{"url_path":"/sec/ttc/10-q/2026/item-3","section_key":"item-3","section_title":"Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-06-04","source_url":"https://www.sec.gov/Archives/edgar/data/737758/0000737758-26-000018-index.html","accession_number":"0000737758-26-000018","cik":"0000737758","ticker":"TTC","issuer_name":"TORO CO","edgar_url":"https://www.sec.gov/Archives/edgar/data/737758/0000737758-26-000018-index.html","primary_entity_key":"0000737758","primary_entity_name":"TORO CO"},"word_count":1151,"has_tables":true,"body_markdown":"ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\n\nWe are exposed to market risk stemming from changes in foreign currency exchange rates, interest rates, and commodity costs. 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. There have been no material changes to the market risk information regarding equity market risk included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2025. Refer to Part II, Item 7A, \"Quantitative and Qualitative Disclosures about Market Risk\", within our Annual Report on Form 10-K for the fiscal year ended October 31, 2025 for a complete discussion of our market risk. Refer below for further discussion on foreign currency exchange rate risk, interest rate risk, and commodity cost risk.\n\nForeign Currency Exchange Rate Risk\n\nWe 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, costs associated with foreign plant operations, and purchases from suppliers. Our primary foreign currency exchange rate exposures are with the Euro, the Australian dollar, the Canadian dollar, the British pound, the Mexican peso, the Japanese yen, the Chinese renminbi, and the Romanian new leu against the U.S. dollar, as well as the Romanian new leu against the Euro. Because our products are manufactured or sourced primarily from the U.S. and Mexico, a stronger U.S. dollar and Mexican peso generally have a negative impact on our results from operations, while a weaker U.S. dollar and Mexican peso generally have a positive effect.\n\n42\n\n[Table of Contents](#i9fc80454db9e4c1fbdc1fc481f42650d_7)\n\nTo reduce our exposure to foreign currency exchange rate risk, we enter into various derivative instruments to hedge against such risk, authorized under a company policy that places controls on these hedging activities, with counterparties that are highly rated financial institutions. Decisions on whether to use such derivative instruments are primarily based on the amount of exposure to the currency involved and an assessment of the near-term market value for each currency. Our worldwide foreign currency exchange rate exposures are reviewed monthly. The gains and losses on our derivative instruments offset the changes in values of the related underlying exposures. Therefore, changes in the values of our derivative instruments are highly correlated with changes in the market values of underlying hedged items both at inception and over the life of the derivative instrument. For additional information regarding our derivative instruments, refer to Note 16, Derivative Instruments and Hedging Activities, in our Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.\n\nThe foreign currency exchange contracts in the table below have maturity dates in fiscal 2026 through fiscal 2028. All items are non-trading and stated in U.S. dollars. As of May 1, 2026, the average contracted rate, notional amount, fair value, and the gain (loss) at fair value of outstanding derivative instruments were as follows:\n\n(Dollars in millions, except average contracted rate)Average Contracted RateNotional AmountFair ValueGain (Loss) at Fair Value\n\nBuy U.S. dollar/Sell Australian dollar0.6625 $94.7 $88.6 $(6.1)\n\nBuy U.S. dollar/Sell Canadian dollar1.3599 50.4 50.2 (0.2)\n\nBuy U.S. dollar/Sell Euro1.1630 225.8 222.3 (3.5)\n\nBuy U.S. dollar/Sell British pound1.3164 68.7 67.4 (1.3)\n\nBuy Mexican peso/Sell U.S. dollar20.0063 $63.3 $70.1 $6.8 \n\nOur 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 on the Condensed Consolidated Balance Sheets, and would not impact net earnings.\n\nInterest Rate Risk\n\nOur interest rate risk relates primarily to fluctuations in variable interest rates on our revolving credit facility and term loan credit agreements, as well as the potential increase in the fair value of our fixed-rate long-term debt resulting from a potential decrease in interest rates. We generally do not use interest rate swaps to mitigate the impact of fluctuations in interest rates. We have no earnings or cash flow exposure due to interest rate risks on our fixed-rate long-term debt obligations. Our indebtedness as of May 1, 2026 includes $724.3 million of gross fixed-rate long-term debt that is not subject to variable interest rate fluctuations, $200.0 million of gross variable rate debt under our term loan credit agreements, and $95.0 million outstanding under our variable rate revolving credit facility.\n\nCommodity Cost Risk\n\nMost of the commodities, components, parts, and accessories used in our manufacturing process and end-products, or to be sold as standalone end-products, are exposed to commodity cost changes. These changes may be affected by several factors, including, for example, supply; demand; inflation; deflation; changing prices; foreign currency fluctuations; tariffs; duties; trade regulatory actions; industry actions; the current conflict in the Middle East region; and changes to international trade policies, agreements, and/or regulation and competitor activity, including antidumping and countervailing duties on certain products imported from foreign countries, such as certain engines imported into the U.S. from China.\n\nOur primary cost exposures for commodities, components, parts, and accessories used in our products are with steel, aluminum, petroleum, and natural gas-based resins, linerboard, copper, lead, rubber, engines, transmissions, transaxles, hydraulics, electrification components, and others. Our largest spend categories for commodities, components, parts, and accessories are generally steel, engines, hydraulic components, transmissions, resin, aluminum, and electrification components, all of which we purchase from several suppliers around the world. We generally purchase commodities, components, parts, and accessories based upon market prices that are established with suppliers as part of the purchase process and generally attempt to obtain firm pricing from most of our suppliers for volumes consistent with planned production and estimates of wholesale and retail demand for our products.\n\n43\n\n[Table of Contents](#i9fc80454db9e4c1fbdc1fc481f42650d_7)\n\nIn any given period, we strategically attempt to mitigate potential unfavorable impact as a result of changes to the cost of commodities, components, parts, and accessories that affect our product lines through our productivity initiatives; however, our productivity initiatives may not be as effective as anticipated depending on macroeconomic cost trends for commodities, components, parts, and accessories costs and/or other factors. Our productivity initiatives include, but are not limited to, collaborating with suppliers, reviewing alternative sourcing options, substituting materials, SKU rationalization, utilizing Lean methods, engaging in internal cost reduction efforts, and utilizing tariff exclusions and duty drawback mechanisms, all as appropriate. When appropriate, we may also increase prices on some of our products to offset changes in the cost of commodities, components, parts, and accessories. To the extent that commodity and component costs increase and we do not have firm pricing from our suppliers, or our suppliers are not able to honor such prices, and/or our productivity initiatives and/or product price increases are less effective than anticipated and/or do not fully offset cost increases, we may experience a decline in our gross margins."}