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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended FEBRUARY 3, 1995 Commission File Number 1-8649
THE TORO COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 41-0580470
(State of Incorporation) (I.R.S. Employer Identification Number)
8111 LYNDALE AVENUE SOUTH
BLOOMINGTON, MINNESOTA 55420
TELEPHONE NUMBER: (612) 888-8801
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
The number of shares of Common Stock outstanding as of February 3, 1995 was
12,770,584.
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THE TORO COMPANY
INDEX TO FORM 10-Q
PAGE NUMBER
PART I. FINANCIAL INFORMATION:
Condensed Consolidated Statements of Operations and
Retained Earnings -
Three and Six Months Ended
February 3, 1995 and January 28, 1994 . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets
February 3, 1995, January 28, 1994 and July 31, 1994, . . . 4
Consolidated Statements of Cash Flows -
Six Months Ended February 3, 1995 and January 28, 1994. . . 5
Notes to Condensed Consolidated Financial Statements . . . . . 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 7-8
PART II. OTHER INFORMATION:
Item 4 Results of Votes of Security Holders . . . . . . . . . 9
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . 9
Exhibit 11 Computation of Earnings Per Common Share. . . .10
-2-
PART I. FINANCIAL INFORMATION
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
Three Months Ended Six Months Ended
---------------------------- ----------------------------
February 3, January 28, February 3, January 28,
1995 1994 1995 1994
------------- ------------ ------------ ------------
Net sales. . . . . . . . . . . . . . . . . . . . . . $ 213,950 $ 189,413 $ 419,654 $ 325,174
Cost of sales. . . . . . . . . . . . . . . . . . . . 137,882 122,826 267,521 209,552
------------- ------------ ------------ ------------
Gross profit. . . . . . . . . . . . . . . . . . 76,068 66,587 152,133 115,622
Selling, general and administrative
expense . . . . . . . . . . . . . . . . . . . . 63,994 56,805 126,295 108,801
------------- ------------ ------------ ------------
Earnings from operations. . . . . . . . . . . . 12,074 9,782 25,838 6,821
Interest expense . . . . . . . . . . . . . . . . . . 2,595 3,210 5,075 6,548
Other income, net. . . . . . . . . . . . . . . . . . (1,852) (889) (4,405) (4,030)
------------- ------------ ------------ ------------
Earnings before income taxes. . . . . . . . . . 11,331 7,461 25,168 4,303
Provision for income taxes . . . . . . . . . . . . . 4,532 2,984 10,067 1,721
------------- ------------ ------------ ------------
Net earnings. . . . . . . . . . . . . . . . . . $ 6,799 $ 4,477 $ 15,101 $ 2,582
============= ============ ============ ============
Retained earnings at beginning of period . . . . . . 116,482 90,078 109,688 93,451
Dividends on common stock of $0.12, $0.12,
$0.24 and $0.24 per share, respectively . . . . (1,530) (1,492) (3,038) (2,970)
------------- ------------ ------------ ------------
Retained earnings at end of period . . . . . . . . . $ 121,751 $ 93,063 $ 121,751 $ 93,063
============= ============ ============ ============
Net earnings per share of common stock and
common stock equivalent . . . . . . . . . . . . $ 0.51 $ 0.35 $ 1.15 $ 0.20
============= ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
-3-
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
February 3, January 28, July 31,
1995 1994 1994
-------------- -------------- --------------
ASSETS
- ------
Cash and cash equivalents. . . . . . . . . . . . . . . . $ 9,198 $ 9,141 $ 36,231
Receivables (net). . . . . . . . . . . . . . . . . . . . 221,924 215,663 183,683
Inventories. . . . . . . . . . . . . . . . . . . . . . . 165,053 128,477 118,764
Prepaid expenses . . . . . . . . . . . . . . . . . . . . 31,216 24,014 25,817
------------- ------------- --------------
Total current assets. . . . . . . . . . . . . . . . 427,391 377,295 364,495
------------- ------------- --------------
Property, plant and equipment. . . . . . . . . . . . . . 196,816 177,339 185,478
Less accumulated depreciation and amortization. . . 133,752 120,643 126,635
------------- ------------- --------------
$63,064 $56,696 $58,843
Other assets . . . . . . . . . . . . . . . . . . . . . . 19,150 17,941 20,301
------------- ------------- --------------
Total assets. . . . . . . . . . . . . . . . . . . . $ 509,605 $ 451,932 $ 443,639
============= ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current portion of long-term debt. . . . . . . . . . . . $ 16,055 $ 35,645 $ 20,300
Short-term debt. . . . . . . . . . . . . . . . . . . . . 55,854 25,361 -
Accounts payable . . . . . . . . . . . . . . . . . . . . 41,957 36,066 37,035
Other accrued liabilities. . . . . . . . . . . . . . . . 140,147 119,883 131,377
------------- ------------- --------------
Total current liabilities . . . . . . . . . . . . . 254,013 216,955 188,712
------------- ------------- --------------
Deferred income taxes. . . . . . . . . . . . . . . . . . - 758 -
Long-term debt, less current portion . . . . . . . . . . 65,384 87,325 81,025
Deferred income. . . . . . . . . . . . . . . . . . . . . 5,250 - 5,250
Common stockholders' equity:
Common stock par value $1.00,
authorized 35,000,000 shares; issued and
outstanding 12,770,584 shares at February 3,
1995 (net of 4,467 treasury shares),
12,466,881 shares at January 28, 1994
(net of 110,992 treasury shares), and
12,561,204 shares at July 31, 1994 (net
of 76,153 treasury shares). . . . . . . . . . . . . 12,771 12,467 12,561
Additional paid-in capital. . . . . . . . . . . . . . 53,063 47,374 49,420
Retained earnings . . . . . . . . . . . . . . . . . . 121,751 93,063 109,688
Foreign currency translation adjustment . . . . . . . (15) (787) (405)
------------- ------------- --------------
187,570 152,117 171,264
Receivable from ESOP. . . . . . . . . . . . . . . . . (2,612) (5,223) (2,612)
------------- ------------- --------------
Total common stockholders' equity . . . . . . . . . . 184,958 146,894 168,652
------------- ------------- --------------
Total liabilities and common stockholders' equity . $ 509,605 $ 451,932 $ 443,639
============= ============= ==============
See accompanying notes to condensed consolidated financial statements.
-4-
THE TORO COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
Six Months Ended
---------------------------------------
February 3, January 28,
1995 1994
---------------- ------------------
Cash flows from operating activities:
Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,101 $ 2,582
Adjustments to reconcile net earnings to net cash
used in operating activities:
Provision for depreciation and amortization . . . . . . . . . . . 8,400 8,543
Loss on disposal of property, plant and equipment . . . . . . . . (127) -
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . (297) (614)
Changes in operating assets and liabilities:
Receivables (net) . . . . . . . . . . . . . . . . . . . (44,168) (41,890)
Inventories . . . . . . . . . . . . . . . . . . . . . . (46,289) (49,769)
Prepaid expenses. . . . . . . . . . . . . . . . . . . . (5,399) (748)
Accounts payable and accrued expenses . . . . . . . . . 18,813 21,074
Accrued income taxes. . . . . . . . . . . . . . . . . . (5,121) (385)
--------------- ------------------
Net cash used in operating activities. . . . . . . (59,087) (61,207)
--------------- ------------------
Cash flows from investing activities:
Purchases of property, plant and equipment. . . . . . . . . . . . (12,115) (4,174)
Proceeds from asset disposals . . . . . . . . . . . . . . . . . . 269 15
(Increase) decrease in other assets . . . . . . . . . . . . . . . 800 (3,948)
--------------- ------------------
Net cash used in investing activities. . . . . . . (11,046) (8,107)
--------------- ------------------
Cash flows from financing activities:
Increase in short-term debt . . . . . . . . . . . . . . . . . . . 55,854 25,361
Increase in sale of receivables . . . . . . . . . . . . . . . . . 5,927 6,590
Repayments of long-term debt. . . . . . . . . . . . . . . . . . . (19,886) (15,000)
Proceeds from sale of common stock. . . . . . . . . . . . . . . . 5,134 3,587
Purchases of common stock . . . . . . . . . . . . . . . . . . . . (1,281) (914)
Dividends on common stock . . . . . . . . . . . . . . . . . . . . (3,038) (2,970)
--------------- ------------------
Net cash provided by financing activities. . . . . 42,710 16,654
--------------- ------------------
Foreign currency translation adjustment. . . . . . . . . . . . . . . . 390 8
--------------- ------------------
Net decrease in cash and cash equivalents. . . . . . . . . . . . . . . (27,033) (52,652)
Cash and cash equivalents at beginning of period . . . . . . . . . . . 36,231 61,793
--------------- ------------------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . $ 9,198 $ 9,141
=============== ==================
See accompanying notes to condensed consolidated financial statements.
-5-
THE TORO COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FEBRUARY 3, 1995
1. BACKGROUND
The information furnished reflects all adjustments which, in the opinion of
management, are necessary for a fair presentation of the interim periods.
The Toro Company's business is seasonal. Operating results for the three
months and six months ended February 3, 1995 are not necessarily indicative
of the results that may be expected for the year ending July 31, 1995.
These statements should be read in conjunction with the financial
statements and footnotes included in the Company's Annual Report for the
year ended July 31, 1994. The policies described in that report are used
in preparing quarterly reports.
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Total assets for the Company as of February 3, 1995 were $509.6 million, an
increase of $57.7 million, or 12.8%, from the $451.9 million reported at the end
of the second quarter last year. The increase resulted primarily from increases
in inventory and trade receivables. Inventory increased as a result of
increased production of riding products to meet anticipated demand and a
reduction in walk power mower shipments in response to excess retail inventory
levels. In addition, a joint venture with a distributor and the acquisition of
recycling equipment products that were added subsequent to the second quarter of
1994 resulted in new inventories on hand in the current year which were not on
hand in the prior year. The increase in trade receivables reflected an increase
in dealer receivables financed by the Company as well as an overall increase in
sales volume.
Total debt as of February 3, 1995 was $137.3 million, or $11.0 million less than
the $148.3 million reported at the end of the second quarter last year. The
ratio of total debt to total debt plus equity of 42.6% has improved from the
50.2% reported as of January 28, 1994. The lower debt ratio resulted from the
reduced debt levels combined with an increase in equity as a result of earnings
in the past two years.
The Company's business is seasonal. Historically, accounts receivable balances
increase throughout the winter months as a result of extended payment terms made
available to customers and decrease in the late spring when payments become due.
Peak borrowing usually occurs in the third quarter. The seasonal working
capital requirements of the business are financed primarily with short-term
debt. Management believes that the combination of funds available through
existing financing options, coupled with forecasted cash flows, will provide the
capital resources necessary to meet the Company's working capital requirements.
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth sales by product line:
Three Months Ended
--------------------------------------------------------
(Dollars in thousands) February 3, January 28,
1995 1994 $ Change % Change
----------- ----------- ---------- -----------
Consumer products. . . . . . . . . . $ 111,979 $ 97,250 $ 14,729 15.1%
Commercial products. . . . . . . . . 73,842 66,472 7,370 11.1
Irrigation products. . . . . . . . . 28,129 25,691 2,438 9.5
---------- ---------- ----------
Total *. . . . . . . . . . . . . $ 213,950 $ 189,413 $ 24,537 13.0%
---------- ---------- ----------
---------- ---------- ----------
* Includes International sales of: . $ 34,782 $ 30,529 $ 4,253 13.9%
Six Months Ended
--------------------------------------------------------
(Dollars in thousands) February 3, January 28,
1995 1994 $ Change % Change
---------- ----------- --------- ---------
Consumer products. . . . . . . . . . $ 238,735 $ 172,290 $ 66,445 38.6%
Commercial products. . . . . . . . . 122,498 107,375 15,123 14.1
Irrigation products. . . . . . . . . 58,421 45,509 12,912 28.4
---------- ---------- ---------
Total *. . . . . . . . . . . . . $ 419,654 $ 325,174 $ 94,480 29.1%
---------- ---------- ---------
---------- ---------- ---------
* Includes International sales of: . $ 58,522 $ 43,627 $ 14,895 34.1%
-7-
Changes in net sales for the second quarter and year to date were attributed to
the following factors. Consumer product sales reflected exceptional sales of
snow removal equipment as well as increased demand and improved availability of
riding products. Walk power mower sales declined as a result of reduced
shipments in response to excess retail inventory . The increase in commercial
product sales reflected continued strength in the golf and tax-supported markets
as well as the addition of recycling equipment products in 1995. Irrigation
product sales reflected continued growth in the golf market as well as the
positive impact of a distribution change implemented by the Company in the prior
year. International product sales increased because of rebounding economies in
Europe and the Pacific Rim which resulted in increased golf course irrigation
equipment sales as well as increased sales of riding products. In addition, the
change to dealer direct distribution in Canada resulted in increased sales of
walk power mowers.
Gross profit of $76.1 million was $9.5 million (14.3%) higher than the $66.6
million reported for the second quarter of 1994. As a percent of sales, gross
profit increased to 35.6% for the second quarter of 1995 compared to 35.2% for
the second quarter last year. Year to date gross profit was $152.1 million,
$36.5 million (31.6%) higher than the $115.6 million reported last year. The
dollar increase was attributed to increased sales volume and a favorable product
mix which was offset partially by an increase in the cost of certain raw
materials such as aluminum ingot and raw steel.
Selling, general and administrative (S G & A) expenses increased $7.2 million,
or 12.7%, to $64.0 million from the $56.8 million for the second quarter last
year. Year to date S G & A of $126.3 million increased $17.5 million from the
$108.8 million reported a year ago. As a percent of sales, year to date S G & A
decreased to 30.1% compared to 33.5% for the prior year. The dollar increases
occurred principally as a result of increased marketing expenditures, increased
research and development and increased administrative expense for distribution
enhancement and support, information system advancements, various employee
incentive programs as well as the addition of a joint venture with a
distributor.
Interest expense of $2.6 million for the quarter was $0.6 million, or 18.8%,
less than the $3.2 million the same period last year. Year to date interest
expense decreased $1.4 million to $5.1 million from the $6.5 million reported a
year ago. These decreases were principally because of the reduction in long-
term debt.
Other income, net increased $1.0 million to $1.9 million from $0.9 million from
the second quarter last year. The increase resulted primarily from increased
finance revenues from the Company's wholly-owned finance subsidiary which
implemented a new dealer financing business initiative during the year. This
was offset slightly by foreign currency exchange losses. Year to date other
income, net of $4.4 million was $0.4 million higher than the $4.0 million
reported a year ago. 1994 other income, net included a one-time lawsuit
settlement of $1.85 million related to the purchase of Lawn-Boy. Excluding the
effect of the $1.85 million lawsuit settlement, 1995 other income, net would
have increased $2.3 million because of increased finance revenue, foreign
currency exchange gains and gains resulting from joint venture activity.
-8-
PART II. OTHER INFORMATION
Item 4 Results of Votes of Security Holders
The Annual Meeting of Stockholders was held on December 15, 1994 involving
election of directors, adoption of the CEO Succession Incentive Plan and the
appointment of auditors.
The results of the stockholder votes were as follows: on the election of
directors, 10,318,065 were voted for election and some of the proxies were
cast against the two directors, but not more than 3.7% of the shares
represented in person or by proxy at the meeting; on the CEO Succession
Incentive Plan 7,440,358 shares were voted for, 3,001,434 shares were voted
against and 186,542 shares abstained; and on the appointment of the
independent auditors 10,463,399 shares were voted for, 75,240 shares were
voted against and 89,695 shares abstained.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit 11 Computation of Earnings per Common Share
(b) Reports on Form 8-K
The Company did not file any Form 8-K reports during the second quarter
of 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TORO COMPANY
(Registrant)
By /s/ Gerald T. Knight
--------------------
Gerald T. Knight
Vice President, Finance
Chief Financial Officer
(principal financial officer)
Date: March 17, 1995
-9-
Exhibit 11
THE TORO COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
Three Months Ended Six Months Ended
----------------------------- ----------------------------
February 3, January 28, February 3, January 28,
1995 1994 1995 1994
---------- ----------- ----------- -----------
Net earnings . . . . . . . . . . . . $ 6,799 $ 4,477 $ 15,101 $ 2,582
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Primary:
Shares of common stock and
common stock equivalents:
Weighted average
number of common
shares outstanding . . . . . 12,748,891 12,414,115 12,670,796 12,368,710
Dilutive effect of outstanding
stock options (1). . . . . . 505,812 551,840 481,057 539,633
---------- ---------- ---------- ----------
13,254,703 12,965,955 13,151,853 12,908,343
---------- ---------- ---------- ----------
Net earnings per share of
common stock and common
stock equivalent . . . . . . $ 0.51 $ 0.35 $ 1.15 $ 0.20
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fully Diluted:
Shares of common stock and common
stock equivalents:
Weighted average number
of common shares
outstanding . . . . . . . . 12,748,891 12,414,115 12,670,796 12,368,710
Dilutive effect of outstanding
stock options (2) . . . . . 519,207 565,762 542,683 585,798
---------- ---------- ---------- ----------
13,268,098 12,979,877 13,213,479 12,954,508
---------- ---------- ---------- ----------
Net earnings per share of
common stock and common
stock equivalent . . . . . $ 0.51 $ 0.35 $ 1.14 $ 0.20
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
1) Outstanding stock options and options exercised in the current period are
converted to common stock equivalents by the treasury stock method using the
average market price of the company's stock during each period.
2) Outstanding stock options and options exercised in the current period are
converted to common stock equivalents by the treasury stock method using the
greater of the average market price or the period-end market price of the
company's stock during each period.
-10-
5
1,000
6-MOS
JUL-31-1994
AUG-01-1994
FEB-03-1995
9,198
0
221,924
0
165,053
427,391
196,816
133,752
509,605
254,013
81,439
12,771
0
0
172,187
509,605
419,654
419,654
267,521
126,295
(4,405)
0
5,075
25,168
10,067
15,101
0
0
0
15,101
1.15
1.14
Total net receivables
Not included in quarterly financial information
Total debt
Does not include additional paid-in-capital
Other income, net
