AT A GLANCE
- - - - --------------------------------------------------------------------------------
- - - - - TORO CONTINUED TO DEMONSTRATE LEVERAGED OPERATING PERFORMANCE POSTING A 16
PERCENT INCREASE IN EARNINGS PER SHARE ON A SLIGHT SALES INCREASE.
- - - - - EXCELLENT SNOWTHROWER SALES COMBINED WITH STRONG GROWTH IN INTERNATIONAL
PROFESSIONAL TURN MAINTENANCE PRODUCTS HIGHLIGHTED TORO'S SALES
PERFORMANCE.
- - - - - PROFESSIONAL TURN MAINTENANCE SALES CONTINUED TO GROW FASTER THAN
RESIDENTIAL SALES AND HELPED OFFSET THE SLUGGISH LAWN AND GARDEN BUSINESS.
- - - - - THE COMPANY CONTINUED TO BUILD FOR THE FUTURE BY INVESTING IN RESEARCH AND
DEVELOPMENT, NEW BUSINESSES AND STRATEGIC INITIATIVES.
- - - - - SEVERAL ACQUISITIONS AND ALLIANCES TOOK PLACE IN FISCAL 1996 THAT PROVIDE
GROWTH MOMENTUM FOR THE FUTURE.
FINANCIAL HIGHLIGHTS
- - - - --------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Years ended October 31 1996 1995 % Change
- - - - --------------------------------------------------------------------------------
Net sales $930,909 $919,427 1.2%
Net earnings 36,409 32,362 12.5
Percent of net sales 3.9% 3.5%
- - - - --------------------------------------------------------------------------------
Net earnings per share of common stock
and common stock equivalent $ 2.90 $ 2.50 16.0
Dividends paid per share of
common stock outstanding 0.48 0.48
- - - - --------------------------------------------------------------------------------
Return on:
Beginning common stockholders' equity 19.1% 18.1%
Average common stockholders' equity 18.0 17.5
Average invested capital 15.2 13.8
- - - - --------------------------------------------------------------------------------
AT YEAR END
Working capital $197,144 $165,086 19.4
Total assets 496,877 472,653 5.1
Total debt 94,390 110,274 (14.4)
Common stockholders' equity 213,567 190,892 11.9
Book value per common share 17.75 15.69 13.1
Number of common stockholders 6,841 7,243 (5.6)
Average number of employees 3,509 3,638 (3.5)
- - - - --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
FISCAL YEAR CHANGE
- - - - --------------------------------------------------------------------------------
This report is the first reflecting Toro's change of fiscal year from July 31 to
October 31. For comparative purposes, financial information for years previously
ended in July has been restated in portions of this report to reflect the new
fiscal year ending in October. Financial information for the year ended October
31, 1996, the three month transition period ended October 31, 1995 and the years
ended July 31, 1995 and 1994 has been derived from the audited financial
statements for the applicable period. Financial information related to the
October 31, 1995 balance sheet has been derived from the October 31, 1995
audited balance sheet. All other financial information for years ending in
October is unaudited.
TORO'S PURPOSE is to help customers beautify and preserve outdoor landscapes
with environmentally responsible products of customer-valued quality and
innovation.
TORO'S MISSION is to be the leading worldwide provider of outdoor landscaping
products, support services and integrated systems. Toro will explore new
opportunities that build revenue growth and sustainability using our core
competencies to gain a leading market position.
ON THE COVER - Toro is the exclusive provider of turf maintenance equipment to
the Valderrama Club de Golf, Spain, site of the 1997 Ryder Cup of golf.
CONTENTS
Letter to Shareholders 2
Review of Operations 6
Eleven-Year Selected
Financial Data 14
Fiscal Year Ended
October 31, 1996
- - - - --------------------------------------------------
Management's Discussion
and Analysis 16
Financial Statements 21
3 months ended October 31, 1995 and Fiscal Years
Ended July 31, 1995 and July 31, 1994.
- - - - --------------------------------------------------
Management's Discussion
and Analysis 25
Financial Statements 30
Notes to Consolidated
Financial Statements 33
Directors, Officers and
Stockholders' Information 45
1
ELEVEN-YEAR SELECTED FINANCIAL DATA The Toro Company
- - - - ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Years ended October 31**** 1996 1995 1994 1993 1992* 1991
- - - - ----------------------------------------------------------------------------------------------------------------------------------
OPERATING DATA:
Net sales $930,909 $919,400 $864,300 $706,600 $638,700 $706,200
EARNINGS:
Net earnings (loss) 36,409 32,362 32,426 15,282 (21,726) 16,100
Percent of sales 3.9% 3.5% 3.8% 2.2% (3.4)% 3.8%
Per share of common stock and common
stock equivalent $ 2.90 $ 2.50 $ 2.49 $ 1.22 $ (1.81) $ 0.77
DIVIDENDS:
On common stock outstanding 5,834 5,953 6,022 5,858 5,765 5,710
Per share of common stock outstanding 0.48 0.48 0.48 0.48 0.48 0.48
RETURN ON:
Beginning common stockholders' equity 19.1% 18.1% 22.9% 12.1% (14.2)% 26.4%
Average common stockholders' equity 18.0% 17.5% 20.2% 11.4% (15.5)% 26.2%
SUMMARY OF FINANCIAL POSITION:
Current assets $405,001 $386,259 $373,400 $326,100 $324,200 $322,000
Current liabilities 207,857 221,173 197,200 169,200 132,500 103,800
Working capital 197,144 165,086 176,200 156,900 191,700 218,200
Non-current assets 91,876 86,394 78,200 73,700 85,100 93,400
Total assets 496,877 472,653 451,600 399,800 409,300 415,400
Non-current liabilities, excluding
long-term debt 22,438 7,223 5,300 1,400 2,500 4,100
CAPITALIZATION:
Long-term debt, less current portion 53,015 53,365 70,400 87,300 147,900 154,100
Redeemable preferred stock - - - - - -
Common stockholders' equity 213,567 190,892 178,700 141,900 126,400 153,400
Total capitalization 266,582 244,257 249,100 229,200 274,300 307,500
Book value per common share 17.75 15.69 14.05 11.47 10.50 12.84
STOCK DATA:
Number of shares of common stock
outstanding (in thousands) 12,032 12,168 12,720 12,370 12,041 11,950
Number of common stockholders 6,841 7,243 - - - -
Low price $ 28 3/8 $ 25 5/8 $ 20 7/8 $ 14 1/8 $ 11 3/8 $ 11
High price 36 1/4 32 1/4 30 1/2 26 3/4 17 1/2 20 1/2
Close price 31 3/8 28 7/8 27 3/4 25 3/8 14 1/8 14 3/4
- - - - ----------------------------------------------------------------------------------------------------------------------------------
14
- - - - ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Years ended October 31**** 1990** 1989 1988 1987*** 1986
- - - - ----------------------------------------------------------------------------------------------------------------------
OPERATING DATA:
Net sales $747,300 $639,200 $626,200 $551,600 $422,300
EARNINGS:
Net earnings (loss) 9,130 8,394 19,962 20,500 17,900
Percent of sales 1.3% 1.1% 3.1% 3.3% 3.2%
Per share of common stock and common
stock equivalent $ 0.84 $ 1.90 $ 1.90 $ 1.60 $ 1.39
DIVIDENDS:
On common stock outstanding 6,074 4,774 4,613 3,730 3,135
Per share of common stock outstanding 0.48 0.48 0.45 0.37 0.30
RETURN ON:
Beginning common stockholders' equity 6.2% 8.5% 23.5% 28.4% 28.8%
Average common stockholders' equity 6.1% 6.8% 21.7% 26.1% 26.7%
SUMMARY OF FINANCIAL POSITION:
Current assets $306,800 $271,200 $296,400 $262,600 $216,600
Current liabilities 133,000 125,000 144,200 121,800 114,700
Working capital 173,800 146,200 152,200 140,800 101,900
Non-current assets 103,900 57,100 55,800 52,800 27,300
Total assets 410,700 328,300 352,200 315,400 243,900
Non-current liabilities, excluding
long-term debt 6,100 2,400 1,700 1,100 2,100
CAPITALIZATION:
Long-term debt, less current portion 125,300 95,600 112,200 109,800 54,500
Redeemable preferred stock - 6,000 9,000 10,500 10,500
Common stockholders' equity 146,300 99,300 85,100 72,200 62,100
Total capitalization 271,600 200,900 206,300 192,500 127,100
Book value per common share 12.34 9.98 8.46 7.12 6.04
STOCK DATA:
Number of shares of common stock
outstanding (in thousands) 11,859 9,946 10,059 10,144 10,280
Number of common stockholders - - - - -
Low price $ 12 $ 17 7/8 $ 11 1/8 $ 13 1/2 $ 11 1/2
High price 30 24 3/8 24 7/8 23 3/4 19 1/2
Close price 12 3/4 21 5/8 18 3/8 15 1/8 17 3/8
- - - - ----------------------------------------------------------------------------------------------------------------------
* Includes restructuring costs of $24.9 million, or $1.41 per share.
** The company's consolidated financial statements include results of
operations of Lawn-Boy Inc. from November 7, 1989, the date of acquisition.
*** The company's consolidated financial statements include results of
operations of Wheel Horse Products, Inc. from December 19, 1986, the date
of acquisition.
**** The actual date of the year end for years prior to 1995 was the Friday
closest to October 31.
[graph] [graph] [graph] [graph] [graph] [graph]
15
1996 Annual Report
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Toro Company
In November 1995, the company changed its fiscal year ended July 31 to a
fiscal year ended October 31. The following comparisons are based on the
company's new fiscal year end. The 3 month transition period ended October
31, 1995 bridges the gap between the company's old and new fiscal year ends.
A comparison of this transition period to the same period in 1994 is
presented beginning on page 25. In addition, a comparison of the years ended
July 31, 1995 and 1994 is also presented beginning on page 25.
Financial information relating to the year ended October 31, 1996 has been
derived from the audited financial statements. The results of operations for
fiscal years ended in October 1995 and 1994 have been restated from the
previous July 31 year end to the new fiscal year basis and are unaudited. The
October 31, 1995 balance sheet information has been derived from the October
31, 1995 audited balance sheet. Financial information for the year ended
October 28, 1994 is unaudited and is presented for informational purposes
only.
RESULTS OF OPERATIONS
In 1996, the company increased net earnings by 12.3% over the previous year
in spite of only a modest increase in worldwide net sales. The company
continues to focus on implementing operational strategies which improve
production flexibility and efficiency and aggressive expense control measures
which result in increased margins. Weather patterns have a major impact on
the company's sales; however, the company has entered into a number of
strategic alliances and acquisitions in 1996, and continues to seek other
opportunities to diversify both the product categories and the global markets
where products are sold. This has and will continue to reduce the impact of
localized weather patterns and economic conditions on the company's sales and
earnings. See "Acquisitions and Strategic Alliances" included in this MD&A.
SUMMARY
- - - - ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED Year Ended Year Ended
OCTOBER 31 October 31 October 28
(Dollars in millions except per share data) 1996 % Change 1995 % Change 1994
- - - - ----------------------------------------------------------------------------------------------------------------------------------
Net sales $930.9 1.3% $919.4 6.4% $864.3
Cost of sales 589.2 - 589.2 7.2 549.7
- - - - -----------------------------------------------------------------------------------------------------------------------------
Gross profit 341.7 3.5 330.2 5.0 314.6
Selling, general and administrative expense 278.3 2.3 272.1 6.5 255.6
- - - - -----------------------------------------------------------------------------------------------------------------------------
Earnings from operations 63.4 9.1 58.1 (1.5) 59.0
Interest expense 13.5 13.4 11.9 (7.0) 12.8
Other income, net (10.3) 33.8 (7.7) (1.3) (7.8)
- - - - -----------------------------------------------------------------------------------------------------------------------------
Earning before income taxes 60.2 11.7 53.9 (0.2) 54.0
Provision for income taxes 23.8 10.7 21.5 (0.5) 21.6
- - - - -----------------------------------------------------------------------------------------------------------------------------
Net earnings $ 36.4 12.3% $ 32.4 - $ 32.4
- - - - -----------------------------------------------------------------------------------------------------------------------------
- - - - -----------------------------------------------------------------------------------------------------------------------------
Net earnings per share of common stock
and common stock equivalent $ 2.90 16.0% $ 2.50 0.4% $2.49
- - - - -----------------------------------------------------------------------------------------------------------------------------
- - - - -----------------------------------------------------------------------------------------------------------------------------
NET SALES BY PRODUCT LINE
- - - - -----------------------------------------------------------------------------------------------------------------------------
- - - - -----------------------------------------------------------------------------------------------------------------------------
(Dollars in millions)
- - - - -----------------------------------------------------------------------------------------------------------------------------
Consumer $461.0 (1.3)% $467.2 (1.9)% $476.2
Commercial 322.0 3.6 310.8 18.5 262.3
Irrigation 147.9 4.6 141.4 12.4 125.8
- - - - -----------------------------------------------------------------------------------------------------------------------------
Total* $930.9 1.3% $919.4 6.4% $864.3
- - - - -----------------------------------------------------------------------------------------------------------------------------
- - - - -----------------------------------------------------------------------------------------------------------------------------
*Includes international sales of $174.2 16.4% $149.6 6.3% $140.7
- - - - -----------------------------------------------------------------------------------------------------------------------------
- - - - -----------------------------------------------------------------------------------------------------------------------------
16
In fiscal 1996, net earnings increased by $4.0 million to $36.4 million from
$32.4 million in the prior fiscal year. Worldwide net sales increased by $11.5
million to $930.9 million in 1996 versus $919.4 million in 1995. The following
is a discussion of the sales by product group:
- - - - - CONSUMER
Worldwide consumer product sales in 1996 fell by 1.3% to $461.0 million from
$467.2 million in 1995. The decrease was primarily the result of a slow start to
the lawn and garden season due to cold, wet weather throughout most of the
United States during the spring season. This decline was offset partially by
increased snowthrower shipments. Snowthrower demand, especially in the
northeast, was high in anticipation of strong retail activity and abnormally low
field inventory levels. For the year, snowthrower sales were up 31.0%, primarily
the result of sales volume increases. International sales included in the
worldwide consumer totals declined by 1% from the prior year. Walk behind mower
sales were lower, but this decline was partially offset by strong riding product
sales.
[GRAPH]
- - - - - COMMERCIAL
Worldwide commercial product sales increased $11.2 million or 3.6% over the
prior year to $322.0 million. International sales were strong, up 30.4% due
primarily to a strong golf market in Europe and Asia. The late spring had an
adverse effect on sales to the domestic golf course market. Many golf courses
were forced to cut their equipment budgets due to loss of income from fewer
rounds played during the inclement spring weather. In addition, the market saw
increased competitive actions among the major equipment manufacturers.
[GRAPH]
- - - - - IRRIGATION
Worldwide irrigation sales totaled $147.9 million representing an increase of
$6.5 million or 4.6% over the prior year. International irrigation sales were
strong, up 15.3% from the prior year, fueled by strong golf market sales. This
was partially offset by lower sales to the residential/commercial markets which
were impacted by the cold, wet spring.
[GRAPH]
- - - - - INTERNATIONAL MARKETS
Total international sales, included in the preceding net sales table, increased
by 16.4% over the previous year to $174.2 million. This was primarily the result
of increased sales volumes in the European and Asian golf markets. International
sales are principally denominated in U.S. dollars; however, a portion of the
company's international sales are denominated in foreign currencies. To reduce
the uncertainty of foreign currency exchange rate movements on these sales
commitments, the company enters into foreign exchange and range forward
contracts. See Note 11 to the Consolidated Financial Statements.
[GRAPH]
COST TRENDS AND PROFIT MARGINS
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
YEAR ENDED Year Ended Year Ended
OCTOBER 31 October 31 October 28
Margins (Percent of net sales) 1996 1995 1994
- - - - --------------------------------------------------------------------------------
Gross profit 36.7% 35.9% 36.4%
Operating profit 6.8 6.3 6.8
Pretax earnings 6.5 5.9 6.2
Net earnings 3.9 3.5 3.7
- - - - --------------------------------------------------------------------------------
The gross profit of $341.7 million represents an $11.5 million or 3.5%
increase over the gross profit of $330.2 million in 1995. As a percent of net
sales, gross profit rose to 36.7% from 35.9% in the prior year. The
percentage margin improvement resulted primarily from reduced production
costs, notably materials and product mix. This improvement was offset
partially by costs resulting from lowered production levels in selected
plants to match market needs.
17
Operating profit rose to $63.4 million or 6.8% of net sales, from $58.1
million or 6.3% of net sales in 1995. The improvement in operating profit
resulted from an increase in gross profit margins of $11.5 million, partially
offset by a $6.2 million increase in SG&A expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE (SG&A)
- - - - ----------------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------------
YEAR ENDED Year Ended Year Ended
OCTOBER 31 % OF October 31 % of October 28 % of
SG&A Expense (Dollars in millions) 1996 NET SALES 1995 Net Sales 1994 Net Sales
- - - - ----------------------------------------------------------------------------------------------------------------
Administrative $ 97.5 10.5% $ 92.7 10.1% $ 82.6 9.6%
Sales and marketing 87.5 9.4 89.0 9.7 90.8 10.5
Warranty 28.5 3.0 31.9 3.5 30.0 3.5
Distributor/dealer financing 10.3 1.1 9.9 1.1 9.0 1.0
Research and development 31.3 3.4 27.4 2.9 25.0 2.9
Warehousing 15.2 1.6 14.7 1.6 12.2 1.4
Service/quality assurance 8.0 0.9 6.5 0.7 6.0 0.7
- - - - ----------------------------------------------------------------------------------------------------------------
Total $278.3 29.9% $272.1 29.6% $255.6 29.6%
- - - - ----------------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------------
For 1996, SG&A expenses totaled $278.3 million or 29.9% of net sales
compared to $272.1 million or 29.6% of net sales in 1995.
The increase in administrative expense of $4.8 million was comprised
primarily of additional operating expenses associated with new businesses
acquired in 1996. See "Acquisitions and Strategic Alliances included in this
MD&A.
Sales and marketing expense was down $1.5 million due to reduced direct
expenses from the decrease in consumer lawn and garden sales combined with
savings from added expense controls.
Warranty expense was down $3.4 million from the prior year as a result of
lower warranty reserve requirements due to continuing product quality
improvements and experience factors.
Distribution/dealer financing expense increased by $0.4 million and was
flat as a percent of sales. Distributor/dealer financing expense represents the
cost incurred by the company to contract with a third party financing source to
finance dealer inventory purchases. The $10.3 million charge reflected in SG&A
expense represents credit facility origination costs and interest charged for a
pre-established length of time. Interest is charged at market rates based on
prime plus a negotiated markup. These financing arrangements are used by the
company as a marketing tool to enable customers to buy inventory.
Research and development expenditures increased by $3.9 million reflecting
the company's commitment to invest in product innovation and development.
[GRAPH]
Warehousing expense increased nominally by $0.5 million as the result of
warehousing costs for new businesses.
Service/quality assurance increased 23.1% from 1995 as a result of
additional quality assurance and customer service spending for the company's new
ventures.
INTEREST EXPENSE
Interest expense in 1996 increased by $1.6 million to $13.5 million. Although
the average cost of funds declined from the prior year, the benefit was
diminished by higher overall debt levels resulting from higher levels of average
working capital. In addition to working capital needs, the company
purchased $13.3 million of its own common stock during the year which was funded
with short-term borrowings. This cash outflow was offset partially by $12.1
million received as a result of an interest rate swap entered into during 1996.
The company anticipates a significant increase in interest expense in 1997 as a
result of the additional debt associated with the acquisition of James Hardie
Irrigation Group. See "Acquisitions and Strategic Alliances" in this MD&A.
18
OTHER INCOME, NET
Other income, net totaled $10.3 million in 1996 versus $7.7 million for 1995.
The increase is primarily the result of favorable patent infringement litigation
settlements.
PROVISION FOR TAXES
The effective tax rate for 1996 was 39.5% compared to 39.9% in 1995. In
accordance with Financial Accounting Standards No. 109, the company has
determined that it is not necessary to establish a valuation reserve for the
deferred income tax benefit because it is more likely than not that the net
deferred income tax benefit of $31.5 million will be principally realized
through carry back to taxable income in prior years, future reversals of
existing taxable temporary differences, and to a lesser extent, future
taxable income.
NET EARNINGS
Net earnings for 1996 were $36.4 million, representing a 12.3% increase over
1995 earnings of $32.4 million. The increase is primarily the result of improved
operating margins. On a per share basis, earnings increased 16% to $2.90 from
$2.50 in 1995.
ASSETS
Total assets at October 31, 1996 increased by 5.1% to $496.9 million compared to
$472.7 million for the prior year. The increase was primarily comprised of a
$40.8 million increase in accounts receivable resulting from third and fourth
quarter lawn and garden, and snow sales, new business receivables and dealer
direct financing. This increase was offset partially by a reduction in cash and
cash equivalents and inventories resulting from production management
strategies.
WORKING CAPITAL
Working capital at 1996 year end was $197.1 million which represents an increase
of $32.0 million from the $165.1 million reported for 1995. The current ratio
for 1996 was 1.95 versus 1.75 in 1995. Working capital as a percent of sales was
21.2% in 1996 and 18.0% for 1995.
The increase in working capital resulted from the $18.7 million increase in
current assets, primarily accounts receivable, which was partially offset by
reduced inventories. In addition, current liabilities declined by $13.3 million,
due to a combination of a $15.0 million decline in the current portion of long
term debt, and a $8.2 million decrease in accounts payable. This was offset
partially by a $9.6 million increase in other accrued liabilities, primarily
caused by a change in benefit plan year ends which impacted the timing of
company payments to these plans.
CAPITAL STRUCTURE
Long-term debt includes:
- - - - - $50.0 million of 11% sinking fund debentures, due August 2017 with sinking
fund payments due annually August 1998 through August 2017.
- - - - - $3.4 million variable rate industrial revenue bond, due June 2004 with sinking
fund payments due annually June 1997 through June 2004.
Long-term debt at October 31, 1996 was $53.4 million, down $15.3 million
from $68.7 million at October 31, 1995. The amount of total long-term debt
attributable to Toro Credit Company, the company's consolidated finance
subsidiary, was zero at October 31, 1996 compared to $15.0 million at October
31, 1995. Toro Credit Company is now funded by the parent. The company's capital
structure is managed on a consolidated basis.
19
Total debt at October 31, 1996 was $94.4 million, down $15.9 million from
$110.3 million at October 31, 1995. The total debt to total capital ratio
decreased from 36.6% in 1995 to 30.7% in 1996 as the result of decreased
long-term debt and an increase in current year earnings.
Total capitalization at October 31, 1996 consisted of $53.4 million of
long-term debt, $41.0 million of short-term borrowing and $213.6 million of
stockholders' equity.
[GRAPH]
LIQUIDITY AND CAPITAL RESOURCES
In 1996, the company continued to improve its liquidity through cash management
strategies which included the continued replacement of long-term debt with short
term borrowings at more favorable interest rates, combined with prudent
management of inventory levels.
Management believes that the combination of funds available through its
existing financing options, coupled with forecasted cash flows as well as the
anticipated issuance of public debt described below will provide the capital
resources for its anticipated needs.
- - - - - CASH FLOW
Cash and cash equivalents declined by $7.6 million from 1995 to 1996. This
decline in cash was primarily driven by repayment of debt and stock repurchases.
At October 31, 1996 the company had $4,908,000 included in trade payables that
represented the reclassification of outstanding checks in excess of related bank
balances.
Cash provided by operating activities increased by $12.5 million as a
result of a reduction in inventories and increased earnings. This was offset by
increased accounts receivable attributed to timing of snowthrower and lawn and
garden sales late in the year, expanded dealer direct financing programs through
Toro Credit Company, and receivables resulting from Toro's new businesses.
Cash used in investing activities declined slightly in 1996 from 1995.
Investing activities consisted primarily of initial purchases of tooling
components used to manufacture new products and a variety of expenditures to
improve and modernize the manufacturing plants and administrative offices.
Cash used in financing activities was primarily for retirement of debt and
purchases of Toro stock. The company purchased the stock for use in employee
benefit plans and for potential acquisitions. The major source of cash from
financing activities was cash received from the forward starting interest rate
exchange agreement. See Note 3 to the Consolidated Financial Statements.
- - - - - CREDIT LINES AND OTHER CAPITAL RESOURCES
The company's seasonal working capital requirements are funded with $194.0
million of unsecured bank credit lines. Average borrowings under these lines
were $95.2 million in 1996 and $44.6 million in 1995. The increase in the
average borrowings was the result of the reduction in long-term debt, the
addition of dealer direct financing through Toro Credit Company, the purchase of
the company's stock and the increase in seasonal working capital. At October 31,
1996, the company had $153.0 million of unutilized availability under these
credit lines. Subsequent to the year end, the company executed an agreement for
an additional $150.0 million unsecured bank credit line expiring in December
1997.
Additionally, the company's resources included two bankers' acceptance
financing agreements totaling $40.0 million. There were no amounts outstanding
under these agreements at October 31, 1996 or 1995.
The company's business is seasonal, with accounts receivable balances
historically increasing between January and March as a result of extended
payment terms made available to the company's customers, and decreasing between
April and June when payments become due. The company's peak borrowing usually
occurs between February and May. The seasonal working capital requirements are
financed primarily with the short-term financing arrangements described above.
- - - - - ACQUISITION FINANCING
In December 1996, the company completed the acquisition of James Hardie
Irrigation Group. The purchase price of approximately $119.0 million has been
initially financed with temporary bank debt. The company intends to file a shelf
registration for public debt to facilitate the issuance of long-term
20
debt to replace the temporary bank debt. The company also believes that
financing is available through other resources. Management believes that the
capital resources available under existing arrangements are sufficient to meet
the company's needs through fiscal 1997. See "Acquisitions and Strategic
Alliances" included in this MD&A.
INFLATION
The company is subject to the effects of changing prices. The company has,
however, generally been able to pass along inflationary increases in its costs
by increasing the prices of its products.
ACQUISITIONS AND STRATEGIC ALLIANCES
On December 3, 1996, the company announced that it completed the acquisition of
James Hardie Irrigation Group (JHI) from James Hardie Limited of Australia. The
purchase price of approximately $119.0 million is subject to adjustment based on
changes in working capital and closing balance sheet audit adjustments, and has
been initially financed with temporary bank debt. The company intends to file a
shelf registration for public debt which would facilitate the issuance of
long-term debt to replace the temporary bank debt. The company expects the
purchase to have a modest dilutive effect on earnings per share in 1997. JHI is
a worldwide leader in the production of irrigation systems to the commercial
landscape market. See Note 14 to the Consolidated Financial Statements.
In addition, the company completed the acquisitions of Liquid Ag Systems
and National Service Network in 1996, and joined Walt Disney Wide World of
Sports, Ryobi Outdoor Products, and Maruyama Manufacturing, Inc., in alliances
that provide enhanced visibility and expanded product lines into emerging
markets such as the landscape contractor business.
SUMMARY
The company continued to increase earnings by leveraging a slight sales gain.
Strong sales performance in several product categories offset slower performance
in others. The increase in net earnings resulted from improvements in operating
margin offset partially by added expenses for new businesses and product
research and development. In addition, an increase in other income more than
offset an increase in interest expense resulting from higher working capital
levels during the year. The company strengthened its balance sheet through cash
management, inventory strategies and reduced long-term debt.
CONSOLIDATED STATEMENTS OF EARNINGS The Toro Company
- - - - -------------------------------------------------------------------------------------------------
- - - - -------------------------------------------------------------------------------------------------
YEAR ENDED Year Ended Year Ended
OCTOBER 31 October 31 October 28
(Dollars in thousands, except per share data) 1996 1995 1994
- - - - -------------------------------------------------------------------------------------------------
Net sales $930,909 $919,427 $864,284
Cost of sales 589,186 589,211 549,728
- - - - -------------------------------------------------------------------------------------------------
Gross profit 341,723 330,216 314,556
Selling, general and administrative expense 278,284 272,128 255,625
- - - - -------------------------------------------------------------------------------------------------
Earnings from operations 63,439 58,088 58,931
Interest expense 13,590 11,954 12,705
Other income, net (10,331) (7,747) (7,819)
- - - - -------------------------------------------------------------------------------------------------
Earnings before income taxes 60,180 53,881 54,045
- - - - -------------------------------------------------------------------------------------------------
Provision for income taxes 23,771 21,519 21,619
- - - - -------------------------------------------------------------------------------------------------
Net earnings $ 36,409 $ 32,362 $ 32,426
- - - - -------------------------------------------------------------------------------------------------
- - - - -------------------------------------------------------------------------------------------------
Net earnings per share of common stock and
common stock equivalent $ 2.90 $ 2.50 $ 2.49
- - - - -------------------------------------------------------------------------------------------------
- - - - -------------------------------------------------------------------------------------------------
21
CONSOLIDATED BALANCE SHEETS The Toro Company
- - - - ----------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) October 31 1996 1995
- - - - ----------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 66 $ 7,702
Receivables:
Customers 244,434 201,571
Other 5,208 4,787
- - - - ----------------------------------------------------------------------------------------------------------
Subtotal 249,642 206,358
Less allowance for doubtful accounts 10,005 7,542
- - - - ----------------------------------------------------------------------------------------------------------
Total receivables 239,637 198,816
- - - - ----------------------------------------------------------------------------------------------------------
Inventories 130,288 145,862
Prepaid expenses 5,133 6,417
Deferred income tax benefits 29,877 27,462
- - - - ----------------------------------------------------------------------------------------------------------
Total current assets 405,001 386,259
- - - - ----------------------------------------------------------------------------------------------------------
Property, plant and equipment:
Land and land improvements 6,816 6,569
Buildings and leasehold improvements 46,107 47,601
Equipment 176,157 157,511
- - - - ----------------------------------------------------------------------------------------------------------
Subtotal 229,080 211,681
Less accumulated depreciation and amortization 155,270 141,726
- - - - ----------------------------------------------------------------------------------------------------------
Total property, plant and equipment 73,810 69,955
- - - - ----------------------------------------------------------------------------------------------------------
Deferred income taxes 1,600 2,384
Other assets 16,466 14,055
- - - - ----------------------------------------------------------------------------------------------------------
Total assets $496,877 $472,653
- - - - ----------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 350 $ 15,334
Short-term borrowing 41,025 41,575
Accounts payable 43,524 51,757
Accrued warranty 34,722 35,065
Accrued marketing programs 22,600 21,407
Other accrued liabilities 65,636 56,035
- - - - ----------------------------------------------------------------------------------------------------------
Total current liabilities 207,857 221,173
- - - - ----------------------------------------------------------------------------------------------------------
Long-term debt, less current portion 53,015 53,365
Other long-term liabilities 22,438 7,223
Common stockholders' equity:
Common stock, par value $1.00, authorized 35,000,000 shares; issued
and outstanding 12,032,143 shares in 1996 (net of 877,861 treasury shares)
and 12,167,835 shares in 1995 (net of 674,490 treasury shares) 12,032 12,168
Additional paid-in capital 28,462 35,712
Retained earnings 173,630 142,891
Foreign currency translation adjustment (557) 121
- - - - ----------------------------------------------------------------------------------------------------------
Total common stockholders' equity 213,567 190,892
- - - - ----------------------------------------------------------------------------------------------------------
Total liabilities and common stockholders' equity $496,877 $472,653
- - - - ----------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------
22
CONSOLIDATED STATEMENTS OF CASH FLOWS The Toro Company
- - - - ----------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------
YEAR ENDED Year Ended Year Ended
OCTOBER 31 October 31 October 28
(Dollars in thousands) 1996 1995 1994
- - - - ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 36,409 $ 32,362 $ 32,426
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Provision for depreciation and amortization 18,170 17,115 18,646
(Gain) loss on disposal of property, plant and equipment (260) (147) 1,244
Deferred income taxes 784 (1,089) (2,667)
Tax benefits related to employee stock option transactions 1,490 1,178 953
Changes in operating assets and liabilities:
Net receivables (40,821) 1,094 (39,115)
Inventories 15,574 (13,008) (20,041)
Prepaid expenses and deferred income tax benefits (1,131) (5,660) (3,918)
Accounts payable and accrued expenses 2,218 (11,868) 43,117
- - - - ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 32,433 19,977 30,645
- - - - ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (21,389) (26,987) (21,036)
Proceeds from asset disposals 543 850 303
(Increase) decrease in other assets/liabilities (857) 4,017 (2,326)
- - - - ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (21,703) (22,120) (23,059)
- - - - ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in short-term borrowing (550) 41,575 -
Proceeds from issuance of long-term debt - - 4,000
Repayments of long-term debt (15,334) (22,755) (36,077)
Proceeds from deferred income 12,742 - 5,250
Proceeds from exercise of stock options 4,627 7,632 8,518
Purchases of common stock (13,339) (26,024) (2,814)
Dividends on common stock (5,834) (5,953) (6,022)
Repayments from ESOP - 2,612 2,611
- - - - ----------------------------------------------------------------------------------------------------------
Net cash used in financing activities (17,688) (2,913) (24,534)
- - - - ----------------------------------------------------------------------------------------------------------
Foreign currency translation adjustment (678) 356 1,151
- - - - ----------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (7,636) (4,700) (15,797)
Cash and cash equivalents at beginning of year 7,702 12,402 28,199
- - - - ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 66 $ 7,702 $ 12,402
- - - - ----------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------
23
SELECTED FINANCIAL DATA The Toro Company
- - - - ----------------------------------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------------------------------
3 Months Years Ended
YEAR ENDED Ended -------------------------------------------------------------
(Dollars in thousands, OCTOBER 31 October 31 July 31 July 31 July 31 July 31
except per share data) 1996 1995 1995 1994 1993 1992*
- - - - ----------------------------------------------------------------------------------------------------------------------------------
OPERATING DATA:
Net sales $930,909 $192,278 $932,853 $794,341 $684,324 $643,748
EARNINGS:
Net earnings (loss) 36,409 3,997 36,667 22,230 13,040 (23,753)
Percent of sales 3.9% 2.1% 3.9% 2.8% 1.9% (3.7)%
Per share of common stock and
common stock equivalent $ 2.90 $ 0.32 $ 2.81 $ 1.71 $ 1.05 $ (1.98)
DIVIDENDS:
On common stock outstanding 5,834 1,459 6,002 5,993 5,824 5,753
Per share of common
stock outstanding 0.48 0.12 0.48 0.48 0.48 0.48
RETURN ON:
Beginning common
stockholders' equity 19.1% 2.2% 21.7% 15.4% 9.8% (14.8)%
Average common
stockholders' equity 18.0% 2.1% 20.7% 14.2% 9.4% (16.2)%
SUMMARY OF FINANCIAL POSITION:
Current assets $405,001 $386,259 $381,610 $364,495 $344,130 $332,517
Current liabilities 207,857 221,173 212,659 188,712 150,260 122,087
Working capital 197,144 165,086 168,951 175,783 193,870 210,430
Non-current assets 91,876 86,394 86,705 79,144 75,073 88,793
Total assets 496,877 472,653 468,315 443,639 419,203 421,310
Non-current liabilities,
excluding long-term debt 22,438 7,223 5,250 5,250 1,372 2,509
CAPITALIZATION:
Long-term debt,
less current portion 53,015 53,365 64,935 81,025 122,970 164,100
Common stockholders' equity 213,567 190,892 185,471 168,652 144,601 132,614
Total capitalization 266,582 244,257 250,406 249,677 267,571 296,714
Book value per common share 17.75 15.69 15.40 13.43 11.78 11.01
STOCK DATA:
Number of shares
of common stock
outstanding (in thousands) 12,032 12,168 12,040 12,561 12,270 12,042
Number of common
stockholders 6,841 7,243 7,347 7,541 7,968 8,386
Low price $ 28 3/8 $ 28 1/8 $ 21 5/8 $ 19 3/4 $ 11 3/8 $ 12 1/8
High price 36 1/4 32 1/4 30 3/8 30 1/2 21 7/8 17 1/2
Close price 31 3/8 28 7/8 28 5/8 22 5/8 19 3/4 13
- - - - ----------------------------------------------------------------------------------------------------------------------------------
*Includes restructuring costs of $24.9 million, or $1.41 per share.
24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Toro Company
In November 1995, the company changed its fiscal year ended July 31 to a fiscal
year ended October 31. A comparison of the year ended October 31, 1996 to the
year ended October 31, 1995 is presented beginning on page 16. The 3 month
transition period ended October 31, 1995 bridges the gap between the company's
old and new fiscal year ends. A comparison of this transition period to the same
period in 1994 is presented below. In addition, a comparison of the years ended
July 31, 1995 and 1994 is also presented below.
Financial information related to the 3 month transition period ended October
31, 1995, and the years ended July 31, 1995 and 1994 has been derived from the
audited financial statements. Financial information related to the 3 month
period ended October 28, 1994 is unaudited.
RESULTS OF OPERATIONS
The sales for the 3 month transition period ended October 31, 1995 were $192.3
million versus $205.7 million in the same period of the prior year. The decline
was due to extraordinary snow product sales in 1994. Earnings for the period
were $4.0 million versus $8.3 million in the prior year.
SUMMARY
- - - - ------------------------------------------------------------------------------------------------------------------------------------
- - - - ------------------------------------------------------------------------------------------------------------------------------------
3 Months Ended 3 Months Ended Year Ended Year Ended
October 31 October 28 July 31 July 31
(Dollars in millions except per share data) 1995 % Change 1994 1995 % Change 1994
- - - - ------------------------------------------------------------------------------------------------------------------------------------
Net sales $192.3 (6.5)% $205.7 $932.9 17.4% $794.3
Cost of sales 120.6 (6.9) 129.6 598.3 18.1 506.8
- - - - ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 71.7 (5.8) 76.1 334.6 16.4 287.5
Selling, general and administrative expense 65.0 3.7 62.7 269.8 10.2 244.9
- - - - ------------------------------------------------------------------------------------------------------------------------------------
Earnings from operations 6.7 (50.0) 13.4 64.8 52.1 42.6
Interest expense 2.5 - 2.5 11.9 (12.5) 13.6
Other income, net (2.4) (17.2) (2.9) (8.2) 2.5 (8.0)
- - - - ------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 6.6 (52.2) 13.8 61.1 65.1 37.0
Provision for income taxes 2.6 (52.7) 5.5 24.4 64.9 14.8
- - - - ------------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 4.0 (51.8)% 8.3 $ 36.7 65.3% $ 22.2
- - - - ------------------------------------------------------------------------------------------------------------------------------------
- - - - ------------------------------------------------------------------------------------------------------------------------------------
Net earnings per share of common stock
and common stock equivalent $ 0.32 (50.0)% $ 0.64 $ 2.81 64.3% $ 1.71
- - - - ------------------------------------------------------------------------------------------------------------------------------------
- - - - ------------------------------------------------------------------------------------------------------------------------------------
SALES BY PRODUCT LINE
- - - - ----------------------------------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------------------------------
3 Months Ended 3 Months Ended Year Ended Year Ended
Net Sales October 31 October 28 July 31 July 31
(Dollars in millions) 1995 % Change 1994 1995 % Change 1994
- - - - ----------------------------------------------------------------------------------------------------------------------------------
Consumer $105.9 (16.4)% $126.7 $488.1 14.6% $425.8
Commercial 54.1 11.1 48.7 305.3 20.6 253.2
Irrigation 32.3 6.6 30.3 139.5 21.0 115.3
- - - - ----------------------------------------------------------------------------------------------------------------------------------
Total* $192.3 (6.5)% $205.7 $932.9 17.4% $794.3
- - - - ----------------------------------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------------------------------
*Includes international sales of $ 20.9 (11.8)% $ 23.7 $152.4 17.1% $130.1
- - - - ----------------------------------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------------------------------
25
3 MONTHS ENDED OCTOBER 31, 1995 COMPARED WITH 3 MONTHS ENDED OCTOBER 28, 1994
- - - - --------------------------------------------------------------------------------
Worldwide net sales for the 3 months ended October 31, 1995, of $192.3 million
decreased by $13.4 million from the prior year primarily as a result of
decreased sales of snow removal equipment. The decline in the quarter was offset
partially by an increase in commercial and irrigation product sales. The
increase in commercial product sales was the result of new product
introductions, golf course openings, increased sales of equipment to landscape
contractors and increased sales in the municipal markets. Irrigation sales
increased because of new product introductions and increased demand for do-it-
yourself products. International sales included in the table on the previous
page declined from the prior year because of a temporary business interruption
in the irrigation product line as a result of distribution changes as well as
decreased sales of snow removal equipment.
YEAR ENDED JULY 31, 1995 COMPARED WITH YEAR ENDED JULY 31, 1994
- - - - --------------------------------------------------------------------------------
Worldwide sales increased $138.6 million in fiscal 1995 to $932.9 million with
increases in all product lines as discussed below:
- - - - - CONSUMER
Worldwide consumer product sales rose 14.6% to $488.1 million in 1995. Consumer
product sales represented 52.3% and 53.6% of consolidated net sales for 1995 and
1994, respectively. International sales included in consumer product sales
increased $5.6 million from the prior year.
Exceptional sales of snow removal equipment as well as increased sales of
riding products and Toro-Registered Trademark-brand walk power mowers
contributed to the increase over the prior year. This increase was offset
partially by a decline in Lawn-Boy-Registered Trademark- walk power mower
sales as a result of reduced shipments in response to a delayed spring season
as well as actions to reduce excess retail inventory.
- - - - - COMMERCIAL
Worldwide commercial product sales increased $52.1 million over the prior year.
International sales included in commercial product sales increased $9.0 million
from the prior year.
Sales were strong in both the golf and municipal markets because of new golf
course openings and increased spending in the municipal market. Sales of
equipment to landscape contractors and sales of recycling equipment products
also contributed to the increase.
- - - - - IRRIGATION
Worldwide irrigation product sales increased 21.0% to $139.5 million in 1995.
International sales included in irrigation product sales increased $6.0 million.
Increased sales of irrigation products in the golf industry as well as an
improved market share for do-it-yourself products contributed to the sales
increase. The company's change to direct distribution through irrigation product
wholesale dealers in the California and Texas markets, made in 1994 to better
respond to customer needs, was favorably received in the marketplace. Improved
international economies and weather conditions also resulted in increased sales.
- - - - - INTERNATIONAL MARKETS
International sales are included in the preceding net sales table. International
sales increased 17.1% to $152.4 million in 1995. Sales in Canada improved over
the prior year because of the strengthened economy. The drought in Australia
curtailed sales slightly, but was offset by increased sales in Europe because of
the weak U.S. dollar.
26
COST TRENDS AND PROFIT MARGINS
- - - - -----------------------------------------------------------------------------------------------------------------
3 Months Ended 3 Months Ended Year Ended Year Ended
October 31 October 28 July 31 July 31
Margins (Percent of net sales) 1995 1994 1995 1994
- - - - -----------------------------------------------------------------------------------------------------------------
Gross profit 37.3% 37.0% 35.9% 36.2%
Operating profit 3.5 6.5 6.9 5.4
Pretax earnings 3.4 6.7 6.5 4.7
Net earnings 2.1 4.0 3.9 2.8
- - - - -----------------------------------------------------------------------------------------------------------------
3 MONTHS ENDED OCTOBER 31, 1995 COMPARED WITH 3 MONTHS ENDED OCTOBER 28, 1994
- - - - --------------------------------------------------------------------------------
Gross profit of $71.7 million decreased $4.4 million from the prior year because
of the decline in sales. As a percent of sales, gross profit for the period
ended October 31, 1995 was 37.3% compared with 37.0% for the period ended
October 28, 1994 primarily due to increased sales of commercial and irrigation
products, offset partially by reduced sales of snow removal equipment.
YEAR ENDED JULY 31, 1995 COMPARED WITH YEAR ENDED JULY 31, 1994
- - - - --------------------------------------------------------------------------------
Gross profit of $334.6 million increased 16.4% over the $287.5 million in 1994.
As a percent of net sales, gross profit decreased slightly to 35.9% for 1995
compared with 36.2% in 1994. The percentage decrease resulted from the mix of
product sales and increased costs of raw material. Gross profit increased $47.1
million to $334.6 million. This was the result of the increased sales volume
which was offset by the items mentioned above.
Operating profit improved from the prior year by $22.2 million because of
improved operating leverage as a result of increased sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE (SG&A)
- - - - -----------------------------------------------------------------------------------------------------------------------------------
- - - - -----------------------------------------------------------------------------------------------------------------------------------
3 Months Ended % of 3 Months Ended % of Year Ended % of Year Ended % of
SG&A Expense October 31 Net October 28 Net July 31 Net July 31 Net
(Dollars in millions) 1995 Sales 1994 Sales 1995 Sales 1994 Sales
- - - - ----------------------------------------------------------------------------------------------------------------------------------
Administrative $24.0 12.5% $20.8 10.1% $ 89.5 9.6% $ 80.2 10.1%
Sales and marketing 20.6 10.7 23.8 11.6 92.1 9.9 84.4 10.6
Warranty 6.6 3.4 5.7 2.8 31.0 3.3 29.0 3.6
Distributor/dealer financing 2.1 1.1 2.0 1.0 9.7 1.0 8.6 1.1
Research and development 6.9 3.6 6.0 2.9 26.5 2.8 24.6 3.1
Warehousing 3.2 1.7 2.9 1.4 14.5 1.6 11.8 1.5
Service/quality assurance 1.6 0.8 1.5 0.7 6.5 0.7 6.3 0.8
- - - - ----------------------------------------------------------------------------------------------------------------------------------
Total $65.0 33.8% $62.7 30.5% $269.8 28.9% $244.9 30.8%
- - - - -----------------------------------------------------------------------------------------------------------------------------------
- - - - -----------------------------------------------------------------------------------------------------------------------------------
3 MONTHS ENDED OCTOBER 31, 1995 COMPARED WITH 3 MONTHS ENDED OCTOBER 28, 1994
- - - - --------------------------------------------------------------------------------
SG&A increased $2.3 million from the prior year and as a percent of sales
increased to 33.8%. Administrative expense increased from the prior year as the
company continued its implementation of a company-wide information system as
well as an overall increase in spending. Warranty increased from the prior year
as a result of a change in the sales mix of products. Research and development
expenditures were above the prior year reflecting the company's continued
commitment to product innovation. These increases were offset partially by a
decrease in sales and marketing expense primarily because of reduced sales.
27
YEAR ENDED JULY 31, 1995 COMPARED WITH YEAR ENDED JULY 31, 1994
- - - - ----------------------------------------------------------------------------
SG&A was up $24.9 million from 1994 and was 28.9% of net sales in 1995
compared with 30.8% in 1994. The decline as a percent of sales was the result
of improved leverage and expense control. The increase in administrative
expense of $9.3 million occurred principally as a result of a company-wide
initiative to replace existing information systems, increased payouts in
various employee incentive and profit sharing plans, the addition of a joint
venture with a distributor, the addition of dealer direct financing through
Toro Credit Company, and distribution support.
Sales and marketing expense was up $7.7 million from the prior year. As a
percent of net sales, sales and marketing was 9.9%, a decrease from 10.6% in
1994. The dollar increase reflected the company's increased sales volume as
well as an increase in brand advertising.
Warranty expense increased by $2.0 million and as a percent of net sales was
3.3% in 1995 compared with 3.6% in 1994. The $2.0 million increase was
primarily the result of increased sales volume, and new product introductions.
Distributor/dealer financing expense represents the cost incurred by the
company to contract with a third party financing source to finance dealer
inventory purchases. The $9.7 million charge reflected in SG&A represents
credit facility origination costs and interest charges for a pre-established
length of time. Interest is charged at market rates based on prime plus a
negotiated mark-up. These financing arrangements are used by the company as a
marketing tool to enable customers to buy inventory. This expense increased
$1.1 million in 1995 because of the increased sales volume and was offset
partially by the reduction of third party financing expense which was taken
on through the addition of dealer direct financing through Toro Credit
Company.
Research and development expense was up $1.9 million primarily as the result
of continued investment in product innovation.
INTEREST EXPENSE
3 MONTHS ENDED OCTOBER 31, 1995 COMPARED WITH 3 MONTHS ENDED OCTOBER 28, 1994
- - - - --------------------------------------------------------------------------------
Interest expense for the 3 months ended October 31, 1995 was $2.5 million which
was unchanged from the amount reported in 1994.
YEAR ENDED JULY 31, 1995 COMPARED WITH YEAR ENDED JULY 31, 1994
- - - - --------------------------------------------------------------------------------
Interest expense for 1995 decreased to $11.9 million from the $13.6 million
reported in 1994 as the result of the company's continued reduction in long-term
debt and utilization of short-term borrowing at lower interest rates.
OTHER INCOME, NET
3 MONTHS ENDED OCTOBER 31, 1995 COMPARED WITH 3 MONTHS ENDED OCTOBER 28, 1994
- - - - --------------------------------------------------------------------------------
Other income, net at October 31, 1995 was $2.4 million versus $2.9 million in
1994. The decrease in other income, net was due to a decline in financing
revenue for the period.
YEAR ENDED JULY 31, 1995 COMPARED WITH YEAR ENDED JULY 31, 1994.
- - - - --------------------------------------------------------------------------------
Other income, net was $0.2 million greater than the $8.0 million reported in
1994. Excluding the effect of two lawsuit settlements and the sale of the
portable heater business in the prior year, other income increased because of
gains on fixed asset disposals versus losses in the prior year, favorable
foreign currency activity, and income resulting from joint venture activity.
28
PROVISION FOR TAXES
3 Months Ended October 31, 1995 Compared With 3 Months Ended October 28, 1994
- - - - --------------------------------------------------------------------------------
The effective tax rate for the period ended October 31, 1995 was 39.5% compared
to 40.0% for the 3 month period ended October 28, 1994.
Year Ended July 31, 1995 Compared With Year Ended July 31, 1994
- - - - --------------------------------------------------------------------------------
The effective tax rate remained at 40% of pretax earnings in 1995. In accordance
with Financial Accounting Standards No. 109, the company has determined that it
is not necessary to establish a valuation reserve for the deferred income tax
benefit because it is more likely than not that the net deferred income tax
benefit of $30.9 million will be principally realized through carry back to
taxable income in prior years, and future reversals of existing taxable
temporary differences, and, to a lesser extent, future taxable income.
NET EARNINGS
3 Months Ended October 31, 1995 Compared With 3 Months Ended October 28, 1994
- - - - --------------------------------------------------------------------------------
Net earnings for the 3 months ended October 31, 1995 was $4.0 million versus
$8.3 million a year prior. The decrease in earnings was primarily the result of
extraordinary snow product sales in the prior 3 month period.
Year Ended July 31, 1995 Compared With Year Ended July 31, 1994
- - - - --------------------------------------------------------------------------------
Net earnings for 1995 were $36.7 million or $2.81 per share, as compared with
net earnings of $22.2 million or $1.71 per share in 1994. The increase in
earnings was primarily the result of increased sales, improved operating
leverage, and cost control measures such as lower borrowing costs.
29
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
The Toro Company:
We have audited the accompanying consolidated balance sheets of The Toro
Company and subsidiaries as of October 31, 1996 and 1995, and the related
consolidated statements of earnings and cash flows for the year ended October
31, 1996, the three month period ended October 31, 1995 and the years ended July
31, 1995 and 1994. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Toro
Company and subsidiaries as of October 31, 1996 and 1995, and the results of
their operations and their cash flows for the year ended October 31, 1996, the
three month period ended October 31, 1995 and the years ended July 31, 1995 and
1994 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 16, 1996
CONSOLIDATED STATEMENTS OF EARNINGS The Toro Company
- - - - -------------------------------------------------------------------------------------------------------------------------
- - - - -------------------------------------------------------------------------------------------------------------------------
Year Ended
YEAR ENDED 3 Months Ended ----------------------------
OCTOBER 31 October 31 July 31 July 31
(Dollars in thousands, except per share data) 1996 1995 1995 1994
- - - - -------------------------------------------------------------------------------------------------------------------------
Net sales $ 930,909 $192,278 $ 932,853 $794,341
Cost of sales 589,186 120,575 598,275 506,816
- - - - -------------------------------------------------------------------------------------------------------------------------
Gross profit 341,723 71,703 334,578 287,525
Selling, general and administrative expense 278,284 65,048 269,757 244,943
- - - - -------------------------------------------------------------------------------------------------------------------------
Earnings from operations 63,439 6,655 64,821 42,582
Interest expense 13,590 2,532 11,902 13,562
Other income, net (10,331) (2,483) (8,193) (8,030)
- - - - -------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 60,180 6,606 61,112 37,050
- - - - -------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 23,771 2,609 24,445 14,820
- - - - -------------------------------------------------------------------------------------------------------------------------
Net earnings $ 36,409 $ 3,997 $ 36,667 $ 22,230
- - - - -------------------------------------------------------------------------------------------------------------------------
- - - - -------------------------------------------------------------------------------------------------------------------------
Net earnings per share of common stock and
common stock equivalent $ 2.90 $ 0.32 $ 2.81 $ 1.71
- - - - -------------------------------------------------------------------------------------------------------------------------
- - - - -------------------------------------------------------------------------------------------------------------------------
The financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements.
30
CONSOLIDATED BALANCE SHEETS The Toro Company
- - - - ----------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) October 31 1996 1995
- - - - ----------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 66 $ 7,702
Receivables:
Customers 244,434 201,571
Other 5,208 4,787
- - - - ----------------------------------------------------------------------------------------------------------
Subtotal 249,642 206,358
Less allowance for doubtful accounts 10,005 7,542
- - - - ----------------------------------------------------------------------------------------------------------
Total receivables 239,637 198,816
- - - - ----------------------------------------------------------------------------------------------------------
Inventories 130,288 145,862
Prepaid expenses 5,133 6,417
Deferred income tax benefits 29,877 27,462
- - - - ----------------------------------------------------------------------------------------------------------
Total current assets 405,001 386,259
- - - - ----------------------------------------------------------------------------------------------------------
Property, plant and equipment:
Land and land improvements 6,816 6,569
Buildings and leasehold improvements 46,107 47,601
Equipment 176,157 157,511
- - - - ----------------------------------------------------------------------------------------------------------
Subtotal 229,080 211,681
Less accumulated depreciation and amortization 155,270 141,726
- - - - ----------------------------------------------------------------------------------------------------------
Total property, plant and equipment 73,810 69,955
- - - - ----------------------------------------------------------------------------------------------------------
Deferred income taxes 1,600 2,384
Other assets 16,466 14,055
- - - - ----------------------------------------------------------------------------------------------------------
Total assets $496,877 $ 472,653
- - - - ----------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 350 $ 15,334
Short-term borrowing 41,025 41,575
Accounts payable 43,524 51,757
Accrued warranty 34,722 35,065
Accrued marketing programs 22,600 21,407
Other accrued liabilities 65,636 56,035
- - - - ----------------------------------------------------------------------------------------------------------
Total current liabilities 207,857 221,173
- - - - ----------------------------------------------------------------------------------------------------------
Long-term debt, less current portion 53,015 53,365
Other long-term liabilities 22,438 7,223
Common stockholders' equity:
Common stock, par value $1.00, authorized 35,000,000 shares; issued
and outstanding 12,032,143 shares in 1996 (net of 877,861 treasury shares)
and 12,167,835 shares in 1995 (net of 674,490 treasury shares) 12,032 12,168
Additional paid-in capital 28,462 35,712
Retained earnings 173,630 142,891
Foreign currency translation adjustment (557) 121
- - - - ----------------------------------------------------------------------------------------------------------
Total common stockholders' equity 213,567 190,892
- - - - ----------------------------------------------------------------------------------------------------------
Total liabilities and common stockholders' equity $496,877 $472,653
- - - - ----------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------
The financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements.
31
- - - - -----------------------------------------------------------------------------------------------------------------------------------
- - - - -----------------------------------------------------------------------------------------------------------------------------------
Year Ended
YEAR ENDED 3 Months Ended ----------------------------
OCTOBER 31 October 31 July 31 July 31
(Dollars in thousands) 1996 1995 1995 1994
- - - - -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 36,409 $ 3,997 $ 36,667 $ 22,230
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Provision for depreciation and amortization 18,170 3,590 17,240 18,839
(Gain) loss on disposal of property, plant and equipment (260) (34) (135) 1,265
Deferred income taxes 784 194 (1,282) (2,668)
Tax benefits related to employee stock option transactions 1,490 - 1,178 953
Changes in operating assets and liabilities:
Net receivables (40,821) 13,640 (28,773) (3,320)
Inventories 15,574 (22,142) (4,956) (40,056)
Prepaid expenses and deferred income tax benefits (1,131) 1,962 (10,024) (2,551)
Accounts payable and accrued expenses 2,218 (9,770) 5,622 33,152
- - - - ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 32,433 (8,563) 15,537 27,844
- - - - ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (21,389) (3,302) (28,162) (18,173)
Proceeds from asset disposals 543 43 843 267
(Increase) decrease in other assets/liabilities (857) 1,793 3,935 (4,973)
- - - - -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (21,703) (1,466) (23,384) (22,879)
- - - - -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in sale of receivables - (2,331) 2,331 -
(Decrease) increase in short-term borrowing (550) 19,040 22,535 -
Proceeds from issuance of long-term debt - - - 4,000
Repayments of long-term debt (15,334) (12,326) (20,300) (40,645)
Proceeds from deferred income 12,742 5,250
Proceeds from exercise of stock options 4,627 3,586 8,251 6,144
Purchases of common stock (13,339) (891) (26,225) (2,284)
Dividends on common stock (5,834) (1,459) (6,002) (5,993)
Repayments from ESOP - - 2,612 2,611
- - - - -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (17,688) 5,619 (16,798) (30,917)
- - - - -----------------------------------------------------------------------------------------------------------------------------------
Foreign currency translation adjustment (678) 188 338 390
- - - - -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (7,636) (4,222) (24,307) (25,562)
Cash and cash equivalents at beginning of period 7,702 11,924 36,231 61,793
- - - - -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 66 $ 7,702 $ 11,924 $ 36,231
- - - - -----------------------------------------------------------------------------------------------------------------------------------
- - - - -----------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 15,335 $ 4,694 $ 9,567 $ 14,092
Income taxes 20,447 109 34,936 19,498
- - - - -----------------------------------------------------------------------------------------------------------------------------------
The financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Toro Company
- - - - --------------------------------------------------------------------------------
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED DATA
FISCAL YEAR CHANGE
Effective November 1995, the company changed its fiscal year ended July 31 to a
fiscal year ended October 31. The 3 month transition period ended October 31,
1995 bridges the gap between the company's old and new fiscal year ends.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of The
Toro Company and all wholly-owned and majority-owned domestic and foreign
subsidiaries (the company). Investments in 50% or less owned companies are
accounted for by the equity method. The accounts of foreign subsidiaries, which
are not material, have been adjusted to conform to U.S. accounting principles
and practices and have been translated to appropriate U.S. dollar equivalents.
All material intercompany accounts and transactions have been eliminated from
the consolidated financial statements.
CASH AND CASH EQUIVALENTS
The company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents. At October 31, 1996 the Company had
$4,908,000 included in trade payables that represented the reclassification of
outstanding checks in excess of related bank balances.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The provision for doubtful accounts included in selling, general and
administrative expense was $3,358,000 for the year ended October 31, 1996,
$720,000 for the 3 months ended October 31, 1995, $1,543,000 for the year ended
July 31, 1995, and $3,032,000 for the year ended July 31, 1994.
INVENTORIES
The majority of all inventories are valued at the lower of cost or net
realizable value with cost determined by the last-in, first-out (LIFO) method.
Had the first-in, first-out (FIFO) method of cost determination been used,
inventories would have been $25,642,000 and $24,841,000 higher than reported at
October 31, 1996, and 1995, respectively. Under the FIFO method, work-in-process
inventories were $69,182,000 and $86,285,000 and finished goods inventories were
$86,748,000 and $84,418,000 at October 31, 1996 and 1995, respectively.
PROPERTY AND DEPRECIATION
Property, plant and equipment are carried at cost. The company provides for
depreciation of plant and equipment utilizing the straight-line method over the
estimated useful lives of the assets. Buildings, including leasehold
improvements, are generally depreciated over 10 to 45 years, and equipment over
3 to 7 years. Tooling costs are generally amortized using the units of
production method. Expenditures for major renewals and betterments which
substantially increase the useful lives of existing assets are capitalized, and
maintenance and repairs are charged to operating expenses as incurred. Software
is expensed at the time of purchase. The cost and related accumulated
depreciation of all plant and equipment disposed of are removed from the
accounts, and any gain or loss from such disposal is included in current period
earnings.
ACCRUED WARRANTY
The company provides an accrual for estimated future warranty costs based upon
the historical relationship of warranty costs to sales.
33
DEFERRED INCOME
The company has recorded deferred income related to a forward starting interest
rate exchange agreement. The deferred income will be recognized commencing
August 1, 1997 as an adjustment to interest expense over the term of the
agreement. See Note 3 to the Consolidated Financial Statements.
FOREIGN CURRENCY TRANSLATION
The functional currency of the company's foreign operations is the applicable
local currency. The functional currency is translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation" which is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue and
expense accounts using a weighted average exchange rate during the period. The
gains or losses resulting from such translations are included in stockholders'
equity. Gains or losses resulting from foreign currency transactions are
included in other income, net.
ACCOUNTING FOR REVENUES
Revenue is recognized at the time products are shipped to distributors, dealers
or mass merchandisers.
COST OF FINANCING DISTRIBUTOR/DEALER INVENTORY
Included in selling, general and administrative expense are costs associated
with various programs in which the company shares costs of financing distributor
and dealer inventories. These costs of $10,252,000 for the year ended October
31, 1996, $2,063,000 for the 3 months ended October 31, 1995, $9,675,000 for the
year ended July 31, 1995, and $8,587,000 for the year ended July 31, 1994, are
charged against operations as incurred.
RESEARCH AND DEVELOPMENT
Expenditures for research and development, including engineering, of $31,343,000
for the year ended October 31, 1996, $6,864,000 for the 3 months ended October
31, 1995, $26,513,000 for the year ended July 31, 1995 and $24,581,000 for the
year ended July 31, 1994 are charged against operations as incurred.
DISTRIBUTION
Included in selling, general and administrative expense are costs associated
with changes to the company's distribution channels. These costs were $6,682,000
for the year ended October 31, 1996, $823,000 for the 3 months ended October 31,
1995, $3,400,000 for the year ended July 31, 1995 and $4,300,000 for the year
ended July 31, 1994. Those costs associated with business changes are accrued on
the basis of historical experience, while costs related to specific changes to
the company's distribution system are recorded when authorized.
INCOME TAXES
In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," (FAS 109), deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date. The company has reflected the necessary deferred tax asset/liability in
the accompanying balance sheets. Management believes the future tax deductions
will be realized principally through carry back to taxable income in prior
years, future reversals of existing taxable temporary differences, and to a
lesser extent, future
taxable income.
34
NET EARNINGS PER SHARE OF COMMON STOCK AND COMMON STOCK EQUIVALENTS
Net earnings per share of common stock and common stock equivalents are computed
by dividing net earnings by the weighted average number of common shares and
common stock equivalents outstanding during the respective periods. Common stock
equivalents include potentially dilutive stock options. These shares are
included under the treasury stock method using the average market price of the
company's stock during each period. The effect of full dilution using the
year-end price of the company's stock was immaterial.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board released Statement
of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation," (FAS 123). The company accounts for its stock options and
employee stock ownership plan in accordance with the provisions of the
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," (APB 25). FAS 123 provides an alternative to APB 25 and is
effective for fiscal years beginning after December 15, 1995. The company
expects to continue to account for its employee stock plans in accordance
with the provisions of APB 25. Accordingly, FAS 123 is not expected to have
any material impact on the company's financial position or results of
operations. Effective with the issuance of the company's fiscal 1997
financial statements, the company will disclose proforma net income and per
share amounts as if FAS 123 were applied.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the current
year presentation.
2 SHORT-TERM CAPITAL RESOURCES
- - - - --------------------------------------------------------------------------------
At October 31, 1996, the company had available unsecured lines of credit with
five banks in the aggregate of $194,000,000. Most of these agreements require
the company to pay a fee of 0.175% per year on the available lines of credit.
This fee is recorded by the company as interest expense.
The company had $41,025,000 outstanding at October 31, 1996, and $41,575,000
outstanding at October 31, 1995. The weighted average interest rate on short-
term borrowing for 1996 was 6.0% (6.0% for the 3 months ended October 31, 1995,
7.7% for the year ended July 31, 1995 and 6.5% for the year ended July 31,
1994). Interest expense was $7,036,000 in 1996 ($695,000 for the 3 months ended
October 31, 1995, $2,498,000 for the year ended July 31, 1995 and $822,000 for
the year ended July 31, 1994), including facility fees. The weighted average
short-term borrowing was $117,080,000 for the year ended October 31, 1996
($11,496,000 for the 3 months ended October 31, 1995, $32,335,000 for the year
ended July 31, 1995 and $12,755,000 for the year ended July 31, 1994).
In addition, the company's capital resources include two $20,000,000
bankers' acceptance financing agreements in 1996 and 1995. The company had no
amount outstanding under these agreements at October 31, 1996, and 1995.
35
3 LONG-TERM DEBT
- - - - --------------------------------------------------------------------------------
A summary of long-term debt is as follows:
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
(Dollars in thousands) October 31 1996 1995
- - - - --------------------------------------------------------------------------------
11% Sinking Fund Debentures due annually
August 1998-2017 callable August 1, 1997 $50,000 $50,000
Industrial Revenue Bond due annually
June 1997-2004 with various interest rates 3,365 3,699
9.57% senior note due January 1996 - 5,000
9.53% senior note due August 1996 - 10,000
- - - - --------------------------------------------------------------------------------
53,365 68,699
Less current portion 350 15,334
- - - - --------------------------------------------------------------------------------
Long-term debt, less current portion $53,015 $53,365
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
The weighted average interest rate on long-term debt for 1996 was 10.5%
(10.5% for the 3 months ended October 31, 1995, 9.9% for the year ended July 31,
1995 and 9.8% for the year ended July 31, 1994). Interest expense was $6,555,000
in 1996 ($1,837,000 for the 3 months ended October 31, 1995, $8,673,000 for the
year ended July 31, 1995 and $12,236,000 for the year ended July 31, 1994),
including commitment and facility fees. The weighted average long-term debt
outstanding was $62,366,000 in 1996 ($17,557,000 for the 3 months ended October
31, 1995, $87,330,000 for the year ended July 31, 1995 and $125,388,000 for the
year ended July 31, 1994).
The company entered into a forward starting interest rate exchange
agreement with a bank on March 6, 1996 to hedge the anticipated refinancing of
its $50 million, 11% long-term sinking fund debentures callable August 1, 1997,
and to realize the benefit of favorable interest rates. Simultaneously with
entering into this interest rate exchange agreement, the company terminated its
interest rate exchange agreement entered into during February 1994. The effect
of this transaction was to extend the original forward starting interest rate
exchange agreement from 5 years to 30 years. As a result of this transaction,
the deferred income balance was increased from $5.25 million in 1994 to $17.3
million in March of 1996. The net additional cash received in March 1996 was
$12.1 million. In return for the net proceeds, the company will pay the bank
10.55% on a notational amount of $50 million from August 1, 1997 through August
2, 2027 and the company will receive payments based on a floating rate equal to
the London Interbank Offered Rate (LIBOR) on the notational amount over the same
period.
The net interest rate differential to be received or paid and the $17.3
million deferred income will be recognized commencing August 1, 1997 as an
adjustment to interest expense over the term
of the agreement.
On August 12, 1996 the company entered into another forward starting
interest rate exchange agreement with a bank to additionally hedge the
anticipated refinancing of the $50 million currently financed under short-term
credit agreements. The company received or paid no cash as a result of
this transaction.
Under the terms of the long-term debt agreements and the interest rate
exchange agreements, the company is subject to certain covenants. At October 31,
1996, the company was in compliance with all such covenants.
The terms of certain agreements of Toro Credit Company restrict the payment
of dividends and loans or advances to the parent company. Of the Toro Credit
Company's retained earnings of $63,584,000, all were available for distribution
to the parent at October 31, 1996.
Principal payments required on long-term debt in each of the next five
years ending October 31 are as follows: 1997, $350,000; 1998, $2,865,000; 1999,
$2,885,000; 2000, $2,905,000; 2001, $2,925,000; and after 2001, $41,435,000.
36
4 INCOME TAXES
- - - - -------------------------------------------------------------------------------
A reconciliation of the statutory federal income tax rate to the company's
consolidated effective tax rate is summarized as follows:
- - - - -----------------------------------------------------------------------------------------------------------------------------
- - - - -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED 3 Months Ended Year Ended
----------------------------
OCTOBER 31 October 31 July 31 July 31
1996 1995 1995 1994
- - - - -----------------------------------------------------------------------------------------------------------------------------
Statutory federal income tax rate 35.0% 35.0% 35.0% 35.0%
Increase (reduction) in income taxes resulting from:
Benefits from foreign sales corporation (0.8) (0.2) (0.8) (1.6)
State and local income taxes, net of federal
income tax benefit 2.5 4.6 2.4 2.4
Effect of foreign source income 0.0 1.5 0.5 1.3
Other, net 2.8 (1.4) 2.9 2.9
- - - - -----------------------------------------------------------------------------------------------------------------------------
Consolidated effective tax rate 39.5% 39.5% 40.0% 40.0%
- - - - -----------------------------------------------------------------------------------------------------------------------------
- - - - -----------------------------------------------------------------------------------------------------------------------------
Components of the provision for income taxes are as follows:
- - - - -------------------------------------------------------------------------------
- - - - -----------------------------------------------------------------------------------------------------------------------------
- - - - -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED 3 Months Ended Year Ended
----------------------------
OCTOBER 31 October 31 July 31 July 31
1996 1995 1995 1994
- - - - -----------------------------------------------------------------------------------------------------------------------------
Current:
Federal $22,479 $ 731 $24,878 $18,487
State 2,754 238 2,942 2,610
- - - - -----------------------------------------------------------------------------------------------------------------------------
Current provision 25,233 969 27,820 21,097
- - - - -----------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal (1,051) 1,414 (2,689) (5,059)
State (411) 226 (686) (1,218)
- - - - -----------------------------------------------------------------------------------------------------------------------------
Deferred provision (1,462) 1,640 (3,375) (6,277)
- - - - -----------------------------------------------------------------------------------------------------------------------------
Total provision for income taxes $23,771 $2,609 $24,445 $14,820
- - - - -----------------------------------------------------------------------------------------------------------------------------
- - - - -----------------------------------------------------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to the net
deferred tax assets at October 31, 1996 and 1995 are presented below.
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995
- - - - --------------------------------------------------------------------------------
Allowance for doubtful accounts $ 5,151 $ 4,254
Inventory reserves 536 (459)
Uniform capitalization 2,252 2,302
Depreciation 1,600 2,384
Warranty reserves 12,881 12,754
Marketing programs 2,018 1,973
Distributor reserves 2,603 2,474
Restructuring reserves 1,091 1,386
Accrued retirement 3,410 2,770
Other (65) 8
- - - - --------------------------------------------------------------------------------
Consolidated deferred income tax assets $31,477 $29,846
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
During the years ended October 31, 1996 and July 31, 1995, respectively,
$1,490,000 and $1,178,000 was added to additional paid-in capital in accordance
with Accounting Principal Board opinion 25 reflecting the permanent book to tax
difference in accounting for tax benefits related to employee stock option
transactions.
37
5 COMMON STOCKHOLDERS EQUITY
- - - - --------------------------------------------------------------------------------
Changes in the components of common stockholders' equity during the fiscal year
ended October 31, 1996, the 3 months ended October 31, 1995, and the fiscal
years ended July 31, 1995 and 1994 were as follows:
- - - - ----------------------------------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------------------------------
Foreign
Currency
Common Additional Retained Receivable Translation
(Dollars in thousands) Stock Paid-In Capital Earnings from ESOP Adjustment
- - - - ----------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1993 $12,270 $ 44,898 $ 93,451 $(5,223) $(795)
- - - - ----------------------------------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------------------------------
Common dividends paid ($0.48 per share) - - (5,993) - -
Issuance of 388,588 shares under
stock option plans 388 5,756 - - -
Purchase of 97,758 common shares (97) (2,187) - - -
Payment received from ESOP - - - 2,611 -
Foreign currency translation adjustment - - - - 390
Tax benefits related to employee stock
option transactions - 953 - - -
Net earnings - - 22,230 - -
- - - - ----------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1994 $12,561 $ 49,420 $109,688 $ (2,612) $(405)
- - - - ----------------------------------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------------------------------
Common dividends paid ($0.48 per share) - - (6,002) - -
Issuance of 444,783 shares under
stock option plans 445 7,806
Purchase of 965,757 common shares (966) (25,259) - - -
Payment received from ESOP - - - 2,612 -
Foreign currency translation adjustment - - - - 338
Tax benefits related to employee stock
option transactions - 1,178 - - -
Net earnings - - 36,667 - -
- - - - ----------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1995 $12,040 $ 33,145 $140,353 $ 0 $ (67)
- - - - ----------------------------------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------------------------------
Common dividends paid ($0.12 per share) - - (1,459) - -
Issuance of 156,263 shares under stock
option plans 156 3,431 - - -
Purchase of 28,204 common shares (28) (864) - - -
Foreign currency translation adjustment - - - - 188
Net earnings - - 3,997 - -
- - - - ----------------------------------------------------------------------------------------------------------------------------------
Balance at October 31, 1995 $12,168 $ 35,712 $142,891 $ 0 $ 121
- - - - ----------------------------------------------------------------------------------------------------------------------------------
Common dividends paid ($0.48 per share) - - (5,834) - -
Issuance of 294,324 shares under stock
option plans 294 4.333 - - -
Purchase of 429,692 common shares (430) (13,073) - - -
Foreign currency translation adjustment - - - - (678)
Tax benefits related to employee stock
option transactions - 1,490 - - -
Other - - 164 - -
Net earnings - - 36,409 - -
- - - - ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT OCTOBER 31, 1996 $12,032 $ 28,462 $173,630 $ 0 $(557)
- - - - ----------------------------------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------------------------------
Under the terms of a Rights Agreement established June 14, 1988 each share of
the company's common stock entitles its holder to one preferred share purchase
right. Each right entitles the registered holder to purchase from the company
one one-hundredth of a share of Series B Junior Participating Voting Preferred
Stock, $1.00 par value at a price of $85 per one one-hundredth of a Preferred
Share. The rights become exercisable and tradable 10 days after a person or a
group acquires 20% or more, or makes an offer to acquire 20% or more, of the
company's outstanding common stock. At no time do the rights have any voting
power. The rights may be redeemed by the company for $0.01 per right at any time
prior to the time that a person or group has acquired beneficial ownership of
20% or more of the common shares.
38
6 STOCK OPTION PLANS
- - - - --------------------------------------------------------------------------------
Incentive stock options and nonqualified options may be granted under the terms
of the stockholder approved 1989 Stock Option Plan and the 1993 Stock Option
Plan (the "Plans"). Each incentive stock option and nonqualified stock option is
granted at an exercise price equal to 100% of the fair market value of the
Common Stock on the date of the grant, except for performance based stock
options, such as those granted in connection with the Continuous Performance
Award Plan for which the exercise price is an average of the closing stock
prices for the three months preceding the grant date. Stock options granted
under the Plans may be exercised in whole or in part from time to time, not
later than 10 years from the date of grant or other period, as specified in the
option agreement. Most stock options are subject to cancellation upon
termination of the option holder's employment. However, some nonqualified
options granted under the Plans can be exercised for up to four years after
retirement, at or after age 60, but not beyond the date the option originally
expires. Only nonqualified stock options may be granted under the terms of the
1992 Directors Stock Plan (the "Director Plan"). The Director Plan is a formula
plan. Each option granted under the Director Plan is granted at an exercise
price equal to 100% of the fair market value of the Common Stock on the date of
the grant. Stock options granted under the Director Plan may be exercised only
while serving as a member of the Board of Directors of the company, except in
the event of death or disability. Stock option transactions are summarized as
follows:
- - - - -----------------------------------------------------------------------------------------------------------------------------
- - - - -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED 3 Months Ended Year Ended
----------------------------
OCTOBER 31 October 31 July 31 July 31
1996 1995 1995 1994
- - - - -----------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of period 1,253,311 1,166,579 1,259,509 1,421,923
Granted 48,768 256,496 323,474 264,217
Exercised or cancelled (194,221) (169,764) (416,404) (426,631)
- - - - -----------------------------------------------------------------------------------------------------------------------------
Outstanding at end of period 1,107,858 1,253,311 1,166,579 1,259,509
- - - - -----------------------------------------------------------------------------------------------------------------------------
Price range of granted options $29.125-32.50 $ 29.00 $ 23.625-29.50 $ 18.75-25.50
- - - - -----------------------------------------------------------------------------------------------------------------------------
- - - - -----------------------------------------------------------------------------------------------------------------------------
Shares reserved for granting future stock
options at end of period 1,009,868 1,040,877 621,738 923,240
- - - - -----------------------------------------------------------------------------------------------------------------------------
- - - - -----------------------------------------------------------------------------------------------------------------------------
Options exercisable at end of period 882,670 843,476 780,169 765,510
- - - - -----------------------------------------------------------------------------------------------------------------------------
- - - - -----------------------------------------------------------------------------------------------------------------------------
Price range of exercisable options $ 10.90-32.50 $10.90-29.50 $ 10.70-29.50 $10.70-25.875
- - - - -----------------------------------------------------------------------------------------------------------------------------
- - - - -----------------------------------------------------------------------------------------------------------------------------
The options outstanding at October 31, 1996 were granted in 1992 (305,000
shares); 1993 (130,195 shares); 1994 (179,068 shares); and 1995 (209,606
shares); the 3 months ended October 31, 1995 (237,721 shares) and the year ended
October 31, 1996 (46,268 shares).
39
7 EMPLOYEE BENEFIT PROGRAMS
The company has an Employee Stock Ownership Plan (ESOP) which covers
substantially all employees of the company and its subsidiaries. The plan was a
leveraged ESOP which means funds were borrowed to purchase the shares. At July
31, 1995, ESOP indebtedness to the company was paid in full and funding of the
ESOP was completed. Principal payments of ESOP debt were $2,612,000 for the year
ended July 31, 1995 and $2,611,000 for the year ended July 31, 1994. Interest
incurred on ESOP debt and interest received by the company was $258,000 for the
year ended July 31, 1995 and $512,000 for the year ended July 31, 1994.
Dividends on the ESOP shares used for debt service by the ESOP were $107,000 for
the year ended July 31, 1995 and $195,000 for the year ended July 31, 1994.
The expenses recognized related to the ESOP were $2,504,000 for the year ended
July 31, 1995 and $2,417,000 for the year ended July 31, 1994. There were no
principal payments of ESOP debt, interest incurred or received, dividends or
expenses related to the ESOP for the year ended October 31, 1996 or the 3 months
ended October 31, 1995.
On August 1, 1995, the ESOP plan year end was changed to December 31. The
company's contributions to the plan, net of dividends, were $639,000 for the
year ended October 31, 1996, zero for the 3 months ended October 31, 1995,
$2,762,000 for the year ended July 31, 1995 and $2,929,000 for the year ended
July 31, 1994.
Effective August 1, 1995, the company adopted a new employee benefit
program which replaces the ESOP, profit sharing, and matching stock plans. The
current ESOP was replaced with a new Employee Stock Ownership Plan. The employee
profit sharing plans and the matching stock plan were merged into the Toro
Company Investment and Savings Plan which has a plan year end of December 31.
Under this plan, eligible employees receive a pre-established percentage of
their salary. Contributions to this plan for the year ended October 31, 1996
were $2,539,000. In addition, this plan includes a 401(k) which provides for
company matching contributions of up to two percent of salary. Matching
contributions to the Toro 401(k) Employee Savings and Toro Matching Plan for the
year ended October 31, 1996 were $1,679,000.
Contributions to the company's former employee profit sharing plans which
covered substantially all employees of the company and its subsidiaries were
made annually, immediately following the fiscal year end. The contribution made
in the 3 months ended October 31, 1995, which pertained to the year ended July
31, 1995, was $3,833,000. For the years ended July 31, 1995 and 1994 the
contributions paid totaled $4,100,000 and $4,150,000, respectively, and
pertained to the preceding fiscal years. Such amounts are based upon annual
earnings before income taxes and minimum contributions required under the plans.
Under the company's former matching stock plan, shares of common stock were
acquired by employees through payroll deductions and employer matching
contributions pursuant to the plan. Contributions were $660,000 for the year
ended July 31, 1995 and $485,000 for the year ended July 31, 1994.
In addition, the company and its subsidiaries have supplemental and other
retirement plans covering certain employees. Pension expense under these plans
in 1996, 1995 and 1994 was not significant.
40
8 SEGMENT DATA
- - - - --------------------------------------------------------------------------------
The company classifies its operations into one industry segment, outdoor
maintenance equipment. International sales were $174,249,000 for the year
ended October 31, 1996, $20,935,000 for the 3 months ended October 31, 1995,
$152,409,000 for the year ended July 31, 1995 and $130,053,000 for the year
ended July 31, 1994. Of these amounts, export sales were $154,716,000 for the
year ended October 31, 1996, $18,557,000 for the 3 months ended October 31,
1995, $126,560,000 for the year ended July 31, 1995 and $109,344,000 for the
year ended July 31, 1994. Export sales by geographic area are as follows:
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Year Ended 3 Months Ended Year Ended
--------------------
October 31 October 31 July 31 July 31
(Dollars in thousands) 1996 1995 1995 1994
- - - - --------------------------------------------------------------------------------
Europe $ 80,986 $ 6,098 $ 60,239 $ 48,976
Canada 26,322 4,848 31,921 28,039
Pacific Rim 42,976 6,955 28,979 27,535
Other 4,432 656 5,421 4,794
- - - - --------------------------------------------------------------------------------
Total export sales $154,716 $18,557 $126,560 $109,344
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Sales to any particular customer were not significant.
9 LEASE COMMITMENTS
- - - - --------------------------------------------------------------------------------
Minimum lease commitments in future years under noncancelable operating
leases are as follows: 1997, $6,333,000; 1998, $4,147,000; 1999, $2,782,000;
2000, $1,916,000; 2001, $1,457,000; and after 2001, $1,687,000.
Total lease expense was as follows:
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
YEAR ENDED 3 Months Ended Year Ended
---------------------
OCTOBER 31 October 31 July 31 July 31
(Dollars in thousands) 1996 1995 1995 1994
- - - - --------------------------------------------------------------------------------
Warehouse and office space $3,291 $ 905 $3,360 $2,198
Trucks and autos 2,191 374 1,890 2,039
Equipment 3,933 924 3,721 3,044
- - - - --------------------------------------------------------------------------------
Total $9,415 $2,203 $8,971 $7,281
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
10 COMMITMENTS AND CONTINGENT LIABILITIES
The company was contingently liable to repurchase $10,578,000 at October 31,
1996 and $10,442,000 at October 31, 1995, of inventory relating to
receivables under dealer financing arrangements. Additionally, debts incurred
by certain distributors, aggregating $1,008,000 at October 31, 1996, and
$1,176,000 at October 31, 1995, have been guaranteed by the company.
In the ordinary course of business, the company may become liable with
respect to pending and threatened litigation, taxes, environmental, and other
matters. While the ultimate results of investigations, lawsuits, and claims
involving the company cannot be determined, management does not expect that
these matters will have a material adverse effect on the consolidated
financial position of the company.
41
11 FINANCIAL INSTRUMENTS
OFF-BALANCE SHEET RISK
Letters of credit are issued by the company during the ordinary course of
business, as required by certain vendor contracts, through major domestic
banks. As of October 31, 1996, and 1995, the company had $19,705,000 and
$14,735,000, respectively, in outstanding letters of credit.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the company to concentrations
of credit risk consist principally of accounts receivable which are
concentrated in a single business segment, outdoor maintenance equipment. The
credit risk associated with this segment is limited because of the large
number of customers in the company's customer base and their geographic
dispersion.
FOREIGN CURRENCY INVESTMENTS
A portion of the company's cash flow is derived from sales and purchases
denominated in foreign currencies. To reduce the uncertainty of foreign
currency exchange rate movements on these sales and purchase commitments, the
company enters into forward exchange and range forward option contracts.
These contracts are designed to hedge firm anticipated foreign currency
transactions.
At October 31, 1996, the company had contracts maturing at various dates
to purchase $1,196,000 in foreign currencies and to sell $29,198,000 in
foreign currencies at the contract rates. In addition, the company had range
forward options of $1,343,000 at October 31, 1996.
Changes in the market value of the foreign currency instruments are
recognized in the financial statements upon settlement of the hedged
transaction.
FAIR VALUE
The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of FAS Statement 107,
"Disclosures about Fair Value of Financial Instruments." Estimated fair value
amounts have been determined using available information and appropriate
valuation methodologies. Because considerable judgement is required in
developing the estimates of fair value, these estimates are not necessarily
indicative of the amounts that could be realized in a current market exchange.
The carrying and estimated fair values of the company's financial
instruments at October 31, 1996, are as follows:
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Carrying Estimated Fair
(Dollars in millions) Value Value
- - - - --------------------------------------------------------------------------------
Long-term debt $53,365 $62,887
Deferred income (interest rate exchange agreements) 17,992 22,969
- - - - --------------------------------------------------------------------------------
For cash and cash equivalents, receivables, and accounts payable,
carrying value is a reasonable estimate of fair value.
For long-term debt with fixed interest rates, fair value is estimated by
discounting the projected cash flows using the rate at which similar amounts
could currently be borrowed.
The estimated fair value of the 11% sinking fund debentures represents
the amount the company would pay to redeem the notes based on the terms of
the debenture.
The estimated fair value of the deferred income represents the cost to
terminate the interest rate exchange agreements, had management elected to do
so, which would have resulted in a loss of approximately $4,977,000.
42
12 CONSOLIDATED FINANCE SUBSIDIARY - TORO CREDIT COMPANY
Toro Credit Company is a consolidated finance subsidiary of the company and
operates primarily in the finance industry with wholesale financing of
distributor and dealer inventories under various financing arrangements and
other programs.
- - - - ------------------------------------------------------------------------------------
- - - - ------------------------------------------------------------------------------------
YEAR ENDED 3 Months Ended Year Ended
--------------------
OCTOBER 31 October 31 July 31 July 31
(Dollars in thousands) 1996 1995 1995 1994
- - - - ------------------------------------------------------------------------------------
Summary of Earnings
Finance revenues $23,507 $4,641 $21,259 $17,436
Expenses:
Operating 3,371 827 3,428 2,068
Interest 6,248 737 4,902 4,737
Foreign currency exchange
net (gains) losses (10) (18) (37) 96
- - - - ------------------------------------------------------------------------------------
Total expenses 9,609 1,546 8,293 6,901
Earnings before income taxes 13,898 3,095 12,966 10,535
Provision for income taxes 5,230 1,111 4,744 3,669
- - - - ------------------------------------------------------------------------------------
Net earnings $ 8,668 $1,984 $ 8,222 $ 6,866
- - - - ------------------------------------------------------------------------------------
YEAR ENDED Year Ended
OCTOBER 31 October 31
(Dollars in thousands) 1996 1995
- - - - ----------------------------------------------------------------------------
Summary Balance Sheets
Assets
Cash and cash equivalents $ 1,053 $ 1,469
Receivables-net 147,582 131,510
Other receivables and assets 1,766 1,858
- - - - ----------------------------------------------------------------------------
Total assets $150,401 $134,837
- - - - ----------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current portion of long-term debt $ - $ 15,000
Other liabilities 78,817 56,921
Long-term debt, less current portion - -
Shareholders' equity 71,584 62,916
- - - - ----------------------------------------------------------------------------
Total liabilities and
shareholders' equity $150,401 $134,837
- - - - ----------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------
Of the finance revenues presented above, $19,306,000 for the year ended
October 31, 1996, $3,642,000 for the 3 months ended October 31, 1995,
$17,114,000 for the year ended July 31, 1995 and $13,272,000 for the year
ended July 31, 1994, represent transactions with the parent company, The Toro
Company, which are eliminated in consolidation. The remaining finance
revenues of $4,201,000 for the year ended October 31, 1996, $999,000 for the
3 months ended October 31, 1995, $4,145,000 for the year ended July 31, 1995
and $4,164,000 for the year ended July 31, 1994 are included in other income,
in The Toro Company's Consolidated Statements of Earnings. The expenses and
balance sheet items (net of eliminations) are included in the Consolidated
Statements of Earnings and Consolidated Balance Sheets under the
corresponding classifications.
43
13 QUARTERLY FINANCIAL DATA (UNAUDITED)
- - - - --------------------------------------------------------------------------------
Summarized quarterly financial data for 1996 and 1995 is as follows:
- - - - ----------------------------------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------------------------------
3 Months Ended FISCAL YEAR ENDED OCTOBER 31, 1996
(Dollars in thousands except ---------------------------------------------------------------------------
per share data) October 31, 1995 FIRST SECOND THIRD FOURTH
- - - - ----------------------------------------------------------------------------------------------------------------------------------
Net sales $192,278 $211,501 $288,646 $232,565 $198,197
Gross profit 71,703 76,329 103,810 85,884 75,700
Net earnings 3,997 8,498 16,820 6,465 4,626
Net earnings per share of common stock
and common stock equivalent 0.32 0.67 1.33 0.52 0.37
Dividends per common share 0.12 0.12 0.12 0.12 0.12
Market price of common stock
High bid 32 1/4 36 1/4 35 1/4 34 5/8 34 1/8
Low bid 28 1/8 28 3/8 30 5/8 30 30 1/4
- - - - ----------------------------------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended July 31, 1995
---------------------------------------------------------------------------
Quarter First Second Third Fourth
- - - - ----------------------------------------------------------------------------------------------------------------------------------
Net sales $205,704 $213,950 $310,613 $202,586
Gross profit 76,065 76,068 107,342 75,103
Net earnings 8,302 6,799 17,539 4,027
Net earnings per share of common stock
and common stock equivalent 0.64 0.51 1.32 0.32
Dividends per common share 0.12 0.12 0.12 0.12
Market price of common stock
High bid 29 7/8 29 3/8 30 3/8 29 7/8
Low bid 21 5/8 26 27 1/2 25 5/8
- - - - ----------------------------------------------------------------------------------------------------------------------------------
14 Subsequent Event
On December 3, 1996, the company acquired James Hardie Irrigation Group (JHI)
from James Hardie Limited of Australia. The purchase price of approximately
$119.0 million is subject to adjustment, based on changes in working capital
and closing balance sheet audit adjustments, and has been initially financed
with temporary bank debt. The acquisition is being accounted for as a
purchase. JHI is headquartered in Laguna Niguel, California and has
production facilities in Texas, California, Florida, and Australia. It is a
worldwide leader in the production of irrigation systems to the commercial
landscape market. For its latest fiscal year ended March 31, 1996, JHI had
unaudited net sales of approximately $140.4 million and unaudited operating
income of approximately $3.7 million.
The Toro Company
44