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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended January 28, 1994 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)
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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 January 28, 1994 was
12,466,881.
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THE TORO COMPANY
INDEX TO FORM 10-Q
Page Number
-----------
PART I. FINANCIAL INFORMATION:
Condensed Consolidated Balance Sheets -
January 28, 1994, January 29, 1993 and July 31, 1993 3
Condensed Consolidated Statements of Operations and
Retained Earnings -
Three and Six Months Ended
January 28, 1994 and January 29, 1993 4
Consolidated Statements of Cash Flows -
Six Months Ended January 28, 1994 and January 29, 1993 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II. OTHER INFORMATION:
Item 4 Results of Votes of Security Holders 9
Item 6 Exhibits and Reports on Form 8-K 9
Exhibit 11 Computation of Earnings (Loss) Per Common
Share 10
-2-
PART I. FINANCIAL INFORMATION
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
January 28, January 29, July 31,
1994 1993 1993
------------ ------------ ------------
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,141 $ 4,684 $ 61,793
Receivables (net). . . . . . . . . . . . . . . . . . . . . . . . . . 215,663 203,965 180,363
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,477 119,557 78,708
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 24,014 25,754 23,266
------------ ------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . 377,295 353,960 344,130
------------ ------------ ------------
Property, plant and equipment. . . . . . . . . . . . . . . . . . . . 177,339 179,527 173,397
Less accumulated depreciation and amortization . . . . . . . . 120,643 113,542 113,428
------------ ------------ ------------
$ 56,696 $ 65,985 $ 59,969
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,941 18,543 15,104
------------ ------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 451,932 $ 438,488 $ 419,203
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt. . . . . . . . . . . . . . . . . . $ 35,645 $ 16,140 $ 15,000
Short-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 25,361 15,000 -
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 36,066 33,157 28,786
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . . 119,883 96,846 106,474
------------ ------------ ------------
Total current liabilities. . . . . . . . . . . . . . . . . . . 216,955 161,143 150,260
------------ ------------ ------------
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . 758 2,509 1,372
Long-term debt, less current portion . . . . . . . . . . . . . . . . 87,325 147,960 122,970
Stockholders' equity:
Common stock par value $1.00,
authorized 35,000,000 shares; issued and
outstanding 12,466,881 shares at January 28,
1994 (net of 110,992 treasury shares),
12,091,295 shares at January 29, 1993
(net of 486,578 treasury shares), and
12,270,404 shares at July 31, 1993 (net
of 307,469 treasury shares) . . . . . . . . . . . . . . . . . . 12,467 12,091 12,270
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 47,374 42,808 44,898
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 93,063 81,019 93,451
Foreign currency translation adjustment . . . . . . . . . . . . . (787) (1,208) (795)
------------ ------------ ------------
152,117 134,710 149,824
Receivable from ESOP . . . . . . . . . . . . . . . . . . . . . . . (5,223) (7,834) (5,223)
------------ ------------ ------------
Total common stockholders' equity. . . . . . . . . . . . . . . . . 146,894 126,876 144,601
------------ ------------ ------------
Total liabilities and stockholders' equity . . . . . . . . . . $ 451,932 $ 438,488 $ 419,203
------------ ------------ ------------
------------ ------------ ------------
See accompanying notes to condensed consolidated financial statements.
-3-
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND RETAINED EARNINGS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
Three Months Ended Six Months Ended
-------------------------- --------------------------
January 28, January 29, January 28, January 29,
1994 1993 1994 1993
----------- ----------- ----------- -----------
Net sales. . . . . . . . . . . . . . . . . . . . . . . $ 189,413 $ 153,172 $ 325,174 $ 266,615
Cost of sales. . . . . . . . . . . . . . . . . . . . . 122,826 99,463 209,552 174,018
----------- ----------- ----------- -----------
Gross profit. . . . . . . . . . . . . . . . . . . 66,587 53,709 115,622 92,597
Selling, general and administrative
expense . . . . . . . . . . . . . . . . . . . . . 56,805 47,727 108,801 90,636
----------- ----------- ----------- -----------
Earnings from operations. . . . . . . . . . . . . 9,782 5,982 6,821 1,961
Interest expense . . . . . . . . . . . . . . . . . . . 3,210 4,226 6,548 8,410
Other income, net. . . . . . . . . . . . . . . . . . . (889) (1,173) (4,030) (2,707)
----------- ----------- ----------- -----------
Earnings (loss) before income taxes . . . . . . . 7,461 2,929 4,303 (3,742)
Provision (benefit) for income taxes . . . . . . . . . 2,984 1,113 1,721 (1,422)
----------- ----------- ----------- -----------
Net earnings (loss) . . . . . . . . . . . . . . . $ 4,477 $ 1,816 $ 2,582 $ (2,320)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Retained earnings at beginning of period . . . . . . . 90,078 80,654 93,451 86,235
Dividends on common stock of $0.12, $0.12,
$0.24 and $0.24 per share, respectively . . . . . (1,492) (1,451) (2,970) (2,896)
----------- ----------- ----------- -----------
Retained earnings at end of period . . . . . . . . . . $ 93,063 $ 81,019 $ 93,063 $ 81,019
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net earnings (loss) per common and common
share equivalent: . . . . . . . . . . . . . . . . $ 0.35 $ 0.15 $ 0.20 $ (0.19)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
See accompanying notes to condensed consolidated financial statements.
-4-
THE TORO COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
Six Months Ended
------------------------------
January 28, January 29,
1994 1993
----------- -----------
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,582 $ (2,320)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Provision for depreciation and amortization. . . . . . . . . . . . . . . . 8,543 9,155
Provision for deferred income tax benefit. . . . . . . . . . . . . . . . . (614) -
Changes in operating assets and liabilities:
Receivables (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . (41,890) 732
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (49,769) (45,432)
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . (748) 477
Payables and accruals . . . . . . . . . . . . . . . . . . . . . . . . . 21,074 10,301
Accrued income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . (385) (2,385)
----------- -----------
Net cash used in operating activities . . . . . . . . . . . . . . . . (61,207) (29,472)
----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . (4,174) (4,260)
Proceeds from asset disposals. . . . . . . . . . . . . . . . . . . . . . . 15 -
Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . (3,948) (630)
----------- -----------
Net cash used in investing activities . . . . . . . . . . . . . . . . (8,107) (4,890)
----------- -----------
Cash flows from financing activities:
Increase in short-term debt. . . . . . . . . . . . . . . . . . . . . . . . 25,361 15,000
Increase in sale of receivables. . . . . . . . . . . . . . . . . . . . . . 6,590 1,973
Repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . (15,000) -
Proceeds from sale of common stock . . . . . . . . . . . . . . . . . . . . 3,587 686
Purchases of common stock. . . . . . . . . . . . . . . . . . . . . . . . . (914) -
Dividends on common stock. . . . . . . . . . . . . . . . . . . . . . . . . (2,970) (2,896)
----------- -----------
Net cash provided by financing activities. . . . . . . . . . . . . . 16,654 14,763
----------- -----------
Foreign currency translation adjustment. . . . . . . . . . . . . . . . . . . . 8 (1,208)
----------- -----------
Net decrease in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (52,652) (20,807)
Cash at beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . 61,793 25,491
----------- -----------
Cash at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,141 $ 4,684
----------- -----------
----------- -----------
See accompanying notes to condensed consolidated financial statements.
-5-
THE TORO COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 28, 1994
1. BACKGROUND
The information furnished reflects all adjustments which, in the opinion of
management, are necessary for a fair presentation of the interim periods.
The Toro Company's business is seasonal. Operating results for the three
months and six months ended January 28, 1994 are not necessarily indicative
of the results that may be expected for the fiscal year ending July 31,
1994.
These statements should be read in conjunction with the financial
statements and footnotes included in the Company's Annual Report for the
year ended July 31, 1993. The policies described in that report are used
in preparing quarterly reports.
2. INVENTORIES
Substantially all inventories are valued at the lower of cost or net
realizable value with cost determined by the last-in, first-out (LIFO)
method. If the first-in, first-out (FIFO) method of cost determination had
been used, inventories would have been $17,221,000 and $13,364,000 higher
than the levels reported as of the end of the first six months of fiscal
years 1994 and 1993, respectively. Using the FIFO method, inventories
would have been $65,489,000 and $61,775,000 of work-in-process and
$80,209,000 and $71,146,000 of finished goods in fiscal years 1994 and
1993, respectively.
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Total assets for the Company as of January 28, 1994 were $451.9 million, an
increase of $13.4 million, or 3.1%, from the $438.5 million reported at the end
of the second quarter last year. The increase resulted primarily from increases
in trade receivables and inventory. The increase in trade receivables is
directly related to increased sales volume. Inventory increased as a result of
building product to meet increased demand coupled with production changes
implemented to accommodate previous consolidation of manufacturing plants.
Total debt as of January 28, 1994 was $148.3 million, or $30.8 million less than
the $179.1 million reported at the end of the second quarter last year. The
ratio of total debt to total debt plus equity of 50.2% has improved from the
58.5% reported as of January 29, 1993. The lower debt ratio resulted from the
reduced debt levels combined with an increase in equity as a result of fiscal
1993 earnings.
Our business is seasonal. Historically, accounts receivable balances increase
throughout the winter months as a result of extended payment terms made
available to our customers and decrease in the late spring when payments become
due. Our peak borrowing usually occurs in the third quarter. The seasonal
working capital requirements of the business are financed primarily with short-
term debt. We believe that the combination of funds available through existing
financing options, coupled with forecasted cash flows, will provide the capital
resources necessary to meet the Company's working capital requirements.
RESULTS OF OPERATIONS
The following table sets forth sales by product line.
Three Months Ended
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(Dollars in thousands) January 28, January 29,
1994 1993 $ Change % Change
----------- ----------- ----------- -----------
Consumer products. . . . . . . . . . . . . . . . . . $ 108,662 $ 82,188 $ 26,474 32.2%
Commercial products. . . . . . . . . . . . . . . . . 55,060 48,766 6,294 12.9
Irrigation products. . . . . . . . . . . . . . . . . 25,691 22,218 3,473 15.6
----------- ----------- ----------- -----------
Total *. . . . . . . . . . . . . . . . . . . . . $ 189,413 $ 153,172 $ 36,241 23.7%
----------- ----------- ----------- -----------
----------- ----------- -----------
* Includes International sales of: . . . . . . . . . $ 30,529 $ 26,321 $ 4,208 16.0%
Six Months Ended
--------------------------------------------------------
(Dollars in thousands) January 28, January 29,
1994 1993 $ Change % Change
----------- ----------- ----------- -----------
Consumer products. . . . . . . . . . . . . . . . . . $ 189,052 $ 141,361 $ 47,691 33.7%
Commercial products. . . . . . . . . . . . . . . . . 90,613 78,762 11,851 15.1
Irrigation products. . . . . . . . . . . . . . . . . 45,509 46,492 (983) (2.1)
----------- ----------- ----------- -----------
Total *. . . . . . . . . . . . . . . . . . . . . $ 325,174 $ 266,615 $ 58,559 22.0%
----------- ----------- ----------- -----------
----------- ----------- -----------
* Includes International sales of: . . . . . . . . . $ 43,627 $ 42,660 $ 967 2.3%
-7-
Changes in net sales for the second quarter and year to date were attributed to
the following factors. Consumer product sales reflect increased sales of walk
power mower products, electric products and the continued acceptance of the new
lower-priced lawn tractor introduced last spring. These increases were
attributed to heavy ordering by distributors and mass merchandisers in
anticipation of a much better retail selling season than last year and strong
acceptance of new products. The commercial product sales increase was
attributable to a strong domestic golf market and the continued acceptance of
the new Workman-TM- vehicle. The irrigation product sales increase reflected
improving domestic economic conditions and changes in our distribution network
implemented in the first quarter of this fiscal year. The slight decline in
irrigation sales year to date reflected the impact of reduced international
sales because of the continued weak economies in major European and Asian
markets. This decline was offset by the improving domestic market. The
international sales increase reflected increases in commercial and consumer
product sales, particularly the new Workman-TM- vehicle which was not in the
market last year. These increases were offset by the decline in international
irrigation sales as discussed above.
Gross profit of $66.6 million was $12.9 million (24%) higher than the $53.7
million reported for the second quarter of fiscal 1993. As a percent of sales,
gross profit increased slightly to 35.2% for the second quarter of fiscal 1994
compared to 35.1% for the second quarter last year. Year to date gross profit
was $115.6 million, $23.0 million (24.8%) higher than the $92.6 million reported
last year. The dollar increase is attributed to increased sales volume and
improved plant efficiencies which were offset somewhat by a lower-margin product
mix.
Selling, general and administrative (S G & A) expenses increased $9.1 million,
or 19.1%, to $56.8 million from the $47.7 million for the second quarter last
year. Year to date S G & A of $108.8 million increased $18.2 million form the
$90.6 million reported a year ago. The increases occurred principally as a
result of increases in consumer product brand advertising, investment in
customer support services related to changes made in irrigation's distribution
channel, and increased research and development expenditures.
Interest expense of $3.2 million for the quarter was $1.0 million, or 23.8%,
less than the $4.2 million the same period last year. Year to date interest
expense decreased $1.9 million to $6.5 million from the $8.4 million reported a
year ago. These decreases are principally because of the reduction in long-term
debt.
Net other income decreased $0.3 million to $0.9 million from $1.2 million from
the second quarter last year. The decrease resulted primarily from the decline
of finance revenues because of improved inventory turnover at distributors and
dealers. Year to date net other income of $4.0 million is $1.3 million higher
than the $2.7 million reported a year ago. The year to date increase reflects
$1.85 million received in settlement of a lawsuit relating to the purchase of
Lawn-Boy, Inc. In addition to the items mentioned above, other income includes
foreign currency exchange losses, royalty income and gains/losses incurred on
joint ventures.
Provision for income taxes as a percent of pre-tax earnings was 40.0% for the
second quarter of fiscal 1994 and benefit for income taxes as a percent of pre-
tax loss was 38.0% for the same period in fiscal 1993. The tax rate increase
reflects the enactment of the new tax law. We expect the tax rate to remain at
40% for the remainder of fiscal 1994.
While we expect our results for fiscal 1994 to be better than fiscal 1993, we
are experiencing some shift in revenues to the first half of the fiscal year
from the second half. Therefore, we do not expect our growth for the remainder
of the fiscal year to be as dramatic as the increases experienced during the
first half of the year.
-8-
PART II. OTHER INFORMATION
Item 4 Results of Votes of Security Holders
The Annual Meeting of Stockholders was held on December 16, 1993 involving
election of directors, adoption of the 1993 Stock Option Plan and the
appointment of auditors.
The results of the stockholder votes were as follows: on the election of
directors, 9,993,820 were voted for election and some of the proxies were
cast against the two directors, but not more than 2.2% of the shares
represented in person or by proxy at the meeting; on the 1993 Stock Option
Plan 6,668,914 shares were voted for, 2,583,255 shares were voted against,
164,592 shares abstained and there were 769,794 broker non-votes; and on
the appointment of the independent auditors 9,980,418 shares were voted
for, 70,975 shares were voted against and 135,162 shares abstained.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit 11 Computation of Earnings (Loss) per Common Share
(b) Reports on Form 8-K
The Company did not file any Form 8-K reports during the second
quarter of fiscal 1994.
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 10, 1994
-9-
Exhibit 11
THE TORO COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
Three Months Ended Six Months Ended
-------------------------- --------------------------
January 28, January 29, January 28, January 29,
1994 1993 1994 1993
----------- ----------- ----------- -----------
Net earnings (loss). . . . . . . . . . . . . . . . . . $ 4,477 $ 1,816 $ 2,582 $ (2,320)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Primary:
Shares for common and common share
equivalent net earnings (loss) per share:
Weighted average number of common
shares outstanding. . . . . . . . . . . . . . 12,414,115 12,055,081 12,368,710 12,048,289
Dilutive effect of outstanding
stock options (1), (3). . . . . . . . . . . . 551,840 306,453 539,633 -
----------- ----------- ----------- -----------
12,965,955 12,361,534 12,908,343 12,048,289
----------- ----------- ----------- -----------
Net earnings (loss) per common and
common share equivalent . . . . . . . . . . . $ 0.35 $ 0.15 $ 0.20 $ (0.19)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Fully Diluted:
Shares for common and common share
equivalent net earnings (loss) per share:
Weighted average number of common
shares outstanding. . . . . . . . . . . . . . 12,414,115 12,055,081 12,368,710 12,048,289
Dilutive effect of outstanding
stock options (2), (3). . . . . . . . . . . . 565,762 306,453 585,798 -
----------- ----------- ----------- -----------
12,979,877 12,361,534 12,954,508 12,048,289
----------- ----------- ----------- -----------
Net earnings (loss) per common and
common share equivalent . . . . . . . . . . . $ 0.35 $ 0.15 $ 0.20 $ (0.19)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
1) Outstanding stock options and options exercised in the current period are
converted to common share 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 share 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.
3) Loss per share calculations are based on weighted average common shares
outstanding excluding common stock equivalents due to their anti-dilutive
affect.
-10-
