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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 May 2, 1997 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)
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
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The number of shares of Common Stock outstanding as of May 30, 1997 was
12,076,474.
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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 -
Three and Six Months Ended
May 2, 1997 and May 3, 1996 . . . . . . . . . . . . . . . . .3
Condensed Consolidated Balance Sheets -
May 2, 1997, May 3, 1996 and October 31, 1996 . . . . . . . .4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended May 2, 1997 and May 3, 1996. . . . . . . . .5
Notes to Condensed Consolidated Financial Statements . . . . .6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . 8-12
PART II. OTHER INFORMATION:
Item 4 Results of Votes of Security Holders . . . . . . . . . 13
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Exhibit 11 Computation of Earnings Per Common Share . . . . . 15
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 Six Months Ended
------------------------- -------------------------
May 2, May 3, May 2, May 3,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . $ 352,203 $ 288,646 $ 561,160 $ 500,147
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . 227,086 184,836 360,816 320,008
---------- ---------- ---------- ----------
Gross profit. . . . . . . . . . . . . . . . . . . . . . 125,117 103,810 200,344 180,139
Selling, general and administrative
expense . . . . . . . . . . . . . . . . . . . . . . . . 89,160 73,540 157,629 137,364
---------- ---------- ---------- ----------
Earnings from operations. . . . . . . . . . . . . . . . 35,957 30,270 42,715 42,775
Interest expense . . . . . . . . . . . . . . . . . . . . . . 6,085 4,134 9,932 7,103
Other income, net. . . . . . . . . . . . . . . . . . . . . . (1,600) (1,640) (2,806) (6,153)
---------- ---------- ---------- ----------
Earnings before income taxes. . . . . . . . . . . . . . 31,472 27,776 35,589 41,825
Provision for income taxes . . . . . . . . . . . . . . . . . 12,432 10,956 14,058 16,507
---------- ---------- ---------- ----------
Net earnings. . . . . . . . . . . . . . . . . . . . . . $ 19,040 $ 16,820 $ 21,531 $ 25,318
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Retained earnings at beginning of period . . . . . . . . . . 174,671 149,924 173,630 142,891
Dividends on common stock of $0.12, $0.12,
$0.24 and $0.24 per share, respectively . . . . . . . . (1,435) (1,470) (2,885) (2,935)
---------- ---------- ---------- ----------
Retained earnings at end of period . . . . . . . . . . . . . $ 192,276 $ 165,274 $ 192,276 $ 165,274
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net earnings per share of common stock and
common stock equivalent . . . . . . . . . . . . . . . . $ 1.53 $ 1.33 $ 1.73 $ 2.00
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net earnings per share of common stock and
common stock equivalent -
assuming full dilution. . . . . . . . . . . . . . . . . $ 1.52 $ 1.33 $ 1.72 $ 2.00
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
See accompanying notes to condensed consolidated financial statements.
3
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
May 2, May 3, October 31,
1997 1996 1996
---------- ---------- -----------
ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . $ 5,593 $ 4,238 $ 66
Receivables, net . . . . . . . . . . . . . . . . . . . . . . 412,725 343,344 239,637
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . 159,014 158,841 130,288
Other current assets . . . . . . . . . . . . . . . . . . . . 34,429 32,270 35,010
---------- ---------- -----------
Total current assets. . . . . . . . . . . . . . . . . . 611,761 538,693 405,001
---------- ---------- -----------
Property, plant and equipment. . . . . . . . . . . . . . . . 319,010 216,806 229,080
Less accumulated depreciation and amortization. . . . . 203,859 148,100 155,270
---------- ---------- -----------
115,151 68,706 73,810
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 73,102 17,676 18,066
---------- ---------- -----------
Total assets. . . . . . . . . . . . . . . . . . . . . . $ 800,014 $ 625,075 $ 496,877
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt. . . . . . . . . . . . . . $ 350 $ 10,353 $ 350
Short-term borrowing . . . . . . . . . . . . . . . . . . . . 278,000 148,585 41,025
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 57,064 39,565 43,524
Other accrued liabilities. . . . . . . . . . . . . . . . . . 160,252 142,853 122,958
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Total current liabilities . . . . . . . . . . . . . . . 495,666 341,356 207,857
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Long-term debt, less current portion . . . . . . . . . . . . 53,015 53,339 53,015
Other long-term liabilities. . . . . . . . . . . . . . . . . 23,591 20,201 22,438
Common stockholders' equity:
Common stock par value $1.00,
authorized 35,000,000 shares; issued and
outstanding 11,979,539 shares at May 2,
1997 (net of 930,465 treasury shares),
12,099,223 shares at May 3, 1996
(net of 743,102 treasury shares), and
12,032,143 shares at October 31, 1996 (net
of 877,861 treasury shares) . . . . . . . . . . . . . . 11,980 12,099 12,032
Additional paid-in capital . . . . . . . . . . . . . . . . . 26,309 33,359 28,462
Retained earnings. . . . . . . . . . . . . . . . . . . . . . 192,276 165,274 173,630
Foreign currency translation adjustment. . . . . . . . . . . (2,823) (553) (557)
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Total common stockholders' equity. . . . . . . . . . . . . . 227,742 210,179 213,567
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Total liabilities and common stockholders' equity . . . $ 800,014 $ 625,075 $ 496,877
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See accompanying notes to condensed consolidated financial statements.
4
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
Six Months Ended
May 2, May 3,
1997 1996
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Cash flows from operating activities:
Net earnings. . .. . . . . . . . . . . . . . . . . . . . . . $ 21,531 $ 25,318
Adjustments to reconcile net earnings to net cash
used in operating activities:
Provision for depreciation and amortization . . . . . . . 10,521 8,831
Gain on disposal of property, plant and equipment . . . . (65) (115)
Deferred income taxes . . . . . . . . . . . . . . . . . . 1,529 -
Tax benefits related to employee stock
option transactions. . . . . . . . . . . . . . . . . . 1,766 1,490
Changes in operating assets and liabilities:
Receivables, net . . . . . . . . . . . . . . . . . . . (147,979) (144,528)
Inventories. . . . . . . . . . . . . . . . . . . . . . 2,063 (12,979)
Other current assets . . . . . . . . . . . . . . . . . 1,250 1,609
Accounts payable and accrued expenses. . . . . . . . . 26,634 14,597
Accrued income taxes . . . . . . . . . . . . . . . . . 4,308 3,557
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Net cash used in operating activities . . . . . . . (78,442) (102,220)
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Cash flows from investing activities:
Purchases of property, plant and equipment. . . . . . . . (17,551) (7,236)
Proceeds from asset disposals . . . . . . . . . . . . . . 227 184
Increase in other assets. . . . . . . . . . . . . . . . . (9,685) (1,652)
Acquisition of James Hardie Irrigation,
net of cash acquired . . . . . . . . . . . . . . . . . (117,622) -
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Net cash used in investing activities . . . . . . . (144,631) (8,704)
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Cash flows from financing activities:
Increase in short-term borrowing. . . . . . . . . . . . . 236,975 107,010
Repayments of long-term debt. . . . . . . . . . . . . . . (243) (5,007)
Change in other long-term liabilities . . . . . . . . . . 990 12,978
Proceeds from sale of common stock. . . . . . . . . . . . 3,981 3,238
Purchases of common stock . . . . . . . . . . . . . . . . (7,952) (7,150)
Dividends on common stock . . . . . . . . . . . . . . . . (2,885) (2,935)
---------- ----------
Net cash provided by financing activities . . . . . 230,866 108,134
---------- ----------
Foreign currency translation adjustment. . . . . . . . . . . (2,266) (674)
---------- ----------
Net increase (decrease) in cash and cash equivalents . . . . 5,527 (3,464)
Cash and cash equivalents at beginning of period . . . . . . 66 7,702
---------- ----------
Cash and cash equivalents at end of period . . . . . . . . . $ 5,593 $ 4,238
---------- ----------
---------- ----------
See accompanying notes to condensed consolidated financial statements.
5
THE TORO COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MAY 2, 1997
BASIS OF PRESENTATION
The accompanying unaudited condensed 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.
Unless the context indicates otherwise, the terms "company" and "Toro"
refer to The Toro Company and its subsidiaries. In the opinion of
management, the unaudited condensed 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. Since the company's business is
seasonal operating results for the six months ended May 2, 1997 are
not necessarily indicative of the results that may be expected for the
year ended October 31, 1997.
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 October 31, 1996. The policies described in
that report are used for preparing quarterly reports.
INVENTORIES
The majority of inventories are valued at the lower of cost or net
realizable value with cost determined by the last-in, first-out (LIFO)
method. Had the first-in, first-out (FIFO) method of cost
determination been used, inventories would have been $25,642,000 and
$24,841,000 higher than reported at May 2, 1997, and May 3, 1996,
respectively. Under the FIFO method, work-in-process inventories were
$79,736,000 and $78,977,000 and finished goods inventories were
$104,920,000 and $104,705,000 at May 2, 1997, and May 3, 1996,
respectively.
BUSINESS ACQUISITIONS
Effective December 1, 1996, The Toro Company acquired the James Hardie
Irrigation Group ("Hardie") from James Hardie Industries Limited under an
agreement dated September 18, 1996. The initial purchase price pursuant to
the agreement was estimated to be $131,500,000. The purchase price was
subsequently adjusted to $119,125,000 based on estimated, unaudited
aggregate shareholders' equity of Hardie on December 1, 1996, subject to
further adjustment based on final audit results.
Based on the financial statements of Hardie as of the acquisition date,
shareholders' equity at the acquisition date was approximately $10,545,000
less than the estimated equity used as the closing date purchase price, and
this $10,545,000 is to be returned from James Hardie Industries Limited to
Toro. In addition, under the procedures established in the purchase
agreement, Toro has delivered a letter of objections to James Hardie
Industries Limited related to the valuation of assets, accounting methods
applied, estimates used and other items. The resolution of these
objections may result in an additional reduction of the purchase price.
6
BUSINESS ACQUISITIONS (CONTINUED)
The acquisition is accounted for using the purchase accounting method and,
accordingly, the adjusted purchase price of $108,580,000 has initially been
allocated based on the estimated fair values of assets acquired and
liabilities assumed on the date of acquisition. The excess of the purchase
price over the estimated fair value of net tangible assets acquired has
been recorded as goodwill and is being amortized on a straight-line basis
over 20 years. Any additional reductions in the purchase price as a result
of resolution of the objections discussed in the preceding paragraph will
result in a reduction of goodwill and/or other net assets. The related
effect of these adjustments on the Consolidated Statement of Earnings of
The Toro Company is not expected to be material.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the company and Hardie as if the
acquisition had occurred at the beginning of fiscal 1996, with pro forma
adjustments to give effect to amortization of goodwill, interest expense on
acquisition debt and certain other adjustments, together with the related
income tax effects.
Three Months Ended Six Months Ended
May 2, May 3, May 2, May 3,
(Dollars in thousands, except per share data) 1997 1996 1997 1996
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Net sales $ 352,203 $ 332,509 $ 575,326 $ 576,231
Net earnings 19,040 16,914 19,834 22,649
Earnings per share 1.53 1.34 1.59 1.79
SUBSEQUENT EVENT
On June 4, 1997, the company announced that it had signed a non-binding letter
of intent to acquire Exmark Manufacturing Company, Inc., a leading manufacturer
of equipment for the professional landscape contractor industry. Exmark is
headquartered in Beatrice, Nebraska, and produces mid-sized walk-behind mowers
and zero-turning-radius riding mowers for professional contractors. Exmark
employs approximately 190 people in a 164,000 square foot facility and had sales
of $38.4 million for the fiscal year ended August 31, 1996. Consummation of the
acquisition is subject to preparation and execution of a definitive agreement,
approval by Exmark's shareholders and regulatory approvals. Management believes
that the consideration to be paid by the company will not be material to the
company.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. In addition, forward-looking statements may be made
orally in the future by or on behalf of the company.
Forward-looking statements involve risks and uncertainties, including, but not
limited to, changes in business conditions and the economy in general in both
foreign and domestic markets; weather conditions affecting demand; seasonal
factors affecting the company's industry; lack of growth in the company's
markets; litigation; financial market changes including interest rates and
foreign exchange rates; trend factors including housing starts, new golf course
starts and market demographics; government actions including budget levels,
regulation, and legislation, primarily legislation relating to the environment,
commerce and infrastructure, and health and safety; labor relations;
availability of materials; actions of competitors; ability to integrate
acquisitions; and the company's ability to profitably develop, manufacture and
sell both new and existing products. Actual results could differ materially
from those projected in the forward-looking statements as a result of these risk
factors, and should not be relied upon as a prediction of actual future results.
Further, Toro undertakes no obligation to update any forward-looking statement
to reflect events or circumstances after the date on which such statement is
made, or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
Second quarter net earnings rose 13.1% to $19.0 million from the net earnings of
$16.8 million for the same period in the previous year. Earnings per share for
the second quarter improved 15.0% to $1.53 from $1.33 in the previous period.
Revenues increased from $288.6 million in the second quarter of 1996 to $352.2
million in the second quarter of 1997, as a result of factors discussed in the
following paragraphs. The increase in sales was due in part to the acquisition
of Hardie.
For the six months ended May 2, 1997 net sales increased from the same period in
1996 by $61.0 million or 12.2%. Net earnings for the six months ended May 2,
1997 were $21.5 million as compared to $25.3 million for the same period last
year.
In both fiscal 1996 and 1997 the spring mowing season was cold and late in many
key markets. In fiscal 1997 these unpredictable weather patterns heightened a
conservative buying attitude among dealers and distributors. The company
continues to focus on more efficient asset management, and integration of the
Hardie acquisition.
The following table sets forth net sales by product line.
Three Months Ended
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(Dollars in thousands) May 2, May 3,
1997 1996 $ Change % Change
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Consumer products. . . . . . . . . . . . . . $ 137,913 $ 137,791 $ 122 .1%
Commercial products. . . . . . . . . . . . . 122,030 108,523 13,507 12.4
Irrigation products. . . . . . . . . . . . . 92,260 42,332 49,928 117.9
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Total *. . . . . . . . . . . . . . . . . $ 352,203 $ 288,646 $ 63,557 22.0%
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* Includes international sales of: . . . . . $ 81,954 $ 64,339 $ 17,615 27.4%
8
Six Months Ended
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(Dollars in thousands) May 2, May 3,
1997 1996 $ Change % Change
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Consumer products. . . . . . . . . . . . . . $ 221,555 $ 240,432 $(18,877) (7.9)%
Commercial products. . . . . . . . . . . . . 199,987 186,856 13,131 7.0
Irrigation products. . . . . . . . . . . . . 139,618 72,859 66,759 91.6
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Total *. . . . . . . . . . . . . . . . . $ 561,160 $ 500,147 $ 61,013 12.2%
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* Includes international sales of: . . . . . $ 135,980 $ 103,758 $ 32,222 31.1%
CONSUMER PRODUCT SALES
Worldwide net sales of consumer products for the three months ended May 2, 1997
of $137.9 million were flat as compared to the prior year and down $18.9 million
for the six months ended May 2, 1997. Again, as in fiscal 1996, this quarter
had a slow start to the lawn and garden retail season because of unseasonably
cool weather. Although retail demand was stronger this period than a year ago,
dealers and distributors remained conservative and kept their inventories at a
minimum. A snow storm also caused a ten day plant shutdown that resulted in
lower production and sales of riding equipment during the first six months.
These decreases in sales were offset slightly by sales of newly introduced
electric and battery-operated walk-behind mowers.
International consumer net sales for the three months ended May 2, 1997
increased from $20.7 million to $21.5 million and from $34.3 million to $36.8
million for the six months ended May 2, 1997 as a result of continued strong
demand in Canada and the introduction of products in France's largest mass
merchant. The new electric walk-behind mower has been well received in the
international market.
COMMERCIAL PRODUCT SALES
Worldwide commercial product net sales for the three months ended May 2, 1997
were $122.0 million compared to $108.5 million in the same period in the prior
year. Net sales for the six months ended May 2, 1997 were $200.0 million
compared to $186.9 million in the same period in the prior year. Sales of
equipment to golf courses did well, reflecting the continued growth of the golf
market, and several new product introductions in the second quarter also
reinforced sales.
International commercial net sales increased to $39.5 million for the three
months ended May 2, 1997 from $36.5 million in the prior year. Net sales
increased to $62.2 million for the six months ended May 2, 1997 from $55.9
million in the prior year. Equipment sales to the golf market were up as new
courses were added in the Philippines, Korea and Egypt. Golf equipment sales
also did well in Europe despite generally weak economic conditions.
IRRIGATION PRODUCT SALES
Worldwide irrigation product net sales rose 117.9% from $42.3 million in the
same three month period last year to $92.3 million in the current year. Net
sales for the six months ended May 2, 1997 were $139.6 compared to $72.9 in the
same period in the prior year. This increase is almost entirely attributable to
the acquisition of Hardie.
International irrigation net sales, excluding Hardie sales, increased by 17.7%
for the second quarter and 1.5% for the first six months of fiscal 1997, as
compared to the corresponding period in the prior year.
9
GROSS PROFIT
Gross profit was $125.1 million and $200.3 million for the three and six months
ended May 2, 1997, respectively, an increase of $21.3 million and $20.2 million
from the three and six months ended May 3, 1996, respectively. As a percent of
sales, gross profit for the three month period ended May 2, 1997 was 35.5%
compared with 36.0% for the three month period ended May 3, 1996 and 35.7% for
the six months ended May 2, 1997 versus 36.0% for the six month period ended
May 3, 1996. The lower gross margin was primarily due to lower gross margins
contributed by Hardie product sales. Manufacturing variances were relatively
flat as compared to last year.
Selling, General and Administrative Expense
(Dollars in millions)
- ----------------------------------------------------------------------------------------------------
3 Months 3 Months
Ended Ended
- ----------------------------------------------------------------------------------------------------
May 2, % of Net May 3, % of Net
S G & A 1997 Sales 1996 Sales
- ----------------------------------------------------------------------------------------------------
Administrative $ 26.7 7.6% $ 21.7 7.5%
Sales and Marketing 33.0 9.3 24.3 8.4
Warranty 9.8 2.8 11.0 3.8
Distributor/Dealer Financing 2.8 0.8 2.8 1.0
Research and Development 9.1 2.6 7.5 2.6
Warehousing 5.4 1.5 4.4 1.5
Service/Quality Assurance 2.4 0.7 1.8 0.7
------- ---- ------- ----
Total $ 89.2 25.3% $ 73.5 25.5%
Selling, general and administrative expense (SG&A) for the three months ended
May 2, 1997 increased $15.7 million from the prior year, and as a percent of
sales decreased slightly to 25.3% from 25.5% for the same period in fiscal
1996. Hardie added $10.0 million in SG&A expense during the second quarter of
fiscal 1997. SG&A expense for the six months ended May 2, 1997 increased
$20.3 million from the prior year, including Hardie's SG&A expense of $16.1
million, and as a percent of sales increased to 28.1% from 27.5% for the same
period in fiscal 1996. Administrative expenses, net of Hardie, increased
$2.0 million for the quarter and $2.2 million for the six months ended May 2,
1997 due mainly to increased costs for information systems and overall
increases in administrative expenses. Sales and marketing expenses, net of
Hardie, increased by $4.9 million for the quarter and $5.1 million for the
six months ended May 2, 1997 due to increased promotional costs of new
products for the landscape contractor group. The percent of sales change in
sales and marketing expense was the result of timing of marketing program
expenses. Warranty expense, net of Hardie, decreased $1.9 million for the
quarter and $3.7 million for the six months ended May 2, 1997 due primarily
to a reserve established in the prior period for required rework on a
lawnmower product. Warranty expense as a percent of sales also decreased
from the prior year as a result of a change in the mix of products sold and a
warranty related refund received from a vendor. Distributor/dealer financing,
research and development, and warehousing expenses, net of Hardie, were flat
as compared to the same period in fiscal 1996.
10
FINANCIAL POSITION AS OF MAY 2, 1997
MAY 2, 1997 COMPARED TO MAY 3, 1996
Total assets at May 2, 1997 were $800.0 million, up $174.9 million from May 3,
1996. Of this increase, Hardie accounted for $168.3 million. Cash, net of
Hardie of $4.4 million, decreased from the prior period as the result of
improved asset management policies. Accounts receivable, net, increased by $69.4
million, with $60.7 million in net receivables attributable to Hardie. The
remaining increase in receivables is the result of higher sales in both the
commercial and international divisions. Inventory balances, net of Hardie
inventories of approximately $24.9 million, declined by $24.8 million due to
asset management strategies which match production more closely with retail
demand and result in lower overall inventory levels. Net property, plant and
equipment, increased by approximately $46.4 million, with $30.4 million of this
increase related to Hardie and the remaining increase related to the corporate
headquarters expansion and new tooling projects. Other assets increased by
$55.4 million with Hardie accounting for $47.2 million. The remainder of the
increase was the result of the purchase of patents, additional acquisition costs
for Hardie and the purchase of property for possible future corporate expansion.
Total current liabilities of $495.7 million at May 2, 1997 increased $154.3
million compared with current liabilities at May 3, 1996. The majority of this
increase was short-term borrowing, which increased by $129.4 million over the
prior year due primarily to the financing of both the purchase price and working
capital needs of Hardie. The increase in short-term borrowing was offset by a
decrease in trade payables, net of Hardie, primarily as a result of the timing
of vendor payments. Other accrued liabilities increased by $17.4 million,
primarily as a result of expenses related to the Hardie acquisition, and Hardie
accrued liabilities acquired. The current portion of long-term debt was also
reduced due to the repayment of Toro Credit Company ("TCC") debt. TCC is now
being financed by the parent company on a consolidated basis. Other long-term
liabilities also increased over the prior period, primarily as a result of
accrued interest related to the interest rate swap agreement entered into during
second quarter of fiscal 1996.
MAY 2, 1997 COMPARED TO OCTOBER 31, 1996
Total assets at May 2, 1997 were $800.0 million, up $303.1 million from October
31, 1996. As indicated previously, Hardie accounted for approximately $168.3
million of this increase. Accounts receivable, net of Hardie, increased from
October 31, 1996 primarily due to increased sales volumes. Inventory, net of
Hardie, increased by $3.8 million primarily as a result of the normal buildup of
consumer lawn and garden products manufactured in the first six months of the
year. Net property, plant and equipment increased from $73.8 million to $115.2
million due to the addition of Hardie net property, plant and equipment of $30.4
million, the expansion of the corporate headquarters and routine capital
expenditures. Other assets increased as a result of the excess of the purchase
price of Hardie over the fair value of the net assets acquired of approximately
$26.9 million plus additional capitalized acquisition costs of approximately
$16.7 million and the acquisition of Hardie's other assets.
Total current liabilities of $495.7 million at May 2, 1997 increased $287.8
million compared with current liabilities at October 31, 1996. The majority of
this increase was the result of additional short-term borrowings of $237.0
million a portion of which was used to finance the purchase price and working
capital needs of Hardie. The remaining increase in short-term borrowing
reflects the company's strategy of utilizing short-term borrowing to fund the
company's seasonal working capital needs. Other accrued liabilities increased
as a result of expenses related to the acquisition of Hardie and accruals for
various seasonal sales and marketing programs which are at their peak during the
spring selling season. There were no significant changes in long-term debt and
other long-term liabilities from October 31, 1996 to May 31, 1997.
11
LIQUIDITY AND CAPITAL RESOURCES
The primary use of cash during the first six months of fiscal 1997 was $117.6
million used for the acquisition of Hardie. The purchase price has been
initially funded with temporary bank debt. The company has filed a shelf
registration which will facilitate the issuance of long-term debt to replace
this temporary bank debt, and intends to refinance this temporary debt with
long-term financing during the current fiscal year. The company believes that
financing is also available through other sources.
Cash used in operating activities for the first six months of fiscal 1997 was
primarily for the seasonal increase in accounts receivable. The company's
working capital needs are funded with $190.0 million of unsecured bank credit
lines. An agreement for an additional $150.0 million unsecured bank credit line
expiring in December 1997 was executed in conjunction with the acquisition of
Hardie. The company also has banker's acceptance financing agreements under
which an additional $40.0 million is available. The company's business is
seasonal, with peak borrowing under the working capital lines described above
generally occurring between February and May each year.
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.
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.
12
PART II. OTHER INFORMATION
Item 4 Results of Votes of Security Holders
The Annual Meeting of Stockholders was held on March 13, 1997.
The results of the stockholder votes were as follows:
For Against Abstain
--- ------- -------
1. Election of Directors
Janet K. Cooper 10,086,165 179,512
Kendrick B. Melrose 10,080,644 185,033
Edwin H. Wingate 10,077,796 187,881
2. Approval of Amendment of Continuous
Performance Award Plan 9,381,511 768,642 115,524
3. Approval of Amendment of Annual Management
Incentive Plan 9,391,586 744,455 129,636
4. Approval of Selection of Independent Auditors 10,060,566 115,283 89,828
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
On February 18, 1997, the company filed Amendment No. 1 to its Current
Report on Form 8-K dated December 16, 1996 on Form 8-K/A providing
financial information for the business acquired and pro forma financial
information related to the acquisition of the James Hardie Irrigation
Group.
On June 6, 1997, the company filed Amendment No. 2 to its Current Report
on Form 8-K dated December 16, 1996 on Form 8-K/A providing financial
information for the business acquired and pro forma financial
information related to the acquisition of the James Hardie Irrigation
Group which supersedes the information provided in Amendment No. 1
referenced in the previous paragraph.
13
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/ Stephen P. Wolfe
---------------------------
Stephen P. Wolfe
Vice President, Finance
Chief Financial Officer
(principal financial officer)
Date: June 16, 1997
14
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
------------------------- -------------------------
May 2, May 3, May 2, May 3,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . $ 19,040 $ 16,820 $ 21,531 $ 25,318
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Primary:
Shares of common stock and common
stock equivalents:
Weighted average number of common shares
outstanding. . . . . . . . . . . . . . . . . . . . . 12,075,340 12,222,437 12,080,429 12,220,874
Dilutive effect of outstanding
stock options (1). . . . . . . . . . . . . . . . . . 361,208 429,796 381,289 437,539
---------- ---------- ---------- ----------
12,436,548 12,652,233 12,461,718 12,658,413
---------- ---------- ---------- ----------
Net earnings per share of common stock
and common stock equivalent. . . . . . . . . . . . . $ 1.53 $ 1.33 $ 1.73 $ 2.00
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fully Diluted:
Shares of common stock and common
stock equivalents:
Weighted average number of common shares
outstanding. . . . . . . . . . . . . . . . . . . . . 12,075,340 12,222,437 12,080,429 12,220,874
Dilutive effect of outstanding
stock options (2). . . . . . . . . . . . . . . . . . 410,346 429,796 431,468 445,315
---------- ---------- ---------- ----------
12,485,686 12,652,233 12,511,897 12,666,189
---------- ---------- ---------- ----------
Net earnings per share of common stock
and common stock equivalent. . . . . . . . . . . . . $ 1.52 $ 1.33 $ 1.72 $ 2.00
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
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.
15
5
1,000
6-MOS
OCT-31-1997
NOV-01-1996
MAY-02-1997
5,593
0
412,725
0
159,014
611,761
319,010
203,859
800,014
495,666
53,365
0
0
11,980
215,762
800,014
352,203
352,203
227,086
89,160
(1,600)
0
6,085
31,472
12,432
19,040
0
0
0
19,040
1.53
1.52
TOTAL LONG-TERM DEBT
DOES NOT INCLUDE ADDITIONAL PAID-IN-CAPITAL
OTHER INCOME-NET
NOT INCLUDED IN QUARTERLY FINANCIAL INFORMATION
TOTAL NET RECEIVABLES
