily as a result of lower shipments of snow thrower products due to poor preseason demand and lack of snowfall during the past two winter seasons in key markets. In addition, shipments of walk power mowers were down for the year-to-date comparison due primarily to adverse spring weather conditions that negatively impacted demand and our sales during the key selling period. International net sales were up 3.9 percent and 2.5 percent for the third quarter and year-to-date periods of fiscal 2013, respectively, compared to the same periods in the prior fiscal year due primarily to increased sales in EMEA and Asia from higher micro-irrigation and golf equipment product sales. However, changes in foreign currency exchange rates resulted in a reduction of our net sales of approximately $1.6 million and $6.3 million for the third quarter and year-to-date periods of fiscal 2013, respectively. Field inventory levels were slightly down as of the end of the third quarter of fiscal 2013 compared to the end of the third quarter of fiscal 2012 due to strong retail demand in the third quarter of fiscal 2013, as well as efforts to improve asset management.

Gross Profit

As a percentage of net sales, gross profit for the third quarter of fiscal 2013 decreased 40 basis points to 34.9 percent compared to 35.3 percent in the third quarter of fiscal 2012 due mainly to higher sales of products that carry lower gross margins, somewhat offset by price increases on some professional segment products, cost reduction efforts, and slightly lower commodity prices. Gross profit as a percent of net sales for the year-to-date period of fiscal 2013 increased 130 basis points to 35.9 percent compared to 34.6 percent for the year-to-date period of fiscal 2012. This improvement was primarily due to price increases on some products, cost reduction efforts, slightly lower commodity prices, and a higher proportion of sales for our professional segment that carry higher gross margins compared to our residential segment, somewhat offset by changes in foreign currency exchange rates that hampered our gross margin growth rate.

Selling, General, and Administrative Expense

SG&A expense increased $2.3 million, or 2.0 percent, for the third quarter of fiscal 2013 compared to the third quarter of fiscal 2012 and increased $15.2 million, or 4.2 percent, for the year-to-date period of fiscal 2013 compared to the year-to-date period of fiscal 2012. As a percentage of net sales, SG&A expense increased 20 basis points and 40 basis points for the third quarter and year-to-date periods of fiscal 2013, respectively, compared to the same periods in the prior fiscal year. These increases were primarily attributable to an increase in sales and marketing expense, higher warehousing costs related to our new distribution facility in Ankeny, Iowa, plus higher inventory levels, and an increase in engineering from investments in new product development. Additionally, incremental SG&A costs from acquisitions of approximately $4 million for the year-to-date period of fiscal 2013 also contributed to the increase in SG&A expense. These increases were somewhat offset by a decline in warranty expense and lower bad debt expense for both the third quarter and year-to-date periods of fiscal 2013 compared to the same periods in the prior fiscal year.

Interest Expense

Interest expense for the third quarter and year-to-date periods of fiscal 2013 decreased 6.9 percent and 3.8 percent, respectively, compared to the same periods last fiscal year due mainly to lower average debt levels.

Other Income, Net

Other income, net for the third quarter and year-to-date periods of fiscal 2013 increased $0.3 million and $2.2 million, respectively, compared to the same periods last fiscal year primarily due to higher income from our equity investment in Red Iron and a decrease in foreign currency exchange rate losses.

Provision for Income Taxes

The effective tax rate for the third quarter of fiscal 2013 was 30.5 percent compared to 31.8 percent for the third quarter of fiscal 2012. The effective tax rate for the year-to-date periods of fiscal 2013 and 2012 was 31.0 percent and 33.3 percent, respectively. The reductions in the effective tax rate were primarily the result of the retroactive reenactment of the domestic research and development tax credit.

BUSINESS SEGMENTS

As described previously, we operate in three reportable business segments: Professional, Residential, and Distribution. Our Distribution segment, which consists of our company-owned domestic distributorships, has been combined with our corporate activities and elimination of intersegment revenues and expenses that is shown as “Other” in the following tables. Operating

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earnings for our Professional and Residential segments are defined as operating earnings plus other income, net. Operating loss for “Other” includes operating earnings (loss), corporate activities, other income, net, and interest expense.

The following table summarizes net sales by segment:

	Three Months Ended
	August 2,		August 3,
(Dollars in thousands)	2013		2012		$ Change			% Change
Professional	$	343,866	$	361,120	$	(17,254	)	(4.8	)%
Residential	155,452		135,894		19,558			14.4
Other	10,600		7,062		3,538			50.1
Total*	$	509,918	$	504,076	$	5,842		1.2	%
* Includes international sales of:	$	138,855	$	133,623	$	5,232		3.9	%

	Nine Months Ended
	August 2,		August 3,
(Dollars in thousands)	2013		2012		$ Change			% Change
Professional	$	1,169,446	$	1,100,899	$	68,547		6.2	%
Residential	477,789		505,399		(27,610		)	(5.5	)
Other	11,830		13,098		(1,268		)	(9.7	)
Total*	$	1,659,065	$	1,619,396	$	39,669		2.4	%
* Includes international sales of:	$	492,526	$	480,471	$	12,055		2.5	%

The following table summarizes segment earnings (loss) before income taxes:

	Three Months Ended
	August 2,			August 3,
(Dollars in thousands)	2013			2012			$ Change			% Change
Professional	$	60,508		$	70,537		$	(10,029	)	(14.2	)%
Residential	15,070			10,048			5,022			50.0
Other	(17,925		)	(21,117		)	3,192			15.1
Total	$	57,653		$	59,468		$	(1,815	)	(3.1	)%

	Nine Months Ended
	August 2,			August 3,
(Dollars in thousands)	2013			2012			$ Change		% Change
Professional	$	233,521		$	211,329		$	22,192	10.5	%
Residential	51,903			51,174			729		1.4
Other	(68,056		)	(68,557		)	501		0.7
Total	$	217,368		$	193,946		$	23,422	12.1	%

Professional

Net Sales. Worldwide net sales for the professional segment in the third quarter of fiscal 2013 decreased 4.8 percent compared to the third quarter in the prior fiscal year due primarily to strong sales in the first quarter of fiscal 2013 for products subject to Tier 4 diesel engine emission requirements that historically shipped to our customers in the second and third fiscal quarters, as previously discussed. For the year-to-date period of fiscal 2013 compared to the year-to-date period of fiscal 2012, professional segment net sales were up 6.2 percent, driven primarily by strong demand for our landscape contractor equipment , successful introduction of new products, higher global sales of our micro-irrigation products from continued market growth and demand, as well as additional manufacturing capacity that increased production and enabled higher sales for our drip irrigation solutions, and price increases on some products. Additionally, increased sales and demand in the rental market, as well as incremental net sales from acquisitions of approximately $6.4 million, contributed to our professional segment net sales growth in the year-to-date period of fiscal 2013. However, sales of our retail irrigation products were down as a result of reduced product placement at a key customer. Overall retail demand for our professional segment was strong for both the third quarter and year-to-date

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periods of fiscal 2013 compared to the same periods last fiscal year, and field inventory levels were slightly up as of the end of the third quarter of fiscal 2013 compared to the end of the same period in the prior fiscal year.

Operating Earnings. Operating earnings for the professional segment in the third quarter decreased 14.2 percent compared to the third quarter of fiscal 2012, and decreased as a percentage of sales to 17.6 percent in the third quarter of fiscal 2013 compared to 19.5 percent in the third quarter of fiscal 2012. These profit declines were mainly due to lower sales volumes, a slight decline in gross margin, and an increase in SG&A costs primarily from the same factors discussed previously in the Selling, General, and Administrative Expense section. For the year-to-date period of fiscal 2013, operating earnings for the professional segment increased 10.5 percent compared to the same period in the prior fiscal year. Expressed as a percentage of net sales, professional segment operating earnings increased to 20.0 percent for the year-to-date period of fiscal 2013 compared to 19.2 percent for the year-to-date period in fiscal 2012. These profit improvements were primarily attributable to higher sales volumes and an increase in gross margin due to price increases on some products, cost reduction efforts, and slightly lower commodity prices.

Residential

Net Sales. Worldwide net sales for the residential segment in the third quarter of fiscal 2013 increased 14.4 percent compared to the third quarter of fiscal 2012 as improved weather conditions this fiscal year, compared to the severe drought weather conditions in third quarter of fiscal 2012, drove higher shipments for our walk power mowers and riding products. Retail demand for our lawn and garden products was significantly up during our third quarter of fiscal 2013 compared to the third quarter of fiscal 2012, which also resulted in a decline of our field inventory levels as of the end of the third quarter of fiscal 2013 compared to the end of our third quarter of fiscal 2012. Our recently introduced line of lithium-ion battery-powered string trimmers and hedge trimmers also contributed to our residential segment net sales for both the recent quarter and year-to-date periods. Additionally, Pope products in Australia were up due to increased demand for irrigation products as a result of dry weather conditions. However, for the year-to-date period of fiscal 2013 compared to the same period in fiscal 2012, residential segment net sales were down 5.5 percent as a result of lower shipments of snow thrower products due to poor preseason demand and lack of snowfall during the past two winter seasons in key markets. In addition, shipments of walk power mowers were down for the year-to-date comparison due to adverse spring weather conditions that negatively impacted demand and our sales during the key selling period.

Operating Earnings. Operating earnings for the residential segment in the third quarter and year-to-date periods of fiscal 2013 increased 50.0 percent and 1.4 percent, respectively, compared to the same periods in the prior fiscal year. Expressed as a percentage of net sales, residential segment operating margin increased to 9.7 percent in the third quarter of fiscal 2013 compared to 7.4 percent in the third quarter of fiscal 2012, and fiscal 2013 year-to-date residential segment operating margin also increased to 10.9 percent compared to 10.1 percent in the same period in the prior fiscal year. These increases were primarily attributable to an improvement in gross margin mainly as a result of cost reduction efforts and lower commodity costs, as well as lower SG&A expenses as a percentage of net sales due to leveraging fixed SG&A costs over higher sales volumes for the third quarter comparison. However, for the year-to-date comparison, SG&A expenses as a percentage of net sales were higher as a result of fixed SG&A costs over lower sales volumes.

Other

Net Sales. Net sales for the other segment include sales from our wholly owned domestic distribution companies less sales from the professional and residential segments to those distribution companies. The other segment net sales for the third quarter of fiscal 2013 increased $3.5 million compared to the third quarter of fiscal 2012 due to a decline in sales eliminated in the other segment resulting from reduced shipments to our company-owned distribution companies. For the year-to-date period of fiscal 2013, the other segment net sales decreased $1.3 million compared to the same period in the prior fiscal year due to strong professional segment sales in the first quarter of fiscal 2013, mainly for products manufactured prior to the phase-in of applicable Tier 4 diesel engine emission requirements, as previously discussed, to our wholly owned distribution companies that are eliminated in our other segment.

Operating Losses. Operating losses for the other segment decreased $3.2 million in the third quarter of fiscal 2013 compared to the third quarter of fiscal 2012 due to lower bad debt expense and a decline in health insurance expense from favorable claims experience. For the year-to-date period of fiscal 2013 compared to the same period last fiscal year, operating losses for the other segment decreased slightly by $0.5 million.

FINANCIAL POSITION

Working Capital

Throughout fiscal 2013, our average net working capital increased mainly due to higher average inventory levels as we built inventory in anticipation of higher demand for our products prior to the phase-in of applicable Tier 4 diesel engine emission requirements, as well as higher average residential segment inventory levels from lower sales volumes as a result of unfavorable weather conditions in the first half of fiscal 2013. We have placed emphasis on improving asset management to drive inventory

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levels down, with a focus on minimizing the amount of working capital in the supply chain, adjusting production plans, and maintaining or improving order replenishment and service levels to end users. We define average net working capital as accounts receivable plus inventory less trade payables as a percentage of net sales for a twelve month period.

Our inventory levels were up 10.3 percent as of the end of the third quarter of fiscal 2013 compared to the end of the third quarter of fiscal 2012 as we built inventory in anticipation of strong demand for products impacted by Tier 4 diesel engine emission requirements, described previously, higher inventory levels of micro-irrigation products, and an increase in inventory to support our growing rental and construction businesses. Our receivables increased 2.6 percent as of the end of the third quarter of fiscal 2013 compared to the end of the third quarter of fiscal 2012 due to higher sales volumes. Our average days sales outstanding for receivables were slightly up, to 36 days based on sales for the twelve months ended August 2, 2013, compared to 34.1 days for the twelve months ended August 3, 2012. In addition, accounts payable slightly increased as of the end of our third quarter of fiscal 2013 by $0.1 million compared to the end of our third quarter of fiscal 2012. The combination of these increases resulted in a higher average net working capital as a percentage of net sales for the twelve months ended August 2, 2013 of 16.9 percent compared to 14.8 percent for the twelve months ended August 3, 2012.

Liquidity and Capital Resources

Our businesses are seasonally working capital intensive and require funding for purchases of raw materials used in production, replacement parts inventory, payroll and other administrative costs, capital expenditures, establishment or construction of new facilities, expansion and upgrading of existing facilities, as well as for financing of receivables from customers that are not financed with Red Iron. We believe that our anticipated cash generated from operations, together with our fixed rate long-term debt, bank credit lines, and cash on hand will provide us with adequate liquidity to meet our anticipated operating requirements. We believe that the funds available through existing financing arrangements and forecasted cash flows will be sufficient to provide the necessary capital resources for our anticipated working capital needs, capital expenditures, investments, debt repayments, quarterly cash dividend payments, and stock repurchases for at least the next twelve months.

Our Board of Directors approved a cash dividend of $0.14 per share for the third quarter of fiscal 2013 paid on July 15, 2013, which was an increase of 27.3 percent over our cash dividend of $0.11 per share for the third quarter of fiscal 2012.

Cash Flow. Cash provided by operating activities for the first nine months of fiscal 2013 decreased $7.3 million, or 4.4 percent, compared to the first nine months of fiscal 2012, mainly as a result of a higher increase in working capital requirements, primarily from higher inventory levels and receivables, as well as a decrease in other accruals, somewhat offset by higher net earnings. Cash used for investing activities was down by $4.9 million, or 13.5 percent, compared to the first nine months of fiscal 2012, due mainly to cash utilized for acquisitions last fiscal year, somewhat offset by an increase in cash used for purchases of property, plant and equipment in the first nine months of fiscal 2013 compared to the first nine months of fiscal 2012. Cash used for financing activities for the first nine months of fiscal 2013 was up by $24.8 million, or 38.4 percent, due mainly to higher amounts of cash paid for dividends and repurchases of our common stock, somewhat offset by lower amounts of proceeds from stock option exercises during the first nine months of fiscal 2013 compared to the first nine months of fiscal 2012.

Credit Lines and Other Capital Resources. Our businesses are seasonal, with accounts receivable balances historically increasing between January and April as a result of typically higher sales volumes and extended payment terms made available to our customers, and typically decreasing between May and December when payments are received. The seasonality of production and shipments causes our working capital requirements to fluctuate during the year. Seasonal cash requirements are financed from operations, cash on hand, and with short-term financing arrangements, including our $150.0 million unsecured senior revolving credit facility that expires in July 2015. Included in our $150.0 million revolving credit facility is a sublimit for standby letters of credit and a sublimit for swingline loans. At our election and with the approval of the named borrowers on the revolving credit facility, the aggregate maximum principal amount available under the facility may be increased by an amount up to $100.0 million in aggregate. Funds are available under the revolving credit facility for working capital, capital expenditures, and other lawful purposes, including, but not limited to, acquisitions and stock repurchases. Interest expense on this credit line is determined based on a LIBOR rate, or other rates quoted by the Administrative Agent, Bank of America, N.A., plus a basis point spread defined in the credit agreement. In addition, our non-U.S. operations maintain unsecured short-term lines of credit in the aggregate amount of approximately $11.9 million. These facilities bear interest at various rates depending on the rates in their respective countries of operation. As of August 2, 2013, we had no outstanding short-term debt under our credit facilities and an aggregate of $13.7 million of outstanding letters of credit. As of August 2, 2013, we had an aggregate of $148.2 million of unutilized availability under our credit agreements.

The revolving credit facility contains standard covenants, including, without limitation, financial covenants, such as the maintenance of minimum interest coverage and maximum debt to earnings ratios; and negative covenants, which among other things, limit loans and investments, disposition of assets, consolidations and mergers, transactions with affiliates, restricted payments, contingent obligations, liens and other matters customarily restricted in such agreements. Most of these restrictions are subject to certain minimum thresholds and exceptions. Under the revolving credit facility, we are not limited to payments of cash dividends and stock repurchases as long as our debt to earnings before interest, taxes, depreciation, and amortization (“EBITDA”)

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ratio from the previous quarter compliance certificate is less than or equal to 2.75; however, we are limited to $50 million per fiscal year if our debt to EBITDA ratio from the previous quarter compliance certificate is greater than 2.75. As of August 2, 2013, we were not limited to payments of cash dividends and stock repurchases as our debt to EBITDA ratio was below 2.75. We were also in compliance with all covenants related to our credit agreement for our revolving credit facility as of August 2, 2013, and we expect to be in compliance with all covenants during the remainder of fiscal 2013. If we were out of compliance with any debt covenant required by this credit agreement following the applicable cure period, the banks could terminate their commitments unless we could negotiate a covenant waiver from the banks. In addition, our long-term senior notes and debentures could become due and payable if we were unable to obtain a covenant waiver or refinance our short-term debt under our credit agreement. If our credit rating falls below investment grade and/or our average debt to EBITDA ratio rises above 2.00, the basis point spread over LIBOR, or other rates quoted by the Administrative Agent, Bank of America, N.A., we currently pay on our outstanding short-term debt under the credit agreement would increase. However, the credit commitment could not be cancelled by the banks based solely on a ratings downgrade. Our debt rating for long-term unsecured senior, non-credit enhanced debt was unchanged during the third quarter of fiscal 2013 by Standard and Poor’s Ratings Group at BBB and by Moody’s Investors Service at Baa3.

Customer Financing Arrangements and Contractual Obligations

In fiscal 2009, we established our Red Iron joint venture with TCFIF. The purpose of Red Iron is to provide inventory financing, including floor plan and open accounts receivable financing, to distributors and dealers of our products in the United States and to select distributors of our products in Canada to enable our distributors and dealers to carry representative inventories of our products.     Some independent international dealers continue to finance their products with a third party finance company. This third party financing company purchased $22.1 million of receivables from us during the first nine months of fiscal 2013. As of August 2, 2013, $11.1 million of receivables financed by the third party financing company, excluding Red Iron, were outstanding. See our most recently filed Annual Report on Form 10-K for further details regarding our customer financing arrangements and contractual obligations.

Inflation

We are subject to the effects of inflation, deflation, and changing prices. In the first nine months of fiscal 2013, average prices paid for commodities and components we purchase were slightly lower compared to the average prices paid for commodities and components in the first nine months of fiscal 2012, which benefited our gross margin growth rate. We will continue to closely follow the commodities and components that affect our product lines, and we anticipate average prices paid for commodities and components to be slightly lower for the remainder of fiscal 2013 as compared to the same period in fiscal 2012. However, we can provide no assurance that commodity costs will be lower; and accordingly, we expect to offset the impact of any inflationary pressures by collaborating with suppliers, reviewing alternative sourcing options, substituting materials, engaging in internal cost reduction efforts, and increasing prices on some of our products, all as appropriate.

Critical Accounting Policies and Estimates

See our most recent Annual Report on Form 10-K for the fiscal year ended October 31, 2012 for a discussion of our critical accounting policies.

New Accounting Pronouncements to be Adopted

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-11 related to disclosures on offsetting of assets and liabilities thereby amending ASC 210, Balance Sheet. ASU No. 2011-11 requires us to disclose information about offsetting and related arrangements to enable users of our financial statements to understand the effect of those arrangements on our financial position. In January 2013, the FASB issued ASU No. 2013-01 which clarified that the scope of ASU No. 2011-11 only applies to derivatives accounted for in accordance with ASC 815, Derivatives and Hedging. We will adopt this guidance in our first quarter of fiscal 2014, as required. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

In February 2013, FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU No. 2013-02 requires entities to disclose, for items reclassified out of accumulated other comprehensive income (loss) and into net income in their entirety, the effect of the reclassification on each affected net income line item. ASU No. 2013-02 also requires a cross reference to other required U.S. GAAP disclosures for accumulated other comprehensive income (loss) reclassification items that are not reclassified in their entirety into net income. The effective date of ASU No. 2013-02 is for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2012, and early adoption is permitted. We plan to early adopt this guidance in our fiscal 2013 fourth quarter. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

No other new accounting pronouncement that has been issued but not yet effective for us during the third quarter of fiscal 2013 has had or is expected to have a material impact on our consolidated financial statements.

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Forward-Looking Information

This Quarterly Report on Form 10-Q contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and that are subject to the safe harbor created by those sections. 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. We try to identify forward-looking statements in this report and elsewhere by using words such as “expect,” “strive,” “looking ahead,” “outlook,” “forecast,” “optimistic,” “plan,” “anticipate,” “continue,” “estimate,” “believe,” “could,” “should,” “will,” “would,” “may,” “possible,” “likely,” “intend,” and similar expressions and by using future dates. Our forward-looking statements generally relate to our future performance, including our anticipated operating results, liquidity requirements, and financial condition; our business strategies and goals; and the effect of laws, rules, regulations, new accounting pronouncements, and outstanding litigation on our business and future performance.

Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or implied. These risks and uncertainties include factors that affect all businesses operating in a global market as well as matters specific to Toro. 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:

·Economic conditions and outlook in the United States and in other countries in which we conduct business could adversely affect our net sales and earnings, which include but are not limited to recessionary conditions; slow or negative economic growth rates; the impact of state debt and sovereign debt defaults and austerity measures by certain European countries; slow down or reductions in levels of golf course development, renovation, and improvement; golf course closures; reduced levels of home ownership, construction, and sales; home foreclosures; negative consumer confidence; reduced consumer spending levels resulting from tax increases or otherwise; prolonged high unemployment rates; higher commodity and component costs and fuel prices; inflationary or deflationary pressures; reduced credit availability or unfavorable credit terms for our distributors, dealers, and end-user customers; higher short-term, mortgage, and other interest rates; and general economic and political conditions and expectations.

·Weather conditions have and may continue to reduce demand for some of our products, which may adversely affect our net sales and operating results, or may affect the timing of demand for some of our products and may adversely affect net sales and operating results in subsequent periods.

·Increases in the cost, or disruption in the availability, of raw materials, components, and parts containing various commodities that we purchase, such as steel, aluminum, fuel, resins, linerboard, copper, lead, rubber, engines, transmissions, transaxles, hydraulics, electric motors, and other commodities and components, and increases in our other costs of doing business, such as transportation costs or employee healthcare costs, including as the result of recently enacted or future healthcare laws or regulations, may adversely affect our profit margins and business.

·Our professional segment net sales are dependent upon golf course revenues and the amount of investment in golf course renovations and improvements; the level of new golf course development and golf course closures; the level of homeowners who outsource their lawn care; the level of residential and commercial construction; continued acceptance of and demand for micro-irrigation solutions for agricultural markets; availability of credit to professional segment customers on acceptable terms to finance new product purchases; and the amount of government revenues, budget, and spending levels for grounds maintenance equipment; and other factors.

·Our residential segment net sales are dependent upon mass retailers and home centers, such as The Home Depot, Inc. as a major customer, the amount of product placement at retailers, consumer confidence and spending levels, and changing buying patterns of customers.

·A significant percentage of our consolidated net sales are generated outside of the United States, and we intend to continue to expand our international operations, as evidenced most recently by our anticipated acquisition of a Chinese micro-irrigation company. Our international operations also require significant management attention and financial resources, expose us to difficulties presented by international economic, political, legal, accounting, and business factors; including political, economic and/or social instability in the countries in which we sell products resulting in contraction or disruption of such markets; and may not be successful or produce desired levels of net sales. In addition, a portion of our international net sales are financed by third parties. The termination of our agreements with these third parties, any material change to the terms of our agreements with these third parties or in the availability or terms of credit offered to our international customers by these third parties, or any delay in securing replacement credit sources, could adversely affect our sales and operating results.

·Fluctuations in foreign currency exchange rates could result in declines in our reported net sales and net earnings.

·Our business, properties, and products are subject to governmental regulation with which compliance may require us to incur expenses or modify our products or operations and non-compliance may expose us to penalties. Governmental regulation may also adversely affect the demand for some of our products and our operating results. The United States Environmental Protection Agency adopted increasingly stringent engine emission regulations, including Tier 4 emission requirements applicable to diesel engines in specified horsepower ranges that are used in some of our products. Beginning January 1, 2013,

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such requirements expanded to additional horsepower categories and, accordingly, apply to more of our products. Although we have developed plans to achieve substantial compliance with Tier 4 diesel engine emission requirements, these plans are subject to many variables including, among others, the inability of our suppliers to provide compliant engines on a timely basis or our inability to complete the necessary engineering and testing to meet our production schedule. If we are unable to successfully execute such plans, our ability to sell our products into the market may be inhibited, which could adversely affect our competitive position and financial results. To the extent in which we are able to pass along costs we incurred related to research, development, engineering, and other costs to design Tier 4 diesel engine compliant products in the form of prices increases to our customers and/or our competitors implement different strategies with respect to compliance with Tier 4 diesel engine emission requirements, we may experience lower market demand for our products that may, ultimately, adversely affect our profit margins, net sales, and overall financial results. Additionally, as customers’ buying patterns change to purchasing our products in advance of price increases on compliant products, we have and may continue to experience abnormal fluctuation in sales and our financial results of any one period may not be representative of expected financial results in subsequent periods. We believe our financial results during the first quarter and year-to-date period of fiscal 2013 were positively impacted by these patterns and our second and third quarter periods of fiscal 2013 were negatively impacted.

As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act, in August 2012 the SEC promulgated final rules regarding disclosure of the use of certain minerals, known as “conflict minerals,” which are mined from the Democratic Republic of the Congo and adjoining countries, as well as procedures regarding a manufacturer’s efforts to discover the origin of such minerals and metals produced from those minerals. These conflict minerals are commonly referred to as “3TG” and include tin, tantalum, tungsten, and gold. The new rules will require us to engage in due diligence efforts for the 2013 calendar year, with initial disclosures required no later than May 31, 2014, and subsequent disclosures required no later than May 31 of each following year. We expect that we will incur additional costs and expenses, which may be significant, in order to comply with these rules. Since our supply chain is complex, ultimately we may not be able to sufficiently discover the original for all 3TG used in our products through the due diligence procedures that we implement, which may adversely affect our reputation with our customers, shareholders, and other stakeholders.

In addition, other changes in laws and regulations also may adversely affect our operating results, including, in particular, (i) taxation changes, tax rate changes, new tax laws, revised tax law interpretations, or expiration of the domestic research and development tax credit, which individually or in combination may cause our effective tax rate to increase, or (ii) new, recently enacted or revised healthcare laws or regulations, which may cause us to incur higher employee healthcare and other costs.

·If we are unable to continue to enhance existing products and develop and market new products that respond to customer needs and preferences and achieve market acceptance, or if we experience unforeseen product quality or other problems in the development, production, or use of new and existing products, we may experience a decrease in demand for our products, and our business could suffer.

·Our reliance upon patents, trademark laws, and contractual provisions to protect our proprietary rights may not be sufficient to protect our intellectual property from others who may sell similar products. Our products may infringe the proprietary rights of others.

·We manufacture our products at and distribute our products from several locations in the United States and internationally. Any disruption at any of these facilities or our inability to cost-effectively expand existing, open and manage new facilities, including our new distribution facility in Ankeny, Iowa, and/or move production between manufacturing facilities could adversely affect our business and operating results. In fiscal 2012, we began operations at our new micro-irrigation facility in Romania. If this facility does not produce the anticipated manufacturing or operational efficiencies, or if the micro-irrigation products to be produced at this facility are not accepted into the new geographic markets at expected levels, we may not recover the costs of the new facility and our operating results may be adversely affected.

·We intend to grow our business in part through additional acquisitions and alliances, stronger customer relations, and new joint ventures and partnerships, all of which are risky and could harm our business, particularly if we are not able to successfully integrate such acquisitions and alliances, joint ventures, and partnerships. Additionally, factors could affect completion of our proposed acquisition of a micro-irrigation company in China, including whether and when the required regulatory approvals will be obtained, and whether and when other closing conditions will be satisfied.

·We rely on our management information systems for inventory management, distribution, and other key functions. If our information systems fail to adequately perform these functions, or if we experience an interruption in their operation, our business and operating results could be adversely affected.

·We face intense competition in all of our product lines with numerous manufacturers, including from some competitors that have larger operations and greater financial resources than us. We may not be able to compete effectively against competitors’ actions, which could harm our business and operating results.

·We are subject to product liability claims, product quality issues, and other litigation from time to time that could adversely affect our operating results or financial condition.

·If we are unable to retain our key employees, and attract and retain other qualified personnel, we may not be able to meet strategic objectives and our business could suffer.

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·As a result of our financing joint venture with TCFIF, we are dependent upon the joint venture to provide competitive inventory financing programs, including floor plan and open account receivable financing, to certain distributors and dealers of our products. Any material change in the availability or terms of credit offered to our customers by the joint venture, any termination or disruption of our joint venture relationship or any delay in securing replacement credit sources could adversely affect our net sales and operating results.

·The terms of our credit arrangements and the indentures governing our senior notes and debentures could limit our ability to conduct our business, take advantage of business opportunities, and respond to changing business, market, and economic conditions. Additionally, we are subject to counterparty risk in our credit arrangements. If we are unable to comply with the terms of our credit arrangements and indentures, especially the financial covenants, our credit arrangements could be terminated and our senior notes and debentures could become due and payable.

·Legislative enactments could impact the competitive landscape within our markets and affect demand for our products.

·Our business is subject to a number of other factors that may adversely affect our operating results, financial condition, or business, such as: our ability to achieve the revenue growth, operating earnings, and employee engagement goals of our multi-year employee initiative called “Destination 2014”; natural or man-made disasters or global pandemics that may result in shortages of raw materials and components, higher fuel and commodity costs, delays in shipments to customers, and an increase in insurance premiums; financial difficulties and viability of our distributors and dealers, changes in distributor ownership, changes in channel distribution of our products, relationships with our distribution channel partners, our success in partnering with new dealers, and our customers’ ability to pay amounts owed to us; ability of management to adapt to unplanned events; drug cartel-related violence, which may disrupt our production activities and maquiladora operations based in Juarez, Mexico; and continued threat of terrorist acts and war that may result in heightened security and higher costs for import and export shipments of components or finished goods, reduced leisure travel, and contraction of the United States and world economies.

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.”

All forward-looking statements included in this report are expressly qualified in their entirety by the foregoing cautionary statements. We wish to 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, as well as others that we may consider immaterial or do not anticipate at this time. The foregoing 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 assume no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. We advise you, however, to consult any further disclosures we make on related subjects in our future Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K we file with or furnish to the Securities and Exchange Commission.

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk stemming from changes in foreign currency exchange rates, interest rates, and commodity prices. We are also exposed to equity market risk pertaining to the trading price of our common stock. Changes in these factors could cause fluctuations in our earnings and cash flows. See further discussion on these market risks below.

Foreign Currency Exchange Rate Risk. In the normal course of business, we actively manage the exposure of our foreign currency exchange rate market risk by entering into various hedging instruments, authorized under company policies that place controls on these activities, with counterparties that are highly rated financial institutions. Our hedging activities involve the primary use of forward currency contracts. We also utilize cross currency swaps to offset intercompany loan exposures. We use derivative instruments only in an attempt to limit underlying exposure from currency fluctuations and to minimize earnings and cash flow volatility associated with foreign currency exchange rate changes and not for trading purposes. We are exposed to foreign currency exchange rate risk arising from transactions in the normal course of business, such as sales to third party customers, sales and loans to wholly owned foreign subsidiaries, foreign plant operations, and purchases from suppliers. Because our products are manufactured or sourced primarily from the United States and Mexico, a stronger U.S. dollar and Mexican peso generally have a negative impact on our results from operations, while a weaker dollar and peso generally have a positive effect. Our primary foreign currency exchange rate exposures are with the Euro, the Australian dollar, the Canadian dollar, the British pound, the Mexican peso, the Japanese yen, the Chinese Yuan, the Romanian New Leu against the U.S. dollar, as well as the Romanian New Leu against the Euro.

We enter into various contracts, principally forward contracts that change in value as foreign currency exchange rates change, to protect the value of existing foreign currency assets, liabilities, anticipated sales, and probable commitments. Decisions on

25

whether to use such contracts are made based on the amount of exposures to the currency involved and an assessment of the near-term market value for each currency. Worldwide foreign currency exchange rate exposures are reviewed monthly. The gains and losses on these contracts offset changes in values of the related exposures. Therefore, changes in values of these hedge instruments are highly correlated with changes in market values of underlying hedged items both at inception of the hedge and over the life of the hedge contract. Additional information regarding gains and losses on our derivative instruments is presented in the Notes to Condensed Consolidated Financial Statements (Unaudited) in Item 1 of this Quarterly Report on Form 10-Q, in the section entitled “Derivative Instruments and Hedging Activities.”

The following foreign currency exchange contracts held by us have maturity dates in fiscal 2013, 2014, and 2015. All items are non-trading and stated in U.S. dollars. Some derivative instruments we enter into do not meet the cash flow hedging criteria; therefore, changes in fair value are recorded in other income, net. The average contracted rate, notional amount, pre-tax value of derivative instruments in accumulated other comprehensive loss, and fair value impact of derivative instruments in other income, net as of and for the fiscal period ended August 2, 2013 were as follows:

Dollars in thousands (except average contracted rate)	Average Contracted Rate	Notional Amount		Value in Accumulated Other Comprehensive Income (Loss)			Fair Value Impact (Loss) Gain
Buy US dollar/Sell Australian dollar	0.9792	$	27,025.8	$	792.4		$	2,575.3
Buy US dollar/Sell Canadian dollar	1.0317	5,757.7		34.9			18.1
Buy US dollar/Sell Euro	1.3232	92,492.3		(341.2		)	(1,734.1		)
Buy US dollar/Sell British pound	1.5244	11,432.9		—			24.1
Buy Euro/Sell US dollar	1.3301	6,390.3		—			83.1
Buy Mexican peso/Sell US dollar	13.4728	35,783.3		654.2			791.9
Buy Euro/Sell Romanian New Leu	4.4155	11,304.6		(238.7		)	(428.1		)

Our net investment in foreign subsidiaries translated into U.S. dollars is not hedged. Any changes in foreign currency exchange rates would be reflected as a foreign currency translation adjustment, a component of accumulated other comprehensive loss in stockholders’ equity, and would not impact net earnings.

Interest Rate Risk. Our market risk on interest rates relates primarily to LIBOR-based short-term debt from commercial banks, as well as the potential increase in fair value of long-term debt resulting from a potential decrease in interest rates. However, we do not have cash flow or earnings exposure due to market risks on long-term debt. We generally do not use interest rate swaps to mitigate the impact of fluctuations in interest rates. See our most recently filed Annual Report on Form 10-K (Item 7A Quantitative and Qualitative Disclosures about Market Risk). There has been no material change in this information.

Commodity Price Risk. Some raw materials used in our products are exposed to commodity price changes. The primary commodity price exposures are with steel, aluminum, fuel, petroleum-based resin, and linerboard. In addition, we are a purchaser of components and parts containing various commodities, including steel, aluminum, copper, lead, rubber, and others that are integrated into our end products. Further information regarding prices for commodities is presented in Item 2 of this Quarterly Report on Form 10-Q, in the section entitled “Inflation.”

We enter into fixed-price contracts for future purchases of natural gas in the normal course of operations as a means to manage natural gas price risks.

Item 4.  CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we are required to apply our judgment in evaluating the cost-benefit relationship of possible internal controls. Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered in this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is

26

recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. There was no change in our internal control over financial reporting that occurred during our third quarter ended August 2, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

We are a party to litigation in the ordinary course of business. Litigation occasionally involves claims for punitive as well as compensatory damages arising out of use of our products. Although we are self-insured to some extent, we maintain insurance against certain product liability losses. We are 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. We are also typically involved in commercial disputes, employment disputes, and patent litigation cases in the ordinary course of business. To prevent possible infringement of our patents by others, we periodically review competitors’ products. To avoid potential liability with respect to others’ patents, we regularly review certain patents issued by the USPTO and foreign patent offices. We believe these activities help us minimize our risk of being a defendant in patent infringement litigation. We are currently involved in patent litigation cases where we are asserting and defending against patent infringement.

For a description of our material legal proceedings, see Notes to Condensed Consolidated Financial Statements under the heading “Litigation” included in Part 1. Item 1 of this Quarterly Report on Form 10-Q, which is incorporated into this Part II. Item 1 by reference.

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Item 1A.  RISK FACTORS

We are affected by risks specific to us as well as factors that affect all businesses operating in a global market. The significant factors known to us that could materially adversely affect our business, financial condition, or operating results or could cause our actual results to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statement made in this report, are described in our most recently filed Annual Report on Form 10-K (Item 1A. Risk Factors). There has been no material change in those risk factors.

Item 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table shows our third quarter of fiscal 2013 stock repurchase activity.

Period	Total Number of Shares (or Units) Purchased (1,2,3,4)	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased As Part of Publicly Announced Plans or Programs (1,2)	Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1,2)
May 4, 2013 through May 31, 2013	133,416	$	45.82	133,416	5,178,331
June 1, 2013 through June 28, 2013	271,474	46.29		264,132	4,914,199
June 29, 2013 through August 2, 2013	149,585	45.98		148,530	4,765,669
Total	554,475	$	46.09	546,078

(1)On December 1, 2010, the company’s Board of Directors authorized the repurchase of 6,000,000 shares of the company’s common stock in open-market or in privately negotiated transactions. This program has no expiration date but may be terminated by the company’s Board of Directors at any time. The company repurchased an aggregate of 311,747 shares during the period indicated above under this program. There are no shares remaining for repurchase under this program.

(2)On December 11, 2012, the company’s Board of Directors authorized the repurchase of 5,000,000 shares of the company’s common stock in open-market or in privately negotiated transactions. This program has no expiration date but may be terminated by the company’s Board of Directors at any time. The company repurchased an aggregate of 234,331 shares during the period indicated above under this program.

(3)Includes 7,342 shares of the company’s common stock surrendered by employees to satisfy minimum tax withholding obligations upon vesting of restricted stock granted under the company’s incentive plan. These 7,342 shares were not repurchased under the company’s repurchase program described in footnotes 1 and 2 above.

(4)Includes 1,055 units (shares) of the company’s common stock purchased in open-market transactions at an average price of $49.43 per share on behalf of a rabbi trust formed to pay benefit obligations of the company to participants in deferred compensation plans. These 1,055 shares were not repurchased under the company’s repurchase program described in footnotes 1 and 2 above.

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Item 6.  EXHIBITS

(a)	Exhibits
	3.1 and 4.1	Restated Certificate of Incorporation of The Toro Company (incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated June 17, 2008, Commission File No. 1-8649).
	3.2 and 4.2	Certificate of Amendment to Restated Certificate of Incorporation of The Toro Company (incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated March 13, 2013, Commission File No. 1-8649).
	3.3 and 4.3	Amended and Restated Bylaws of The Toro Company (incorporated by reference to Exhibit 3.2 to Registrant’s Current Report on Form 8-K dated June 17, 2008, Commission File No. 1-8649).
	4.4	Specimen Form of Common Stock Certificate (incorporated by reference to Exhibit 4(c) to Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 1, 2008, Commission File No. 1-8649).
	4.5	Indenture dated as of January 31, 1997, between Registrant and First National Trust Association, as Trustee, relating to The Toro Company’s 7.80% Debentures due June 15, 2027 (incorporated by reference to Exhibit 4(a) to Registrant’s Current Report on Form 8-K dated June 24, 1997, Commission File No. 1-8649).
	4.6	Indenture dated as of April 20, 2007, between Registrant and The Bank of New York Trust Company, N.A., as Trustee, relating to The Toro Company’s 6.625% Notes due May 1, 2037 (incorporated by reference to Exhibit 4.3 to Registrant’s Registration Statement on Form S-3 filed with the Securities and Exchange Commission on April 23, 2007, Registration No. 333-142282).
	4.7	First Supplemental Indenture dated as of April 26, 2007, between Registrant and The Bank of New York Trust Company, N.A., as Trustee, relating to The Toro Company’s 6.625% Notes due May 1, 2037 (incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated April 23, 2007, Commission File No. 1-8649).
	4.8	Form of The Toro Company 6.625% Note due May 1, 2037 (incorporated by reference to Exhibit 4.2 to Registrant’s Current Report on Form 8-K dated April 23, 2007, Commission File No. 1-8649).
	31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002) (filed herewith).
	31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002) (filed herewith).
	32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
	101	The following financial information from The Toro Company’s Quarterly Report on Form 10-Q for the quarterly period ended August 2, 2013, filed with the SEC on September 4, 2013, formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Statements of Earnings for the three and nine-month periods ended August 2, 2013 and August 3, 2012, (ii) Condensed Consolidated Statements of Comprehensive Income for the three and nine-month periods ended August 2, 2013 and August 3, 2012, (iii) Condensed Consolidated Balance Sheets as of August 2, 2013, August 3, 2012, and October 31, 2012, (iv) Condensed Consolidated Statement of Cash Flows for the three and nine-month periods ended August 2, 2013 and August 3, 2012, and (v) Notes to Condensed Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

THE TORO COMPANY

(Registrant)

Date: September 4, 2013	By	/s/ Renee J. Peterson
	Renee J. Peterson
	Vice President, Treasurer
	and Chief Financial Officer
	(duly authorized officer and principal financial officer)

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EX-31.1

Exhibit 31.1

Certification pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael J. Hoffman, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Toro Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 4, 2013

/s/ Michael J. Hoffman

Michael J. Hoffman

Chairman of the Board, President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Renee J. Peterson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Toro Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles;

c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 4, 2013

/s/ Renee J. Peterson

Renee J. Peterson

Vice President, Treasurer

and Chief Financial Officer

(Principal Financial Officer)

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The Toro Company (the “Company”) on Form 10-Q for the quarterly period ended August 2, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Michael J. Hoffman, Chairman of the Board, President and Chief Executive Officer of the Company, and Renee J. Peterson, Vice President, Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael J. Hoffman

Michael J. Hoffman

Chairman of the Board, President and Chief Executive Officer

September 4, 2013

/s/ Renee J. Peterson

Renee J. Peterson

Vice President, Treasurer

and Chief Financial Officer

September 4, 2013

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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Warranty Guarantees

9 Months Ended

Aug. 02, 2013

Warranty Guarantees

Warranty Guarantees

Warranty Guarantees

The company’s products are warranted to ensure customer confidence in design, workmanship, and overall quality. Warranty coverage is for specified periods of time and on select products’ hours of usage, and generally covers parts, labor, and other expenses for non-maintenance repairs. Warranty coverage generally does not cover operator abuse or improper use. An authorized company distributor or dealer must perform warranty work. Distributors and dealers submit claims for warranty reimbursement and are credited for the cost of repairs, labor, and other expenses as long as the repairs meet prescribed standards. Warranty expense is accrued at the time of sale based on the estimated number of products under warranty, historical average costs incurred to service warranty claims, the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting warranty claim, and other minor factors. Special warranty reserves are also accrued for major rework campaigns. The company sells extended warranty coverage on select products for a prescribed period after the factory warranty period expires.

Warranty provisions, claims, changes in estimates, and additions from acquisitions for the first nine months of fiscal 2013 and 2012 were as follows:

	Nine Months Ended
	August 2,			August 3,
(Dollars in thousands)	2013			2012
Beginning balance	$	69,848		$	62,730
Warranty provisions	33,875			32,268
Warranty claims	(24,624		)	(23,656		)
Changes in estimates	(1,928		)	2,183
Additions from acquisitions	—			200
Ending balance	$	77,171		$	73,725

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Condensed Consolidated Statements of Comprehensive Income (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Aug. 02, 2013	Aug. 03, 2012	Aug. 02, 2013	Aug. 03, 2012
Condensed Consolidated Statements of Comprehensive Income
Derivative instruments, tax	$ (37)	$ (282)	$ 596	$ 266

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Accounting Policies

9 Months Ended

Aug. 02, 2013

Accounting Policies

Accounting Policies

Accounting Policies

In preparing the 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 promotions and incentives accruals, incentive compensation accruals, inventory valuation, warranty reserves, earnout liabilities, allowance for doubtful accounts, pension and postretirement accruals, self-insurance accruals, useful lives for tangible and intangible assets, and future cash flows associated with impairment testing for goodwill and other long-lived assets. These estimates and assumptions are based on management’s best estimates and judgments at the time they are made. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors that management believes to be reasonable under the circumstances, including the current economic environment. Management adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with certainty, actual amounts could differ significantly from those estimated at the time the consolidated financial statements are prepared. Changes in those estimates will be reflected in the consolidated financial statements in future periods.

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Per Share Data (Tables)

9 Months Ended

Aug. 02, 2013

Per Share Data

Reconciliations of basic and diluted weighted-average shares of common stock outstanding

	Three Months Ended		Nine Months Ended
	August 2,	August 3,	August 2,	August 3,
(Shares in thousands)	2013	2012	2013	2012
Basic
Weighted-average number of shares of common stock	57,653	59,045	58,059	59,633
Assumed issuance of contingent shares	—	—	32	9
Weighted-average number of shares of common stock and assumed issuance of contingent shares	57,653	59,045	58,091	59,642
Diluted
Weighted-average number of shares of common stock and assumed issuance of contingent shares	57,653	59,045	58,091	59,642
Effect of dilutive securities	1,260	1,291	1,175	1,187
Weighted-average number of shares of common stock, assumed issuance of contingent shares, and effect of dilutive securities	58,913	60,336	59,266	60,829

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Segment Data

9 Months Ended

Aug. 02, 2013

Segment Data

Segment Data

Segment Data

The presentation of segment information reflects the manner in which management organizes segments for making operating decisions and assessing performance. On this basis, the company has determined it has three reportable business segments: Professional, Residential, and Distribution. The Distribution segment, which consists of company-owned domestic distributorships, has been combined with the company’s corporate activities and elimination of intersegment revenues and expenses that is shown as “Other” in the following tables due to the insignificance of the segment.

The following table shows the summarized financial information concerning the company’s reportable segments:

(Dollars in thousands)
Three months ended August 2, 2013	Professional		Residential		Other			Total
Net sales	$	343,866	$	155,452	$	10,600		$	509,918
Intersegment gross sales	7,628		149		(7,777		)	—
Earnings (loss) before income taxes	60,508		15,070		(17,925		)	57,653

Three months ended August 3, 2012	Professional		Residential		Other			Total
Net sales	$	361,120	$	135,894	$	7,062		$	504,076
Intersegment gross sales	12,012		90		(12,102		)	—
Earnings (loss) before income taxes	70,537		10,048		(21,117		)	59,468

Nine months ended August 2, 2013	Professional		Residential		Other			Total
Net sales	$	1,169,446	$	477,789	$	11,830		$	1,659,065
Intersegment gross sales	34,401		354		(34,755		)	—
Earnings (loss) before income taxes	233,521		51,903		(68,056		)	217,368
Total assets	573,089		177,495		280,546			1,031,130

Nine months ended August 3, 2012	Professional		Residential		Other			Total
Net sales	$	1,100,899	$	505,399	$	13,098		$	1,619,396
Intersegment gross sales	31,134		2		(31,136		)	—
Earnings (loss) before income taxes	211,329		51,174		(68,557		)	193,946
Total assets	548,381		179,452		258,695			986,528

The following table summarizes the components of the loss before income taxes included in “Other” shown above:

	Three Months Ended						Nine Months Ended
	August 2,			August 3,			August 2,			August 3,
(Dollars in thousands)	2013			2012			2013			2012
Corporate expenses	$	(18,985	)	$	(19,805	)	$	(61,304	)	$	(60,991	)
Interest expense, net	(3,909		)	(4,198		)	(12,307		)	(12,791		)
Other	4,969			2,886			5,555			5,225
Total	$	(17,925	)	$	(21,117	)	$	(68,056	)	$	(68,557	)

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Investment in Joint Venture (Details) (Red Iron Acceptance, LLC, USD $) In Millions, unless otherwise specified	9 Months Ended		12 Months Ended
	Aug. 02, 2013	Aug. 03, 2012	Oct. 31, 2012	Jul. 31, 2013
Red Iron Acceptance, LLC
Schedule of Equity Method Investments
Period of unlimited automatic extensions after the initial term of joint venture			2 years
Period of notice to be given by parties under the joint venture for not extending the initial term or any subsequent term of joint venture			1 year
Portion owned by Toro (as a percent)	45.00%
Portion owned by TCFIF (as a percent)	55.00%
Secured revolving credit facility	$ 450
Investment in joint venture	15.2
Maximum aggregate amount of products repossessed by Red Iron and the TCFIF Canadian affiliate, entity has agreed to repurchase in a calendar year	7.5
Maximum amount of recourse provided to joint venture for outstanding receivables	0.4
Net amount of new receivables financed for dealers and distributors	962.5	920.3
Summarized financial information for Red Iron
Total assets				302.5
Total liabilities				$ 268.7

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Other Intangible Assets (Tables)

9 Months Ended

Aug. 02, 2013

Other Intangible Assets

Components of other amortizable intangible assets

(Dollars in thousands) August 2, 2013	Estimated Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net
Patents	1.5-13	$	9,593	$	(8,431	)	$	1,162
Non-compete agreements	1.5-10	6,305		(4,282		)	2,023
Customer-related	1.5-13	8,248		(4,400		)	3,848
Developed technology	1.5-10	27,765		(12,624		)	15,141
Trade names	1.5-5	1,515		(790		)	725
Other		800		(800		)	—
Total amortizable		54,226		(31,327		)	22,899
Non-amortizable - trade names		4,881		—			4,881
Total other intangible assets, net		$	59,107	$	(31,327	)	$	27,780

October 31, 2012	Estimated Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net
Patents	1.5-13	$	9,593	$	(8,031	)	$	1,562
Non-compete agreements	1.5-10	6,303		(3,656		)	2,647
Customer-related	1.5-13	8,312		(3,826		)	4,486
Developed technology	1.5-10	27,727		(10,196		)	17,531
Trade names	1.5-5	1,515		(557		)	958
Other		800		(800		)	—
Total amortizable		54,250		(27,066		)	27,184
Non-amortizable - trade names		4,881		—			4,881
Total other intangible assets, net		$	59,131	$	(27,066	)	$	32,065

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Goodwill (Tables)

9 Months Ended

Aug. 02, 2013

Goodwill

Changes in the net carrying amount of goodwill

	Professional			Residential
(Dollars in thousands)	Segment			Segment			Total
Balance as of October 31, 2012	$	80,984		$	11,016		$	92,000
Translation adjustments	(3		)	(46		)	(49		)
Balance as of August 2, 2013	$	80,981		$	10,970		$	91,951

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Per Share Data (Details)	3 Months Ended		9 Months Ended
	Aug. 02, 2013	Aug. 03, 2012	Aug. 02, 2013	Aug. 03, 2012
Basic
Weighted-average number of shares of common stock	57,653,000	59,045,000	58,059,000	59,633,000
Assumed issuance of contingent shares			32,000	9,000
Weighted-average number of shares of common stock and assumed issuance of contingent shares	57,653,000	59,045,000	58,091,000	59,642,000
Diluted
Weighted-average number of shares of common stock and assumed issuance of contingent shares	57,653,000	59,045,000	58,091,000	59,642,000
Effect of dilutive securities (in shares)	1,260,000	1,291,000	1,175,000	1,187,000
Weighted-average number of shares of common stock, assumed issuance of contingent shares, and effect of dilutive securities	58,913,000	60,336,000	59,266,000	60,829,000
Options to purchase, shares of common stock outstanding, excluded from the calculation of diluted net earnings per share	204,461	2,247	328,703	32,414

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Segment Data (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Aug. 02, 2013	Aug. 03, 2012	Aug. 02, 2013 segment	Aug. 03, 2012	Oct. 31, 2012
Segment Data
Number of reportable business segments			3
Financial information concerning the company's reportable segments
Net sales	$ 509,918	$ 504,076	$ 1,659,065	$ 1,619,396
Earnings (loss) before income taxes	57,653	59,468	217,368	193,946
Total assets	1,031,130	986,528	1,031,130	986,528	935,199
Components of the loss before income taxes included in "Other"
Interest expense, net	(3,909)	(4,198)	(12,307)	(12,791)
Other	2,982	2,681	7,420	5,231
Earnings before income taxes	57,653	59,468	217,368	193,946
Professional
Financial information concerning the company's reportable segments
Net sales	343,866	361,120	1,169,446	1,100,899
Intersegment gross sales	7,628	12,012	34,401	31,134
Earnings (loss) before income taxes	60,508	70,537	233,521	211,329
Total assets	573,089	548,381	573,089	548,381
Components of the loss before income taxes included in "Other"
Earnings before income taxes	60,508	70,537	233,521	211,329
Residential
Financial information concerning the company's reportable segments
Net sales	155,452	135,894	477,789	505,399
Intersegment gross sales	149	90	354	2
Earnings (loss) before income taxes	15,070	10,048	51,903	51,174
Total assets	177,495	179,452	177,495	179,452
Components of the loss before income taxes included in "Other"
Earnings before income taxes	15,070	10,048	51,903	51,174
Other
Financial information concerning the company's reportable segments
Net sales	10,600	7,062	11,830	13,098
Intersegment gross sales	(7,777)	(12,102)	(34,755)	(31,136)
Earnings (loss) before income taxes	(17,925)	(21,117)	(68,056)	(68,557)
Total assets	280,546	258,695	280,546	258,695
Components of the loss before income taxes included in "Other"
Corporate expenses	(18,985)	(19,805)	(61,304)	(60,991)
Interest expense, net	(3,909)	(4,198)	(12,307)	(12,791)
Other	4,969	2,886	5,555	5,225
Earnings before income taxes	$ (17,925)	$ (21,117)	$ (68,056)	$ (68,557)

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Fair Value Measurements (Tables)

9 Months Ended

Aug. 02, 2013

Fair Value Measurements

Assets and liabilities measured at fair value on a recurring basis

(Dollars in thousands)
August 2, 2013	Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	161,180	$	161,180	$	—	—
Forward currency contracts	3,101		—		3,101		—
Cross currency contracts	83		—		83		—
Total assets	$	164,364	$	161,180	$	3,184	—
Liabilities:
Forward currency contracts	$	356	—		$	356	—
Cross currency contracts	428		—		428		—
Deferred compensation liabilities	2,982		—		2,982		—
Total liabilities	$	3,766	—		$	3,766	—

August 3, 2012	Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	143,058	$	143,058	$	—	—
Forward currency contracts	2,616		—		2,616		—
Total assets	$	145,674	$	143,058	$	2,616	—
Liabilities:
Forward currency contracts	$	175	—		$	175	—
Deferred compensation liabilities	3,738		—		3,738		—
Total liabilities	$	3,913	—		$	3,913	—

October 31, 2012	Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	125,856	$	125,856	$	—	—
Forward currency contracts	995		—		995		—
Cross currency contracts	1,046		—		1,046		—
Total assets	$	127,897	$	125,856	$	2,041	—
Liabilities:
Forward currency contracts	$	2,114	—		$	2,114	—
Deferred compensation liabilities	3,547		—		3,547		—
Total liabilities	$	5,661	—		$	5,661	—

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Inventories (Tables)

9 Months Ended

Aug. 02, 2013

Inventories

Schedule of Inventories

	August 2,		August 3,		October 31,
(Dollars in thousands)	2013		2012		2012
Raw materials and work in process	$	80,176	$	83,649	$	91,465
Finished goods and service parts	242,560		212,142		223,459
Total FIFO value	322,736		295,791		314,924
Less: adjustment to LIFO value	63,807		61,001		63,807
Total	$	258,929	$	234,790	$	251,117

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Aug. 02, 2013	Oct. 31, 2012	Aug. 03, 2012
Condensed Consolidated Balance Sheets
Preferred stock, par value (in dollars per share)	$ 1.00	$ 1.00	$ 1.00
Preferred stock, authorized voting shares	1,000,000	1,000,000	1,000,000
Preferred stock, authorized non-voting shares	850,000	850,000	850,000
Preferred stock, issued voting shares	0	0	0
Preferred stock, issued non-voting shares	0	0	0
Preferred stock, outstanding voting shares	0	0	0
Preferred stock, outstanding non-voting shares	0	0	0
Common stock, par value (in dollars per share)	$ 1.00	$ 1.00	$ 1.00
Common stock, authorized shares	175,000,000	100,000,000	100,000,000
Common stock, issued shares	57,142,923	58,266,482	58,771,336
Common stock, outstanding shares	57,142,923	58,266,482	58,771,336

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Basis of Presentation

9 Months Ended

Aug. 02, 2013

Basis of Presentation

Basis of Presentation

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 U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. Unless the context indicates otherwise, the terms “company” and “Toro” refer to The Toro Company and its consolidated subsidiaries. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments, consisting primarily of recurring accruals, considered necessary for a fair presentation of the financial position and results of operations. Since the company’s business is seasonal, operating results for the nine months ended August 2, 2013 cannot be annualized to determine the expected results for the fiscal year ending October 31, 2013.

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 included in the company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2012. The policies described in that report are used for preparing quarterly reports.

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Stock-Based Compensation

9 Months Ended

Aug. 02, 2013

Stock-Based Compensation

Stock-Based Compensation

Stock-Based Compensation

Stock Option Awards

Under the company’s incentive 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 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 non-officer employees vest in full on the three-year anniversary of the date of grant and have a ten-year term. Compensation expense equal to the grant date fair value is generally recognized for these awards over the vesting period. Stock options granted to officers and other employees are subject to accelerated expensing if the option holder meets the retirement definition set forth in the plan. In that case, the fair value of the options is expensed in the fiscal year of grant because the option holder must be employed as of the end of the fiscal year in which the options are granted in order for the options to continue to vest following retirement. Similarly, if a non-employee director has served on the company’s Board of Directors for ten full fiscal years or more, the awards vest immediately upon retirement, and therefore, the fair value of the options granted is fully expensed on the date of the grant.

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

The following table illustrates the assumptions for options granted in the following fiscal periods.

	Fiscal 2013	Fiscal 2012
Expected life of option in years	6	6
Expected volatility	35.18% - 35.19%	34.87% - 35.02%
Weighted-average volatility	35.19%	35.01%
Risk-free interest rate	0.88%	1.20%
Expected dividend yield	1.04% - 1.07%	1.31% - 1.40%
Weighted-average dividend yield	1.07%	1.32%
Grant date per share weighted-average fair value	$13.03	$8.56

Performance Share Awards

The company grants performance share awards under the company’s incentive plan 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, 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 expense is recognized for these awards on a straight-line basis over the vesting period based on the per share fair value as of the date of grant and the probability of achieving each performance goal. The per share fair value of performance share awards granted during the first nine months of fiscal 2013 and 2012 was $42.06 and $28.24, respectively.

Restricted Stock and Restricted Stock Unit Awards

Under the company’s incentive plan, restricted stock and restricted stock unit awards are generally granted to certain non-officer employees. Occasionally, restricted stock or restricted stock unit awards may be granted in connection with hiring, mid-year promotions, leadership transition, or retention. In fiscal 2013, the company began granting restricted stock unit awards. Restricted stock and restricted stock unit awards generally vest one-third each year over a three-year period or vest in full on the three-year anniversary of the date of grant, but such awards may have performance-based rather than time-based vesting requirements. Compensation expense equal to the grant date fair value, which is equal to the closing price of the company’s common stock on the date of grant multiplied by the number of shares subject to the restricted stock and restricted stock unit awards, is recognized for these awards over the vesting period. The per share weighted-average fair value of restricted stock awards granted during the first nine months of fiscal 2013 and 2012 was $46.22 and $33.61, respectively.

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Common Shares Authorized

9 Months Ended

Aug. 02, 2013

Common Shares Authorized

Common Shares Authorized

Common Shares Authorized

On March 12, 2013, following approval by the company’s shareholders at its 2013 annual meeting of shareholders, the company amended its Restated Certificate of Incorporation by filing a Certificate of Amendment to Restated Certificate of Incorporation with the Secretary of State of Delaware to increase the number of authorized shares of common stock from 100,000,000 to 175,000,000.

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Derivative Instruments and Hedging Activities (Details)	3 Months Ended		9 Months Ended				3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended						3 Months Ended		9 Months Ended
	Aug. 02, 2013 USD ($)	Aug. 03, 2012 USD ($)	Aug. 02, 2013 USD ($)	Aug. 03, 2012 USD ($)	Aug. 02, 2013 Forward currency contracts USD ($)	Aug. 03, 2012 Forward currency contracts USD ($)	Aug. 02, 2013 Forward currency contracts Net sales USD ($)	Aug. 03, 2012 Forward currency contracts Net sales USD ($)	Aug. 02, 2013 Forward currency contracts Net sales USD ($)	Aug. 03, 2012 Forward currency contracts Net sales USD ($)	Aug. 02, 2013 Forward currency contracts Other income, net USD ($)	Aug. 03, 2012 Forward currency contracts Other income, net USD ($)	Aug. 02, 2013 Forward currency contracts Other income, net USD ($)	Aug. 03, 2012 Forward currency contracts Other income, net USD ($)	Aug. 02, 2013 Forward currency contracts Cost of sales USD ($)	Aug. 03, 2012 Forward currency contracts Cost of sales USD ($)	Aug. 02, 2013 Forward currency contracts Cost of sales USD ($)	Aug. 03, 2012 Forward currency contracts Cost of sales USD ($)	Aug. 02, 2013 Cross currency swaps USD ($)	Aug. 02, 2013 Cross currency swaps EUR (€)	Aug. 02, 2013 Cross currency swaps RON	Aug. 03, 2012 Cross currency swaps USD ($)	Aug. 02, 2013 Cross currency swaps Other income, net USD ($)	Aug. 03, 2012 Cross currency swaps Other income, net USD ($)	Aug. 02, 2013 Cross currency swaps Other income, net USD ($)	Aug. 03, 2012 Cross currency swaps Other income, net USD ($)
Summary of cash flow hedge activity
Maximum time limit for cash flow hedge			2 years
Gains or losses on contracts reclassified into earnings as a result of discontinuance of cash flow hedges	$ 0		$ 0
Derivative Instruments and Hedging Activities
Notional amount of foreign currency contracts designated as cash flow hedges					80,400,000
Number of foreign currency contracts held																				8,500,000	36,600,000
Foreign currency contract, designated as hedging instrument, classified in prepaid expenses					796,000	3,000																624,000
Foreign currency contract, not designated as hedging instrument, classified in prepaid expenses					2,305,000	970,000													83,000			1,019,000
Total foreign currency contract asset derivatives at fair value	3,184,000	2,616,000	3,184,000	2,616,000
Foreign currency contract, designated as hedging instrument, classified in accrued liabilities					178,000														428,000
Foreign currency contract, not designated as hedging instrument, classified in accrued liabilities					178,000	175,000
Total foreign currency contract liability derivatives at fair value	784,000	175,000	784,000	175,000
Gain (Loss) Recognized in OCI on Foreign Exchange Contract Derivative (Effective Portion)	(129,000)	(92,000)	541,000	840,000			459,000	(463,000)	1,133,000	(222,000)					(491,000)	(16,000)	110,000	675,000					(97,000)	387,000	(702,000)	387,000
Gain (Loss) Reclassified from AOCI into Income on Foreign Exchange Contract Derivative (Effective Portion)	197,000	944,000	(1,743,000)	2,004,000			(114,000)	1,033,000	(1,456,000)	2,738,000					185,000	(475,000)	426,000	(1,120,000)					126,000	386,000	(713,000)	386,000
Gain (Loss) recognized in Income on Derivatives (Ineffective Portion and Excluded from Effectiveness Testing)											5,000	394,000	706,000	597,000
Gain (Loss) Recognized in Net Earnings	3,127,000	3,132,000	1,986,000	7,927,000							3,227,000	2,233,000	2,267,000	6,930,000									(100,000)	899,000	(281,000)	997,000
Reclassification of losses from AOCI to earnings during the next 12 months on foreign currency contracts			$ 100,000

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Warranty Guarantees (Tables)

9 Months Ended

Aug. 02, 2013

Warranty Guarantees

Schedule of Warranty provisions, claims, changes in estimates, and additions from acquisitions

	Nine Months Ended
	August 2,			August 3,
(Dollars in thousands)	2013			2012
Beginning balance	$	69,848		$	62,730
Warranty provisions	33,875			32,268
Warranty claims	(24,624		)	(23,656		)
Changes in estimates	(1,928		)	2,183
Additions from acquisitions	—			200
Ending balance	$	77,171		$	73,725

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Common Shares Authorized (Details)	Aug. 02, 2013	Mar. 12, 2013	Oct. 31, 2012	Aug. 03, 2012
Common Shares Authorized
Common stock, authorized shares before amendment		100,000,000
Common stock, authorized shares	175,000,000		100,000,000	100,000,000

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Other Intangible Assets (Details) (USD $)	9 Months Ended					9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended			9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended			9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended			9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended			9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended
	Aug. 02, 2013	Oct. 31, 2012	Aug. 03, 2012	Aug. 02, 2013 Patents	Oct. 31, 2012 Patents	Aug. 02, 2013 Patents Minimum	Oct. 31, 2012 Patents Minimum	Aug. 02, 2013 Patents Maximum	Oct. 31, 2012 Patents Maximum	Aug. 02, 2013 Non-compete agreements	Oct. 31, 2012 Non-compete agreements	Aug. 02, 2013 Non-compete agreements Minimum	Oct. 31, 2012 Non-compete agreements Minimum	Aug. 02, 2013 Non-compete agreements Maximum	Oct. 31, 2012 Non-compete agreements Maximum	Aug. 02, 2013 Customer-related	Oct. 31, 2012 Customer-related	Aug. 02, 2013 Customer-related Minimum	Oct. 31, 2012 Customer-related Minimum	Aug. 02, 2013 Customer-related Maximum	Oct. 31, 2012 Customer-related Maximum	Aug. 02, 2013 Developed technology	Oct. 31, 2012 Developed technology	Aug. 02, 2013 Developed technology Minimum	Oct. 31, 2012 Developed technology Minimum	Aug. 02, 2013 Developed technology Maximum	Oct. 31, 2012 Developed technology Maximum	Aug. 02, 2013 Trade names	Oct. 31, 2012 Trade names	Aug. 02, 2013 Trade names Minimum	Oct. 31, 2012 Trade names Minimum	Aug. 02, 2013 Trade names Maximum	Oct. 31, 2012 Trade names Maximum	Aug. 02, 2013 Other	Oct. 31, 2012 Other
Other Intangible Assets
Estimated life						1 year 6 months	1 year 6 months	13 years	13 years			1 year 6 months	1 year 6 months	10 years	10 years			1 year 6 months	1 year 6 months	13 years	13 years			1 year 6 months	1 year 6 months	10 years	10 years			1 year 6 months	1 year 6 months	5 years	5 years
Gross Carrying Amount	$ 54,226,000	$ 54,250,000		$ 9,593,000	$ 9,593,000					$ 6,305,000	$ 6,303,000					$ 8,248,000	$ 8,312,000					$ 27,765,000	$ 27,727,000					$ 1,515,000	$ 1,515,000					$ 800,000	$ 800,000
Accumulated Amortization	(31,327,000)	(27,066,000)		(8,431,000)	(8,031,000)					(4,282,000)	(3,656,000)					(4,400,000)	(3,826,000)					(12,624,000)	(10,196,000)					(790,000)	(557,000)					(800,000)	(800,000)
Net	22,899,000	27,184,000		1,162,000	1,562,000					2,023,000	2,647,000					3,848,000	4,486,000					15,141,000	17,531,000					725,000	958,000
Non-amortizable - trade names	4,881,000	4,881,000																										4,881,000	4,881,000
Total other intangible assets, gross	59,107,000	59,131,000
Total other intangible assets, net	27,780,000	32,065,000	34,338,000
Amortization expense for intangible assets	4,500,000
Estimated amortization expense
Fiscal 2013 (remainder)	1,400,000
Fiscal 2014	5,300,000
Fiscal 2015	5,100,000
Fiscal 2016	4,600,000
Fiscal 2017	3,700,000
Fiscal 2018	1,700,000
After fiscal 2018	$ 1,100,000

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Condensed Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Aug. 02, 2013	Aug. 03, 2012	Aug. 02, 2013	Aug. 03, 2012
Condensed Consolidated Statements of Comprehensive Income
Net earnings	$ 40,097	$ 40,549	$ 149,895	$ 129,290
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(5,583)	(3,181)	(5,037)	(4,936)
Derivative instruments, net of tax of $(37), $(282), $596, and $266, respectively	(128)	(92)	546	845
Other comprehensive income (loss), net	(5,711)	(3,273)	(4,491)	(4,091)
Comprehensive income	$ 34,386	$ 37,276	$ 145,404	$ 125,199

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Goodwill

9 Months Ended

Aug. 02, 2013

Goodwill

Goodwill

Goodwill

The changes in the net carrying amount of goodwill for the first nine months of fiscal 2013 were as follows:

	Professional			Residential
(Dollars in thousands)	Segment			Segment			Total
Balance as of October 31, 2012	$	80,984		$	11,016		$	92,000
Translation adjustments	(3		)	(46		)	(49		)
Balance as of August 2, 2013	$	80,981		$	10,970		$	91,951

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Aug. 02, 2013	Oct. 31, 2012	Aug. 03, 2012
ASSETS
Cash and cash equivalents	$ 161,180	$ 125,856	$ 143,058
Receivables, net	202,148	147,410	197,023
Inventories, net	258,929	251,117	234,790
Prepaid expenses and other current assets	27,426	24,437	24,436
Deferred income taxes	62,324	63,314	62,368
Total current assets	712,007	612,134	661,675
Property, plant, and equipment	710,825	683,107	666,301
Less accumulated depreciation	530,882	502,584	488,578
Property, plant, and equipment, net	179,943	180,523	177,723
Deferred income taxes	98		76
Other assets	19,351	18,477	20,646
Goodwill	91,951	92,000	92,070
Other intangible assets, net	27,780	32,065	34,338
Total assets	1,031,130	935,199	986,528
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt		1,858	1,858
Accounts payable	124,244	124,806	124,168
Accrued liabilities	284,702	251,458	278,797
Total current liabilities	408,946	378,122	404,823
Long-term debt, less current portion	223,528	223,482	223,467
Deferred revenue	10,547	11,143	11,289
Deferred income taxes	2,898	2,280	1,380
Other long-term liabilities	6,592	7,770	7,822
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 as of August 2, 2013 and 100,000,000 shares as of August 3, 2012 and October 31, 2012; issued and outstanding 57,142,923 shares as of August 2, 2013, 58,771,336 shares as of August 3, 2012, and 58,266,482 shares as of October 31, 2012	57,143	58,266	58,771
Retained earnings	335,941	264,110	289,892
Accumulated other comprehensive loss	(14,465)	(9,974)	(10,916)
Total stockholders' equity	378,619	312,402	337,747
Total liabilities and stockholders' equity	$ 1,031,130	$ 935,199	$ 986,528

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Condensed Consolidated Statements of Earnings (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Aug. 02, 2013	Aug. 03, 2012	Aug. 02, 2013	Aug. 03, 2012
Condensed Consolidated Statements of Earnings
Net sales	$ 509,918	$ 504,076	$ 1,659,065	$ 1,619,396
Cost of sales	331,887	325,954	1,062,916	1,059,201
Gross profit	178,031	178,122	596,149	560,195
Selling, general, and administrative expense	119,451	117,137	373,894	358,689
Operating earnings	58,580	60,985	222,255	201,506
Interest expense	(3,909)	(4,198)	(12,307)	(12,791)
Other income, net	2,982	2,681	7,420	5,231
Earnings before income taxes	57,653	59,468	217,368	193,946
Provision for income taxes	17,556	18,919	67,473	64,656
Net earnings	$ 40,097	$ 40,549	$ 149,895	$ 129,290
Basic net earnings per share of common stock (in dollars per share)	$ 0.70	$ 0.69	$ 2.58	$ 2.17
Diluted net earnings per share of common stock (in dollars per share)	$ 0.68	$ 0.67	$ 2.53	$ 2.13
Weighted-average number of shares of common stock outstanding - Basic (in shares)	57,653	59,045	58,091	59,642
Weighted-average number of shares of common stock outstanding - Diluted (in shares)	58,913	60,336	59,266	60,829

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Segment Data (Tables)

9 Months Ended

Aug. 02, 2013

Segment Data

Summarized financial information concerning the company's reportable segments

(Dollars in thousands)
Three months ended August 2, 2013	Professional		Residential		Other			Total
Net sales	$	343,866	$	155,452	$	10,600		$	509,918
Intersegment gross sales	7,628		149		(7,777		)	—
Earnings (loss) before income taxes	60,508		15,070		(17,925		)	57,653

Three months ended August 3, 2012	Professional		Residential		Other			Total
Net sales	$	361,120	$	135,894	$	7,062		$	504,076
Intersegment gross sales	12,012		90		(12,102		)	—
Earnings (loss) before income taxes	70,537		10,048		(21,117		)	59,468

Nine months ended August 2, 2013	Professional		Residential		Other			Total
Net sales	$	1,169,446	$	477,789	$	11,830		$	1,659,065
Intersegment gross sales	34,401		354		(34,755		)	—
Earnings (loss) before income taxes	233,521		51,903		(68,056		)	217,368
Total assets	573,089		177,495		280,546			1,031,130

Nine months ended August 3, 2012	Professional		Residential		Other			Total
Net sales	$	1,100,899	$	505,399	$	13,098		$	1,619,396
Intersegment gross sales	31,134		2		(31,136		)	—
Earnings (loss) before income taxes	211,329		51,174		(68,557		)	193,946
Total assets	548,381		179,452		258,695			986,528

Summary of the components of the loss before income taxes included in "Other"

	Three Months Ended						Nine Months Ended
	August 2,			August 3,			August 2,			August 3,
(Dollars in thousands)	2013			2012			2013			2012
Corporate expenses	$	(18,985	)	$	(19,805	)	$	(61,304	)	$	(60,991	)
Interest expense, net	(3,909		)	(4,198		)	(12,307		)	(12,791		)
Other	4,969			2,886			5,555			5,225
Total	$	(17,925	)	$	(21,117	)	$	(68,056	)	$	(68,557	)

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Stock-Based Compensation (Tables)

9 Months Ended

Aug. 02, 2013

Stock-Based Compensation

Schedule of assumptions for options granted

	Fiscal 2013	Fiscal 2012
Expected life of option in years	6	6
Expected volatility	35.18% - 35.19%	34.87% - 35.02%
Weighted-average volatility	35.19%	35.01%
Risk-free interest rate	0.88%	1.20%
Expected dividend yield	1.04% - 1.07%	1.31% - 1.40%
Weighted-average dividend yield	1.07%	1.32%
Grant date per share weighted-average fair value	$13.03	$8.56

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Warranty Guarantees (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Aug. 02, 2013	Aug. 03, 2012
Warranty provisions, claims, and changes in estimates
Beginning balance	$ 69,848	$ 62,730
Warranty Provisions	33,875	32,268
Warranty Claims	(24,624)	(23,656)
Changes in estimates	(1,928)	2,183
Additions from acquisitions		200
Ending balance	$ 77,171	$ 73,725

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Inventories (Details) (USD $) In Thousands, unless otherwise specified	Aug. 02, 2013	Oct. 31, 2012	Aug. 03, 2012
Inventories
Raw materials and work in process	$ 80,176	$ 91,465	$ 83,649
Finished goods and service parts	242,560	223,459	212,142
Total FIFO value	322,736	314,924	295,791
Less: adjustment to LIFO value	63,807	63,807	61,001
Total	$ 258,929	$ 251,117	$ 234,790

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Goodwill (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Aug. 02, 2013	Aug. 03, 2012
Changes in Goodwill
Goodwill at the beginning of the period	$ 92,000	$ 92,070
Translation adjustments	(49)
Goodwill at the end of the period	91,951	92,070
Professional Segment
Changes in Goodwill
Goodwill at the beginning of the period	80,984
Translation adjustments	(3)
Goodwill at the end of the period	80,981
Residential Segment
Changes in Goodwill
Goodwill at the beginning of the period	11,016
Translation adjustments	(46)
Goodwill at the end of the period	$ 10,970

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Inventories

9 Months Ended

Aug. 02, 2013

Inventories

Inventories

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 most inventories and first-in, first-out (“FIFO”) method for all other inventories. The company establishes a reserve for excess, slow-moving, and obsolete inventory that is equal to the difference between the cost and estimated net realizable value for that inventory. These reserves are based on a review and comparison of current inventory levels to the planned production, as well as planned and historical sales of the inventory.

Inventories were as follows:

	August 2,		August 3,		October 31,
(Dollars in thousands)	2013		2012		2012
Raw materials and work in process	$	80,176	$	83,649	$	91,465
Finished goods and service parts	242,560		212,142		223,459
Total FIFO value	322,736		295,791		314,924
Less: adjustment to LIFO value	63,807		61,001		63,807
Total	$	258,929	$	234,790	$	251,117

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Derivative Instruments and Hedging Activities (Tables)

9 Months Ended

Aug. 02, 2013

Derivative Instruments and Hedging Activities

Fair value of the company's derivatives and consolidated balance sheet location

Asset Derivatives

Liability Derivatives

August 2, 2013

August 3, 2012

August 2, 2013

August 3, 2012

Balance

Balance

Balance

Balance

Sheet

Fair

Sheet

Fair

Sheet

Fair

Sheet

Fair

(Dollars in thousands)

Location

Value

Location

Value

Location

Value

Location

Value

Derivatives Designated as Hedging Instruments

Forward currency contracts

Prepaid expenses

$

796

Prepaid expenses

$

3

Accrued liabilities

$

178

Accrued liabilities

$

—

Cross currency swaps

Prepaid expenses

—

Prepaid expenses

624

Accrued liabilities

428

Accrued liabilities

—

Derivatives Not Designated as Hedging Instruments

Forward currency contracts

Prepaid expenses

2,305

Prepaid expenses

970

Accrued liabilities

178

Accrued liabilities

175

Cross currency swaps

Prepaid expenses

83

Prepaid expenses

1,019

Accrued liabilities

—

Accrued liabilities

—

Total Derivatives

$

3,184

$

2,616

$

784

$

175

Impact of derivative instruments on the consolidated statements of earnings for the company's derivatives designated as cash flow hedging instruments

														Location of Gain (Loss)	Gain (Loss)
							Location of Gain							Recognized in Income	Recognized in Income
	Gain (Loss)						(Loss) Reclassified	Gain (Loss)						on Derivatives	on Derivatives
	Recognized in OCI on						from AOCL	Reclassified from						(Ineffective Portion	(Ineffective Portion and
	Derivatives						into Income	AOCL into Income						and excluded from	Excluded from
	(Effective Portion)						(Effective Portion)	(Effective Portion)						Effectiveness Testing)	Effectiveness Testing)
(Dollars in thousands)	August 2,			August 3,				August 2,			August 3,				August 2,		August 3,
For the three months ended	2013			2012				2013			2012				2013		2012
Forward currency contracts	$	459		$	(463	)	Net sales	$	(114	)	$	1,033		Other income, net	$	5	$	394
Forward currency contracts	(491		)	(16		)	Cost of sales	185			(475		)
Cross currency contracts	(97		)	387			Other income, net	126			386
Total	$	(129	)	$	(92	)		$	197		$	944

	August 2,			August 3,				August 2,			August 3,				August 2,		August 3,
For the nine months ended	2013			2012				2013			2012				2013		2012
Forward currency contracts	$	1,133		$	(222	)	Net sales	$	(1,456	)	$	2,738		Other income, net	$	706	$	597
Forward currency contracts	110			675			Cost of sales	426			(1,120		)
Cross currency contracts	(702		)	387			Other income, net	(713		)	386
Total	$	541		$	840			$	(1,743	)	$	2,004

Impact of derivative instruments on the consolidated statements of earnings for the company's derivatives not designated as hedging instruments

		Gain (Loss) Recognized in Net Earnings
		Three Months Ended					Nine Months Ended
	Location of Gain (Loss)	August 2,			August 3,		August 2,			August 3,
(Dollars in thousands)	Recognized in Net Earnings	2013			2012		2013			2012
Forward currency contracts	Other income, net	$	3,227		$	2,233	$	2,267		$	6,930
Cross currency swaps	Other income, net	(100		)	899		(281		)	997
		$	3,127		$	3,132	$	1,986		$	7,927

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Fair Value Measurements (Details) (USD $) In Thousands, unless otherwise specified	Aug. 02, 2013	Oct. 31, 2012	Aug. 03, 2012
Liabilities:
Transfer of asset from level 1 to level 2	$ 0	$ 0	$ 0
Transfer of asset from level 2 to level 1	0	0	0
Transfer of liabilities from level 1 to level 2	0	0	0
Transfer of liabilities from level 2 to level 1	0	0	0
Measured on a recurring basis | Fair Value
Assets:
Cash and cash equivalents	161,180	125,856	143,058
Forward currency contracts	3,101	995	2,616
Cross currency contracts	83	1,046
Total Assets	164,364	127,897	145,674
Liabilities:
Forward currency contracts	356	2,114	175
Cross currency contracts	428
Deferred compensation liabilities	2,982	3,547	3,738
Total Liabilities	3,766	5,661	3,913
Measured on a recurring basis | Level 1
Assets:
Cash and cash equivalents	161,180	125,856	143,058
Total Assets	161,180	125,856	143,058
Measured on a recurring basis | Level 2
Assets:
Forward currency contracts	3,101	995	2,616
Cross currency contracts	83	1,046
Total Assets	3,184	2,041	2,616
Liabilities:
Forward currency contracts	356	2,114	175
Cross currency contracts	428
Deferred compensation liabilities	2,982	3,547	3,738
Total Liabilities	$ 3,766	$ 5,661	$ 3,913

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Investment in Joint Venture

9 Months Ended

Aug. 02, 2013

Investment in Joint Venture

Investment in Joint Venture

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 provides inventory financing, including floor plan and open account receivable financing, to distributors and dealers of the company’s products in the United States and to select distributors of the company’s products in Canada. In fiscal 2012, the company and TCFIF entered into amendments to certain of the agreements pertaining to Red Iron, among other things, to extend the initial term of Red Iron until October 31, 2017, subject to unlimited automatic two-year extensions thereafter. Either the company or TCFIF may elect not to extend the initial term or any subsequent term by giving one-year notice to the other party of its intention not to extend the term. Additionally, in connection with the joint venture, the company and an affiliate of TCFIF entered into an arrangement to provide inventory financing to dealers of the company’s products in Canada.

The company owns 45 percent of Red Iron and TCFIF owns 55 percent of Red Iron. The company accounts for its investment in Red Iron under the equity method of accounting. Each of the company and TCFIF contributed a specified amount of the estimated cash required to enable Red Iron to purchase the company’s inventory financing receivables and to provide financial support for Red Iron’s inventory financing programs. Red Iron borrows the remaining requisite estimated cash utilizing a $450 million secured revolving credit facility established under a credit agreement between Red Iron and TCFIF. The company’s total investment in Red Iron as of August 2, 2013 was $15.2 million. The company has not guaranteed the outstanding indebtedness of Red Iron. The company has agreed to repurchase products repossessed by Red Iron and the TCFIF Canadian affiliate, up to a maximum aggregate amount of $7.5 million in a calendar year. In addition, the company has provided recourse to Red Iron for certain outstanding receivables, which amounted to a maximum amount of $0.4 million as of August 2, 2013.

Under the repurchase agreement between Red Iron and the company, Red Iron provides financing for certain dealers and distributors. These transactions are structured as an advance in the form of a payment by Red Iron to the company on behalf of a distributor or dealer with respect to invoices financed by Red Iron. These payments extinguish the obligation of the dealer or distributor to make payment to the company under the terms of the applicable invoice. Under separate agreements between Red Iron and the dealers and distributors, Red Iron provides loans to the dealers and distributors for the advances paid by Red Iron to the company. The net amount of new receivables financed for dealers and distributors under this arrangement for the nine months ended August 2, 2013 and August 3, 2012 was $962.5 million and $920.3 million, respectively.

As of July 31, 2013, Red Iron’s total assets were $302.5 million and total liabilities were $268.7 million.

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Per Share Data

9 Months Ended

Aug. 02, 2013

Per Share Data

Per Share Data

Per Share Data

Reconciliations of basic and diluted weighted-average shares of common stock outstanding are as follows:

	Three Months Ended		Nine Months Ended
	August 2,	August 3,	August 2,	August 3,
(Shares in thousands)	2013	2012	2013	2012
Basic
Weighted-average number of shares of common stock	57,653	59,045	58,059	59,633
Assumed issuance of contingent shares	—	—	32	9
Weighted-average number of shares of common stock and assumed issuance of contingent shares	57,653	59,045	58,091	59,642
Diluted
Weighted-average number of shares of common stock and assumed issuance of contingent shares	57,653	59,045	58,091	59,642
Effect of dilutive securities	1,260	1,291	1,175	1,187
Weighted-average number of shares of common stock, assumed issuance of contingent shares, and effect of dilutive securities	58,913	60,336	59,266	60,829

Options to purchase an aggregate of 204,461 and 2,247 shares of common stock outstanding during the third quarter of fiscal 2013 and 2012, respectively, were excluded from the diluted net earnings per share. Options to purchase an aggregate of 328,703 and 32,414 shares of common stock outstanding during the year-to-date periods through the third quarter of fiscal 2013 and 2012, respectively, were excluded from the diluted net earnings per share calculations. These exclusions are made if the exercise prices of these options are greater than the average market price of the company’s common stock for the period, if the number of shares the company can repurchase under the treasury stock method exceeds the weighted average shares outstanding in the options, or if the company has a net loss, as the effects are anti-dilutive.

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Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Aug. 02, 2013	Aug. 03, 2012
Cash flows from operating activities:
Net earnings	$ 149,895	$ 129,290
Adjustments to reconcile net earnings to net cash provided by operating activities:
Noncash income from finance affiliate	(5,658)	(4,521)
Provision for depreciation and amortization	39,204	37,929
Stock-based compensation expense	7,927	7,465
Decrease (increase) in deferred income taxes	183	(443)
Other	28	(117)
Changes in operating assets and liabilities, net of effect of acquisitions:
Receivables, net	(56,762)	(51,640)
Inventories, net	(12,048)	(6,428)
Prepaid expenses and other assets	(1,539)	(6,114)
Accounts payable, accrued liabilities, deferred revenue, and other long-term liabilities	36,910	59,986
Net cash provided by operating activities	158,140	165,407
Cash flows from investing activities:
Purchases of property, plant, and equipment	(34,390)	(28,158)
Proceeds from asset disposals	344	114
Distributions from finance affiliate, net	2,977	1,777
Acquisitions, net of cash acquired		(9,663)
Net cash used in investing activities	(31,069)	(35,930)
Cash flows from financing activities:
Repayments of short-term debt	(415)	(922)
Repayments of long-term debt	(1,769)	(1,892)
Excess tax benefits from stock-based awards	5,196	8,080
Proceeds from exercise of stock options	8,146	17,337
Purchases of Toro common stock	(76,003)	(67,354)
Dividends paid on Toro common stock	(24,453)	(19,748)
Net cash used in financing activities	(89,298)	(64,499)
Effect of exchange rates on cash and cash equivalents	(2,449)	(2,806)
Net increase in cash and cash equivalents	35,324	62,172
Cash and cash equivalents as of the beginning of the fiscal period	125,856	80,886
Cash and cash equivalents as of the end of the fiscal period	161,180	143,058
Supplemental disclosures of cash flow information:
Long-term debt issued in connection with an acquisition		$ 100

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Stock-Based Compensation (Details) (USD $)	9 Months Ended		6 Months Ended		9 Months Ended		12 Months Ended	9 Months Ended
	Aug. 02, 2013 Restricted Stock and Restricted Stock Unit Awards	Aug. 03, 2012 Restricted Stock and Restricted Stock Unit Awards	May 03, 2013 Performance Share Awards	May 04, 2012 Performance Share Awards	Aug. 02, 2013 Performance Share Awards	Aug. 02, 2013 Stock Option Awards	Oct. 31, 2012 Stock Option Awards	Aug. 02, 2013 Stock Option Awards Officers	Aug. 02, 2013 Stock Option Awards Other employees	Aug. 02, 2013 Stock Option Awards Non-employee directors	Aug. 02, 2013 Stock Option Awards Non-officer employees
Stock-Based Compensation
Frequency of grants					On an annual basis in the first quarter of the company's fiscal year			On an annual basis in the first quarter of the company's fiscal year	On an annual basis in the first quarter of the company's fiscal year	On an annual basis in the first quarter of the company's fiscal year
Portion of stock-based award that generally vest per year for employees and non-employee directors	0.333							0.333	0.333	0.333
Award vesting period	3 years				3 years			3 years	3 years	3 years	3 years
Term of award								10 years	10 years	10 years	10 years
Requisite service period for non-employee director based upon which fair value of options granted is expensed on the date of grant										10 years
Valuation assumptions of stock-based compensation
Expected life of option						6 years	6 years
Expected volatility, low end of range (as a percent)						35.18%	34.87%
Expected volatility, high end of range (as a percent)						35.19%	35.02%
Weighted-average volatility (as a percent)						35.19%	35.01%
Risk-free interest rate (as a percent)						0.88%	1.20%
Expected dividend yield, low end of range (as a percent)						1.04%	1.31%
Expected dividend yield, high end of range (as a percent)						1.07%	1.40%
Weighted-average dividend yield (as a percent)						1.07%	1.32%
Grant date per share weighted-average fair value	$ 46.22	$ 33.61	$ 42.06	$ 28.24		$ 13.03	$ 8.56
Performance goal period					3 years
Maximum increase in the number of shares of common stock a participant receives based on the achievement of performance goals (as a percent)					200.00%
Potential lowest number of shares of common stock that could be received based on the achievement level of performance goals					0

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Derivative Instruments and Hedging Activities

9 Months Ended

Aug. 02, 2013

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

The company is exposed to foreign currency exchange rate risk arising from transactions in the normal course of business, such as sales to third party customers, sales and loans to wholly owned foreign subsidiaries, foreign plant operations, and purchases from suppliers. The company actively manages the exposure of its foreign currency exchange rate market risk by entering into various hedging instruments, authorized under company policies that place controls on these activities, with counterparties that are highly rated financial institutions. The company’s hedging activities primarily involve the use of forward currency contracts, as well as a cross currency swaps that are intended to offset intercompany loan exposures. The company uses derivative instruments only in an attempt to limit underlying exposure from foreign currency exchange rate fluctuations and to minimize earnings and cash flow volatility associated with foreign currency exchange rate changes. Decisions on whether to use such contracts are primarily based on the amount of exposure to the currency involved and an assessment of the near-term market value for each currency. The company’s policy does not allow the use of derivatives for trading or speculative purposes. The company also has made an accounting policy election to use the portfolio exception with respect to measuring counterparty credit risk for derivative instruments, and to measure the fair value of a portfolio of financial assets and financial liabilities on the basis of the net open risk position with each counterparty. The company’s primary foreign currency exchange rate exposures are with the Euro, the Australian dollar, the Canadian dollar, the British pound, the Mexican peso, the Japanese yen, the Chinese Yuan, and the Romanian New Leu against the U.S. dollar, as well as the Romanian New Leu against the Euro.

Cash flow hedges. The company recognizes all derivative instruments as either assets or liabilities at fair value on the consolidated balance sheet and formally documents relationships between cash flow hedging instruments and hedged transactions, as well as its risk-management objective and strategy for undertaking hedge transactions. This process includes linking all derivatives to the forecasted transactions, such as sales to third parties and foreign plant operations. Changes in fair values of outstanding cash flow hedge derivatives, except the ineffective portion, are recorded in other comprehensive income (“OCI”), until net earnings is affected by the variability of cash flows of the hedged transaction. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in net earnings. The consolidated statement of earnings classification of effective hedge results is the same as that of the underlying exposure. Results of hedges of sales and foreign plant operations are recorded in net sales and cost of sales, respectively, when the underlying hedged transaction affects net earnings. The maximum amount of time the company hedges its exposure to the variability in future cash flows for forecasted trade sales and purchases is two years. Results of hedges of intercompany loans are recorded in other income, net as an offset to the remeasurement of the foreign loan balance.

The company formally assesses, at a hedge’s inception and on an ongoing basis, whether the derivatives that are designated as hedges have been highly effective in offsetting changes in the cash flows of the hedged transactions and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not, or has ceased to be, highly effective as a hedge, the company discontinues hedge accounting prospectively. When the company discontinues hedge accounting because it is no longer probable, but it is still reasonably possible that the forecasted transaction will occur by the end of the originally expected period or within an additional two-month period of time thereafter, the gain or loss on the derivative remains in accumulated other comprehensive loss (“AOCL”) and is reclassified to net earnings when the forecasted transaction affects net earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were in AOCL are recognized immediately in net earnings. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the company carries the derivative at its fair value on the consolidated balance sheet, recognizing future changes in the fair value in other income, net. For the third quarter and year-to-date periods of fiscal 2013, there were no losses on contracts reclassified into earnings as a result of the discontinuance of cash flow hedges. As of August 2, 2013, the notional amount outstanding of forward contracts designated as cash flow hedges was $80.4 million. Additionally, the company has one cross currency interest rate swap instrument outstanding as of August 2, 2013 for a fixed pay notional of 36.6 million Romanian New Leu and receive floating notional of 8.5 million Euro.

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

The following table presents the fair value of the company’s derivatives and consolidated balance sheet location.

Asset Derivatives

Liability Derivatives

August 2, 2013

August 3, 2012

August 2, 2013

August 3, 2012

Balance

Balance

Balance

Balance

Sheet

Fair

Sheet

Fair

Sheet

Fair

Sheet

Fair

(Dollars in thousands)

Location

Value

Location

Value

Location

Value

Location

Value

Derivatives Designated as Hedging Instruments

Forward currency contracts

Prepaid expenses

$

796

Prepaid expenses

$

3

Accrued liabilities

$

178

Accrued liabilities

$

—

Cross currency swaps

Prepaid expenses

—

Prepaid expenses

624

Accrued liabilities

428

Accrued liabilities

—

Derivatives Not Designated as Hedging Instruments

Forward currency contracts

Prepaid expenses

2,305

Prepaid expenses

970

Accrued liabilities

178

Accrued liabilities

175

Cross currency swaps

Prepaid expenses

83

Prepaid expenses

1,019

Accrued liabilities

—

Accrued liabilities

—

Total Derivatives

$

3,184

$

2,616

$

784

$

175

The following table presents the impact of derivative instruments on the consolidated statements of earnings for the company’s derivatives designated as cash flow hedging instruments for the three and nine months ended August 2, 2013 and August 3, 2012, respectively.

														Location of Gain (Loss)	Gain (Loss)
							Location of Gain							Recognized in Income	Recognized in Income
	Gain (Loss)						(Loss) Reclassified	Gain (Loss)						on Derivatives	on Derivatives
	Recognized in OCI on						from AOCL	Reclassified from						(Ineffective Portion	(Ineffective Portion and
	Derivatives						into Income	AOCL into Income						and excluded from	Excluded from
	(Effective Portion)						(Effective Portion)	(Effective Portion)						Effectiveness Testing)	Effectiveness Testing)
(Dollars in thousands)	August 2,			August 3,				August 2,			August 3,				August 2,		August 3,
For the three months ended	2013			2012				2013			2012				2013		2012
Forward currency contracts	$	459		$	(463	)	Net sales	$	(114	)	$	1,033		Other income, net	$	5	$	394
Forward currency contracts	(491		)	(16		)	Cost of sales	185			(475		)
Cross currency contracts	(97		)	387			Other income, net	126			386
Total	$	(129	)	$	(92	)		$	197		$	944

	August 2,			August 3,				August 2,			August 3,				August 2,		August 3,
For the nine months ended	2013			2012				2013			2012				2013		2012
Forward currency contracts	$	1,133		$	(222	)	Net sales	$	(1,456	)	$	2,738		Other income, net	$	706	$	597
Forward currency contracts	110			675			Cost of sales	426			(1,120		)
Cross currency contracts	(702		)	387			Other income, net	(713		)	386
Total	$	541		$	840			$	(1,743	)	$	2,004

As of August 2, 2013, the company expects to reclassify approximately $0.1 million of losses from AOCL to earnings during the next 12 months.

The following table presents the impact of derivative instruments on the consolidated statements of earnings for the company’s derivatives not designated as hedging instruments.

		Gain (Loss) Recognized in Net Earnings
		Three Months Ended					Nine Months Ended
	Location of Gain (Loss)	August 2,			August 3,		August 2,			August 3,
(Dollars in thousands)	Recognized in Net Earnings	2013			2012		2013			2012
Forward currency contracts	Other income, net	$	3,227		$	2,233	$	2,267		$	6,930
Cross currency swaps	Other income, net	(100		)	899		(281		)	997
		$	3,127		$	3,132	$	1,986		$	7,927

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Other Intangible Assets

9 Months Ended

Aug. 02, 2013

Other Intangible Assets

Other Intangible Assets

Other Intangible Assets

The components of other amortizable intangible assets were as follows:

(Dollars in thousands) August 2, 2013	Estimated Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net
Patents	1.5-13	$	9,593	$	(8,431	)	$	1,162
Non-compete agreements	1.5-10	6,305		(4,282		)	2,023
Customer-related	1.5-13	8,248		(4,400		)	3,848
Developed technology	1.5-10	27,765		(12,624		)	15,141
Trade names	1.5-5	1,515		(790		)	725
Other		800		(800		)	—
Total amortizable		54,226		(31,327		)	22,899
Non-amortizable - trade names		4,881		—			4,881
Total other intangible assets, net		$	59,107	$	(31,327	)	$	27,780

October 31, 2012	Estimated Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net
Patents	1.5-13	$	9,593	$	(8,031	)	$	1,562
Non-compete agreements	1.5-10	6,303		(3,656		)	2,647
Customer-related	1.5-13	8,312		(3,826		)	4,486
Developed technology	1.5-10	27,727		(10,196		)	17,531
Trade names	1.5-5	1,515		(557		)	958
Other		800		(800		)	—
Total amortizable		54,250		(27,066		)	27,184
Non-amortizable - trade names		4,881		—			4,881
Total other intangible assets, net		$	59,131	$	(27,066	)	$	32,065

Amortization expense for intangible assets during the first nine months of fiscal 2013 was $4.5 million. Estimated amortization expense for the remainder of fiscal 2013 and succeeding fiscal years is as follows: fiscal 2013 (remainder), $1.4 million; fiscal 2014, $5.3 million; fiscal 2015, $5.1 million; fiscal 2016, $4.6 million; fiscal 2017, $3.7 million; fiscal 2018, $1.7 million; and after fiscal 2018, $1.1 million.

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Subsequent Events

9 Months Ended

Aug. 02, 2013

Subsequent Events

Subsequent Events

Subsequent Events

The company evaluated all subsequent events and concluded that no additional subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements.

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Fair Value Measurements

9 Months Ended

Aug. 02, 2013

Fair Value Measurements

Fair Value Measurements

Fair Value Measurements

The company categorizes its assets and liabilities into one of three levels based on the assumptions (inputs) used in valuing the asset or liability. Estimates of fair value for financial assets and financial liabilities are based on the framework established in the accounting guidance for fair value measurements.  The framework defines fair value, provides guidance for measuring fair value and requires certain disclosures.  The framework discusses valuation techniques such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost).  The framework utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.  Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment. The three levels are defined as follows:

Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs reflecting management’s assumptions about the inputs used in pricing the asset or liability.

Cash and cash equivalents are valued at their carrying amounts in the consolidated balance sheets, which are reasonable estimates of their fair value due to their short-term maturities. Forward currency contracts are valued based on observable market transactions of forward currency prices and spot currency rates as of the reporting date. The fair value of cross currency contracts is determined using discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs such as interest rates and foreign currency exchange rates. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contracts such as collateral postings, thresholds, mutual puts, and guarantees, are incorporated in the fair values to account for potential nonperformance risk. The unfunded deferred compensation liability is primarily subject to changes in fixed-income investment contracts based on current yields. For accounts receivable and accounts payable, carrying amounts are a reasonable estimate of fair value given their short-term nature.

Assets and liabilities measured at fair value on a recurring basis, as of August 2, 2013, August 3, 2012, and October 31, 2012 are summarized below:

(Dollars in thousands)
August 2, 2013	Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	161,180	$	161,180	$	—	—
Forward currency contracts	3,101		—		3,101		—
Cross currency contracts	83		—		83		—
Total assets	$	164,364	$	161,180	$	3,184	—
Liabilities:
Forward currency contracts	$	356	—		$	356	—
Cross currency contracts	428		—		428		—
Deferred compensation liabilities	2,982		—		2,982		—
Total liabilities	$	3,766	—		$	3,766	—

August 3, 2012	Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	143,058	$	143,058	$	—	—
Forward currency contracts	2,616		—		2,616		—
Total assets	$	145,674	$	143,058	$	2,616	—
Liabilities:
Forward currency contracts	$	175	—		$	175	—
Deferred compensation liabilities	3,738		—		3,738		—
Total liabilities	$	3,913	—		$	3,913	—

October 31, 2012	Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	125,856	$	125,856	$	—	—
Forward currency contracts	995		—		995		—
Cross currency contracts	1,046		—		1,046		—
Total assets	$	127,897	$	125,856	$	2,041	—
Liabilities:
Forward currency contracts	$	2,114	—		$	2,114	—
Deferred compensation liabilities	3,547		—		3,547		—
Total liabilities	$	5,661	—		$	5,661	—

There were no transfers between Level 1 and Level 2 during the three and nine months ended August 2, 2013 and August 3, 2012, or the fiscal year ended October 31, 2012.

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Document and Entity Information	9 Months Ended
	Aug. 02, 2013	Aug. 26, 2013
Document and Entity Information
Entity Registrant Name	TORO CO
Entity Central Index Key	0000737758
Document Type	10-Q
Document Period End Date	Aug. 02, 2013
Amendment Flag	false
Current Fiscal Year End Date	--10-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		57,156,252
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3

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Contingencies

9 Months Ended

Aug. 02, 2013

Contingencies

Contingencies

Contingencies

Litigation

General. The company is party to litigation in the ordinary course of business. Litigation occasionally involves claims for punitive as well as compensatory damages arising out of use of the company’s products. Although the company is self-insured to some extent, the company maintains insurance against certain product liability losses. The company is also subject to litigation and administrative and judicial proceedings with respect to claims involving asbestos and the discharge of hazardous substances into the environment. Some of these claims assert damages and liability for personal injury, remedial investigations or clean up and other costs and damages. The company is also typically involved in commercial disputes, employment disputes, and patent litigation cases in which it is asserting or defending against patent infringement claims. To prevent possible infringement of the company’s patents by others, the company periodically reviews competitors’ products. To avoid potential liability with respect to others’ patents, the company regularly reviews certain patents issued by the United States Patent and Trademark Office (“USPTO”) and foreign patent offices. Management believes these activities help minimize its risk of being a defendant in patent infringement litigation.

Canadian Lawnmower Engine Horsepower Marketing and Sales Practices Litigation. In March 2010, individuals who claim to have purchased lawnmowers in Canada filed class action litigation against the company and other defendants that, similar to the class action litigation previously filed by plaintiffs in the United States and settled by the company pursuant to a settlement agreement that became final in February 2011, (i) contains allegations under applicable Canadian law that the horsepower labels on the products the plaintiffs purchased were inaccurate, (ii) seeks certification of a class of all persons in Canada who, beginning January 1, 1994 purchased a lawnmower containing a gas combustible engine up to 30 horsepower that was manufactured or sold by the company and other defendants, and (iii) seeks under applicable Canadian law unspecified compensatory and punitive damages, attorneys’ costs and fees, and equitable relief.

Management continues to evaluate this Canadian litigation and, in the event the company is unable to favorably resolve this litigation, while management does not currently believe that this litigation would have a material adverse effect on the company’s annual consolidated operating results or financial condition, an unfavorable resolution or outcome could be material to the company’s consolidated operating results for a particular period.