UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
AMENDMENT NO. 1
TO CURRENT REPORT ON FORM 8-K
ON
FORM 8-K/A
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: ( Date of earliest event reported) December 2, 1996
THE TORO COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 1-8469 41-0580470
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
8111 LYNDALE AVENUE SOUTH, BLOOMINGTON, MINNESOTA 55420-1196
(Address of principal executive office) (zip code)
612/888-8801
(Registrant's telephone number, including area code)
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
THE FOLLOWING DOCUMENTS ARE INCLUDED AS PART OF THIS REPORT:
(a) Financial Statements of Business Acquired: Page No.
-------
James Hardie Irrigation Group Financial Statements
for the year ended March 31, 1996
Report of Independent Accountants A-1
Combined Balance Sheet as of March 31, 1996 A-2
Combined Statement of Operations for the year
ended fiscal March 31, 1996 A-3
Combined Statement of Divisional/Shareholders'
Equity for the fiscal year ended March 31, 1996 A-4
Combined Statement of Cash Flows for the year
ended fiscal March 31, 1996 A-5
Notes to the Combined Financial Statements A-6 to
A-17
Condensed Combined Balance Sheet
as of October 31, 1996 A-18
Condensed Combined Statement of Operations
for the seven months ended October 31, 1996 A-19
Condensed Combined Statement of Cash Flows
for the seven months ended October 31, 1996 A-20
Notes to the Condensed Combined Financial
Statements A-21
(b) Pro forma Financial Information:
Pro forma Information B-1
Pro forma Condensed Combined Balance Sheet
as of October 31, 1996 B-2
Pro forma Condensed Combined Statement of
Operations for the fiscal year ended
October 31, 1996 B-3
Notes to Pro forma Condensed Combined
Financial Statements B-4
(c) Exhibits:
Exhibit 23 - Consent of Coopers & Lybrand L.L.P.
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)
Date: February 18, 1997 By /s/ J. Lawrence McIntyre
----------------------------------------
J. Lawrence McIntyre
Vice President, Secretary and
General Counsel
REPORT OF INDEPENDENT ACCOUNTANTS
---------------
To the Board of Directors of
The Toro Company
We have audited the accompanying combined balance sheet of James Hardie
Irrigation (a division of James Hardie Irrigation, Inc.), James Hardie
Irrigation Pty Limited and James Hardie Irrigation Europe S.p.A. (collectively,
"the James Hardie Irrigation Group") as of March 31, 1996 and the related
combined statements of operations, divisional/shareholders' equity and cash
flows for the fiscal year then ended. These financial statements are the
responsibility of the James Hardie Irrigation Group management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall combined financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As discussed in Note 11 to the combined financial statements, effective December
1, 1996, the James Hardie Irrigation Group was sold to The Toro Company.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the James
Hardie Irrigation Group as of March 31, 1996 and the results of their combined
operations and their combined cash flows for the fiscal year then ended, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Los Angeles, California
February 18, 1997
A-1
JAMES HARDIE IRRIGATION GROUP
COMBINED BALANCE SHEET
as of March 31, 1996
--------
ASSETS:
Current assets:
Cash and cash equivalents $2,182,110
Trade accounts receivable, less allowances of $3,968,856 45,735,731
Inventories 32,045,967
Prepaid and other current assets 731,105
Receivable from the U.S. Parent and affiliates 898,576
Deferred income taxes 3,928,777
-----------
Total current assets 85,522,266
Receivable from affiliates 6,051,658
Property, plant and equipment, net 31,599,285
Intangible assets, net 3,252,440
Other assets 6,645,289
Deferred income taxes 1,203,336
-----------
Total assets $134,274,274
-----------
-----------
LIABILITIES AND DIVISIONAL/SHAREHOLDERS' EQUITY:
Current liabilities:
Bank overdrafts $3,006,422
Trade accounts payable 8,271,375
Accrued expenses and other liabilities 7,083,183
-----------
Total current liabilities 18,360,980
Loans due to the U.S. Parent and affiliates 114,260,544
Severance liability 199,745
-----------
Total liabilities 132,821,269
-----------
Commitments and contingencies (Note 8)
Divisional and shareholders' equity:
Share capital 9,981,346
Additional paid-in capital 590,643
Accumulated deficit/divisional equity (8,403,344)
Foreign currency translation adjustment (715,640)
-----------
Total divisional/shareholders' equity 1,453,005
-----------
Total liabilities and divisional/shareholders' equity $134,274,274
-----------
-----------
The accompanying notes are an integral part of the
combined financial statements.
A-2
JAMES HARDIE IRRIGATION GROUP
COMBINED STATEMENT OF OPERATIONS
for the fiscal year ended March 31, 1996
--------
Net sales $139,523,569
Other revenues 1,009,206
------------
Total revenues 140,532,775
Cost of sales 95,358,061
------------
Gross profit 45,174,714
Selling, general and administrative expenses 40,771,146
Research and development expenses 925,012
------------
Operating income 3,478,556
Interest expense to third parties 96,834
Management fees and other expenses to the U.S. Parent and affiliates 794,375
Interest expense to the U.S. Parent and affiliates 4,002,381
Interest income from the U.S. Parent and affiliates (1,140,770)
Other (income) expense, net 198,383
------------
Loss before income taxes (472,647)
Income tax provision (94,362)
------------
Net loss ($567,009)
------------
------------
The accompanying notes are an integral part of the
combined financial statements.
A-3
JAMES HARDIE IRRIGATION GROUP
COMBINED STATEMENT OF DIVISIONAL/SHAREHOLDERS' EQUITY
for the fiscal year ended March 31, 1996
--------
Accumulated Foreign Total
Number of Additional Deficit/ Currency Divisional/
Shares Share Paid-In Divisional Translation Shareholders'
Outstanding Capital Capital Equity Adjustment Equity
----------- --------- ----------- ------------- ----------- ------------
James Hardie Irrigation
at March 31, 1995 - - - $13,199,340 - $13,199,340
James Hardie Irrigation Pty
Limited at March 31, 1995 12,000,000 $8,759,124 - (20,734,406) - (11,975,282)
James Hardie Irrigation
Europe S.p.A. at March 31,
1995 2,090 1,222,222 $590,643 (301,269) - 1,511,596
---------- --------- ------- --------- ------- ---------
Combined balances,
March 31, 1995 12,002,090 9,981,346 590,643 (7,836,335) - 2,735,654
Net loss for the fiscal year
ended March 31, 1996 - - - (567,009) - (567,009)
Foreign currency translation
adjustment - - - - ($715,640) (715,640)
---------- --------- ------- --------- ------- ---------
Balance, March 31, 1996 12,002,090 $9,981,346 $590,643 ($8,403,344) ($715,640) $1,453,005
---------- --------- ------- --------- ------- ---------
---------- --------- ------- --------- ------- ---------
The accompanying notes are an integral part of the
combined financial statements.
A-4
JAMES HARDIE IRRIGATION GROUP
COMBINED STATEMENT OF CASH FLOWS
for the fiscal year ended March 31, 1996
---------------
Cash flows from operating activities ($567,000)
Net loss
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 5,622,972
Inventory valuation allowance (83,080)
Allowance for doubtful accounts 238,155
Gain on sale of assets 73,659
Deferred income taxes 628,840
Severance provision 50,900
Working capital and other changes related to operations:
Trade accounts receivable (7,078,437)
Inventories 11,134,338
Prepaid and other current assets 150,788
Receivable from the U.S. Parent and affiliates (4,699,151)
Deposits 54,035
Trade accounts payable 60,580
Accrued expenses and other liabilities (1,452,374)
Severance liability (114,836)
-----------
Net cash provided by operating activities 4,019,380
-----------
Cash flows from investing activities:
Capital expenditures (7,871,184)
Increase in purchased software (2,011,633)
Proceeds from sale of fixed assets 499,431
-----------
Net cash used in investing activities (9,383,386)
-----------
Cash flows from financing activities:
Increase in loans due to the U.S. Parent and affiliates 3,342,314
Decrease in bank overdraft 180,207
-----------
Net cash provided by financing activities 3,522,521
Effect of exchange rate changes on cash (382,965)
-----------
Net decrease in cash and cash equivalents (2,224,450)
Cash and cash equivalents at beginning of fiscal year 4,406,560
-----------
Cash and cash equivalents at end of fiscal year $2,182,110
-----------
-----------
Supplemental disclosure of cash flow information:
Interest paid to third parties $100,559
Interest paid to affiliates 378,026
Income taxes paid 52,762
The accompanying notes are an integral part of the
combined financial statements.
A-5
JAMES HARDIE IRRIGATION GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
for the fiscal year ended March 31, 1996
---------------
1. Basis of Presentation and Summary of Significant Accounting Policies:
THE COMPANIES
The combined financial statements of the James Hardie Irrigation Group (the
"Companies") have been prepared by combining the assets, liabilities,
divisional and shareholders' equity, results of operations and cash flows
of James Hardie Irrigation, a division of James Hardie Irrigation, Inc.
("Hardie U.S."), (a wholly owned subsidiary of J.H. Industries (USA), Inc.
(the "U.S. Parent")), James Hardie Irrigation Pty Limited ("Hardie
Australia"), a corporation organized under the laws of South Australia, and
James Hardie Irrigation Europe S.p.A. ("Hardie Europe"), a corporation
organized under the laws of Italy. The effects of all transactions between
the Companies have been eliminated in the combined financial statements.
Prior to the acquisition discussed in Note 11, the Companies were owned
directly or indirectly by James Hardie Industries Limited, an Australian
company and the ultimate parent company (the "Parent").
The Companies manufacture and distribute products for the landscape and
agricultural irrigation industries and market a wide selection of products
for residential and commercial irrigation applications. The Companies are
headquartered in Laguna Niguel, California; Beverly, South Australia; and
Fiano Romano, near Rome, Italy. The Companies also have production and
distribution facilities in various locations in the United States and
Australia.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash balances and all highly liquid
investments with original maturities of three months or less at the date of
purchase. The Companies maintain cash accounts with established commercial
banks. In the United States, such cash accounts periodically exceed the
Federal Deposit Insurance Corporation insured limit of $100,000 for each
account.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using standard costs which approximate actual cost utilizing the first-in,
first-out ("FIFO") method. The Companies maintain inventory allowances for
slow-moving and obsolete inventory.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost or the fair value as of
the date acquired in a business combination accounted for as a purchase,
less accumulated depreciation and amortization. Depreciation of buildings,
plant and equipment is computed using the straight-line method based on the
estimated useful lives ranging from 3 to 40 years.
Continued
A-6
JAMES HARDIE IRRIGATION GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
for the fiscal year ended March 31, 1996
---------------
1. Basis of Presentation and Summary of Significant Accounting Policies,
Continued:
PROPERTY, PLANT AND EQUIPMENT, CONTINUED
Leasehold improvements are amortized on the straight-line basis over their
estimated economic useful lives or the life of the lease, whichever is
shorter.
Expenditures for maintenance and repairs are expensed as incurred. Costs
of major replacements and betterments are capitalized. When property is
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the appropriate accounts and any gain or loss is included in
income.
TOOLING COSTS
Perishable tooling costs are charged to expense in the year incurred.
Certain non-perishable tooling costs are capitalized in machinery and
equipment and depreciated over their estimated useful lives which range
from 3 to 8 years.
INTANGIBLE ASSETS
Intangible assets are stated at cost or at fair value as of the date
acquired in a business combination accounted for as a purchase, less
accumulated amortization. Amortization of intangible assets is computed on
a straight-line basis over their estimated useful lives of 17 years for
patents and 20 years for goodwill.
Goodwill is comprised of the excess of cost over the fair value of the net
assets of businesses acquired in purchase transactions. The Companies'
management periodically evaluates the realizability of goodwill, and
impairment losses, if any, are recognized when the expected nondiscounted
future operating cash flows derived from such assets are less than their
carrying value. During the fiscal year ended March 31, 1996, the Companies
adopted Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangible assets to be held and used be reviewed for
impairment whenever events or changes in circumstances indicate the
carrying amount of such assets may not be recoverable. The adoption of
SFAS No. 121 did not have any impact on the financial position, results of
operations, or cash flows of the Companies.
INCOME TAXES
The Companies are subject to taxation under applicable tax laws in the
United States, Australia, Italy and Greece. Hardie U.S. is included in
the consolidated tax return filed by the U.S. Parent, which is responsible
for making tax payments on behalf of the subsidiaries included in the
consolidated group. These tax payments are allocated to the various
members of the consolidated group through the intercompany accounts.
Hardie Australia and Hardie Europe file income tax returns and pay income
taxes on their own behalf. In the event of a taxable loss incurred by
Hardie Australia, the tax loss is transferred to the Parent or an affiliate
and the tax benefit is allocated to Hardie Australia.
Continued
A-7
JAMES HARDIE IRRIGATION GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
for the fiscal year ended March 31, 1996
---------------
1. Basis of Presentation and Summary of Significant Accounting Policies,
Continued:
INCOME TAXES, CONTINUED
The Companies account for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes", which prescribes an asset and liability
approach. The asset and liability method requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between tax bases and financial
reporting bases of assets and liabilities, using enacted tax rates in
effect for the year in which the differences are expected to reverse.
The provision for income taxes includes federal, state and foreign income
taxes currently payable as if each of the Companies had filed a separate
tax return, and those taxes deferred because of temporary differences
between the financial statement and tax bases of assets and liabilities.
Such temporary differences primarily result from the use of accelerated
methods of depreciation for tax purposes, allowances for accounts
receivable, differences between book and tax inventory, and accrued
expenses.
ADVERTISING EXPENSES
Advertising expenses are charged to operations in the year incurred and
totalled $2,776,152 for the fiscal year ended March 31, 1996.
REVENUE RECOGNITION
The Companies recognize revenue when product is shipped to customers. In
accordance with industry practices, the Companies may permit returns of
their product for credit and provide an allowance for potential sales
returns when the product is shipped.
WARRANTY COSTS
The Companies provide for estimated warranty costs as products are shipped.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense in the year incurred
in accordance with SFAS No. 2, "Accounting for Research and Development
Costs."
SELF-INSURANCE
Hardie U.S. is self-insured through the U.S. Parent for health-related
costs for each employee working in the United States, up to a maximum of
$75,000 per covered person per policy year or an aggregate stop loss of
125% of Expected Paid Claims, as defined in the insurance contract. Any
amounts in excess of this maximum are subject to reimbursement by the
insurance carrier. Provisions for claims expected under this program are
recorded by the U.S. Parent (and allocated to Hardie U.S.), including the
Continued
A-8
JAMES HARDIE IRRIGATION GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
for the fiscal year ended March 31, 1996
---------------
1. Basis of Presentation and Summary of Significant Accounting Policies,
Continued:
SELF INSURANCE, CONTINUED
U.S. Parent's estimate of the aggregate liability for claims incurred but
not reported through the fiscal year-ended March 31, 1996 based on
historical information.
SEVERANCE COSTS
Under Italian and Greek law, Hardie Europe accrues deferred compensation
which is payable to employees when employment is terminated for any reason.
The severance liability included in the combined financial statements
represents the estimated amount payable to employees, based upon their
compensation and an inflation index as of March 31, 1996.
CONCENTRATION OF CREDIT RISK
The Companies are engaged in the business of manufacturing and distributing
products for the landscape and agricultural irrigation industries primarily
throughout the United States and Australia to various retailers,
wholesalers and installation contractors. Concentration of credit risk
with respect to trade receivables for the Companies is limited due to the
large number of customers comprising the Companies' customer base, and
their dispersion across several geographical regions. The Companies
maintain allowances for potential credit losses. In general, the Companies
do not require collateral in relation to these trade receivables.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires certain disclosures regarding the fair value of financial
instruments. Cash and cash equivalents, trade accounts receivable, trade
accounts payable, accrued expenses and other liabilities and amounts
currently due to and from affiliates approximate fair value because of the
short-term maturity of these instruments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions for the reporting period and as of the financial statement
date. These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent liabilities, and the
reported amounts of revenues and expenses. Actual results could differ
from those estimates.
Continued
A-9
JAMES HARDIE IRRIGATION GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
for the fiscal year ended March 31, 1996
---------------
1. Basis of Presentation and Summary of Significant Accounting Policies,
Continued:
FOREIGN CURRENCY TRANSLATION
The functional currency of each of the Companies is the applicable local
currency. The functional currency is translated into U.S. dollars in
accordance with SFAS No. 52, "Foreign Currency Translation," which is
performed for the 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 fiscal year ended March 31,
1996. The gains or losses resulting from such translations are included in
equity. Gains and losses from foreign currency transactions are included
in income currently.
2. Inventories:
Inventories consist of the following components as of March 31, 1996:
Finished goods $22,113,330
Raw materials 7,759,097
Work-in-process 4,731,250
-----------
34,603,677
Less: Inventory valuation allowance (2,557,710)
-----------
$32,045,967
-----------
-----------
3. Property, Plant and Equipment:
Property, plant and equipment consists of the following components as of
March 31, 1996.
Machinery and equipment $58,672,262
Buildings and improvements 11,296,613
Furniture and fixtures 1,352,091
Leasehold improvements 1,110,169
Land 1,370,943
Automobiles 971,519
Construction-in-progress
5,080,902
-----------
79,854,499
Less: Accumulated depreciation and
amortization (48,255,214)
-----------
$31,599,285
-----------
-----------
Continued
A-10
JAMES HARDIE IRRIGATION GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
for the fiscal year ended March 31, 1996
---------------
3. Property, Plant and Equipment, Continued:
Construction-in-progress is primarily comprised of tooling and molds,
production machinery and equipment and certain computer equipment which has
not yet been placed in service.
4. Intangible Assets:
Intangible assets consist of the following components as of March 31, 1996:
Costs in excess of fair value of net assets of
businesses acquired $7,642,904
Patents and trade names 800,642
----------
8,443,546
Less: Accumulated amortization (5,191,106)
----------
$3,252,440
----------
----------
5. Other Assets:
Other assets consist of the following components as of March 31, 1996:
Land and building held for sale, at
estimated net realizable value $4,350,000
Purchased software 2,011,633
Deposits 283,656
----------
$6,645,289
----------
----------
In March 1994, Hardie U.S. suspended operations at its Carson City, Nevada
manufacturing facility and transferred the majority of the machinery and
equipment, inventory and personnel to other facilities of Hardie U.S. At
March 31, 1996, the Carson City facility was held for sale and written down
to its net realizable value. Effective December 1, 1996, the Carson City
land and building were transferred to a subsidiary of the U.S. Parent.
Continued
A-11
JAMES HARDIE IRRIGATION GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
for the fiscal year ended March 31, 1996
---------------
5. Other Assets, Continued:
In fiscal year 1995, Hardie U.S. purchased satellite technology and
computer software from Sovran (PTY) Ltd. The acquired technology enables
the operator to control large irrigation systems from remote locations via
computer. Hardie U.S. is currently adapting the acquired technology to
enhance its line of irrigation products. As of March 31, 1996, Hardie U.S.
has capitalized $2,011,633 associated with the initial acquisition and
subsequent costs incurred to modify the then existing technology.
Amortization of these costs will commence upon the release of the new
product line to the market.
6. Income Taxes:
The following are the components of the provision for federal, state and
foreign income taxes included in the combined statement of operations for
the fiscal year ended March 31, 1996. There was no provision for income
taxes for Hardie Europe for the fiscal year ended March 31, 1996.
Current:
U.S. Federal $ 3,000
Australian Federal 56,000
State 1,000
-------
60,000
-------
Deferred:
U.S. Federal 140,957
Australian Federal (115,557)
State 8,962
-------
34,362
-------
Income tax provision $94,362
-------
-------
Deferred tax assets and liabilities consist of the following components as
of March 31, 1996:
Gross deferred tax assets:
Inventory $997,011
Fixed assets 369,236
Allowance for doubtful accounts 621,820
Accrued expenses 2,638,491
Net operating loss carryforwards 877,473
Other 74,796
----------
Total deferred tax assets 5,578,827
Valuation allowance (446,714)
----------
Net deferred tax assets $5,132,113
----------
----------
Continued
A-12
JAMES HARDIE IRRIGATION GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
for the fiscal year ended March 31, 1996
---------------
6. Income Taxes, Continued:
Management has provided a valuation allowance against those net operating
loss carryforwards and temporary differences which are estimated to expire
before they can be utilized. This valuation allowance relates entirely to
the deferred tax assets of Hardie Europe. Management has not provided a
valuation allowance against deferred tax assets related to Hardie U.S. or
Hardie Australia, as management believes it is more likely than not that
sufficient taxable income will be generated in the foreseeable future to
realize these deferred tax assets. At March 31, 1996, net operating loss
carryforwards available to offset future taxable income of Hardie Italy
expire as follows:
1999 $1,963,000
2000 128,000
2001 355,000
----------
$2,446,000
----------
----------
The following is a reconciliation of income taxes at the federal statutory
rates with income taxes recorded by the Companies for the fiscal year ended
March 31, 1996:
U.S. income tax benefit
computed at the statutory rate of 34% ($34,501)
State income taxes, net of federal benefit 6,575
Effect of permanent differences, net 179,673
Other, net 2,172
---------
U.S. income tax provision 153,919
---------
Australian income tax provision
computed at the statutory rate of 36% (1,845)
Effect of permanent differences, net (57,712)
---------
Australian income tax benefit (59,557)
---------
Italian income tax benefit computed at
the statutory rate of 52.3% (183,485)
Effect of non recognition of income tax
benefit related to net operating loss
and increase in valuation allowance 183,485
---------
Italian income tax (benefit) provision -
---------
Income tax provision $ 94,362
---------
---------
Continued
A-13
JAMES HARDIE IRRIGATION GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
for the fiscal year ended March 31, 1996
---------------
7. Accrued Expenses and Other Liabilities:
Accrued expenses and other liabilities consist of the following components
as of March 31, 1996:
Warranty $1,544,535
Advertising and promotion 992,440
Cooperative advertising 880,156
Vacation 1,629,918
Sales commissions 486,584
Employee profit sharing and pension 181,357
Accrued payroll 607,898
Other liabilities 760,295
----------
$7,083,183
----------
----------
8. Commitments and Contingencies:
The Companies conduct their operations from certain facilities that are
leased under operating leases over the next 3 to 7 years. There are
options to renew certain leases for additional periods of 2 to 5 years at
renegotiated rental amounts. Certain of these leases contain escalation
clauses and/or require the Companies to pay property taxes, insurance, and
maintenance costs. The Companies also lease certain vehicles and equipment
under operating lease agreements from various third parties with terms up
to 5 years.
The following are the remaining future minimum rental payments required
under the above operating leases for each of the next five fiscal years and
in total thereafter:
1997 $1,386,376
1998 728,450
1999 307,883
2000 172,972
2001 172,972
Thereafter 92,275
----------
$2,860,928
----------
----------
Rent expense was $1,175,348 for the fiscal year ended March 31, 1996.
Letters of credit are issued by the Companies during the ordinary course of
business, as required by certain vendor contracts. The Companies have
commitments for letters of credit totaling $2,822,880 at March 31, 1996.
Continued
A-14
JAMES HARDIE IRRIGATION GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
for the fiscal year ended March 31, 1996
---------------
8. Commitments and Contingencies, Continued:
The Companies are responsible for the repair of defective products and
certain related expenses under the terms of the Companies' warranty
programs. The Companies' warranty programs provide a limited warranty
against original manufacturing defects on all products for periods ranging
from 1 to 10 years from the date of original sale. The Companies record a
provision for the estimated warranty claims including an estimate for
claims incurred but not reported through year-end.
Hardie Australia borrowed $273,352 (A$350,000) from the State Government on
March 30, 1990 as part of the funding for establishing one of the
Australian facilities. Subject to compliance with the conditions of the
loan, which include a requirement that Hardie Australia employ a minimum
number of permanent staff, the loan is non-interest bearing and repayable
on March 30, 2089.
As Hardie Australia has not met the requirement to employ a certain number
of permanent staff, the State Government of South Australia has demanded
repayment of $85,911 (A$110,000). This amount is included in the combined
financial statements in the category described as "Accrued Expenses and
Other Liabilities." Should the number of permanent staff continue to
decrease, or if the manufacturing facility was moved out of South
Australia, the State Government of South Australia may demand repayment of
the remaining $187,441 (A$240,000). However, should Hardie Australia meet
the above requirements by June 2000, the State Government of South
Australia has indicated that it may return the amount of $85,911
(A$110,000) to the Company and not demand early repayment of the remaining
$187,441 (A$240,000).
The amount of $187,441 (A$240,000) has not been recognized in the combined
financial statements as a liability on the basis that the net present value
of the amount payable in 2089 is negligible.
Following a value-added-tax (VAT) investigation for fiscal year 1994,
Italian authorities have indicated their intention to assess penalties
against Hardie Europe. Management has accrued for the estimated amount of
the claim.
The Companies are involved in certain asserted and unasserted potential
claims which have not been finally adjudicated. In the opinion of
management, the resolution of these matters will not have a material
adverse effect on the Companies' financial position or results of
operations.
Continued
A-15
JAMES HARDIE IRRIGATION GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
for the fiscal year ended March 31, 1996
---------------
9. Employee Benefit Plans:
The U.S. Parent sponsors a 401(k) defined contribution plan for Hardie U.S.
employees who have completed one year of service and are at least 21 years
of age. Employees may contribute up to 14% of their compensation on a
before-tax basis, subject to the maximum dollar amount allowed under
Section 404(a) of the Internal Revenue Code, as amended. The Company
matches 100% of each employee's contribution, limited to 6% of the
employee's compensation. Participants become immediately 100% vested in
their contributions and earnings thereon. All contributions vest over a
five-year period. The expense for Hardie U.S. related to this plan was
$673,618 for the fiscal year ended March 31, 1996.
The Parent also sponsors a defined contribution plan for employees of
Hardie Australia. Employees are eligible immediately upon commencement of
permanent employment, and may contribute up to 10% of their salary on a
before-tax basis. Hardie Australia provides a minimum benefit of at least
the superannuation guarantee amount determined by the Federal Government in
Australia (currently 6% of salary). Vesting is based on years of credited
service. Participants become immediately 100% vested in employee
contributions and earnings thereon. The expense for Hardie Australia
related to this plan was $501,294 for the fiscal year ended March 31, 1996.
10. Related Party Transactions:
The Companies have short-term amounts receivable and payable to James
Hardie Industries Limited, the U.S. Parent and affiliates which are shown
net in the accompanying financial statements. These amounts are related to
various intercompany transactions including, among others, sales of
products to affiliates, purchases of product from affiliates, current
income taxes, and the allocation of certain operating expenses to the
Companies by James Hardie Industries Limited, the U.S. Parent and
affiliates. These amounts are due and payable on demand and do not bear
interest.
Sales of products to affiliates totaled approximately $1,510,000 for the
fiscal year ended March 31, 1996. Purchases of product from affiliates
were not significant.
Hardie U.S. has a loan payable to the U.S. Parent which bears interest at
the average six month LIBOR rate plus 0.4%. The effective interest rate on
this loan was 5.9% at March 31, 1996.
Hardie Europe has a loan due to James Hardie Holdings Ltd., which bears
interest at the one-month LIBOR plus 0.75%. The effective interest rate on
this loan was 6.102% at March 31, 1996. The principal amount of this loan
is $5,000,000. In addition, Hardie Europe has a non-interest bearing loan
totaling $2,133,375 due to RIS International Finance N.V., an affiliate of
the Parent. This loan is denominated in Italian Lira.
Hardie U.S. receives interest income from or pays interest expense to the
U.S. Parent based upon the level of working capital employed. Hardie U.S.
also pays a management fee to the U.S. Parent and is allocated certain
general and administrative expenses.
Continued
A-16
JAMES HARDIE IRRIGATION GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
for the fiscal year ended March 31, 1996
---------------
11. Subsequent Event:
On June 12, 1996, Hardie Australia sold their investment interest in
certain depositary receipts issued by the Stichting Administration RIS
International Finance N.V. This investment was acquired in fiscal year
1988 at an initial cost of $11,318,722 (A$15,235,000) and was written down
to zero prior to the fiscal year ended March 31, 1996. Hardie Australia
did not receive cash in connection with this transaction but reduced an
intercompany payable account and recognized a gain of $6,730,326
(A$9,057,000) for the full amount of the sales price.
On September 18, 1996, the Parent entered into an agreement to sell all of
the issued and outstanding shares of the Companies to The Toro Company for
an initial purchase price of $131,500,000. The purchase price was
subsequently adjusted to $119,125,000 based on the unaudited aggregate
shareholders' equity on December 1, 1996, and is subject to further
adjustment based upon final audit results.
Continued
A-17
James Hardie Irrigation Group
Condensed Combined Balance Sheet (unaudited)
as of October 31, 1996
(Dollars in thousands)
ASSETS
Cash and cash equivalents $ 33
Receivables (net) 29,522
Inventories 30,703
Other current assets 2,307
----------
Total current assets 62,565
Property, plant and equipment, net 32,869
Intangible assets, net 3,044
Other assets 5,624
----------
Total assets 104,102
----------
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank overdraft 1,330
Accounts payable and accrued liabilities 17,922
----------
Total current liabilites 19,252
Loans due to U.S. Parent and affiliates 72,401
Other liabilities 156
----------
Total liabilities 91,809
Common shareholders' equity 12,293
----------
Total liabilities and equity $ 104,102
----------
----------
See accompanying notes to the condensed combined financial statements.
A-18
James Hardie Irrigation Group
Condensed Combined Statement of Operations (unaudited)
for the seven months ended October 31, 1996
(Dollars in thousands)
Net sales $ 75,632
Cost of sales 54,104
----------
Gross profit 21,528
Selling, general and administrative expense 20,749
----------
Earnings from operations 779
Interest expense to third parties 115
Management fees and other expenses to affiliates 301
Interest expense to affiliates 2,057
Interest income from affiliates (953)
Other income, net (7,069)
----------
Earnings before income taxes 6,328
Income tax benefit 410
----------
Net earnings $ 6,738
----------
----------
See accompanying notes to the condensed combined financial statements.
A-19
James Hardie Irrigation Group
Condensed Combined Statement of Cash Flows (unaudited)
for the seven months ended October 31, 1996
(Dollars in thousands)
Net cash provided by operating activities $ 51,845
Cash flows from investing activities:
Capital expenditures (2,468)
Increase in purchased software (842)
Proceeds from sale of fixed assets 40
----------
Net cash used in investing activities (3,270)
Cash flows from financing activities:
Decrease in bank overdraft (1,676)
Decrease in loans due to affiliates (49,048)
----------
Net cash used in financing activities (50,724)
Net decrease in cash and cash equivalents (2,149)
Cash and cash equivalents, beginning of period 2,182
----------
Cash and cash equivalents, end of period $ 33
----------
----------
See accompanying notes to the condensed combined financial statements.
A-20
James Hardie Irrigation Group
Notes to Condensed Combined Financial Statements (unaudited)
October 31, 1996
1. Basis of Presentation:
The accompanying condensed combined financial statements are unaudited 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 statements include all adjustments, consisting
primarily of recurring accruals, considered necessary for a fair
presentation of the financial position and results of operations. The
interim financial results are not necessarily indicative of the results of
operations for a full fiscal year.
2. Inventories:
Inventories at October 31, 1996 consist of the following:
Raw materials $ 7,425
Work-in-process 3,627
Finished goods 23,491
----------
34,543
Valuation allowance (3,840)
----------
$ 30,703
----------
----------
3. Subsequent Event:
On September 18, 1996, the Parent entered into an agreement to sell all of
the issued and outstanding shares of the Companies to The Toro Company for
an initial purchase price of $131,500,000. The purchase price was
subsequently adjusted to $119,125,000 based on the unaudited aggregate
shareholders' equity on December 1, 1996, and is subject to further
adjustment based upon final audit results.
4. Commitments and Contingencies:
The Companies are involved in certain asserted and unasserted potential
claims which have not been finally adjudicated. In the opinion of
management, the resolution of these matters will not have a material
adverse effect on the Companies' financial position or results of
operations.
A-21
The Toro Company
Unaudited Pro Forma Condensed Financial Statements
On September 18, 1996, the Parent of James Hardie Irrigation Group entered into
an agreement to sell all of the issued and outstanding shares of the Companies
to The Toro Company for an initial purchase price of $131,500,000. The purchase
price was subsequently adjusted to $119,125,000 based on the unaudited aggregate
shareholders' equity on December 1, 1996, and is subject to further adjustment
based upon final audit results. The acquisition was financed with proceeds from
a $160 million revolving line of credit.
The acquisition is accounted for using the purchase accounting method and,
accordingly, the purchase price will be allocated to the assets acquired and
liabilities assumed based on the estimated fair value of such assets at the date
of acquisition. The excess of the purchase price over the fair value of the net
tangible assets will be recorded as goodwill and amortized on a straight-line
basis over 20 years. The unaudited condensed pro forma balance sheet and results
of operations are based on available information and certain assumptions
regarding the allocation of the purchase price, which could change significantly
based on the results of appraisals, finalization of the purchase price as a
result of a closing date audit and other analysis.
The accompanying condensed pro forma consolidated financial statements
illustrate the effect of the acquisition on The Toro Company's financial
position at October 31, 1996 and results of operations for the year then ended
as if the acquisition had taken place on October 31, 1996 with respect to the
balance sheet and November 1, 1995 with respect to the statement of operations.
The pro forma condensed consolidated results of operations may not be indicative
of actual results which would have been obtained if the acquisition had occurred
on November 1, 1995.
B-1
The Toro Company
Unaudited Pro Forma Condensed Balance Sheet
As of October 31, 1996
(Dollars in thousands)
Hardie
The Toro Irrigation The Toro
Company Group Pro forma Company
(Historical) (Historical) adjustments (Pro forma)
--------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 66 33 99
Receivables, net 239,637 29,522 269,159
Inventories 130,288 30,703 160,991
Other current assets 35,010 2,307 37,317
--------------------------------------------- ---------
Total current assets 405,001 62,565 467,566
--------------------------------------------- ---------
Property, plant and equipment,
net 73,810 32,869 106,679
Other assets 18,066 8,668 (4,250)(1) 66,109
43,625 (1)
--------------------------------------------- ---------
Total assets $ 496,877 104,102 39,375 640,354
--------------------------------------------- ---------
--------------------------------------------- ---------
LIABILITIES AND EQUITY
Bank overdraft $ - 1,330 1,330
Current portion of long-term
debt 350 - 350
Short-term borrowing 41,025 - 124,069 (2) 165,094
Accounts payable and accrued
liabilites 166,482 17,922 184,404
--------------------------------------------- ---------
Total current liabilities 207,857 19,252 124,069 351,178
--------------------------------------------- ---------
Long-term debt, less current
portion 53,015 - 53,015
Payable to affiliates - 72,401 (72,401) (1) -
Other long term liabilities 22,438 156 22,594
--------------------------------------------- ---------
Total liabilities 283,310 91,809 51,668 426,787
Common shareholders' equity 213,567 12,293 (12,293) (1) 213,567
--------------------------------------------- ---------
Total liabilities and
common stockholders'
equity $ 496,877 104,102 39,375 640,354
--------------------------------------------- ---------
--------------------------------------------- ---------
B-2
The Toro Company
Unaudited Pro Forma Condensed Statement of Operations
For the fiscal year ended October 31, 1996
(in thousands, except per share amounts)
Hardie
The Toro Irrigation The Toro
Company Group Pro forma Company
(Historical) (Historical) adjustments (Pro forma)
--------------------------------------------------------------
Net sales $ 930,909 141,449 $ 1,072,358
Cost of goods sold 589,186 101,514 690,700
------------- --------------- -------------
Gross profit 341,723 39,935 381,658
Selling, general and
administrative expenses 278,284 35,862 2,181 (3) 315,945
(382)(5)
-------------------------------------------- ------------
Earnings from operations 63,439 4,073 (1,799) 65,713
Interest expense to third parties 13,590 197 9,063 (4) 22,850
Management fees to affiliates - 549 (549)(5) -
Interest expense to affiliates - 5,828 (5,828)(5) -
Interest income from affiliates - (2,090) 2,090 (5) -
Other income, net (10,331) (6,480) 6,730 (6) (10,587)
(506)(5)
-------------------------------------------- ------------
Earnings before income
taxes 60,180 6,069 (12,799) 53,450
Income tax provision (benefit) 23,771 (410) (2,260)(7) 21,101
-------------------------------------------- ------------
Net earnings $ 36,409 6,479 (10,539) $ 32,349
-------------------------------------------- ----------
-------------------------------------------- ----------
Net earnings per share of
common stock and
common stock equivalent $ 2.90 $ 2.58
---------- ----------
---------- ----------
Weighted average shares of
common stock and common
stock equivalents outstanding
for the year (primary and
fully diluted) 12,554,715 12,554,715
----------- -----------
----------- -----------
B-3
The Toro Company
Notes to Unaudited Pro Forma Condensed Balance Sheet and Statement of Operations
1. Adjustments to reflect the acquisition of James Hardie Irrigation Group
(JHI) and the allocation of the estimated purchase price and related
capitalized acquisition costs on the basis of estimated fair values of
assets acquired and liabilities assumed. The actual purchase price is
based on the assets acquired and liabilities assumed as of December 1,
1996, and is subject to adjustment based on final audit results. For
purposes of the pro forma financial statements at October 31, 1996, the
components of the purchase price have been computed based on assets and
liabilities of JHI as of October 31, 1996. The estimated excess of the
purchase price over net assets acquired, estimated fair value adjustments
and estimated capitalized acquisition costs are based on the actual
acquisition date of December 1,1996.
JHI shareholder's equity at October 31, 1996 $ 12,293
Plus liabilities not assumed 72,401
Less assets not acquired (4,250)
Excess of purchase price over net book value of
assets acquired 26,900
----------
Purchase price as if acquisition price were
determined on 10/31/96 107,344
Estimated capitalized acquisition costs 16,725
----------
$ 124,069
----------
----------
2. The acquisition has initially been financed with temporary short-term bank
debt; however, the Company has filed a shelf registration for issuance of
public debt which would replace all or a portion of the short-term debt
with long-term debt.
3. Represents amortization of the excess purchase price on a straight-line
basis over 20 years.
4. Additional interest expense related to the acquisition, assuming average
borrowings for acquisition debt and Hardie working capital of $125 million
at an annual interest rate of 7.25% representing the approximate average of
the long and short-term rates for the year. See Note 2 above regarding the
acquisition debt.
5. Represents intercompany interest income, interest expense, management fees
and other expenses to affiliates of JHI which will not be recurring after
the acquisition.
6. In June 1996, JHI sold a depositary receipt and realized a gain of $6,730.
This gain is not expected to be a recurring item subsequent to the
acquisition.
7. Represents the adjustment to tax expense required to arrive at a
consolidated pro forma tax rate of 39.5%. The income tax rate is based on
The Toro Company's tax structure and no attempt was made to determine the
actual income tax rate under the post acquisition structure.
B-4
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
Board of Directors
The Toro Company:
We consent to the incorporation by reference in the registration statements of
The Toro Company on Forms S-3 and S-8 (File Nos. 33-26268, 33-31586, 33-38308,
33-44668, 33-51563, 33-55550, 33-59563, 33-62743, 333-4521, and 333-20901) of
our report dated February 18, 1997, on our audit of the combined balance sheet
of the James Hardie Irrigation Group as of March 31, 1996 and the related
combined statements of operations and cash flows for the fiscal year ended March
31, 1996, which report appears elsewhere in this Form 8K/A.
Coopers & Lybrand L.L.P.
Los Angeles, California
February 18, 1997
