THE TORO COMPANY
INDEX TO FORM 10-Q

2

PART I.

ITEM 1. FINANCIAL INFORMATION

THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Unaudited)
(Dollars and shares in thousands, except per share data)

See accompanying notes to condensed consolidated financial statements.

3

THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands, except per share data)

See accompanying notes to condensed consolidated financial statements.

4

THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)

See accompanying notes to condensed consolidated financial statements.

5

THE TORO COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
May 5, 2006

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 accounting principles generally accepted in the United States of America for complete financial statements. Unless the context indicates otherwise, the terms “company” and “Toro” refer to The Toro Company and its 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 six months ended May 5, 2006 cannot be annualized to determine the expected results for the fiscal year ending October 31, 2006. Certain amounts from prior period’s financial statements have been reclassified to conform to this period’s presentation.

     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 quarter 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, 2005. The policies described in that report are used for preparing quarterly reports.

Accounting Policies

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management must make decisions that impact the reported amounts and the related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, management applies judgments based on its understanding and analysis of the relevant circumstances, historical experience, and actuarial valuations. Actual amounts could differ from those estimated at the time the consolidated financial statements are prepared. Note 1 to the consolidated financial statements in the company’s most recent Annual Report on Form 10-K provides a summary of the significant accounting policies followed in the preparation of the financial statements. Other footnotes to the consolidated financial statements in the company’s Annual Report on Form 10-K describe various elements of the financial statements and the assumptions made in determining specific amounts.

Comprehensive Income

Comprehensive income and the components of other comprehensive income were as follows:

6

Stock-Based Compensation

The company accounts for stock-based compensation awards in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 123 (Revised 2004), “Share-Based Payment.” During the first quarter of fiscal 2006, option awards were granted with an exercise price equal to the market price of the company’s common stock as of the date of grant. For certain non-officer employees, the options vest after two years from the date of grant and have a five-year contractual term. Other options granted during the first quarter of fiscal 2006 vest one-third each year over a three-year period and have a ten-year contractual term. Compensation expense equal to the grant date fair value is recognized for these awards over the vesting period. The company also issues Performance Shares to key employees. The company determines the fair value of these Performance Shares as of the date of grant and recognizes the expense over the vesting period. Total compensation expense for option awards and Performance Shares for the second quarter of fiscal 2006 and 2005 was $2.0 million and $2.2 million, respectively. Year-to-date compensation expense for option awards and Performance Shares through the second quarter of fiscal 2006 and 2005 was $4.1 million and $4.2 million, respectively.

     The fair value of each share-based option is estimated on the date of grant using a Black-Scholes valuation method that uses the assumptions noted in the following table. 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 over which the employee groups will exercise their options, which is based on historical experience with similar grants. 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 stock over the most recent historical period equivalent to the expected life of the option. The risk-free 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 dividend policy, historical dividends paid, expected increase in future cash dividends, and expected increase in the company’s stock price. The following table illustrates the assumptions for options granted in the following fiscal periods.

The weighted-average fair value of options granted during the first quarters of fiscal 2006 and 2005 was $10.90 per share and $11.14 per share, respectively. The fair value of Performance Shares granted during the first quarters of fiscal 2006 and 2005 was $41.44 per share and $37.02 per share, respectively. No options or Performance Shares were granted during the second quarters of fiscal 2006 and 2005.

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) 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 market value for that inventory. These reserves are based on a review and comparison of current inventory levels to the production and sales history of the inventory.

     Inventories were as follows:

7

Per Share Data

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

Shares for all periods presented have been adjusted to reflect a two-for-one stock split effective March 28, 2005.

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 two reportable business segments: Professional and Residential. The Other segment consists of company-owned distributor operations in the United States and corporate activities, including corporate financing activities and elimination of intersegment revenues and expenses.

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

8

     The following table presents the details of the Other segment operating loss before income taxes:

Goodwill

The changes in the net carrying amount of goodwill for the first six months of fiscal 2006 were as follows:

Other Intangible Assets

The components of other amortizable intangible assets were as follows:

Amortization expense for intangible assets during the first six months of fiscal 2006 was $419,000. Estimated amortization expense for the remainder of fiscal 2006 and succeeding fiscal years is as follows: 2006 (remainder), $411,000; 2007, $637,000; 2008, $461,000; 2009, $251,000; 2010, $174,000; 2011, $174,000 and after 2011, $489,000.

     The company also had $2.5 million of non-amortizable intangible assets related to the Hayter brand name.

Warranty Guarantees

The company’s products are warranted to ensure customer confidence in design, workmanship, and overall quality. Warranty coverage ranges from a period of six months to seven years, and generally covers parts, labor, and other expenses for non-maintenance repairs, provided operator abuse, improper use, or negligence did not necessitate the repair. An authorized Toro distributor or dealer must perform warranty work. Distributors, dealers, and contractors 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 also sells additional warranty coverage on select products when the factory warranty period expires.

9

     Warranty provisions, claims, and changes in estimates for the first six-month periods in fiscal 2006 and 2005 were as follows:

Postretirement Benefit Plans

The following table presents the components of net periodic benefit costs:

As of May 5, 2006, approximately $284,000 of contributions had been made. The company presently expects to contribute approximately $550,000 to its postretirement health-care benefit plan in fiscal 2006.

     The company maintains The Toro Company Investment, Savings and Employee Stock Ownership Plan for eligible employees. The company’s expenses under this plan were $4.2 million and $8.3 million for the second quarter and year-to-date periods in fiscal 2006, respectively, and $4.0 million and $7.7 million for the second quarter and year-to-date periods in fiscal 2005, respectively.

Derivative Instruments and Hedging Activities

The company uses derivative instruments to assist in the management of exposure to currency exchange rates. The company uses derivative instruments only to limit underlying exposure to currency fluctuations, and not for trading purposes. The company documents relationships between hedging instruments and the hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. The company assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of the hedged item.

     The company enters into foreign currency exchange contracts to hedge the risk from forecasted settlements in local currencies of trade sales and purchases. These contracts are designated as cash flow hedges and are reported at fair value as a hedge asset or liability in prepaid expenses or accrued liabilities, as applicable. Changes in the fair value of these contracts are reported in accumulated other comprehensive loss until the hedged transaction occurs. Once the forecasted transaction has been recognized as a sale or inventory purchase and a related asset or liability recorded in the balance sheet, the related fair value of the derivative hedge contract is reclassified from accumulated other comprehensive income (loss) into earnings. During the three and six months ended May 5, 2006, the amount of gains reclassified to earnings for such cash flow hedges was $0.5 million and $1.0 million, respectively. For the six months ended May 5, 2006, the gains treated as an addition to net sales for contracts to hedge trade sales were $0.8 million and the gains treated as a reduction of cost of sales for contracts to hedge inventory purchases were $0.2 million. As of May 5, 2006, the notional amount of such contracts outstanding was $54.1 million. The unrecognized after-tax loss portion of the fair value of the contracts recorded in accumulated other comprehensive loss as of May 5, 2006 was $0.9 million.

     The company also enters into other foreign currency exchange contracts. These contracts are intended to hedge intercompany financing transactions and other activities and are not designed as hedging instruments under the accounting criteria of SFAS No. 133; therefore, changes in fair value of these instruments are recorded in other income, net.

10

Contingencies

On June 3, 2004, eight individuals who claim to have purchased lawnmowers in Illinois and Minnesota filed a lawsuit (Ronnie Phillips et al. v. Sears Roebuck Corporation et. al., No.04-L-334 (20th Judicial Circuit, St. Clair County, IL)) against the company and eight other defendants alleging that the horsepower labels on the products the plaintiffs purchased were inaccurate. The plaintiffs seek certification of a class of all persons in the United States who, beginning January 1, 1995 through the present purchased a lawnmower containing a two stroke or four stroke gas combustible engine up to 20 horsepower that was manufactured or sold by the defendants. The complaint seeks an injunction, unspecified compensatory and punitive damages, and attorneys’ fees. No answers have been entered in the case, and there has yet been no formal discovery. A number of procedural motions were filed by the defendants, but have not yet been decided. On April 20, 2005, the court issued a stay of discovery and procedural matters to permit the parties to engage in settlement discussions. An attempt at mediation in October 2005 was unsuccessful. On May 17, 2006, the court granted plaintiffs’ motion to amend the complaint to add 84 additional plaintiffs. The amended complaint asserts violations of the federal Racketeer Influenced and Corrupt Organizations (RICO) Act and statutory and common law claims arising from the laws of 48 states. The amended complaint also adds an engine manufacturer as an additional defendant, revises the claim to cover lawnmowers with up to a 30 horsepower engine, expands the class period to January 1, 1994 through the present, and seeks treble damages under the RICO Act. In late May 2006, the case was removed to Federal court. Toro has been notified that defendant MTD Products Inc. has agreed to settle with plaintiffs. All remaining non-settling defendants have filed counterclaims against MTD Products Inc. for potential contribution amounts. Management continues to evaluate this lawsuit and is unable to reasonably estimate the likelihood of loss or the amount or range of potential loss that could result from this litigation. Therefore, an accrual has not been established for any potential loss in connection with this lawsuit. The company is also unable to assess at this time whether the lawsuit will have a material adverse effect on its annual consolidated operating results or financial condition, although an unfavorable resolution could be material to the company’s consolidated operating results for a particular period.

     In the ordinary course of business, in addition to that described above, the company may become liable with respect to pending and threatened litigation for product liability, tax, patent, environmental, and other matters. While the ultimate results of current claims, investigations, and lawsuits involving the company are unknown at this time, management believes that, except for the lawsuit discussed above, the outcomes of these cases are unlikely to have a material adverse effect on the consolidated operating results, liquidity, or financial position of the company.

11

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, turf and micro irrigation systems, landscaping equipment, and residential yard products worldwide. Our products are sold through a network of distributors, dealers, hardware retailers, home centers, mass retailers, and over the Internet, mainly through Internet retailers. Our businesses are organized into two segments: professional and residential. A third segment called “other” consists of domestic distribution companies and corporate activities. Our emphasis is to provide well-built, dependable, and innovative products supported by an extensive service network. A significant portion of our revenues has historically been attributable to new and enhanced products. As we enter the last six months of our “6 + 8” profitability and growth initiative, we expect to continue to invest in growth strategies directed at underserved markets, such as accelerating our growth in international markets. The goals of this initiative are to achieve a consistent after-tax return on net sales of 6 percent or more and grow revenues at an average rate of 8 percent or more over the three-year period ending October 31, 2006.

RESULTS OF OPERATIONS

Overview

Our results for the second quarter of fiscal 2006 were strong with double digit earnings growth. Our net earnings rose 13.1 percent compared to the second quarter of fiscal 2005 on a net sales growth rate of 4.9 percent. Year-to-date net earnings rose 15.4 percent in fiscal 2006 compared to the same period last fiscal year on a year-to-date sales growth rate of 5.5 percent. Sales growth was led by continued strong sales in our professional segment, somewhat hampered by a decline in sales for the residential segment. International sales continued its growth momentum with an increase of 6.7 percent and 16.6 percent for the second quarter and year-to-date period of fiscal 2006, respectively, compared to the same periods last fiscal year. Factoring out the additional sales from our purchase of Hayter Limited, which we acquired in February 2005, total year-to-date net sales were up 4.7 percent for fiscal 2006 compared to the same period in fiscal 2005. Net earnings as a percentage of net sales rose from 9.9 percent and 7.5 percent in the second quarter and year-to-date period of fiscal 2005, respectively, to 10.6 percent and 8.2 percent in the second quarter and year-to-date period of fiscal 2006, respectively. Higher gross margins, a lower effective tax rate, and continued leveraging of selling, general, and administrative expenses contributed to the earnings improvement. Our financial condition remains strong with only modest increases in receivables and a decline in inventory levels as compared to the end of the second quarter of fiscal 2005. We also increased our second quarter cash dividend by 50 percent compared to the quarterly cash dividend paid in the second quarter of fiscal 2005.

     Our fiscal 2006 second quarter results were strong, and we are optimistic that our results for the full fiscal year of 2006 will end strong. We continue to keep a cautionary eye on the weather, field inventory levels, retail demand, world economies, commodity prices, competitive actions, and other factors identified below under the heading “Forward-Looking Information,” which could cause our actual results to differ from our outlook. In particular, retail demand for the first half of fiscal 2006 was lower than our expectations, which could have a negative impact on our fiscal third quarter net sales if such retail demand trends continue.

Net Earnings

Net earnings for the second quarter of fiscal 2006 were $70.1 million or $1.56 per diluted share compared to $62.0 million or $1.33 per diluted share for the second quarter of fiscal 2005, a net earnings per diluted share increase of 17.3 percent. Year-to-date net earnings in fiscal 2006 were $84.4 million or $1.87 per diluted share compared to $73.1 million or $1.55 per diluted share last fiscal year, a net earnings per diluted share increase of 20.6 percent. The primary factors contributing to these increases were higher sales volumes, an increase in gross margins, a lower effective tax rate, and improved leveraging of selling, general, and administrative costs. In addition, second quarter and year-to-date fiscal 2006 net earnings per diluted share were benefited by approximately $0.06 per share and $0.08 per share, respectively, compared to the same periods in fiscal 2005 as a result of reduced shares outstanding due to our significant Toro common stock repurchases.

12

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

Net Sales

Worldwide consolidated net sales for the second quarter and year-to-date period of fiscal 2006 were up 4.9 percent and 5.5 percent, respectively, from the same periods in the prior fiscal year. Factoring out the effect of the additional sales from Hayter, which was acquired in February 2005, net sales for the year-to-date period of fiscal 2006 increased 4.7 percent over the same period last fiscal year. The net sales increase was led by price increases, market share gains, and strong worldwide demand in the professional segment as a result of the introduction of new products. International sales continued to be strong, particularly in the professional segment, despite the unfavorable impact of currency exchange rates that hampered sales by approximately $5 million and $7 million for the second quarter of fiscal 2006 and year-to date period of fiscal 2006, respectively, compared to the same periods last fiscal year. Residential segment sales were down as a result of lower walk power mower sales, somewhat offset by an increase of new riding product shipments. International residential segment sales were down for the second quarter of fiscal 2006 compared to the second quarter of fiscal 2005 as a result of lower sales at Hayter. However, international residential segment sales were up for the year-to-date period of fiscal 2006 compared to the same period last year.

Gross Profit

Gross profit for the second quarter and year-to-date period of fiscal 2006 increased 6.3 percent and 7.0 percent, respectively, compared to the same periods of the prior fiscal year due to increased sales. As a percentage of net sales, gross profit for the second quarter and year-to-date period of fiscal 2006 was 34.9 percent and 35.2 percent, respectively, compared to 34.5 percent and 34.7 percent for the second quarter and year-to-date period of fiscal 2005, respectively. The increase in gross profit as a percentage of net sales was the result of the following factors: (i) price increases introduced on some products to help mitigate the impact of higher commodity costs during the past several years; (ii) a higher proportionate share of professional segment sales that carry higher average gross margins than residential segment sales; and (iii) cost reduction efforts, including benefits from past and continuing profit improvement initiatives. Somewhat offsetting those positive factors were: (i) continued higher commodity costs; (ii) lower gross margins for the new line of riding products in the residential segment; (iii) increased freight costs due to higher fuel costs and increased demand for transportation; and (iv) higher tooling costs for new products introduced during the past two years.

Selling, General, and Administrative Expense

Selling, general, and administrative expense (SG&A) increased for the second quarter and year-to-date period of fiscal 2006 by 4.0 percent and 4.4 percent, respectively, from the same periods of the prior fiscal year. SG&A as a percentage of net sales for the second quarter and year-to-date period of fiscal 2006 was 18.9 percent and 22.5 percent, respectively, compared to 19.0 percent and 22.7 percent for the second quarter and year-to-date period of fiscal 2005, respectively. The decrease in SG&A expense as a percentage of net sales was due primarily to leveraging the fixed portion of SG&A costs over higher sales volumes. Somewhat offsetting those decreases were: (i) increased investments in engineering and information systems as part of our “6 + 8” initiative and (ii) higher warranty expense due to special provisions for product modifications.

13

Interest Expense

Interest expense for the second quarter and year-to-date period of fiscal 2006 increased by 6.2 percent and 9.1 percent, respectively, from the same periods in the prior year. These increases were due primarily to higher average interest rates on short-term debt.

Other Income, Net

Other income, net for the second quarter and year-to-date period of fiscal 2006 was $2.4 million and $3.3 million, respectively. These amounts represent increases of $1.5 million and $1.2 million, respectively, from the same periods in the prior fiscal year. These increases were due primarily to currency exchange rate gains this year compared to currency exchange rate losses last year and higher litigation settlement recovery in fiscal 2006 compared to fiscal 2005.

Provision for Income Taxes

The effective tax rate for the second quarter of fiscal 2006 was 32.1 percent compared to 33.5 percent in the second quarter of fiscal 2005. The effective tax rate for the year-to-date period of fiscal 2006 was 32.3 percent compared to 33.5 percent for the same period in the prior fiscal year. The decline in the effective tax rate was due to the favorable resolution of tax matters from prior years’ tax returns.

BUSINESS SEGMENTS

As described previously, we operate in two reportable business segments: professional and residential. A third reportable segment called “other” consists of company-owned domestic distributorships, and corporate activities, including corporate financing activities. Operating earnings for each of our two business segments is defined as earnings from operations plus other income, net. Operating loss for our third “other” segment includes earnings (loss) from operations, corporate activities, including corporate financing activities, other income, net, and interest expense.

     The following table summarizes net sales by segment:

14

     The following table summarizes operating earnings (loss) by segment:

Professional

Net Sales. Worldwide net sales for the professional segment in the second quarter and year-to-date period of fiscal 2006 were up 12.9 percent and 9.2 percent, respectively, compared to the same periods last fiscal year. Factoring out the additional sales from the acquisition of Hayter, professional segment net sales for the year-to-date period of fiscal 2006 were up 8.3 percent compared to the same period last fiscal year. This increase was led by strong international professional segment sales, which were up 13.5 percent and 18.0 percent for the second quarter and year-to-date period of fiscal 2006, respectively, compared to the same periods last fiscal year, due to continued demand in the international markets, the success of new products introduced within the past two years, and the additional sales from the Hayter acquisition for the year-to-date comparison. Shipments of landscape contractor equipment also increased due mainly to the introduction of new products and strong orders from our customers in anticipation of strong retail demand during fiscal 2006, which has also resulted in higher field inventory levels as of the end of the second quarter of fiscal 2006 compared to the end of the second quarter of fiscal 2005.

Operating Earnings. Operating earnings for the professional segment in the second quarter and year-to-date period of fiscal 2006 increased 23.1 percent and 18.1 percent, respectively, compared to the same periods last fiscal year. Expressed as a percentage of net sales, professional segment operating margins increased to 23.7 percent compared to 21.8 percent in the second quarter of fiscal 2005, and the fiscal 2006 year-to-date professional segment operating margins increased to 21.1 percent compared to 19.5 percent last fiscal year. This profit improvement was the result of higher gross margins in the fiscal 2006 periods compared to the fiscal 2005 periods due to the same factors discussed previously in the Gross Profit section above. Also contributing to the operating earnings improvement was lower SG&A expense as a percentage of net sales due mainly to leveraging the fixed portion of SG&A costs over higher sales volumes.

15

Residential

Net Sales. Worldwide net sales for the residential segment in the second quarter and year-to-date period of fiscal 2006 were down 7.7 percent and 1.6 percent, respectively, compared to the same periods last fiscal year. Factoring out the additional sales from the acquisition of Hayter, residential segment net sales for the year-to-date period of fiscal 2006 were down 2.5 percent compared to the same period last fiscal year. This decline was led by lower shipments of walk power mowers and other product lines due mainly to customers’ efforts to lower their inventory levels and lower than expected retail demand. In addition, sales of Lawn-Boy products were down this fiscal year compared to last fiscal year as a result of last year’s initial stocking shipments due to expanded placement for new products in the home center distribution channel. International residential segment sales were down for the second quarter of fiscal 2006 compared to the second quarter of fiscal 2005 as a result of lower sales at Hayter due to product availability and quality issues. However, international residential segment sales were up for the year-to-date period of fiscal 2006 compared to the same period last fiscal year. Somewhat offsetting those decreases were higher shipments of riding products due to the introduction of new models and expanded placement at a key retailer.

Operating Earnings. Operating earnings for the residential segment in the second quarter of fiscal 2006 decreased 37.4 percent compared to the second quarter of fiscal 2005, and fiscal 2006 year-to-date operating earnings were down by 30.3 percent compared to the same period last year. Expressed as a percentage of net sales, residential segment operating margin decreased to 8.6 percent compared to 12.7 percent in the second quarter of fiscal 2005, and fiscal 2006 year-to-date residential segment operating margin decreased to 7.3 percent compared to 10.3 percent last year. Those decreases were due mainly to lower gross margins as a result of higher commodity costs with minimal price increases and lower gross margins for the new line of riding products. Also contributing to the decline in operating earnings was higher SG&A expense as a percent of net sales due mainly to lower sales volumes and higher warranty costs as a result of a special provision for a product recall.

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. In addition, elimination of the professional and residential segments’ floor plan interest costs from Toro Credit Company are also included in this segment. The other segment net sales decreased for the second quarter and year-to-date period of fiscal 2006 by 17.6 percent and 0.1 percent, respectively, compared to the same periods last fiscal year. This decline was due to lower sales at a company-owned distributor as a result of the change in the method of distribution of Exmark products to shipping directly to dealers that impacted the region of our Midwestern distributorship.

Operating Losses. Operating losses for the other segment were down for the second quarter and year-to-date period of fiscal 2006 by $1.3 million or 6.5 percent and $2.3 million or 4.9 percent, respectively, compared to the same periods last fiscal year. The decreased losses were due primarily to currency exchange rate gains this year compared to currency exchange rate losses last fiscal year, somewhat offset by higher interest expense.

16

FINANCIAL POSITION

Working Capital

During the first half of fiscal 2006, our financial condition remained strong and emphasis continued on improving asset management. Average working capital for the first half of fiscal 2006 was $326.8 million compared to $301.4 million for the first half of fiscal 2005. The increase of 8.4 percent was primarily due to lower average short-term debt. Average receivables for the first half of fiscal 2006 slightly decreased by 0.2 percent compared to the first half of fiscal 2005 on a sales increase of 5.5 percent. Our average days sales outstanding for receivables improved to 74.4 days based on sales for the last twelve months ended May 5, 2006, compared to 75.4 days for the twelve months ended April 29, 2005. Average inventory levels increased slightly by 0.1 percent for the first half of fiscal 2006 compared to the first half of fiscal 2005. Average inventory turnover slightly improved by 0.2 percent for the last twelve months ended May 5, 2006 compared to the last twelve months ended April 29, 2005. These improvements reflect our continuing efforts to improve asset utilization.

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, capital expenditures, expansion and upgrading of existing facilities, as well as for financing receivables from customers. We believe that 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 operating requirements. We believe that the funds available through existing or anticipated financing arrangements and forecasted cash flows, will be sufficient to provide the necessary capital resources for our anticipated working capital, capital expenditures, acquisitions, debt repayments, dividend payments, and stock repurchases for at least the next twelve months.

     Our Board of Directors approved a cash dividend of $0.09 per share for the second quarter of fiscal 2006 paid on April 12, 2006, which was an increase over our cash dividend of $0.06 per share for the second quarter of fiscal 2005.

Cash Flow. Cash used in operating activities for the first six months of fiscal 2006 was 2.6 percent higher than the first six months of fiscal 2005 due primarily to a higher increase in receivables and deferred taxes, somewhat offset by higher net earnings and a lower increase in inventory levels for the first six months of fiscal 2006 compared to the first six months of fiscal 2005. Cash used in investing activities was lower by $37.5 million compared to the first six months of fiscal 2006, due mainly to cash utilized last year for the purchase of Hayter. Cash provided by financing activities was higher by 44.0 percent compared to the first six months of fiscal 2005. This change of $26.5 million was due to lower levels of our common stock repurchased and an increase in tax benefits for stock-based awards in the first six months of fiscal 2006 compared to the first six months of fiscal 2005, somewhat offset by a lower increase in short-term debt.

Credit Lines and Other Capital Resources. Our business is seasonal, with accounts receivable balances historically increasing between January and April as a result of higher sales volumes and extended payment terms made available to our customers, and 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. Our peak borrowing usually occurs between February and May. Seasonal cash requirements are financed from operations and with short- and medium-term financing arrangements, including a $175.0 million unsecured senior five-year revolving credit facility, which expires in October 2010. Interest expense on this credit line is determined based on a LIBOR rate plus a basis point spread defined in the credit agreement. In addition, our non-U.S. operations and a domestic subsidiary also maintain unsecured short-term lines of credit of approximately $17 million. These facilities bear interest at various rates depending on the rates in their respective countries of operation. We also have a letter of credit subfacility as part of our credit agreements. Average short-term debt was $62.7 million in the first six months of fiscal 2006 compared to $85.1 million in the first six months of fiscal 2005, a decrease of 26.4 percent. This decline was the result of cash utilized last year for the acquisition of Hayter and significant stock repurchases. As of May 5, 2006, we had $71.8 million of unutilized availability under our credit agreements.

     Significant financial covenants in our credit agreements are interest coverage and debt to capitalization ratios. We were in compliance with all covenants related to our credit agreements as of May 5, 2006, and expect to be in compliance with all covenants during fiscal 2006. If we were out of compliance with any covenant required by our credit agreements, the banks could terminate their commitments unless we could negotiate a covenant waiver from the banks. In addition, our long-term public notes and debentures could become due and payable if we were unable to obtain a covenant waiver or refinance our medium-term debt under our credit agreements. If our credit rating falls below investment grade, the interest rate we currently pay on outstanding debt under the credit agreements would increase, but the credit commitments could not be cancelled by the banks based only on a ratings downgrade. Our debt rating for long-term unsecured senior, non-credit enhanced debt has been unchanged for the second quarter of fiscal 2006 by Standard and Poor’s Ratings Group at BBB- and by Moody’s Investors Service at Baa3.

17

Off-Balance Sheet Arrangements and Contractual Obligations

Our off-balance sheet arrangements generally relate to customer financing activities, inventory purchase commitments, operating lease commitments, and currency contracts. See our most recently filed Annual Report on Form 10-K for further details regarding our off-balance sheet arrangements and contractual obligations. There has been no material change in this information.

Inflation

We are subject to the effects of inflation and changing prices. In the first half of fiscal 2006, average prices paid for fuel, petroleum-based resins, and other commodities were higher compared to the first half of fiscal 2005, which resulted in a negative impact on our gross margin and net earnings. We expect this trend to continue for the remainder of fiscal 2006. We will continue to attempt to mitigate the impact of these anticipated increases in commodity prices and other inflationary pressures by actively pursuing internal cost reduction efforts, introducing moderate price increases on some products, and through vendor negotiations.

Critical Accounting Policies and Estimates

In preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, we must make decisions which impact the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgments based on our understanding and analysis of the relevant circumstances, historical experience, and actuarial valuations. Actual amounts could differ from those estimated at the time the consolidated financial statements are prepared.

     Our significant accounting policies are described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2005. Some of those significant accounting policies require us to make difficult subjective or complex judgments or estimates. An accounting estimate is considered to be critical if it meets both of the following criteria: (i) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (ii) different estimates reasonably could have been used or changes in the estimates that are reasonably likely to occur from period to period would have a material impact on the presentation of our financial condition, changes in financial condition or results of operations. Our critical accounting estimates include the following:

Warranty Reserve. Warranty coverage on our products ranges from a period of six months to seven years, and covers parts, labor, and other expenses for non-maintenance repairs, provided operator abuse, improper use or negligence did not necessitate the repair. At the time of sale, we accrue a warranty reserve by product line for estimated costs in connection with future warranty claims. We also establish reserves for major rework campaigns upon approval. The amount of our warranty reserves is based primarily 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, and the historical length of time between the sale and resulting warranty claim. We periodically assess the adequacy of our warranty reserves based on changes in these factors and record any necessary adjustments if actual claim experience indicates that adjustments are necessary. Actual claims could be higher or lower than amounts estimated, as the amount and value of warranty claims are subject to variation of such factors as performance of new products, significant manufacturing or design defects not discovered until after the product is delivered to customers, product failure rates, and higher or lower than expected service costs for a repair. We believe that analysis of historical trends and knowledge of potential manufacturing or design problems provide sufficient information to establish a reasonable estimate for warranty claims at the time of sale. However, since we cannot predict with certainty future warranty claims or costs associated with servicing those claims, our actual warranty costs may differ from our estimates. An unexpected increase in warranty claims or in the costs associated with servicing those claims would result in an increase in our warranty accrual and a decrease in our net earnings. The accrual for future estimated warranty claims was $70.0 million as of May 5, 2006 compared to $67.4 million as of April 29, 2005.

Accounts and Notes Receivable Valuation. We value accounts and notes receivable, net of an allowance for doubtful accounts. Each quarter, we estimate our ability to collect outstanding receivables that provides a basis for an allowance estimate for doubtful accounts. In doing so, we evaluate the age of our receivables, past collection history, current financial conditions of key customers, and economic conditions. Based on this evaluation, we establish a reserve for specific accounts and notes receivable that we believe are uncollectible, as well as an estimate of uncollectible receivables not specifically known. Portions

18

of our accounts receivable are protected by a security interest in products held by customers, which minimizes our collection exposure. A deterioration in the financial condition of any key customer or a significant slow down in the economy could have a material negative impact on our ability to collect a portion or all of the accounts and notes receivable. We believe that an analysis of historical trends and our current knowledge of potential collection problems provide us with sufficient information to establish a reasonable estimate for an allowance for doubtful accounts. However, since we cannot predict with certainty future changes in the financial stability of our customers, our actual future losses from uncollectible accounts may differ from our estimates. In the event we determined that a smaller or larger uncollectible accounts reserve is appropriate, we would record a credit or charge to selling, general, and administrative expense in the period that we made such a determination. As of May 5, 2006, we had $3.6 million reserved against our accounts and notes receivable compared to $3.2 million as of April 29, 2005.

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 Internet 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”, “looking ahead”, “plan”, “anticipate”, “estimate”, “believe”, “should”, “may”, “intend”, and similar expressions. Our forward-looking statements generally relate to our future performance, including our anticipated operating results and liquidity requirements, our business strategies and goals, and the effect of laws, rules, regulations, and new accounting pronouncements and outstanding litigation on our business, operating results, and financial condition.

Forward-looking statements involve risks and uncertainties. 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:

·            Weather conditions may reduce demand for some of our products and adversely affect our net sales.

·            Increases in the cost and availability of raw materials and components that we purchase and increases in our other costs of doing business, such as transportation costs, may adversely affect our profit margins and business.

·            Inflationary pressures and higher short-term and mortgage interest rates could cause consumers to reduce spending, which could have an adverse affect on our net sales and earnings.

·            Our professional segment net sales are dependent upon the level of growth in the residential and commercial construction markets, growth of homeowners’ outsourcing lawn care, the amount of investment in golf course renovations and improvements, new golf course development, and the amount of government spending.

·            Our residential segment net sales are dependent upon the amount of shelf space retailers assign to our products, changing buying patterns of customers, and The Home Depot, Inc. as a major customer.

·            A significant percentage of our consolidated net sales is generated outside of the United States, and we intend to continue to expand our international business. Our international operations require significant management attention and financial resources; expose us to difficulties presented by international economic, political, legal, accounting, and business factors; and may not be successful or produce desired levels of net sales and earnings.

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

·            We intend to grow our business in part through additional acquisitions, alliances, and joint venture arrangements, which are risky and could harm our business.

·            If we are unable to smoothly transition leadership roles and responsibilities, 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.

·            We rely on our management information systems for inventory management, distribution, and other 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.

·            A significant portion of our net sales are financed by third parties. Some Toro dealers and Exmark distributors and dealers finance their inventories with third party financing sources. 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 customers by these third parties, or any delay in securing replacement credit sources, could negatively impact our sales and operating results.

19

·            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.

·            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 and move production between manufacturing facilities could adversely affect our business and operating results.

·            Our business is subject to a number of other factors that may adversely affect our operating results, financial condition, or business, such as changes in domestic and global economies, including but not limited to slow growth rate, slow down in home sales, rise in interest rates, inflation, unemployment, weaker consumer confidence, and currency exchange rates; natural disasters that may result in shortages of raw materials, higher fuel and energy costs, and an increase in insurance premiums; financial viability of some distributors and dealers, changes in distributor ownership, our success in partnering with new dealers, and our customers’ ability to pay amounts owed to us; 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 U.S. and world economies.

·            If we are unable to continue to enhance existing products and develop and market new products that respond to customer needs and achieve market acceptance, we may experience a decrease in demand for our products, and our business could suffer.

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

·            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 may expose us to penalties for non-compliance. Governmental regulation may also adversely affect the demand for some of our products and our 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, including without limitation the pending litigation against the company and other defendants that challenges the horsepower ratings of lawnmowers, of which the company is currently unable to assess whether the litigation would have a material adverse effect on the company’s consolidated operating results or financial condition, although an adverse result might be material to operating results in a particular period.

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 recent filed Annual Report on Form 10-K.

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 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. Changes in these factors could cause fluctuations in our net earnings and cash flows. See further discussions on these market risks below.

Foreign Currency Exchange Rate Risk. In the normal course of business, we actively manage our exposure to foreign currency 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 use of a variety of derivative financial instruments. We use derivative instruments only in an attempt to limit underlying exposure from currency fluctuations and to minimize earnings and cash volatility associated with foreign exchange rate changes, and not for trading

20

purposes. We are exposed to foreign currency exchange rate risk arising from transactions in the normal course of business, such as sales and loans to wholly owned subsidiaries as well as sales to third party customers, purchases from suppliers, and bank lines of credit with creditors denominated in foreign currencies. Because our products are manufactured or sourced primarily from the United States, a stronger U.S. dollar generally has a negative impact on results from operations outside the United States while a weaker dollar generally has a positive effect. Our primary exchange rate exposures are with the Euro, the Japanese yen, the Australian dollar, the Canadian dollar, the British pound, and the Mexican peso against the U.S. dollar.

     We enter into various contracts, principally forward contracts that change in value as foreign exchange rates change, to protect the value of existing foreign currency assets, liabilities, anticipated sales, and probable commitments. Decisions on whether to use such contracts are made based on the amount of exposures to the currency involved, and an assessment of the near-term market value for each currency. Worldwide foreign currency exchange rate exposures are reviewed monthly. The gains and losses on these contracts offset changes in the value of the related exposures. Therefore, changes in market 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. During the three and six months ended May 5, 2006, the amount of gains reclassified to earnings for such cash flow hedges was $0.5 million and $1.0 million, respectively. For the six months ended May 5, 2006, the gains treated as an addition to net sales for contracts to hedge trade sales were $0.8 million and the gains treated as a reduction of cost of sales for contracts to hedge inventory purchases were $0.2 million.

     The following foreign currency exchange contracts held by us have maturity dates in fiscal 2006. All items are non-trading and stated in U.S. dollars. Some derivative instruments we enter into do not meet the hedging criteria of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities;” therefore, changes in their 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 (AOCL), and fair value impact of derivative instruments in other income, net for the six months ended May 5, 2006 were as follows:

Interest Rate Risk. We are exposed to interest rate risk arising from transactions that are entered into during the normal course of business. Our short-term debt rates are dependent upon a LIBOR or commercial paper rate plus a basis point spread defined in our credit agreements. See our most recently filed Annual Report on Form 10-K (Item 7A). 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. We manage some of this risk by using a combination of short- and long-term agreements with some vendors. The primary commodity price exposures are with steel, plastic resin, diesel fuel, aluminum, copper, and linerboard. Further information regarding rising prices for commodities is presented in Item 2, section entitled “Inflation.”

     We utilize well-defined financial contracts in the normal course of operations as a means to manage certain commodity price risks. The majority of these contracts are fixed-price contracts for future purchases of natural gas, which meet the definition of “normal purchases and normal sales” and therefore, are not considered derivative instruments for accounting purposes.

21

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 reasonably ensure 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 recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that material information relating to our company and our consolidated subsidiaries is made known to management, including our Chief Executive Officer and Chief Financial Officer, particularly during the period when our periodic reports are being prepared. There was no change in our internal control over financial reporting that occurred during our fiscal second quarter ended May 5, 2006 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

On June 3, 2004, eight individuals who claim to have purchased lawnmowers in Illinois and Minnesota filed a lawsuit (Ronnie Phillips et al. v. Sears Roebuck Corporation et. al., No.04-L-334 (20th Judicial Circuit, St. Clair County, IL)) against the company and eight other defendants alleging that the horsepower labels on the products the plaintiffs purchased were inaccurate. The plaintiffs seek certification of a class of all persons in the United States who, beginning January 1, 1995 through the present purchased a lawnmower containing a two stroke or four stroke gas combustible engine up to 20 horsepower that was manufactured or sold by the defendants. The complaint seeks an injunction, unspecified compensatory and punitive damages, and attorneys’ fees. No answers have been entered in the case, and there has yet been no formal discovery. A number of procedural motions were filed by the defendants, but have not yet been decided. On April 20, 2005, the court issued a stay of discovery and procedural matters to permit the parties to engage in settlement discussions. An attempt at mediation in October 2005 was unsuccessful. On May 17, 2006, the court granted plaintiffs’ motion to amend the complaint to add 84 additional plaintiffs. The amended complaint asserts violations of the federal Racketeer Influenced and Corrupt Organizations (RICO) Act and statutory and common law claims arising from the laws of 48 states. The amended complaint also adds an engine manufacturer as an additional defendant, revises the claim to cover lawnmowers with up to a 30 horsepower engine, expands the class period to January 1, 1994 through the present, and seeks treble damages under the RICO Act. In late May 2006, the case was removed to Federal court. Toro has been notified that defendant MTD Products Inc. has agreed to settle with plaintiffs. All remaining non-settling defendants have filed counterclaims against MTD Products Inc. for potential contribution amounts. Management continues to evaluate this lawsuit and is unable to reasonably estimate the likelihood of loss or the amount or range of potential loss that could result from this litigation. Therefore, an accrual has not been established for any potential loss in connection with this lawsuit. The company is also unable to assess at this time whether the lawsuit will have a material adverse effect on its annual consolidated operating results or financial condition, although an unfavorable resolution could be material to the company’s consolidated operating results for a particular period.

     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. We are also subject to administrative proceedings with respect to claims involving the discharge of hazardous substances into the environment. Some of these claims assert damages and liability for remedial investigations and clean up costs. We are also typically involved in commercial disputes, employment disputes, and patent litigation cases in the ordinary course of business, both as a plaintiff and as a defendant. While the ultimate results of the current cases are unknown at this time, management believes that, except for the lawsuit discussed above, the outcomes of these cases are unlikely to have a material adverse effect on our consolidated operating results or financial position. Further, we maintain insurance against some product liability losses.

22

Item 1A. RISK FACTORS

In addition to the other information set forth in this report, careful consideration should be taken of the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2005, which could materially affect our business, financial condition, or future operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.

Item 2. CHANGES IN SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table shows our second quarter of fiscal 2006 stock repurchase activity.

(1)          On July 19, 2005, the company’s Board of Directors authorized the repurchase of 2,000,000 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 purchased 460,010 shares during the periods indicated above under this program.

(2)          Includes 1,605 units (shares) of the company’s common stock purchased in open-market transactions at an average price of $47.98 per share on behalf of a rabbi trust formed to pay benefit obligations of the company to participants in deferred compensation plans. These 1,605 shares were not repurchased under the company’s repurchase program described in footnote (1) above.

23

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a)                               The Annual Meeting of Stockholders was held on March 14, 2006.

(b)                              The results of the stockholder votes were as follows:

Robert C. Buhrmaster, Winslow H. Buxton, Robert H. Nassau, and Christopher A. Twomey continue to serve as directors of the company for terms expiring in March 2007.

Ronald O. Baukol, Katherine J. Harless, and Michael J. Hoffman continue to serve as directors of the company for terms expiring in March 2008.

Dale R. Olseth resigned as director of the company effective March 15, 2006.

24

Item 6. EXHIBITS

(a)  Exhibits

25

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.

26