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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended
OR
[X] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from August 1, 1995 to October 31, 1995
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Commission File Number 1-8649
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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)
Former fiscal year ended July 31, 1995
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 October 31, 1995 was
12,167,835.
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THE TORO COMPANY
INDEX TO FORM 10-Q
Page Number
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PART I. FINANCIAL INFORMATION:
Condensed Consolidated Statements of Earnings and
Retained Earnings (Unaudited) -
Three Months Ended October 31, 1995 and October 28, 1994 . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets -
October 31, 1995, October 28, 1994 and July 31, 1995 . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended October 31, 1995 and October 28, 1994 . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements (Unaudited) . . . . . . . . 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . . 7-8
PART II. OTHER INFORMATION:
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 EARNINGS AND RETAINED EARNINGS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
-------------------------------
October 31, October 28,
1995 1994
-------------- ------------
Net sales. . . . . . . . . . . . . . . . . . . . . . .$ 192,278 $ 205,704
Cost of sales. . . . . . . . . . . . . . . . . . . . . 120,575 129,639
-------------- ------------
Gross profit . . . . . . . . . . . . . . . . . . . 71,703 76,065
Selling, general and administrative expense. . . . . . 65,048 62,677
-------------- ------------
Earnings from operations . . . . . . . . . . . . . 6,655 13,388
Interest expense . . . . . . . . . . . . . . . . . . . 2,532 2,480
Other income, net. . . . . . . . . . . . . . . . . . . (2,483) (2,929)
-------------- ------------
Earnings before income taxes . . . . . . . . . . . 6,606 13,837
Provision for income taxes . . . . . . . . . . . . . . 2,609 5,535
-------------- ------------
Net earnings . . . . . . . . . . . . . . . . . . .$ 3,997 $ 8,302
Retained earnings at beginning of period . . . . . . . 140,353 109,688
Dividends on common stock of $0.12 per share . . . . . (1,459) (1,508)
-------------- ------------
Retained earnings at end of period . . . . . . . . . .$ 142,891 $ 116,482
-------------- ------------
-------------- ------------
Net earnings per share of common stock and
common stock equivalent. . . . . . . . . . . . . .$ 0.32 $ 0.64
-------------- ------------
-------------- ------------
See accompanying notes to condensed consolidated financial statements.
-3-
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited) (Unaudited)
----------- -----------
October 31, October 28, July 31,
1995 1994 1995
------------ ------------- -------------
ASSETS
- ------
Cash and cash equivalents. . . . . . . . . . . . . . . . . . $ 7,702 $ 12,402 $ 11,924
Receivables (net). . . . . . . . . . . . . . . . . . . . . . 198,816 199,910 210,125
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . 145,862 132,854 123,720
Other current assets . . . . . . . . . . . . . . . . . . . . 33,879 28,219 35,841
------------ ------------- -------------
Total current assets . . . . . . . . . . . . . . . . . 386,259 373,385 381,610
------------ ------------- -------------
Property, plant and equipment. . . . . . . . . . . . . . . . 211,681 189,672 208,621
Less accumulated depreciation and amortization . . . . 141,726 129,735 138,550
------------- ------------- -------------
69,955 59,937 70,071
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 16,439 18,243 16,634
------------- ------------- -------------
Total assets . . . . . . . . . . . . . . . . . . . . .$ 472,653 $ 451,565 $ 468,315
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current portion of long-term debt. . . . . . . . . . . . . .$ 15,334 $ 21,055 $ 16,090
Short-term borrowing . . . . . . . . . . . . . . . . . . . . 41,575 - 22,535
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 51,052 37,473 41,072
Other accrued liabilities. . . . . . . . . . . . . . . . . . 113,212 138,659 132,962
------------- ------------- -------------
Total current liabilities. . . . . . . . . . . . . . . 221,173 197,187 212,659
------------- ------------- -------------
Long-term debt, less current portion . . . . . . . . . . . . 53,365 70,399 64,935
Other long-term liabilities. . . . . . . . . . . . . . . . . 7,223 5,250 5,250
Common stockholders' equity:
Common stock par value $1.00,
authorized 35,000,000 shares; issued and
outstanding 12,167,835 shares at October
31, 1995 (net of 674,490 treasury shares),
12,720,343 shares at October 28,
1994 (net of 2,975 treasury shares),
and 12,039,776 shares at July 31, 1995
(net of 802,549 treasury shares) . . . . . . . . . . . 12,168 12,720 12,040
Additional paid-in capital. . . . . . . . . . . . . . . . 35,712 52,374 33,145
Retained earnings . . . . . . . . . . . . . . . . . . . . 142,891 116,482 140,353
Foreign currency translation adjustment . . . . . . . . . 121 (235) (67)
------------- ------------- -------------
190,892 181,341 185,471
Receivable from ESOP. . . . . . . . . . . . . . . . . . . - (2,612) -
------------- ------------- -------------
Total common stockholders' equity . . . . . . . . . . . . 190,892 178,729 185,471
------------- ------------- -------------
Total liabilities and common stockholders' equity. . .$ 472,653 $ 451,565 $ 468,315
------------- ------------- -------------
------------- ------------- -------------
See accompanying notes to condensed consolidated financial statements.
-4-
THE TORO COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
Three Months Ended
--------------------------
October 31, October 28,
1995 1994
----------- -----------
Cash flows from operating activities:
Net earnings. . . . . . . . . . . . . . . . . . . . $ 3,997 $ 8,302
Adjustments to reconcile net earnings to net cash
used in operating activities:
Provision for depreciation and amortization. . . . 3,590 3,959
Gain on disposal of property, plant and equipment. (34) (21)
Deferred income taxes. . . . . . . . . . . . . . . 194 -
Changes in operating assets and liabilities:
Receivables (net). . . . . . . . . . . . . . . 13,640 (16,227)
Inventories. . . . . . . . . . . . . . . . . . (22,142) (14,090)
Other current assets . . . . . . . . . . . . . 1,962 (2,402)
Accounts payable and accrued expenses. . . . . (9,770) 8,008
Accrued income taxes . . . . . . . . . . . . . - (288)
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Net cash used in operating activities. . . (8,563) (12,759)
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Cash flows from investing activities:
Purchases of property, plant and equipment . . . . (3,302) (4,721)
Proceeds from asset disposals. . . . . . . . . . . 43 36
(Increase) decrease in other assets. . . . . . . . (180) 1,710
---------- ----------
Net cash used in investing activities. . . (3,439) (2,975)
---------- ----------
Cash flows from financing activities:
Decrease in sale of receivables. . . . . . . . . . (2,331) -
Increase in short-term borrowing . . . . . . . . . 19,040 -
Repayments of long-term debt . . . . . . . . . . . (12,326) (9,871)
Change in other long-term liabilities. . . . . . . 1,973 -
Proceeds from sale of common stock . . . . . . . . 3,586 4,203
Purchases of common stock. . . . . . . . . . . . . (891) (1,090)
Dividends on common stock. . . . . . . . . . . . . (1,459) (1,508)
---------- ----------
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . . 7,592 (8,266)
---------- ----------
Foreign currency translation adjustment . . . . . . 188 171
---------- ----------
Net decrease in cash and cash equivalents . . . . . (4,222) (23,829)
Cash and cash equivalents at beginning of period. . 11,924 36,231
---------- ----------
Cash and cash equivalents at end of period. . . . .$ 7,702 $ 12,402
----------- ----------
----------- ----------
See accompanying notes to condensed consolidated financial statements.
-5-
THE TORO COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
OCTOBER 31, 1995
BASIS OF PRESENTATION
The accompanying consolidated financial statements for the three month
transition period ended October 31, 1995 have been prepared by the company
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of the company, these consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the consolidated financial
position of the company as of October 31, 1995, and the consolidated results of
the company's operations and their cash flows for the three month transition
period ended October 31, 1995. The company's business is seasonal. Operating
results for the three month period ended October 31, 1995 are not necessarily
indicative of the results that may be expected for a full fiscal year.
The accompanying consolidated financial statements and notes should be read in
conjunction with the company's annual financial statements filed with the Annual
Report on Form 10-K. The three months ended October 31, 1995 comprise the three
month ("transition period") resulting from a recent change in the company's year
end from July 31 to October 31. On November 1, 1995 the company started a new
fiscal year and will begin reporting quarterly and annually on that basis.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
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 $24,841,000 and $19,204,000 higher than reported at
October 31, 1995, and 1994, respectively. Under the FIFO method, work-in-
process inventories were $86,285,000 and $71,958,000 and finished goods
inventories were $84,418,000 and $80,100,000 at October 31, 1995, and 1994,
respectively.
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth sales by product line.
Three Months Ended
-----------------------------------------------
OCTOBER 31, October 28,
1995 1994 $ Change % Change
----------- ----------- --------- --------
Consumer products. . . . . . . . . . . $ 105,932 $ 126,756 $ (20,824) (16.4)%
Commercial products. . . . . . . . . . 54,125 48,656 5,469 11.2
Irrigation products. . . . . . . . . . 32,221 30,292 1,929 6.4
--------- --------- ---------
Total *. . . . . . . . . . . . . . . $ 192,278 $ 205,704 $ (13,426) (6.5)
--------- --------- ---------
--------- --------- ---------
* Includes international sales of. . . $ 20,935 $ 23,740 $ (2,805) (11.8)%
Worldwide net sales for the three 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. Sales of snow removal equipment for
the quarter ended October 31, 1994 were extraordinary because of the exceptional
sales in the prior year. 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 above 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.
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 because of increased sales of commercial and irrigation
products which was offset by reduced sales of snow removal equipment.
Selling General and Administrative Expense
------------------------------------------------------------------------
OCT 31, % OF NET Oct 28, % of Net
S G & A 1995 SALES 1994 Sales
------------------------------------------------------------------------
Administrative $ 24.0 12.5 % $ 20.8 10.1%
Sales and Marketing 20.6 10.7 23.8 11.6
Warranty 6.6 3.4 5.7 2.8
Distributor/Dealer 2.1 1.1 2.0 1.0
Financing
Research and Development 6.9 3.6 6.0 2.9
Warehousing 3.2 1.7 2.9 1.4
Service/Quality 1.6 0.8 1.5 0.7
Assurance --- ----- --- ----
Total $ 65.0 33.8 % $ 62.7 30.5%
Selling, General and Administrative Expense (S G & 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 continues
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 are
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.
-7-
LIQUIDITY AND CAPITAL RESOURCES
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 the company's customers and decrease in late spring when payments
become due. The company's peak borrowing usually occurs in late winter/early
spring. The seasonal working capital requirements of the business are financed
primarily with short-term debt. Management believes that the combination of
funds available through its existing financing options, coupled with forecasted
cash flows, will provide the capital resources for its anticipated needs.
Total assets as of October 31, 1995 were $472.7 million, up $21.1 million from
October 28, 1994. The primary increases occurred in inventory and property,
plant and equipment. Inventory increased from the prior year because of an
extended manufacturing cycle and seasonal preparation for production of
commercial and irrigation products. Property, plant and equipment increased
compared with the prior year because of spending on a variety of projects such
as increased tooling and an addition to the Windom, Minnesota manufacturing
facility.
Short-term borrowing is $41.6 million at October 31, 1995, reflecting the
company's cash management strategy of utilizing short-term borrowing as a means
of reducing long-term debt instruments with higher interest rates as well as
funding for the company's working capital needs.
Equity increased $12.1 million compared with the prior year. Retained earnings
increased because of earnings growth. This was offset by a decrease in
additional paid in capital because of the purchase of the company's stock. The
company acquired $26.2 million in Toro stock in 1995 to take advantage of market
conditions. The stock will be used for a variety of company purposes.
CAPITAL STRUCTURE
[GRAPH] [GRAPH]
TOTAL DEBT TOTAL DEBT TO TOTAL CAPITAL
(IN MILLIONS) (PERCENT)
28-Oct-94 31-Oct-95 28-Oct-94 31-Oct-95
91.5 110.3 33.8 36.6
CASH FLOWS
Cash used in operating activities was primarily to support an increase in
inventory from year end and payments of accounts payable and accrued expenses.
This was offset by increased collection of account receivables.
Net cash used in investment activities was the result of spending related to
company improvement projects.
Net cash provided by financing activities was the result of proceeds from short-
term borrowing used for a variety of purposes, including reduction of long-term
debt.
-8-
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit 11 Computation of Earnings per Common Share
(b) Exhibit 27 Financial Data Schedule
Summarized financial data; electronic filing only.
(c) Reports on Form 8-K
The company filed Form 8-K on November 14, 1995. On November 2, 1995,
following receipt of approval from the Internal Revenue Service, The
Toro Company decided to change its fiscal year end from July 31 to
October 31.
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: December 15, 1995
-9-
Exhibit 11
THE TORO COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
-----------------------------
October 31, October 28,
1995 1994
-------------- -------------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,997 $ 8,302
-------------- -------------
-------------- -------------
Primary:
Shares of common stock and common
stock equivalents:
Weighted average number of common shares
outstanding . . . . . . . . . . . . . . . . . . 12,117,815 12,585,681
Dilutive effect of outstanding
stock options (1) . . . . . . . . . . . . . . . 424,225 453,494
-------------- -------------
12,542,040 13,039,175
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Net earnings per share of common stock
and common stock equivalent . . . . . . . . . . . . $ 0.32 $ 0.64
-------------- -------------
-------------- -------------
Fully Diluted:
Shares of common stock and common
stock equivalents:
Weighted average number of common shares
outstanding . . . . . . . . . . . . . . . . . . 12,117,815 12,585,681
Dilutive effect of outstanding
stock options (2) . . . . . . . . . . . . . . . 424,225 556,272
------------- -------------
12,542,040 13,141,953
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Net earnings per share of common stock
and common stock equivalent . . . . . . . . . . . . $ 0.32 $ 0.63
------------- -------------
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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
3-MOS
JUL-31-1995
AUG-01-1995
OCT-31-1995
7,702
0
198,816
0
145,862
386,259
211,681
141,726
472,653
221,173
68,699
12,168
0
0
178,724
472,653
192,278
192,278
120,575
65,048
(2,483)
0
2,532
6,606
2,609
3,997
0
0
0
3,997
0.32
0.32
TOTAL LONG-TERM DEBT
DOES NOT INCLUDE ADDITIONAL PAID-IN-CAPITAL
OTHER INCOME - NET
NOT INCLUDED IN QUARTERLY FINANCIAL INFORMATION
TOTAL NET RECEIVABLES
