- --------------------------------------------------------------------------------
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 February 2, 1996 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 March 1, 1996 was
12,290,353.
- --------------------------------------------------------------------------------
THE TORO COMPANY
INDEX TO FORM 10-Q
Page Number
-----------
PART I. FINANCIAL INFORMATION:
Condensed Consolidated Statements of Earnings and
Retained Earnings (Unaudited) -
Three Months Ended February 2, 1996 and February 3, 1995. . . 3
Condensed Consolidated Balance Sheets (Unaudited) -
February 2, 1996, February 3, 1995 and October 31, 1995 . . . 4
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended February 2, 1996 and February 3, 1995. . . 5
Notes to Condensed Consolidated Financial
Statements (Unaudited). . . . . . . . . . . . . . . . . . . . . 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 7-9
PART II. OTHER INFORMATION:
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . 10
Exhibit 11 Computation of Earnings per Common Share. . . . . 11
-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
-------------------------------
February 2, February 3,
1996 1995
----------- -----------
Net sales. . . . . . . . . . . . . . . . . . $ 211,501 $ 213,950
Cost of sales. . . . . . . . . . . . . . . . 135,172 137,882
---------- ----------
Gross profit . . . . . . . . . . . . . . 76,329 76,068
Selling, general and administrative
expense . . . . . . . . . . . . . . . . . . 63,824 63,994
---------- ----------
Earnings from operations . . . . . . . . 12,505 12,074
Interest expense . . . . . . . . . . . . . . 2,969 2,595
Other income, net. . . . . . . . . . . . . . (4,513) (1,852)
---------- ----------
Earnings before income taxes . . . . . . 14,049 11,331
Provision for income taxes . . . . . . . . . 5,551 4,532
---------- ----------
Net earnings . . . . . . . . . . . . . . $ 8,498 $ 6,799
Retained earnings at beginning of period . . 142,891 116,482
Dividends on common stock of $0.12
per share . . . . . . . . . . . . . . . . . (1,465) (1,530)
---------- ----------
Retained earnings at end of period . . . . . $ 149,924 $ 121,751
---------- ----------
---------- ----------
Net earnings per share of common stock and
common stock equivalent . . . . . . . . . . $ 0.67 $ 0.51
---------- ----------
---------- ----------
Net earnings per share of common stock and
common stock equivalent - assuming
full dilution . . . . . . . . . . . . . . . $ 0.67 $ 0.51
---------- ----------
---------- ----------
See accompanying notes to condensed consolidated financial statements.
-3-
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
February 2, February 3, October 31,
1996 1995 1995
----------- ----------- -----------
ASSETS
Cash and cash equivalents. . . . . . . . . . $ 4,322 $ 9,198 $ 7,702
Receivables (net). . . . . . . . . . . . . . 262,473 221,924 198,816
Inventories. . . . . . . . . . . . . . . . . 163,575 165,053 145,862
Other current assets . . . . . . . . . . . . 32,106 31,216 33,879
--------- --------- ---------
Total current assets. . . . . . . . . . . 462,476 427,391 386,259
--------- --------- ---------
Property, plant and equipment. . . . . . . . 213,256 196,816 211,681
Less accumulated depreciation
and amortization. . . . . . . . . . . . 145,319 133,752 141,726
--------- --------- ---------
67,937 63,064 69,955
Other assets . . . . . . . . . . . . . . . . 17,244 19,150 16,439
--------- --------- ---------
Total assets. . . . . . . . . . . . . . . $ 547,657 $ 509,605 $ 472,653
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt. . . . . . $ 10,331 $ 16,055 $ 15,334
Short-term borrowing . . . . . . . . . . . . 114,909 55,854 41,575
Accounts payable . . . . . . . . . . . . . . 45,977 41,957 51,052
Other accrued liabilities. . . . . . . . . . 116,547 140,147 113,212
--------- --------- ---------
Total current liabilities . . . . . . . . 287,764 254,013 221,173
--------- --------- ---------
Long-term debt, less current portion . . . . 53,365 65,384 53,365
Other long-term liabilities. . . . . . . . . 7,178 5,250 7,223
Common stockholders' equity:
Common stock par value $1.00,
authorized 35,000,000 shares; issued and
outstanding 12,279,360 shares at February
2, 1996 (net of 562,965 treasury shares),
12,770,584 shares at February 3,
1995 (net of 4,467 treasury shares),
and 12,167,835 shares at October 31, 1995
(net of 674,490 treasury shares) . . . . . 12,279 12,771 12,168
Additional paid-in capital. . . . . . . . . 37,766 53,063 35,712
Retained earnings . . . . . . . . . . . . . 149,924 121,751 142,891
Foreign currency translation adjustment . . (619) (15) 121
--------- --------- ---------
199,350 187,570 190,892
Receivable from ESOP. . . . . . . . . . . . - (2,612) -
--------- --------- ---------
Total common stockholders' equity . . . . . 199,350 184,958 190,892
--------- --------- ---------
Total liabilities and common
stockholders' equity. . . . . . . . . . $ 547,657 $ 509,605 $ 472,653
--------- --------- ---------
--------- --------- ---------
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
--------------------------
February 2, February 3,
1996 1995
----------- -----------
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . $ 8,498 $ 6,799
Adjustments to reconcile net earnings to net cash
used in operating activities:
Provision for depreciation and amortization. . . . . . . . 4,693 4,441
Gain on disposal of property, plant and equipment. . . . . (18) (106)
Deferred income taxes. . . . . . . . . . . . . . . . . . . - (297)
Changes in operating assets and liabilities:
Receivables (net). . . . . . . . . . . . . . . . . . . (63,657) (27,941)
Inventories. . . . . . . . . . . . . . . . . . . . . . (17,713) (32,199)
Other current assets . . . . . . . . . . . . . . . . . 1,773 (2,997)
Accounts payable and accrued expenses. . . . . . . . . (3,585) 10,805
Accrued income taxes . . . . . . . . . . . . . . . . . 1,844 (4,833)
----------- -----------
Net cash used in operating activities. . . . . . . . (68,165) (46,328)
----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment . . . . . . . . (2,492) (7,394)
Proceeds from asset disposals. . . . . . . . . . . . . . . 18 233
Increase in other assets . . . . . . . . . . . . . . . . . (987) (910)
----------- -----------
Net cash used in investing activities. . . . . . . . (3,461) (8,071)
----------- -----------
Cash flows from financing activities:
Increase in sale of receivables. . . . . . . . . . . . . . - 5,927
Increase in short-term borrowing . . . . . . . . . . . . . 73,334 55,854
Repayments of long-term debt . . . . . . . . . . . . . . . (5,003) (10,015)
Change in other long-term liabilities. . . . . . . . . . . (45) -
Proceeds from sale of common stock . . . . . . . . . . . . 2,814 931
Purchases of common stock. . . . . . . . . . . . . . . . . (649) (191)
Dividends on common stock. . . . . . . . . . . . . . . . . (1,465) (1,530)
----------- -----------
Net cash provided by financing activities. . . . . . 68,986 50,976
----------- -----------
Foreign currency translation adjustment. . . . . . . . . . . (740) 219
----------- -----------
Net decrease in cash and cash equivalents. . . . . . . . . . (3,380) (3,204)
Cash and cash equivalents at beginning of period . . . . . . 7,702 12,402
----------- -----------
Cash and cash equivalents at end of period . . . . . . . . . $ 4,322 $ 9,198
----------- -----------
----------- -----------
See accompanying notes to condensed consolidated financial statements.
-5-
THE TORO COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FEBRUARY 2, 1996
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include
all the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
the unaudited consolidated financial statements include all adjustments,
consisting primarily of recurring accruals, considered necessary for a fair
presentation of the financial position and the results of operations. The
Toro Company's business is seasonal. Operating results for the three months
ended February 2, 1996 are not necessarily indicative of the results that may
be expected for the year ending October 31, 1996.
In November 1995, the company changed its fiscal year from a fiscal year ended
July 31 to a fiscal year ended October 31.
For further information, refer to the consolidated financial statements and
notes included in the company's Annual Report on Form 10-K for the year ended
July 31, 1995 (the company's former fiscal year end). The policies described
in that report are used for preparing quarterly reports.
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
February 2, 1996, and February 3, 1995, respectively. Under the FIFO method,
work-in-process inventories were $85,691,000 and $78,851,000 and finished goods
inventories were $102,725,000 and $105,406,000 at February 2, 1996, and February
3, 1995, 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
---------------------------------------------------------
February 2, February 3,
1996 1995 $ Change % Change
---------- ---------- --------- --------
Consumer products. . . . . . . . . . . . . . $ 102,641 $ 111,979 $ (9,338) (8.3)%
Commercial products. . . . . . . . . . . . . 78,333 73,842 4,491 6.1
Irrigation products. . . . . . . . . . . . . 30,527 28,129 2,398 8.5
---------- ---------- ---------
Total *. . . . . . . . . . . . . . . . . . $ 211,501 $ 213,950 $ (2,449) (1.1)
---------- ---------- ---------
---------- ---------- ---------
* Includes international sales of. . . . . . $ 39,419 $ 34,782 $ 4,637 13.3%
Worldwide net sales for the three months ended February 2, 1996, of $211.5
million decreased by $2.4 million from the prior year primarily as a result
of decreased consumer sales of snow removal equipment. Sales of snow removal
equipment for the quarter ended February 3, 1995 were exceptional, and
although snow sales for the quarter ended February 2, 1996 were strong they
did not meet prior year levels. The decline in consumer product sales for
the quarter was offset partially by an increase in commercial and irrigation
product sales. Commercial product sales showed increases from golf courses
and landscape contractors. The commercial vehicle line continued to gain
momentum and two new fairway mowers were introduced. Irrigation sales of
do-it-yourself (DIY) irrigation products to mass merchants continued strong
with the Toro line now available in all 50 states. Irrigation golf sales
also increased primarily from the overall growth of the market.
International sales, reported within the consumer, commercial and irrigation
numbers above, increased from the prior year led by strong consumer sales of
riding products to the Australian market, and strong commercial sales in
Europe and Canada.
Gross profit of $76.3 million increased $0.3 million from the prior year. As a
percent of sales, gross profit for the period ended February 2, 1996 was 36.1%
compared with 35.6% for the period ended February 3, 1995 due primarily to
favorable product costs resulting from a change in product mix. Manufacturing
variances were relatively flat as compared to last year.
-7-
Selling General and Administrative Expense
- -------------------------------------------------------------------------------------
Feb 2, % of Net Feb 3, % of Net
S G & A 1996 Sales 1995 Sales
- -------------------------------------------------------------------------------------
Administrative $ 22.2 10.5% $ 20.0 9.3%
Sales and Marketing 20.4 9.6 22.1 10.3
Warranty 6.4 3.0 7.6 3.6
Distributor/Dealer Financing 2.4 1.1 1.9 0.9
Research and Development 7.1 3.4 7.0 3.3
Warehousing 3.4 1.6 3.5 1.6
Service/Quality Assurance 1.9 0.9 1.8 0.8
--- --- --- ---
Total $ 63.8 30.1% $ 63.9 29.8%
Selling, General and Administrative Expense (S G & A) decreased $0.1 million
from the prior year and as a percent of sales increased to 30.1%.
Administrative expense increased from the prior year as the company continues
its implementation of a enterprise wide information system in addition to an
overall increase in spending. Warranty decreased from the prior year as a
result of a change in the sales mix of products. Distributor/Dealer financing
was up slightly due to the flow of snow product to retail during the quarter as
compared to the extraordinary flow to retail last year. 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 and the company's efforts to reduce marketing costs.
Other income increased during the quarter due primarily to the favorable
settlement of a patent infringement lawsuit.
FINANCIAL POSITION AS OF FEBRUARY 2, 1996
FEBRUARY 2, 1996 COMPARED TO FEBRUARY 3, 1995
Total assets as of February 2, 1996 were $547.7 million, up $38.1 million
from February 3, 1995. The primary increases occurred in accounts receivable
and property, plant and equipment. 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, offset by the normal accumulation of depreciation.
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. Accounts receivable
showed an increase of $40.5 million over the prior year. Of this increase,
approximately $10.1 million occurred due to increases in the Commercial,
Irrigation and International divisions as a result of their increased sales of
6.1%, 8.5% and 13.3%, respectively. Approximately, $10.0 million occurred due
to a change in the timing of payments, with customers having paid earlier due to
better retail flow in the prior year. $7.4 million occurred due to an
expansion of the dealer financing customer base. $5.9 million can be attributed
to the company's sale of accounts receivable in the prior year. No receivables
were sold in the current year.
Total current liabilities of $287.8 million at February 2, 1996 increased $33.8
million compared with current liabilities at February 3, 1995. The majority of
this increase occurred in short-term borrowing, which was up $59.1 million over
the prior year. The increase in short-term borrowing reflects the company's
cash management strategy of utilizing short-term borrowing to fund the company's
seasonal working capital needs. The company's peak borrowing usually occurs in
late winter/early spring. The company also acquired $26.2 million of Toro
stock in 1995. The purchased stock will be used primarily to fulfill the
company's obligations under a variety of benefit plans. The increase in short-
term borrowing was offset by a decrease in other accrued liabilities which
reflects reductions in marketing programs due to a combination of the consumer
sales decline and the company's efforts to reduce marketing costs.
-8-
FEBRUARY 2, 1996 COMPARED TO OCTOBER 31, 1995
Total assets as of February 2, 1996 were $547.7 million, up $75.0 million
from October 31, 1995. The primary increases were in accounts receivable and
inventory. The increase in accounts receivable is primarily attributable to
the following: sales increases in the Commercial, Irrigation and
International divisions of 6.1%, 8.5% and 13.3%, respectively, a change in
the timing of payments, with customers having paid earlier due to better
retail flow in the prior year, an expansion of the dealer financing customer
base, and the company's sale of accounts receivable in the prior year.
Total current liabilities of $287.8 million at February 2, 1996 increased $66.6
million compared with current liabilities at October 31, 1995. The majority of
this increase was the result of additional short-term borrowing of $73.3 million
offset by reductions in long-term debt and accounts payable. The increase in
short-term borrowing reflects the company's strategy of utilizing short-term
borrowing to fund the company's seasonal working capital needs. The company
also acquired $26.2 million of Toro stock in 1995.
LIQUIDITY AND CAPITAL RESOURCES
EQUITY
Equity increased $14.4 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 of Toro stock in 1995. The purchased stock
will be used primarily to fulfill the company's obligations under a variety of
benefit plans.
Equity as of February 2, 1996 increased $8.5 million compared to October 31,
1995. The increase reflects the earnings over the period.
CASH FLOWS
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 arrangements, coupled with
forecasted cash flows, will provide the capital resources for its anticipated
needs.
Cash used in operating activities was primarily to support the increase in
accounts receivable and inventory primarily as a result of normal seasonal
increases, offset slightly by payments of accounts payable and accrued
expenses. Partially offsetting these operating cash outflows were positive
cash flows from net earnings.
Net cash used in investment activities was the result of spending related to
company improvement projects of property, plant, and equipment as described
above.
Net cash provided by financing activities was the result of proceeds from short-
term borrowing used to fulfill the operating cash flow requirements described
above in addition to reducing long-term debt.
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.
-9-
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 did not file any Form 8-K reports during the first quarter
of fiscal 1996.
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 18, 1996
-10-
Exhibit 11
THE TORO COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
-------------------------
February 2, February 3,
1996 1995
---------- ----------
Net earnings . . . . . . . . . . . . . . . . $ 8,498 $ 6,799
---------- ----------
---------- ----------
Primary:
Shares of common stock and common
stock equivalents:
Weighted average number of common
shares outstanding. . . . . . . . . 12,219,360 12,748,891
Dilutive effect of outstanding
stock options (1) . . . . . . . . . 442,857 505,812
---------- ----------
12,662,217 13,254,703
---------- ----------
Net earnings per share of common stock
and common stock equivalent . . . . . $ 0.67 $ 0.51
---------- ----------
---------- ----------
Fully Diluted:
Shares of common stock and common
stock equivalents:
Weighted average number of common
shares outstanding. . . . . . . . . 12,219,360 12,748,891
Dilutive effect of outstanding
stock options (2) . . . . . . . . . 497,522 519,207
---------- ----------
12,716,882 3,268,098
---------- ----------
Net earnings per share of common stock
and common stock equivalent . . . . . $ 0.67 $ 0.51
---------- ----------
---------- ----------
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.
-11-
5
1,000
3-MOS
OCT-31-1995
NOV-01-1995
FEB-02-1996
4,322
0
262,473
0
163,575
462,476
213,256
145,319
547,657
287,764
63,696
0
0
12,279
187,071
547,657
211,501
211,501
135,172
63,824
(4,513)
0
2,969
14,049
5,551
8,498
0
0
0
8,498
.67
.67
TOTAL LONG-TERM DEBT
DOES NOT INCLUDE ADDITIONAL PAID-IN-CAPITAL
OTHER INCOME - NET
NOT INCLUDED IN QUARTERLY FINANCIAL INFORMATION
TOTAL NET RECEIVABLES
