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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 April 29, 1994 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)
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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
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The number of shares of Common Stock outstanding as of April 29, 1994 was
12,604,218.
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THE TORO COMPANY
INDEX TO FORM 10-Q
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION:
Condensed Consolidated Balance Sheets -
April 29, 1994, April 30, 1993 and July 31, 1993 . . . . 3
Condensed Consolidated Statements of Operations and
Retained Earnings -
Three and Nine Months Ended
April 29, 1994 and April 30, 1993. . . . . . . . . . . . 4
Consolidated Statements of Cash Flows -
Nine Months Ended April 29, 1994 and April 30, 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 6 Exhibits and Reports on Form 8-K. . . . . . . . . . 9
Exhibit 11 Computation of Earnings Per Common Share . . 10
-2-
PART I. FINANCIAL INFORMATION
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
April 29, April 30, July 31,
1994 1993 1993
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ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,664 $ 6,482 $ 61,793
Receivables (net) . . . . . . . . . . . . . . . . . . . 300,751 276,190 180,363
Inventories . . . . . . . . . . . . . . . . . . . . . . 123,662 99,354 78,708
Prepaid expenses. . . . . . . . . . . . . . . . . . . . 23,004 25,368 23,266
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Total current assets. . . . . . . . . . . . . . . 455,081 407,394 344,130
------------- ------------- --------------
Property, plant and equipment . . . . . . . . . . . . . 182,009 181,276 173,397
Less accumulated depreciation and amortization. . 125,091 118,243 113,428
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$ 56,918 $ 63,033 $ 59,969
Other assets. . . . . . . . . . . . . . . . . . . . . . 18,266 20,415 15,104
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Total assets. . . . . . . . . . . . . . . . . . . $ 530,265 $ 490,842 $ 419,203
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------------- ------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt . . . . . . . . . . . $ 45,645 $ 16,140 $ 15,000
Short-term debt . . . . . . . . . . . . . . . . . . . . 43,588 28,460 --
Accounts payable. . . . . . . . . . . . . . . . . . . . 38,193 30,252 28,786
Other accrued liabilities . . . . . . . . . . . . . . . 155,882 124,922 106,474
------------- ------------- --------------
Total current liabilities . . . . . . . . . . . . 283,308 199,774 150,260
------------- ------------- --------------
Deferred income taxes . . . . . . . . . . . . . . . . . 759 2,442 1,372
Long-term debt, less current portion. . . . . . . . . . 77,245 147,960 122,970
Deferred income . . . . . . . . . . . . . . . . . . . . 5,250 -- --
Stockholders' equity:
Common stock par value $1.00,
authorized 35,000,000 shares; issued and
outstanding 12,604,218 shares at April 29,
1994 (net of 28,544 treasury shares),
12,252,230 shares at April 30, 1993
(net of 325,643 treasury shares), and
12,270,404 shares at July 31, 1993 (net
of 307,469 treasury shares). . . . . . . . . . . . 12,604 12,252 12,270
Additional paid-in capital . . . . . . . . . . . . . 49,357 44,736 44,898
Retained earnings. . . . . . . . . . . . . . . . . . 107,189 92,304 93,451
Foreign currency translation adjustment. . . . . . . (224) (792) (795)
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168,926 148,500 149,824
Receivable from ESOP . . . . . . . . . . . . . . . . (5,223) (7,834) (5,223)
------------- ------------- --------------
Total common stockholders' equity. . . . . . . . . . 163,703 140,666 144,601
------------- ------------- --------------
Total liabilities and stockholders' equity . . . $ 530,265 $ 490,842 $ 419,203
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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 Nine Months Ended
---------------------------- ----------------------------
April 29, April 30, April 29, April 30,
1994 1993 1994 1993
------------ ------------ ------------ ------------
Net sales . . . . . . . . . . . . . . . . . . . . . $ 276,476 $ 241,347 $ 601,650 $ 507,962
Cost of sales . . . . . . . . . . . . . . . . . . . 178,787 157,553 388,339 331,571
------------ ------------ ------------ ------------
Gross profit . . . . . . . . . . . . . . . . . 97,689 83,794 213,311 176,391
Selling, general and administrative
expense. . . . . . . . . . . . . . . . . . . . 70,817 59,470 179,618 150,106
------------ ------------ ------------ ------------
Earnings from operations . . . . . . . . . . . 26,872 24,324 33,693 26,285
Interest expense. . . . . . . . . . . . . . . . . . 3,631 4,568 10,178 12,978
Other income, net . . . . . . . . . . . . . . . . . (2,820) (796) (6,850) (3,503)
------------ ------------ ------------ ------------
Earnings before income taxes . . . . . . . . . 26,061 20,552 30,365 16,810
Provision for income taxes. . . . . . . . . . . . . 10,424 7,810 12,146 6,388
------------ ------------ ------------ ------------
Net earnings . . . . . . . . . . . . . . . . . $ 15,637 $ 12,742 $ 18,219 $ 10,422
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Retained earnings at beginning of period. . . . . . 93,063 81,019 93,451 86,235
Dividends on common stock of $0.12, $0.12,
$0.36 and $0.36 per share, respectively. . . . (1,511) (1,457) (4,481) (4,353)
------------ ------------ ------------ ------------
Retained earnings at end of period. . . . . . . . . $ 107,189 $ 92,304 $ 107,189 $ 92,304
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net earnings per common and common
share equivalent:. . . . . . . . . . . . . . . $ 1.19 $ 1.01 $ 1.40 $ 0.85
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
See accompanying notes to condensed consolidated financial statements.
-4-
THE TORO COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
Nine Months Ended
----------------------------
April 29, April 30,
1994 1993
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Cash flows from operating activities:
Net income . . .. . . . . . . . . . . . . . . . . . . . . . $ 18,219 $ 10,422
Adjustments to reconcile net income to net cash
used in operating activities:
Provision for depreciation and amortization. . . . . . 13,680 14,082
Provision for deferred income tax benefit. . . . . . . (613) (67)
Changes in operating assets and liabilities:
Receivables (net) . . . . . . . . . . . . . . . . . (126,977) (77,853)
Inventories . . . . . . . . . . . . . . . . . . . . (44,954) (25,229)
Prepaid expenses. . . . . . . . . . . . . . . . . . 262 863
Payables and accruals . . . . . . . . . . . . . . . 51,202 27,573
Accrued income taxes. . . . . . . . . . . . . . . . 7,615 5,514
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Net cash used in operating activities. . . . . . (81,566) (44,695)
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Cash flows from investing activities:
Purchases of property, plant and equipment . . . . . . (9,270) (6,009)
Proceeds from asset disposals. . . . . . . . . . . . . 19 --
Increase in other assets . . . . . . . . . . . . . . . (4,541) (2,728)
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Net cash used in investing activities. . . . . . (13,792) (8,737)
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Cash flows from financing activities:
Increase in short-term debt. . . . . . . . . . . . . . 43,588 28,460
Increase in sale of receivables. . . . . . . . . . . . 6,589 8,333
Repayments of long-term debt . . . . . . . . . . . . . (15,080) --
Proceeds from deferred income. . . . . . . . . . . . . 5,250 --
Proceeds from sale of common stock . . . . . . . . . . 6,026 3,066
Purchases of common stock. . . . . . . . . . . . . . . (1,234) (291)
Dividends on common stock. . . . . . . . . . . . . . . (4,481) (4,353)
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Net cash provided by financing activities. . . . 40,658 35,215
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Foreign currency translation adjustment . . . . . . . . . . 571 (792)
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Net decrease in cash. . . . . . . . . . . . . . . . . . . . (54,129) (19,009)
Cash at beginning of period . . . . . . . . . . . . . . . . 61,793 25,491
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Cash at end of period . . . . . . . . . . . . . . . . . . . $ 7,664 $ 6,482
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----------- -----------
See accompanying notes to condensed consolidated financial statements.
-5-
THE TORO COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 29, 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 nine months ended April 29, 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 $13,365,000
higher than the levels reported as of the end of the first nine months
of fiscal years 1994 and 1993, respectively. Using the FIFO method,
inventories would have been $64,907,000 and $54,157,000 of work-in-
process and $75,976,000 and $58,562,000 of finished goods in fiscal
years 1994 and 1993, respectively.
3. DEFERRED INCOME
The Company entered into an interest rate exchange agreement with a bank
during the third quarter to preserve the value of the call option
included in its $50 million, 11% long-term sinking fund notes due
August 1, 2017, and to realize the benefit of current interest rates. As a
result of this agreement the Company received $5.25 million from the
bank, which is recorded on the balance sheet as deferred income. In
return, the Company is obligated to pay the bank 10.25% on a notational
amount of $50 million from August 1, 1997 through July 31, 2002 and the
Company will receive payments based on a floating rate equal to LIBOR on
the notational amount of $50 million for the same period.
The net interest rate differential to be received or paid and the $5.25
million deferred income will be recognized, commencing August 1, 1997,
over the term of the agreement as an adjustment to interest expense.
In accordance with FASB Statement 107 "Disclosures about Fair Value of
Financial Instruments" the cost to terminate this agreement at April 29,
1994, had management elected to do so, was approximately $3.7 million
which would have resulted in a gain of approximately $1.6 million.
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Total assets for the Company as of April 29, 1994 were $530.3 million, an
increase of $39.5 million, or 8.1%, from the $490.8 million reported at the
end of the third 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 plans implemented to accommodate previous consolidation of
manufacturing plants.
Total debt as of April 29, 1994 was $166.5 million, or $26.1 million less
than the $192.6 million reported at the end of the third quarter last year.
The ratio of total debt to total capital of 50.4% has improved from the 57.8%
reported as of April 30, 1993. The lower debt ratio resulted from the
reduced debt levels combined with an increase in equity as a result of fiscal
1994 earnings to date.
The business of the Company is seasonal. Historically, accounts receivable
balances increase throughout the winter months as a result of extended
payment terms made available to customers (distributors and dealers) and
decrease in the late spring when payments become due. Peak borrowing usually
occurs in the third quarter. The seasonal working capital requirements of
the business are financed primarily with short-term debt. Management
believes 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) April 29, April 30,
1994 1993 $ Change % Change
---------- ---------- ---------- --------
Consumer products . . . . . . . . . . . . . . . . . . . $ 171,476 $ 135,621 $ 35,855 26.4%
Commercial products . . . . . . . . . . . . . . . . . . 71,908 73,841 (1,933) (2.6)
Irrigation products . . . . . . . . . . . . . . . . . . 33,092 31,885 1,207 3.8
---------- ---------- ---------- ----
Total * . . . . . . . . . . . . . . . . . . . . . . $ 276,476 $ 241,347 $ 35,129 14.6%
---------- ---------- ---------- -----
---------- ---------- ----------
* Includes International sales of:. . . . . . . . . . . $ 57,774 $ 56,606 $ 1,168 2.1%
Nine Months Ended
----------------------------------------------------
(Dollars in thousands) April 29, April 30,
1994 1993 $ Change % Change
---------- ---------- ---------- --------
Consumer products . . . . . . . . . . . . . . . . . . . $ 360,530 $ 276,982 $ 83,548 30.2%
Commercial products . . . . . . . . . . . . . . . . . . 162,520 152,603 9,917 6.5
Irrigation products . . . . . . . . . . . . . . . . . . 78,600 78,377 223 0.3
---------- ---------- ---------- -----
Total * . . . . . . . . . . . . . . . . . . . . . . $ 601,650 $ 507,962 $ 93,688 18.4%
---------- ---------- ---------- -----
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* Includes International sales of:. . . . . . . . . . . $101,400 $99,266 $2,134 2.2%
-7-
Changes in net sales for the third quarter and year to date were attributed
to the following factors. Consumer product sales reflect increased sales of
walk power mowers, 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 better retail selling season than last year, expansion of
the distribution channel and retail network, and strong acceptance of new
products. The commercial product sales decrease for the third quarter was
primarily attributable to an aggressive introduction of the new Workman-TM-
vehicle in fiscal 1993 and earlier shipments to distributors in the first
half of fiscal 1994 to replenish low field inventory levels. On a year to
date basis, commercial product sales are experiencing an increase over the
prior year. The irrigation product sales increase reflects improving
domestic economic conditions and changes in the distribution network
implemented in the first quarter of this fiscal year. The slight increase in
irrigation sales year to date reflects some strengthening in the domestic
market. The international sales increase was attributed to increases in
commercial product sales, particularly the new Workman-TM- vehicle which was
new in the market last year.
Gross profit of $97.7 million was $13.9 million (16.6%) higher than the $83.8
million reported for the third quarter of fiscal 1993. As a percent of
sales, gross profit increased slightly to 35.3% for the third quarter of
fiscal 1994 compared to 34.7% for the third quarter last year. Year to date
gross profit was $213.3 million, $36.9 million (20.9%) higher than the $176.4
million reported last year. The dollar increase is attributed to increased
sales volume and improved manufacturing efficiencies.
Selling, general and administrative (S G & A) expenses increased $11.3
million, or 19.0%, to $70.8 million from the $59.5 million for the third
quarter last year. Year to date S G & A of $179.6 million increased $29.5
million from the $150.1 million reported a year ago. The increases occurred
principally as a result of investments in consumer product brand advertising,
customer support services related to changes made in irrigation's
distribution channel, research and development expenditures, a consumer
warranty provision for a lawn tractor component modification, and start-up
costs for the fertilizer and debris businesses.
Interest expense of $3.6 million for the quarter was $1.0 million, or 21.7%,
less than the $4.6 million the same period last year. Year to date interest
expense decreased $2.8 million to $10.2 million from the $13.0 million
reported a year ago. These decreases are principally because of the
reduction in long-term debt.
Net other income increased $2.0 million to $2.8 million from $0.8 million
from the third quarter last year. The increase resulted primarily from the
settlement of a patent infringement lawsuit and the sale of the portable
heater business. Year to date net other income of $6.9 million is $3.4
million higher than the $3.5 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., as well as the items mentioned above. In
addition to the items listed, 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
third quarter of fiscal 1994 and provision 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. The tax rate is expected
to remain at 40% for the remainder of fiscal 1994.
We are optimistic about our outlook for the remainder of the fiscal year, and
have good momentum to carry us into fiscal 1995.
-8-
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit 11 Computation of Earnings per Common Share
(b) Reports on Form 8-K
The Company did not file any Form 8-K reports during the third
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
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Gerald T. Knight
Vice President, Finance
Chief Financial Officer
(principal financial officer)
Date: June 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 Nine Months Ended
-------------------------- ---------------------------
April 29, April 30, April 29, April 30,
1994 1993 1994 1993
------------ ------------ ------------ ------------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . $ 15,637 $ 12,742 $ 18,219 $ 10,422
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Primary:
Shares for common and common share
equivalent net earnings per share:
Weighted average number of common
shares outstanding . . . . . . . . . . . . . . . . 12,564,692 12,185,120 12,434,277 12,093,899
Dilutive effect of outstanding
stock options (1). . . . . . . . . . . . . . . . . 544,903 406,921 543,553 218,013
------------ ------------ ------------ ------------
13,109,595 12,592,041 12,977,830 12,311,912
------------ ------------ ------------ ------------
Net earnings per common and
common share equivalent. . . . . . . . . . . . . . $ 1.19 $ 1.01 $ 1.40 $ 0.85
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Fully Diluted:
Shares for common and common share
equivalent net earnings per share:
Weighted average number of common
shares outstanding. . . . . . . . . . . . . . . . . 12,564,692 12,185,120 12,434,277 12,093,899
Dilutive effect of outstanding
stock options (2). . . . . . . . . . . . . . . . . 544,903 406,921 561,648 409,761
------------ ------------ ------------ ------------
13,109,595 12,592,041 12,995,925 12,503,660
------------ ------------ ------------ ------------
Net earnings per common and
common share equivalent. . . . . . . . . . . . . . $ 1.19 $ 1.01 $ 1.40 $ 0.83
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
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.
-10-
