UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended July 31, 1994
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OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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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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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock New York Stock Exchange
par value $1.00 per share
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--------- ---------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant, based upon the close price of the Common Stock on September 30, 1994
as reported on the New York Stock Exchange, was approximately $314,586,300.
The number of shares of Common Stock outstanding as of September 30, 1994 was
12,583,452.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended July 31, 1994, are incorporated by reference into Parts I, II and IV.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held December 15, 1994, are incorporated by reference into
Part III.
PART I
ITEM 1. BUSINESS
INTRODUCTION
The company designs, manufactures and markets consumer and commercial lawn and
turf maintenance equipment, snow removal products and turf irrigation systems,
including products for maintenance of golf courses, parks and other large turf
areas. The company produced its first lawn mower for golf course fairways in
1922 and its first lawn mower for home use in 1939 and has continued to enhance
its product lines and expand its market ever since.
The company was incorporated in Minnesota in 1935 as a successor to a business
founded in 1914. It was reincorporated in Delaware in 1983. The company's
executive offices are located at 8111 Lyndale Avenue South, Bloomington,
Minnesota 55420-1196, telephone number (612) 888-8801. Unless the context
indicates otherwise, the terms "company" and "Toro" refer to The Toro Company
and its subsidiaries. The company finances a significant portion of its
receivables through Toro Credit Company ("Toro Credit"), its wholly-owned
finance subsidiary.
YARD MAINTENANCE EQUIPMENT
The company classifies its operations into one industry segment, yard
maintenance equipment. The company has been a leader in transforming advanced
technologies into products and services that provide solutions to lawn and turf
care maintenance and beautification demands.
MANUFACTURING
The company's consumer spring and summer products are generally manufactured in
the winter and spring months and its consumer fall and winter products are
generally manufactured in the summer and fall months. The company's irrigation
and commercial products are manufactured throughout the year.
In some areas of its business the company is primarily an assembler while in
others it is a fully integrated manufacturer. Most of the components for the
company's products are commercially available from a number of sources and the
company is generally not dependent on any one supplier. The largest component
costs are generally engines, transmissions and electric motors. The company
purchases most of its engines and motors for consumer and commercial products
from several suppliers. In addition, the company manufactures three types of
two-cycle engines for its consumer products.
Management continues to seek greater efficiencies and improve work processes
throughout the company. Toro's total quality process is focused upon improving
product quality, customer response time and reducing overall product cost and
inventory levels both within Toro and in the company's distribution channels.
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TRADEMARKS AND PATENTS
Products manufactured by the company are nationally advertised and sold at the
retail level under the trademarks "Toro", "Wheel Horse" and "Lawn-Boy", all of
which are registered in the United States and in the principal foreign countries
in which the company markets its products. The company holds patents for many
of its products in the United States and foreign countries and applies for
patents on new products as new products are developed. Although management
believes patents have value to the company, patent protection sometimes does not
deter competitors from attempting to develop similar products. Management
believes that factors such as innovation, quality and its distribution systems
are significant in protecting its competitive position. Although patent
protection is considered to be very beneficial, the company is not dependent on
any one or more of its patents.
SEASONALITY
Sales of the company's consumer products, which accounted for approximately 54%
of total sales in fiscal 1994, are highly seasonal with greater sales of yard
maintenance equipment occurring in the spring. Sales of snow removal equipment
in the fall and winter months and contra seasons in some global markets somewhat
moderate this seasonality in consumer product sales. Seasonality in irrigation
and commercial product sales also exists, but is tempered because the selling
season in west coast and southern states continues for a longer portion of the
year than in northern states. Overall, worldwide sales levels are highest in
the third quarter. Historically, accounts receivable balances increase
throughout the winter months as a result of extended payment terms made
available to the company's customers. Accounts receivable balances decrease in
the late spring when payments are due. The seasonal requirements of the
business are financed from operations and with short-term bank lines of credit
and off-balance sheet financing.
DISTRIBUTION AND MARKETING
The company markets the majority of its products principally through
approximately 48 domestic and 55 foreign distributors and mass merchandisers
worldwide. Distributors resell consumer products to approximately 10,800 retail
dealers throughout the United States. Riding products are sold primarily to
approximately 4,000 retail service dealers throughout the United States through
existing distributors acting as sales agents worldwide. Home appliance and
Lawn-Boy products are sold directly to mass merchandisers and "do-it-yourself"
home improvement retailers. Distributors sell commercial and irrigation
products directly to end users, including irrigation contractors. Irrigation
products are also sold through distributors to irrigation dealers and direct to
general line distributors, mass merchandisers and "do-it-yourself" home
improvement retailers for resale to contractors and end-users. Consumer
products are sold to international distributors who resell to approximately
2,000 retail dealers outside the United States, principally in Canada, Western
Europe, Japan and Australia. Additionally, some irrigation and consumer
products are sold directly to approximately 700 retail dealers in Canada,
Australia and Western Europe.
The company's current marketing strategy is to maintain distinct and separate
brands and brand identification for Toro, Toro/Wheel Horse and Lawn-Boy
products.
The company's distribution systems for the sale of its products are intended to
assure quality of sales and market presence as well as effective after-market
service. The company considers its distribution network to be a significant
competitive asset in marketing Toro, Toro/Wheel Horse and Lawn-Boy products.
The company advertises its products during appropriate seasons throughout the
year on television, radio and in print. Most of the company's advertising
emphasizes its brand names. Advertising is directly paid by Toro as well as
through cooperative programs with distributors and dealers.
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BACKLOG OF ORDERS
The order backlog at July 31, 1994 and 1993 was as follows:
July 31
-------------------------------
1994 1993
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Consumer. . . . . . . . . $107,848,000 $43,190,000
Commercial. . . . . . . . 40,279,000 33,037,000
Irrigation. . . . . . . . 10,214,000 7,916,000
The increase in consumer product backlog reflects the fiscal 1994 sell-out of
gas snow products and strong demand for snow products in anticipation of another
hard winter season. The increase for commercial products reflects a strong
first quarter for fiscal 1995 core product sales. Favorable weather conditions
and rebounding economies in Europe and the Far East is exhibited by the increase
in irrigation product backlog. The existing backlog is expected to be filled in
the succeeding fiscal year.
COMPETITION
The principal competitive factors in the company's markets are product
innovation, quality, service and pricing. Management believes the company
offers high quality products with the latest technology and design innovations.
Also, by selling Toro, Toro/Wheel Horse and Lawn-Boy brand products through a
network of distributors and dealers who provide service, the company offers
competitive service during and after the relevant warranty period.
The company competes in all product lines with numerous manufacturers, many of
which have substantially greater financial resources than the company.
CONSUMER
The principal competitors for walk-behind mowers are American Yard Products,
Inc. (a subsidiary of Electrolux AB), Deere & Company, Honda Motor Co.,
Ltd., MTD Products, Inc., Murray Ohio Manufacturing Co., Inc. (a subsidiary
of Tompkins Corp.), Sears, Roebuck and Co. and Snapper Power Equipment (a
division of ACT). The principal competitors in riding mowers and lawn and
garden tractors are Ariens Company, Bolens Corporation (a division of Garden
Way, Incorporated), Deere & Company, Honda Motor Co., Ltd., Murray Ohio
Manufacturing Co., Inc., MTD Products, Inc., Noma Outdoor Products, Sears,
Roebuck and Co., Simplicity Manufacturing Company and Snapper Power
Equipment. The principal competitors for snow throwers are Ariens Company,
Bolens Corporation, Honda Motor Co., Ltd., Noma Outdoor Products, Sears,
Roebuck and Co., Simplicity Manufacturing Company, Snapper Power Equipment
and Yamaha Motor Corporation, USA. The principal competitors in home
improvement products are Black and Decker Corporation, K & S Industries,
Inc., Malibu Lighting (a registered trademark of Intermatic, Inc.) and
Poulan/Weed Eater (a division of Electrolux AB).
COMMERCIAL
The company's commercial products compete with products from numerous
manufacturers, but the principal competitors across most of the company's
commercial product lines are Deere & Company, Jacobsen and Ransomes Sims &
Jefferies PLC, based in the United Kingdom.
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IRRIGATION
The principal competitors in irrigation products are James Hardie
Irrigation, Inc. (a subsidiary of James Hardie Industries Limited, based in
Australia), Hunter Industries and Rain Bird Sprinkler Manufacturing
Corporation. Management believes that its commitment to product innovation,
its distribution systems and its focus on its target markets, position it
well to compete in these various markets.
INTERNATIONAL
The international market is generally fragmented so that the degree of
competition varies among the different countries in which the company
markets its consumer, commercial and irrigation products. Most competitors
in the irrigation and commercial product lines are based in the United
States. Consumer product lines face more competition because foreign
competitors can manufacture and market competing products in their countries
at a lower cost. In addition, fluctuations in the value of the U.S. dollar
may affect the price of the company's products in such markets, thereby
affecting their competitiveness.
RESEARCH AND DEVELOPMENT
The company conducts research and development activities in an effort to improve
existing products and to develop new products. Amounts expended on such
activities aggregated approximately $30.9 million, or 3.9% of sales in 1994,
$25.3 million, or 3.7% of sales in 1993 and $26.9 million, or 4.2% of sales in
1992. Management believes that the company's research and development efforts
are important to the quality, mix and growth of its businesses and plans to
continue its strong commitment to such activities.
GOVERNMENTAL REGULATION
The company's products are subject to various federal statutes designed to
protect consumers and are subject to the administrative jurisdiction of the
Federal Consumer Product Safety Commission. The company is also subject to
certain federal and state environmental, occupational safety and other
regulations, none of which has had a material adverse affect on its operations
or business. Management believes the company is in substantial compliance with
all such regulations. The Environmental Protection Agency (EPA) released
proposed regulations for small engine emissions in May 1994. Toro has been
working with industry associations and the EPA on the proposed rules for more
than two years and is positioned to respond to whatever final rules are adopted.
EMPLOYEES
During 1994 the company employed an average of 3,434 employees. The total
number of employees at July 31, 1994 was 2,800, reflecting the company's normal
seasonal fluctuation in employment. Approximately one-quarter of the company's
employees are covered by three collective bargaining agreements expiring in
September 1994, November 1996 and May 1997, respectively. Management considers
its overall relations with its employees to be good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
All of Toro's production facilities are located within the United States and
Belgium. Except for the sales of the company's foreign subsidiaries which are
not significant when compared to total company sales, substantially all
financial transactions are made in U.S. dollars. Consequently, the company did
not realize any significant impact to earnings due to fluctuations in foreign
currencies.
Export sales were $109,344,000, $111,263,000 and $109,076,000 in fiscal 1994,
1993 and 1992, respectively. The identifiable assets attributable to foreign
operations are not significant.
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ITEM 2. PROPERTIES
The Toro Company utilizes owned manufacturing and office facilities which
totaled approximately 2,199,000 square feet of space. The manufacturing
facilities operated at about 89% of total capacity in fiscal 1994. The
following schedule outlines the owned facilities by location, plant size and
function:
Location Square Feet Products Manufactured/Use
- - - - ------------------ ----------- ---------------------------------------
Plymouth, WI 463,000 Parts distribution center, office
Tomah, WI 274,000 Consumer and Commercial products
Bloomington, MN 244,000 Corporate headquarters
Riverside, CA 222,000 Irrigation products
Sardis, MS (a) 244,000 Consumer products
Windom, MN 253,000 Consumer components and products
South Bend, IN(b) 226,000 Closed facility
Shakopee, MN 146,000 Components for consumer and commercial
products
Oxford, MS 64,000 Components for consumer products
Oevel, Belgium 63,000 Consumer products
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Total Square Feet 2,199,000
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(a) Facility closed in 1993 due to restructuring. Will be reopened in
1995.
(b) Facility closed in 1993 due to restructuring. Building held for sale.
In 1994, the company leased the following warehouse space for its finished good
distribution centers: 304,000 square feet in Lakeville, Minnesota and 228,000
square feet in Baraboo, Wisconsin. The company also leased manufacturing space
of 145,000 square feet in Mound, Minnesota and 176,000 square feet in Olathe,
Kansas. Other leased office and warehouse space located in various cities in
the United States, Australia, Canada, France, Singapore and United Kingdom
totaled approximately 92,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
The company is routinely a party to various litigation in the ordinary course of
its business. This ongoing litigation primarily involves claims for damages
arising out of the use of the company's products, some of which include claims
for punitive as well as compensatory damages. The company is also subject to
administrative proceedings in respect of certain claims involving the discharge
of hazardous substances into the environment. Certain of these claims assert
damages and liability for remedial investigations and clean up costs.
Management is of the opinion that the amounts which may be awarded or assessed
in connection with these matters will not have a material effect on the
company's financial position. Further, the company maintains insurance against
product liability losses (other than for punitive damages). Such insurance
presently covers claims in excess of $1,000,000 per claim or $2,000,000 in the
aggregate during any fiscal year. The company regularly reviews these dollar
limits.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
None.
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PART II
All information incorporated herein by reference in this Part II is from the
Registrant's Annual Report to Stockholders for the fiscal year ended July 31,
1994 ("Annual Report").
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Toro common stock (including related Preferred Share Purchase Rights) is listed
for trading on the New York Stock Exchange. The number of common stockholders
of record as of July 31, 1994 was 7,541.
See "Quarterly Financial Data" on page 28 of the Annual Report for dividends
paid and range of high and low quotations, which are incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
See financial data for fiscal years 1994, 1993, 1992, 1991 and 1990 included in
"Eleven-Year Selected Financial Data" on pages 12 and 13 of the Annual Report
which information for this five-year period is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 14 through 18 of the Annual Report which is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements described in Item 14(a)1 of this report are
incorporated herein by reference.
See "Quarterly Financial Data" appearing on page 28 of the Annual Report which
is incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-7-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of The Toro Company contained in the Proxy
Statement for the Annual Meeting of Stockholders to be held December 15, 1994,
is incorporated herein by reference to such proxy statement which will be filed
within 120 days after the end of the fiscal year covered by this Form 10-K.
EXECUTIVE OFFICERS - A complete list of all officers of the company is found on
the inside back cover of the Registrant's Annual Report for the year ended July
31, 1994. Those persons deemed "EXECUTIVE OFFICERS" are listed below in
alphabetical order. The list below includes their age and position with the
company as of October 17, 1994, and positions held by them during the last five
years. Officers are elected or appointed annually. Additional information
regarding certain of the executive officers is contained in the Proxy Statement
for the Annual Meeting of Stockholders to be held December 15, 1994.
Name, Age and Position
with the Company Business Experience During the Last Five Years
- - - - ---------------------- ----------------------------------------------
Calvin R. Hendrix Appointed Vice President, Irrigation Division in
43, Vice President and September 1993. From 1988 to September 1993, held
General Manager various management positions with Masco Corporation.
Irrigation Products
Randy B. James Appointed Vice President, Controller in December 1988.
51, Vice President, Previously held various management positions within
Controller the company.
Gerald T. Knight Elected Vice President-Finance in April 1992. From
47, Vice President- December 1990 to April 1992, was Executive Director -
Finance, Chief Finance and Corporate Controller of
Financial Officer NeXT Computer, Inc. Prior to December 1990, held
various management positions with The Pillsbury
Company (a subsidiary of Grand Metropolitan).
Charles B. Lounsbury Appointed Vice President, Distribution Parts and
51, Vice President, Debris Management in November 1993. From
Distribution, Parts May 1991 to November 1993 was President and Chief
and Debris Management Operating Officer of Leaseway Transportation
Corporation. While Mr. Lounsbury served as
President and a director of Leaseway, it filed for
protection under Chapter 11 and was, during that
period, discharged. From August 1987 to May 1991
was Senior Vice President of Leaseway
Transportation Corporation.
J. David McIntosh Appointed Vice President, Consumer Division in
51, Vice President February 1992. Appointed Vice President and General
and General Manager, Manager, Home Improvement Division in May 1986.
Consumer Products
J. Lawrence McIntyre Elected Vice President in July 1993. Elected Secretary
52, Vice President, and General Counsel in August 1993. Prior to
Secretary and July 1993, was a shareholder with
General Counsel Doherty, Rumble & Butler Professional Association.
-8-
Name, Age and Position
with the Company Business Experience During the Last Five Years
- - - - ---------------------- ----------------------------------------------
Kendrick B. Melrose Elected Chairman of the Board in December 1987.
54, Chairman of the Elected Chief Executive Officer in December 1983.
Board and Chief
Executive Officer
Karen M. Meyer Elected Vice President, Human Resources/Administrative
44, Vice President Services in December 1991. Appointed Vice President,
Human Resources/ Human Resources/Administrative Services in December,
Administrative Services 1988. Previously held various management positions
within the company.
David H. Morris Elected President in December 1988. Elected Chief
53, President and Operating Officer in August 1988.
Chief Operating Officer
Richard R. Pollick Appointed Vice President, International Division in
55, Vice President and March 1990. Previously held various management
General Manager positions within the company.
International Equipment
John G. Szafranski Appointed Vice President, Commercial Products in
59, Vice President December 1984.
and General Manager,
Commercial Equipment
ITEM 11. EXECUTIVE COMPENSATION
Information contained under the heading "Compensation" in the Proxy Statement
for the Annual Meeting of the Stockholders to be held December 15, 1994, is
incorporated herein by reference to such proxy statement which will be filed
within 120 days after the end of the fiscal year covered by this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the security ownership of certain beneficial owners and
management of The Toro Company contained in the Proxy Statement for the Annual
Meeting of the Stockholders to be held December 15, 1994, is incorporated herein
by reference to such proxy statement which will be filed within 120 days after
the end of the fiscal year covered by this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Incorporated by reference into Part II, Item 8 of this report:
Pages in Fiscal 1994
Annual Report
to Stockholders
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . 19
Consolidated Statements of Operations for the years ended
July 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . 19
Consolidated Balance Sheets
as of July 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . 20
Consolidated Statements of Cash Flows for the
years ended July 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . 21
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . 22-28
(a) 2. INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . 13
Schedule VIII - Valuation and Qualifying Accounts. . . . . . . . . . 14
Schedule IX - Short-term Borrowing . . . . . . . . . . . . . . . . . 15
Schedule X - Supplementary Income Statement Information. . . . . . . 16
All other schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or related
notes.
(a) 3. EXHIBITS
3(i)(a) and 4(a) Certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 4.2 to the Registrant's Registration
Statement on Form S-3, Registration No. 33-16125).
3(i)(b) and 4(b) Certificate of Amendment to Certificate of Incorporation of
the Registrant dated December 9, 1986 (incorporated by
reference to Exhibit 3 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended January 30, 1987, Commission
file No. 1-8649).
3(i)(c) and 4(c) Certificate of Amendment to Certificate of Incorporation of
the Registrant dated December 8, 1987 (incorporated by
reference to Exhibit 3 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended January 29, 1988,
Commission File No. 1-8649).
- 10 -
3(ii) and 4(d) Bylaws of the Registrant (incorporated by reference to
Exhibit 3.3 to the Registrant's Annual Report on Form 10-K
for the year ended July 31, 1991, Commission file
No. 1-8649)
4(e) Specimen form of Common Stock certificate (incorporated by
reference to Exhibit 4(c) to the Registrant's Registration
Statement on Form S-8, Registration No. 2-94417).
4(f) Rights Agreement dated as of June 14, 1988, between the
Registrant and Norwest Bank Minnesota, National Association
relating to rights to purchase Series B Junior Participating
Voting Preferred Stock, as amended (incorporated by
reference to Exhibit 1 to Registrant's Registration
Statement on Form 8-A dated June 17, 1988, Commission File
No. 1-8649, as amended).
4(g) Indenture dated as of July 15, 1987, between the Registrant
and Manufacturers Hanover Trust Company, Trustee, relating
to the Registrant's 11% Sinking Fund Debentures Due August
1, 2017 (incorporated by reference to Exhibit 4 to the
Registrant's Registration Statement on Form S-3,
Registration No. 44-16175).
10(a) Form of Employment Agreement in effect for certain officers
of the Registrant (incorporated by reference to Exhibit
10(a) to the Registrant's Annual Report on Form 10-K for the
year ended July 31, 1993).
10(b) 1985 Incentive Stock Option Plan and 1989 Stock Option Plan,
both as amended (incorporated by reference Exhibit 10(b) to
the Registrant's Annual Report on Form 10-K for the year
ended July 31, 1993).
10(c) The Toro Company Matching Stock Purchase Plan (incorporated
by reference to Exhibit 28 to the Registrant's Registration
Statement on Form S-8, Registration No. 33-22469).
10(d) 1993 Stock Option Plan (incorporated by reference to Exhibit
A to Registrant's Proxy Statement dated October 29, 1993).
10(e) Continuous Performance Award Plan (incorporated by reference
to Exhibit A to Registrant's Proxy Statement dated
October 31, 1991).
11 Computation of Earnings (Loss) per Share of Common Stock and
Common Stock Equivalent (page 17 of this report).
13 Registrant's Fiscal 1994 Annual Report to Stockholders.
21 Subsidiaries of Registrant (page 18 of this report).
23 Independent Auditors' Consent (page 19 of this report).
(b) REPORTS ON FORM 8-K
None.
- 11 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE TORO COMPANY
-------------------------------------
(Registrant)
Dated: October 18, 1994
/s/ Gerald T. Knight
-------------------------------------
Gerald T. Knight
Vice President - Finance
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Kendrick B. Melrose Chairman, Chief Executive October 18, 1994
- - - - ------------------------- Officer and Director
Kendrick B. Melrose
/s/ David H. Morris President, Chief Operating October 18, 1994
- - - - ------------------------- Officer and Director
David H. Morris
/s/ Gerald T. Knight Vice President - Finance, October 18, 1994
- - - - ------------------------- Chief Financial Officer
Gerald T. Knight (principal financial officer)
/s/ Randy B. James Vice President, Controller October 18, 1994
- - - - ------------------------- (principal accounting officer)
Randy B. James
/s/ Janet K. Cooper Director October 18, 1994
- - - - -------------------------
Janet K. Cooper
/s/ William W. George Director October 18, 1994
- - - - -------------------------
William W. George
/s/ Alex A. Meyer Director October 18, 1994
- - - - -------------------------
Alex A. Meyer
/s/ Robert H. Nassau Director October 18, 1994
- - - - -------------------------
Robert H. Nassau
/s/ Dale R. Olseth Director October 18, 1994
- - - - -------------------------
Dale R. Olseth
/s/ Dale W. Turnbull Director October 18, 1994
- - - - -------------------------
Dale W. Turnbull
/s/ Edwin H. Wingate Director October 18, 1994
- - - - -------------------------
Edwin H. Wingate
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[KPMG Peat Marwick LLP Letterhead]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Toro Company:
Under date of September 8, 1994, we reported on the consolidated balance sheets
of The Toro Company and subsidiaries as of July 31, 1994 and 1993, and the
related consolidated statements of operations and cash flows for each of the
years in the three-year period ended July 31, 1994, as contained in the 1994
annual report to stockholders. These consolidated financial statements and our
report thereon are incorporated by reference in the annual report on Form 10-K
for the fiscal year 1994. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related financial
statement schedules as listed in the accompanying index. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 8, 1994
Schedule VIII
THE TORO COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
DESCRIPTION YEAR EXPENSES OTHER (a) DEDUCTIONS (b) END OF YEAR
- - - - ------------ ------------- ----------- ------------- --------------- --------------
Year Ended July 31, 1994
- - - - --------------------------
Allowance
for doubtful
accounts $5,589,000 $3,032,000 $ 765,000 $ 1,684,000 $7,702,000
------------- ----------- ------------- --------------- --------------
Year Ended July 31, 1993
- - - - -------------------------
Allowance
for doubtful
accounts $6,358,000 $2,500,000 $ - $ 3,269,000 $5,589,000
------------- ----------- ------------- --------------- --------------
Year Ended July 31, 1992
- - - - -------------------------
Allowance
for doubtful
accounts $3,564,000 $4,083,000 $ - $ 1,289,000 $6,358,000
------------- ----------- ------------- --------------- --------------
(a) Additions to allowance for doubtful accounts during 1995 due to
reclassification and acquisitions.
(b) Uncollectible accounts charged off, net of recoveries.
- 14 -
Schedule IX
THE TORO COMPANY AND SUBSIDIARIES
Short-term Borrowing
Year Ended July 31,
------------------------------
1994 1993
----------- -----------
Balance at End of Period $ - $ -
----------- -----------
Weighted Average Interest Rate at End N/A N/A
of Period
----------- -----------
Maximum Amount Outstanding During the
Period $49,600,000 $45,500,000
----------- -----------
Average Amount Outstanding During the
Period (1) $12,900,000 $10,600,000
----------- -----------
Weighted Average Interest Rate During
the Period (2) 6.45% 8.08%
----------- -----------
(1) The average amount outstanding during the period represents total
monthly borrowing divided by 12 months.
(2) The weighted average interest rate represents total annual short-term
interest expense, including facility fees, divided by the average
daily debt outstanding.
Short-term borrowing are unsecured borrowing under bank lines of credit.
- 15 -
Schedule X
THE TORO COMPANY AND SUBSIDIARIES
Supplementary Income Statement Information
Charged to Costs and Expenses:
Year Ended July 31,
-------------------------------------------
1994 1993 1992
----------- ------------- -----------
Maintenance and repairs $10,650,000 $ 8,515,000 $ 7,074,000
Depreciation and amortization of
intangible assets * * *
Taxes, other than payroll and
income taxes * * *
Royalties * * *
Advertising $26,282,000 $17,248,000 $22,058,000
* Less than 1% of net sales for applicable year.
- 16 -
Exhibit 11
THE TORO COMPANY AND SUBSIDIARIES
Computation of Earnings (Loss) per Share of Common Stock and
Common Stock Equivalent
(Not Covered by Independent Auditors' Report)
Year Ended July 31,
--------------------------------------------
1994 1993 1992
----------- ----------- ------------
Net earnings (loss) $22,230,000 $13,040,000 $(23,753,000)
----------- ----------- ------------
----------- ----------- ------------
Primary:
Shares of common stock and common
stock equivalents:
Weighted average number of
common shares outstanding 12,472,828 12,135,399 11,982,103
Dilutive effect of outstanding
stock options (1), (3) 509,538 248,672 -
----------- ----------- ------------
12,982,366 12,384,071 11,982,103
----------- ----------- ------------
----------- ----------- ------------
Net earnings (loss) per share of common
stock and common stock equivalent $ 1.71 $ 1.05 $ (1.98)
----------- ----------- ------------
----------- ----------- ------------
Fully Diluted:
Shares of common stock and common
stock equivalents:
Weighted average number of
common shares outstanding 12,472,828 12,135,399 11,982,103
Dilutive effect of outstanding
stock options (2), (3) 509,538 395,274 -
----------- ----------- ------------
12,982,366 12,530,673 11,982,103
----------- ----------- ------------
----------- ----------- ------------
Net earnings (loss) per share of common
stock and common stock equivalent $ 1.71 $ 1.04 $ (1.98)
----------- ----------- ------------
----------- ----------- ------------
(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 year-end market price of the
company's shares during each period.
(3) Loss per share calculations for fiscal 1992 are based on the weighted
average number of shares of common stock outstanding excluding common stock
equivalents due to their anti-dilutive affect.
FINANCIAL HIGHLIGHTS
Strong Growth Continues at Toro
CONTENTS
Letter to Stockholders 2
Review of Operations 4
Eleven-Year Selected 12
Financial Data
Management's Discussion 14
and Analysis
Financial Statements 19
Notes to Consolidated 22
Financial Statements
Directors, Officers and 29
Stockholder Information
TORO DELIVERED RECORD SALES AND A 71 PERCENT EARNINGS INCREASE DURING 1994 WHILE
ALSO INVESTING HEAVILY FOR THE FUTURE IN KEY ELEMENTS OF THE OPERATION. MOMENTUM
CONTINUES TO BUILD INDICATING ANOTHER GOOD YEAR IN 1995.
EXPANDED AND ENHANCED DISTRIBUTION CHANNELS BROUGHT TORO CLOSER TO ITS CUSTOMERS
AND IMPROVED THE COMPETITIVE POSITION OF ITS PRODUCT LINES.
AGGRESSIVE ADVERTISING AND MARKETING PROGRAMS REINFORCED TORO'S BRAND EQUITY.
AGGRESSIVE RESEARCH AND DEVELOPMENT INVESTMENTS CONTINUED TO TRANSLATE TRENDS
AND CUSTOMER NEEDS INTO MARKET-LEADING NEW PRODUCTS.
TORO'S BALANCE SHEET CONTINUED TO STRENGTHEN AS THE COMPANY REDUCED LONG-TERM
DEBT BY $37 MILLION DURING THE YEAR.
- - - - ------------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
Years ended July 31 1994 1993 % Change
- - - - ------------------------------------------------------------------------------------
Net sales $794,341 $684,324 16.1%
Net earnings 22,230 13,040 70.5
Percent of net sales 2.8% 1.9%
- - - - ------------------------------------------------------------------------------------
Net earnings per share of common stock and
common stock equivalent $1.71 $1.05 62.9
Dividends per share of common stock outstanding 0.48 0.48
- - - - ------------------------------------------------------------------------------------
Return on:
Beginning common stockholders' equity 15.4% 9.8%
Average common stockholders' equity 14.2 9.4
Average invested capital 10.8 7.8
- - - - ------------------------------------------------------------------------------------
AT YEAR END
Working capital $175,783 $193,870 (9.3)
Total assets 443,639 419,203 5.8
Total debt 101,325 137,970 (26.6)
Common stockholders' equity 168,652 144,601 16.6
Book value per common share 13.43 11.78 14.0
- - - - ------------------------------------------------------------------------------------
Number of common stockholders 7,541 7,968 (5.4)
Average number of employees 3,434 3,117 10.2
- - - - ------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
The Toro Company 1994 Annual Report 1
THE TORO COMPANY
Eleven-Year Selected Financial Data
- - - - --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
Years ended July 31 1994 1993 1992* 1991 1990**
- - - - --------------------------------------------------------------------------------------------------------------------------
OPERATING DATA:
Net sales $794,341 $684,324 $643,748 $718,105 $750,931
EARNINGS:
Net earnings (loss) 22,230 13,040 (23,753) 9,700 16,558
Percent of sales 2.8% 1.9% (3.7)% 1.4% 2.2%
Per share of common stock and
common stock equivalent $ 1.71 $ 1.05 $ (1.98) $ 0.81 $ 1.55
DIVIDENDS:
On common stock outstanding 5,993 5,824 5,753 5,700 4,797
Per share of common stock outstanding 0.48 0.48 0.48 0.48 0.48
RETURN ON:
Beginning common stockholders' equity 15.4% 9.8% (14.8)% 6.4% 16.4%
Average common stockholders' equity 14.2% 9.4% (16.2)% 6.4% 14.4%
SUMMARY OF FINANCIAL POSITION:
Current assets $364,495 $344,130 $332,517 $318,753 $320,204
Current liabilities 188,712 150,260 122,087 107,981 130,452
Working capital 175,783 193,870 210,430 210,772 189,752
Non-current assets 79,144 75,073 88,793 96,551 103,347
Total assets 443,639 419,203 421,310 415,304 423,551
Non-current liabilities, excluding long-term debt 5,250 1,372 2,509 1,469 6,112
CAPITALIZATION:
Long-term debt, less current portion 81,025 122,970 164,100 145,295 134,400
Redeemable preferred stock -- -- -- -- --
Common stockholders' equity 168,652 144,601 132,614 160,559 152,587
Total capitalization 249,677 267,571 296,714 305,854 286,987
Book value per common share 13.43 11.78 11.01 13.48 12.92
STOCK DATA:
Number of shares of common stock
outstanding (in thousands) 12,561 12,270 12,042 11,913 11,814
Number of common stockholders 7,541 7,968 8,386 8,503 7,706
Low price $ 19 3/4 $ 11 3/8 $ 12 1/8 $ 11 $ 20 1/2
High price 30 1/2 21 7/8 17 1/2 24 1/4 30
Close price 22 5/8 19 3/4 13 15 3/4 24 1/4
- - - - --------------------------------------------------------------------------------------------------------------------------
*Includes restructuring costs of $24.9 million, or $1.41 per share.
**The company's consolidated financial statements include results of
operations of Lawn-Boy Inc. from November 7, 1989, the date of acquisition.
***The company's consolidated financial statements include results of
operations of Wheel Horse Products, Inc. from December 19, 1986, the date of
acquisition.
12 The Toro Company 1994 Annual Report
- - - - --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
Years ended July 31 1989 1988 1987*** 1986 1985 1984
- - - - --------------------------------------------------------------------------------------------------------------------------
OPERATING DATA:
Net sales $643,566 $609,205 $521,123 $406,664 $336,813 $280,249
EARNINGS:
Net earnings (loss) 22,096 20,048 17,032 15,491 13,224 8,306
Percent of sales 3.4% 3.3% 3.3% 3.8% 3.9% 3.0%
Per share of common stock and
common stock equivalent $ 2.10 $ 1.84 $ 1.52 $ 1.34 $ 1.11 $ 0.65
DIVIDENDS:
On common stock outstanding 4,793 4,410 3,599 2,942 2,034 334
Per share of common stock outstanding 0.48 0.43 0.35 0.28 0.20 0.03
RETURN ON:
Beginning common stockholders' equity 25.8% 26.3% 25.1% 20.4% 19.3% 12.4%
Average common stockholders' equity 23.8% 24.4% 24.0% 23.1% 17.4% 11.8%
SUMMARY OF FINANCIAL POSITION:
Current assets $266,176 $262,638 $245,574 $195,635 $186,678 $183,446
Current liabilities 123,377 126,796 102,913 89,382 69,713 52,658
Working capital 142,799 135,842 142,661 106,253 116,965 130,788
Non-current assets 59,807 57,430 53,970 32,930 29,452 29,365
Total assets 325,983 320,068 299,544 228,565 216,130 212,811
Non-current liabilities, excluding long-term debt 2,329 2,887 3,273 2,432 3,922 3,849
CAPITALIZATION:
Long-term debt, less current portion 96,730 99,347 110,903 63,198 61,935 81,526
Redeemable preferred stock 6,000 9,000 10,500 10,500 10,500 14,829
Common stockholders' equity 97,547 82,038 71,957 63,053 70,060 59,949
Total capitalization 200,277 190,385 193,360 136,751 142,495 156,304
Book value per common share 9.85 8.16 7.01 6.06 6.84 5.97
STOCK DATA:
Number of shares of common stock
outstanding (in thousands) 9,902 10,049 10,272 10,401 10,245 10,041
Number of common stockholders 7,527 6,802 5,587 3,821 4,288 4,136
Low price $ 17 $ 11 1/8 $ 14 $ 10 3/8 $ 6 5/8 $ 6
High price 22 7/8 24 7/8 22 1/4 19 1/2 11 3/8 8 1/8
Close price 21 1/2 19 1/4 19 5/8 18 3/4 10 1/2 6 2/3
- - - - --------------------------------------------------------------------------------------------------------------------------
The Toro Company 1994 Annual Report 13
THE TORO COMPANY
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
The company's product, distribution and operational strategies continued to
drive the sales and earnings growth in 1994. Worldwide net sales rose to $794.3
million, a 16.1% increase from the $684.3 million in 1993. Net earnings for 1994
were $22.2 million compared to $13.0 million in 1993.
The table below summarizes operating results included in the Consolidated
Statements of Operations for 1994, 1993 and 1992. A discussion of the changes
follows the table.
SUMMARY
- - - - --------------------------------------------------------------------------------
(Dollars in millions except per share data)
Years ended July 31 1994 % Change 1993 % Change 1992
- - - - --------------------------------------------------------------------------------
Net sales $794.3 16.1% $684.3 6.3% $643.7
Cost of sales 506.8 13.8 445.5 6.3 419.1
- - - - --------------------------------------------------------------------------------
Gross profit 287.5 20.4 238.8 6.3 224.6
Selling, general and
administrative expense 244.9 20.4 203.4 (8.9) 223.2
Restructuring expense -- -- -- -- 24.9
- - - - --------------------------------------------------------------------------------
Earnings (loss) from
operations 42.6 20.3 35.4 -- (23.5)
Interest expense 13.6 (20.9) 17.2 (8.0) 18.7
Other income, net (8.0) 158.1 (3.1) (57.5) (7.3)
- - - - --------------------------------------------------------------------------------
Earnings (loss) before
income taxes 37.0 73.7 21.3 -- (34.9)
Provision (benefit) for
income taxes 14.8 78.3 8.3 -- (11.1)
- - - - --------------------------------------------------------------------------------
Net earnings (loss) $ 22.2 70.8% $ 13.0 --% $(23.8)
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Net earnings (loss)
per common and common
share equivalent* $1.71 62.9% $1.05 --% $(1.98)
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
*Loss per share calculations for fiscal 1992 are based on weighted average
common shares outstanding, excluding common stock equivalents due to their
anti-dilutive effect.
SALES
- - - - --------------------------------------------------------------------------------
Net Sales (Dollars in millions)
Years ended July 31 1994 % Change 1993 % Change 1992
- - - - --------------------------------------------------------------------------------
Consumer $425.8 26.0% $338.0 2.6% $329.3
Commercial 253.2 8.0 234.5 9.2 214.7
Irrigation 115.3 3.1 111.8 12.1 99.7
- - - - --------------------------------------------------------------------------------
Total* $794.3 16.1% $684.3 6.3% $643.7
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
*Includes International
sales of $130.1 0.5% $129.4 (2.1)% $132.2
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Certain prior year sales amounts have been reclassified to reflect the current
year presentation.
FISCAL 1994 COMPARED TO FISCAL 1993
Worldwide sales increased $110.0 million to $794.3 million with increases in all
product lines.
CONSUMER PRODUCTS
Worldwide consumer sales rose 26.0% to $425.8 million in 1994. Consumer product
sales represented 53.6% and 49.4% of consolidated sales for 1994 and 1993,
respectively. International sales included in consumer product sales increased
$4.4 million from the previous year.
There were strong performances in all consumer products. The new lawn and
garden tractor lines were well accepted and all snow products sold out. Lawn-
Boy-R- walk power mowers were successful because of new product offerings and
lower retail price points. Increased sales of electric appliance products
including blowers, trimmers and low-voltage lighting were primarily the result
of product improvements and retail pricing strategies.
COMMERCIAL PRODUCTS
Worldwide commercial sales increased $18.7 million over the prior year. Domestic
sales rose 11.8%, while international sales declined 1.5%. The domestic increase
is attributed to strong golf and commercial turf markets. The improved economy
had a positive impact on municipalities and other tax-supported customers as
these entities continued to purchase more efficient, labor-saving equipment.
Golf sales continued to be strong because of new course openings as well as
existing courses updating their maintenance equipment. ProLine-R- sales
strengthened compared to the prior year as a result of the improved economy
combined with increased market share. Sluggish economies in Europe and Japan had
a slightly negative impact on international sales.
IRRIGATION PRODUCTS
Worldwide irrigation sales rose 3.1% to $115.3 million in 1994. Domestic
irrigation sales increased $3.6 million over 1993 while international irrigation
sales decreased $0.1 million. During 1994, the company reorganized irrigation
distribution to better respond to customer needs.
14 The Toro Company 1994 Annual Report
INTERNATIONAL MARKETS
International sales are included in the preceding net sales table. International
sales have increased 0.5% to $130.1 million in 1994. The majority of the
international sales increase was because of the change from a two-step
distribution system to a direct distribution system in Canada which resulted in
volume increases. Increases in the Pacific Rim were related to the expansion of
the golf market. These increases were offset by a decline in European sales
because of the continuing weak economy.
FISCAL 1993 COMPARED TO FISCAL 1992
Worldwide net sales increased $40.6 million to $684.3 million with increases in
all product lines.
CONSUMER PRODUCTS
Worldwide consumer sales increased $8.7 million to $338.0 million in 1993.
Consumer sales represented 49.4% and 51.2% of consolidated sales for 1993 and
1992, respectively. Domestic sales increased 4.2%, while international sales
decreased 7.6%. International sales included in consumer sales were down $3.4
million from the previous year.
The largest sales growth occurred in Lawn-Boy-R- walk power mowers. This
growth was the result of expanded distribution in the mass merchant channel and
reduced pricing levels on new product introductions.
COMMERCIAL PRODUCTS
Worldwide commercial sales increased $19.8 million to $234.5 million in 1993.
Domestic sales rose 10.0%, while international sales rose 7.4%. The increase is
attributed to new product introductions, especially the Workman-R- vehicle line,
which was well received and sold out early in the year. Also, overall sales
increased over the prior year because of an improving economy which had a
positive impact on municipalities and other tax-supported customers as these
entities purchased more efficient, labor-saving equipment.
ProLine-R- sales increased because of the introduction of new and improved
products, and continued growth in the professional lawn service industry.
Golf sales were strong as courses updated their maintenance equipment.
IRRIGATION PRODUCTS
Worldwide irrigation sales increased $12.1 million to $111.8 million in 1993.
Domestic sales increased $16.1 million over 1992 while international sales
declined $4.0 million. The domestic sales increase was the result of unusually
low distributor and dealer inventory levels at the beginning of the year, new
product introductions, expanded distribution in the mass merchant channel and
favorable economic conditions in several key markets.
INTERNATIONAL MARKETS
International sales are included in the preceding net sales table. International
sales decreased 2.1% to $129.4 million in 1993 primarily because of a
strengthened U.S. dollar in the Canadian and European markets. Irrigation sales
suffered the greatest decline because of weak economies in the company's key
markets which had a negative impact on new golf course construction. Consumer
sales were down because of the weak economies in key markets and competitive
pressures from locally manufactured brands. Commercial sales were ahead of the
prior year by $4.8 million principally because of new product introductions.
COST TRENDS AND PROFIT MARGINS
- - - - --------------------------------------------------------------------------------
Margins (Percent of net sales)
Years ended July 31 1994 1993 1992
- - - - --------------------------------------------------------------------------------
Gross profit 36.2% 34.9% 34.9%
Operating profit (loss) 5.4 5.2 (3.7)
Pretax earnings (loss) 4.7 3.1 (5.4)
Net earnings (loss) 2.8 1.9 (3.7)
- - - - --------------------------------------------------------------------------------
FISCAL 1994 COMPARED TO FISCAL 1993
Gross profit for 1994 increased 20.4% to $287.5 million over the 1993 amount of
$238.8 million because of a combination of increased sales, improved plant
utilization and improved inventory controls.
FISCAL 1993 COMPARED TO FISCAL 1992
Gross profit for 1993 increased 6.3% to $238.8 million over the 1992 amount of
$224.6 million principally because of increased sales and improved manufacturing
efficiencies. 1993 gross profit as a percent of sales did not change from the
prior year. However, excluding the prior year's LIFO benefit, gross profit as a
percent of sales for 1992 would have been 34.0%.
1993 gross profit improved as a result of the restructuring initiatives
implemented in 1992. Specifically, consolidation of certain manufacturing
functions and lower spending levels resulted in increased plant utilization
which lowered the break-even point.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE (SG&A)
- - - - --------------------------------------------------------------------------------
SG&A Expense (Dollars in millions)
% of % of % of
Net Net Net
Years ended July 31 1994 Sales 1993 Sales 1992 Sales
- - - - --------------------------------------------------------------------------------
Administrative $ 80.3 10.0% $ 73.0 10.7% $ 64.8 10.1%
Sales and marketing 96.1 12.1 71.2 10.4 90.0 14.0
Warranty 29.0 3.7 26.3 3.8 28.0 4.3
Distributor/dealer
financing
(floor plan) 8.6 1.1 7.6 1.1 13.5 2.1
Research and
development 30.9 3.9 25.3 3.7 26.9 4.2
- - - - --------------------------------------------------------------------------------
Total $244.9 30.8% $203.4 29.7% $223.2 34.7%
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
The Toro Company 1994 Annual Report 15
FISCAL 1994 COMPARED TO FISCAL 1993
SG&A expense was up $41.5 million from 1993 and as a percent of sales, SG&A
expense was 30.8% for 1994 compared with 29.7% for 1993.
The increase in administrative expense of $7.3 million consisted of the
start up cost of the company's recycling equipment division (debris), increased
investment in information systems technology, the cost associated with the
realignment of the irrigation manufacturing operations in Riverside, California
and distributor marketing support for the company's product lines. These
increases were offset by a reduction in employee performance based incentives,
product liability and group health insurance costs.
Sales and marketing expense was up $24.9 million from the prior year. As a
percent of net sales, sales and marketing expense was 12.1%, up from 10.4% in
1993. This increase reflects the company's increased sales volume, additional
marketing personnel and an increase in brand advertising and market research.
Warranty expense increased by $2.7 million and as a percent of sales was
3.7% as compared to 3.8% in 1993. The $2.7 million increase relates to increased
sales volume and charges for a lawn tractor component modification, a walk power
mower gas tank issue and a walk power mower brake issue.
Distributor/dealer financing (floor plan) expense represents the cost
incurred by the company to share the costs of financing dealer and distributor
inventory. This expense was up $1.0 million in 1994 because of the sales
increase, which was offset partially by lower field inventory levels held by
dealers.
Research and development expense was up $5.6 million from 1993 primarily
because of the addition of personnel to support new product development and
enhancements to existing products.
FISCAL 1993 COMPARED TO FISCAL 1992
SG&A expense was down $19.8 million from 1992. As a percent of sales, SG&A
expense was 29.7% for 1993 compared to 34.7% for 1992. The decrease in SG&A
expense was attributable to cost control and restructuring initiatives
implemented in 1992.
The increase in administrative expense of $8.2 million was primarily the
result of increased employee incentives which were based on the company's
performance, costs incurred to enhance the company's distribution channels and
the resumption of contributions to the company's Employee Stock Ownership Plan
(ESOP). These expenses were not incurred in 1992.
Sales and marketing expense was down $18.8 million from the prior year. As
a percent of net sales, sales and marketing expense was 10.4%, down from the
14.0% for 1992. This decline reflected the results of actions implemented by the
company to lower costs through the realignment of the consumer and irrigation
divisions and changes in marketing and distribution strategies.
Warranty expense was down slightly from the amounts incurred in 1992 and as
a percent of net sales was 3.8% in 1993, down from 4.3% in 1992. The change was
the result of ongoing quality improvements and prior year quality issues on
specific consumer and irrigation products corrected in 1992.
Distributor/dealer financing (floor plan) expense was down $5.9 million in
1993 because of the following: the company was shipping closer to the selling
season resulting in a reduced financing period; lower field inventory levels
held by dealers and distributors throughout the year; and a decline in interest
rates.
Research and development expense was down $1.6 million from 1992. This
decrease was because the majority of the costs to develop the Workman-R- vehicle
line were incurred in 1992 and also because of the efficiencies gained through
cost control measures implemented with the realignment of the consumer division.
RESTRUCTURING EXPENSE IN FISCAL 1992
In the second quarter of 1992, the company recorded restructuring expenses of
$15.0 million ($10.2 million after-tax) related to consolidation of consumer
product manufacturing, marketing and administrative operations. The charge
covered costs for plant closings, workforce reductions, discontinued products
and other related costs.
In addition, the company incurred restructuring expenses in the fourth
quarter of 1992 of $9.9 million ($6.7 million after-tax) related to the
facility closing of a consumer riding products manufacturing plant, an
irrigation controller assembly operation and a satellite distribution center.
This restructuring was part of the company's plan to increase its
competitiveness and profitability by consolidating manufacturing and
warehousing activities.
INTEREST EXPENSE
FISCAL 1994 COMPARED TO FISCAL 1993
Interest expense for 1994 was down $3.6 million from the $17.2 million reported
for 1993. This decline was primarily the result of calling $24.9 million of
outstanding debt in July 1993 and a lower interest rate on short-term borrowing.
FISCAL 1993 COMPARED TO FISCAL 1992
Interest expense for 1993 was down $1.5 million from the $18.7 million reported
for 1992. This decline was primarily the result of decreased short-term
borrowing levels and lower short-term interest rates during the year. Short-term
borrowing was down from 1992 because of the company's focus on asset management
and improving working capital.
16 The Toro Company 1994 Annual Report
OTHER INCOME, NET
FISCAL 1994 COMPARED TO FISCAL 1993
Other income, net was $4.9 million greater than the $3.1 million reported in
1993. This increase was principally the result of the settlement of a patent
infringement lawsuit and a lawsuit relating to the purchase of Lawn-Boy,-R- Inc.
The majority of the other income, net was finance revenue from dealers and
distributors of $4.2 million which was earned by the Toro Credit Company (TCC),
a consolidated finance subsidiary of The Toro Company (see footnote 13 regarding
TCC).
FISCAL 1993 COMPARED TO FISCAL 1992
Other income, net was $4.2 million less than the $7.3 million reported in 1992.
The decrease was principally because of losses incurred in the start-up of a
fertilizer joint venture investment, foreign currency exchange losses and
reduced royalty fees related to a one-time settlement of a paid-up license
received in 1992 related to a patent lawsuit. The majority of the other income,
net was finance revenue from dealers and distributors of $4.4 million which was
earned by the Toro Credit Company (TCC), a consolidated finance subsidiary of
The Toro Company (see footnote 13 regarding TCC).
PROVISION (BENEFIT) FOR TAXES
FISCAL 1994 COMPARED TO FISCAL 1993
The effective tax rate increased to 40.0% of pretax earnings in 1994 from 38.9%
of pretax earnings in 1993. The increase was the result of an increase in the
effective tax rate on reversing timing differences and the effect of state
income taxes. Effective August 1, 1992, the company adopted Financial Accounting
Standards No. 109 and has reflected a deferred tax asset/liability on the
accompanying balance sheets. The net deferred tax asset is $26.0 million which
is principally the result of timing differences on warranty reserves, the
provision for bad debts and distributor reserves (see footnote 4) accrued for
financial statement purposes which are not deductible for tax purposes. The
total future tax deductions related to the net deferred tax asset total $90.0
million, and management believes these will be realized during periods in which
the company will generate sufficient taxable income. Including the available tax
carry back history of the company, the company will be required to generate book
and taxable income of $7.0 million to support the net deferred tax asset
reflected on the balance sheet. The company anticipates the effective tax rate
in 1995 to continue at 40%.
FISCAL 1993 COMPARED TO FISCAL 1992
The effective tax rate increased to 38.9% of pretax earnings in 1993 from 31.9%
of pretax losses in 1992. The profitable environment normalized the tax rate of
38.9% for federal and state income taxes. Effective August 1, 1992, the company
adopted Financial Accounting Standards No. 109 "Accounting for Income Taxes"
(FAS 109). The net deferred tax asset resulted primarily from warranty reserves
and restructuring charges for which a tax deduction was not yet available.
NET EARNINGS (LOSS)
FISCAL 1994 COMPARED TO FISCAL 1993
Net earnings for 1994 was $22.2 million or $1.71 per share, as compared to net
earnings of $13.0 million or $1.05 per share in 1993. The improved earnings was
principally the result of increased sales and improved gross margin which were
partially offset by investments in new products, manufacturing and distribution
enhancements.
FISCAL 1993 COMPARED TO FISCAL 1992
Net earnings for 1993 was $13.0 million or $1.05 per share, a significant
increase over the net loss of $23.8 million or $1.98 loss per share in 1992. The
earnings improvement was principally the result of increased sales, the
company's restructuring efforts initiated during 1992 and lower interest costs.
LIQUIDITY AND CAPITAL RESOURCES
The company continues to improve its balance sheet by focusing on debt reduction
and closely aligning working capital needs with the best available financing
alternatives. This was demonstrated by the continued reduction of long-term debt
by $36.7 million in 1994.
FUNDS FROM OPERATIONS
Cash flows from operations decreased $44.3 million from 1993. The majority of
this decrease was the result of increased inventories in anticipation of strong
fall demand and increased accounts receivable because of the sales growth. These
increases were offset by the increase in accounts payable and accrued expenses
and the increase in cash flows from operating earnings.
CASH FLOW FROM OPERATIONS
- - - - --------------------------------------------------------------------------------
89 90 91 92 93 94
- - - - --------------------------------------------------------------------------------
(Millions) $17.8 $(0.4) $43.9 $40.9 $72.1 $27.8
- - - - --------------------------------------------------------------------------------
The Toro Company 1994 Annual Report 17
ASSETS
Total assets as of July 31, 1994, were $443.6 million, up $24.4 million from
1993. The largest increase occurred in inventory which was up $40.0 million from
the prior year. This increase was principally the result of ending 1994 with
higher inventories in anticipation of strong fall demand for most products. In
addition, deferred income taxes and other assets increased over the prior year.
These increases were offset by a decrease in cash and cash equivalents which
declined $25.6 million to $36.2 million as a result of improved cash management
combined with the repayment of $40.6 million in long-term debt.
WORKING CAPITAL
Working capital at July 31, 1994, was $175.8 million, a decrease of $18.1
million from the $193.9 million reported in 1993. The current ratio for 1994 was
1.9 versus 2.3 in 1993. Working capital as a percent of sales was 22.1% in 1994
compared to 28.3% in 1993.
The changes listed above result from current assets increasing $20.4
million while current liabilities increased $38.5 million. The majority of the
increase in current liabilities was the result of an increase in accounts
payable, accrued marketing programs and an accrual for the costs necessary to
implement the company's distribution strategies.
CAPITAL STRUCTURE
Long-term debt includes:
- - - - - $50.0 million of 11% sinking fund debentures, due August 2017 with sinking
fund payments after 1998:
- - - - - $2.3 million of variable rate industrial revenue bonds, due annually August
1995 through August 2009:
- - - - - $4.0 million variable rate industrial revenue bond, due annually June 1995
through June 2004:
- - - - - $45.0 million of subordinated and senior notes, due September 1994 through
August 1996 bearing interest rates of 7.38% to 9.57%.
TOTAL DEBT
- - - - --------------------------------------------------------------------------------
89 90 91 92 93 94
- - - - --------------------------------------------------------------------------------
(Millions) $114.4 $154.5 $155.3 $164.1 $138.0 $101.3
- - - - --------------------------------------------------------------------------------
CAPITALIZATION
- - - - --------------------------------------------------------------------------------
89 90 91 92 93 94
- - - - --------------------------------------------------------------------------------
(Millions) $200.3 $287.0 $305.9 $296.7 $267.6 $249.7
- - - - --------------------------------------------------------------------------------
Total debt at July 31, 1994, was $101.3 million, down $36.7 million from
$138.0 million at July 31, 1993. Of this balance $20.3 million is current. The
amount of total long-term debt attributable to Toro Credit Company, the
company's consolidated finance subsidiary, was $45.0 million at July 31, 1994,
compared to $60.0 million at July 31, 1993.
During 1994 the company made scheduled payments on maturing debt of $40.6
million. The total debt to total capital ratio decreased from 48.8% in 1993 to
37.5% in 1994. This decrease was the result of lower debt levels and an
increased equity position as a result of current year earnings and the annual
payment of the company's Employee Stock Ownership Plan (ESOP) receivable.
Total capitalization at July 31, 1994, consisted of $81.0 million of long-
term debt and $168.7 million in stockholders' equity.
CREDIT LINES AND OTHER CAPITAL RESOURCES
The company's seasonal working capital requirements are funded with $100.0
million of unsecured bank credit lines. Average borrowings under these lines
were $12.9 million in 1994. There were no aggregate outstanding borrowings on
these lines at July 31, 1994. In 1993, the company had $120.0 million of
unsecured bank credit lines. Average borrowings under these lines were $10.6
million in 1993. There were no aggregate outstanding borrowings on these lines
at July 31, 1993. The increase in average borrowing was the result of the
reduction in long-term debt.
Additionally, the company's resources included two bankers' acceptance
financing agreements totaling $40.0 million in 1994 and one bankers' acceptance
financing agreement of $20.0 million in 1993. The company had no amounts
outstanding under these agreements at July 31, 1994, and July 31, 1993.
SUMMARY
The Toro Company's long-term initiatives contributed to the financial growth in
1994. In addition, significant investments in key areas strengthened the
company's competitiveness. Sales increased as a result of product improvements,
the improved economy, pricing strategies and an increased focus on brand
advertising. The company's balance sheet was strengthened through the reduction
of long-term debt and solid asset management.
The company anticipates that 1995's results will continue the trends
established in 1994 and position the company to deliver sustainable future
growth.
18 The Toro Company 1994 Annual Report
THE TORO COMPANY
Independent Auditors' Report
The Stockholders and Board of Directors
The Toro Company:
We have audited the accompanying consolidated balance sheets of The Toro Company
and subsidiaries as of July 31, 1994 and 1993, and the related consolidated
statements of operations and cash flows for each of the years in the three-year
period ended July 31, 1994. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Toro
Company and subsidiaries as of July 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three-year period
ended July 31, 1994 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 8, 1994
THE TORO COMPANY
Consolidated Statements of Operations
- - - - --------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
Years ended July 31 1994 1993 1992
- - - - --------------------------------------------------------------------------------
Net sales $794,341 $684,324 $643,748
Cost of sales 506,816 445,495 419,138
- - - - --------------------------------------------------------------------------------
Gross profit 287,525 238,829 224,610
Selling, general and administrative expense 244,943 203,377 223,166
Restructuring expense -- -- 24,900
- - - - --------------------------------------------------------------------------------
Earnings (loss) from operations 42,582 35,452 (23,456)
Interest expense 13,562 17,150 18,726
Other income, net (8,030) (3,053) (7,279)
- - - - --------------------------------------------------------------------------------
Earnings (loss) before income taxes 37,050 21,355 (34,903)
Provision (benefit) for income taxes 14,820 8,315 (11,150)
- - - - --------------------------------------------------------------------------------
Net earnings (loss) $ 22,230 $ 13,040 $(23,753)
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Net earnings (loss) per share of common
stock and common stock equivalent $ 1.71 $ 1.05 $ (1.98)
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
The financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements.
The Toro Company 1994 Annual Report 19
THE TORO COMPANY
Consolidated Balance Sheets
- - - - --------------------------------------------------------------------------------
(Dollars in thousands, except per-share data) July 31 1994 1993
- - - - --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 36,231 $ 61,793
Receivables:
Customers 185,620 180,927
Other 5,765 5,025
- - - - --------------------------------------------------------------------------------
Subtotal 191,385 185,952
Less allowance for doubtful accounts 7,702 5,589
- - - - --------------------------------------------------------------------------------
Total receivables 183,683 180,363
- - - - --------------------------------------------------------------------------------
Inventories 118,764 78,708
Prepaid expenses 1,111 4,476
Deferred income tax benefits 24,706 18,790
- - - - --------------------------------------------------------------------------------
Total current assets 364,495 344,130
- - - - --------------------------------------------------------------------------------
Property, plant and equipment:
Land and land improvements 5,516 4,478
Buildings and leasehold improvements 42,359 41,548
Equipment 137,603 127,371
- - - - --------------------------------------------------------------------------------
Subtotal 185,478 173,397
Less accumulated depreciation and amortization 126,635 113,428
- - - - --------------------------------------------------------------------------------
Total property, plant and equipment 58,843 59,969
Deferred income taxes 1,296 --
Other assets 19,005 15,104
- - - - --------------------------------------------------------------------------------
Total assets $443,639 $419,203
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 20,300 $ 15,000
Accounts payable 37,035 28,786
Accrued warranty 32,476 26,995
Accrued marketing programs 29,290 20,552
Accrued restructuring 5,083 9,637
Accrued payroll 5,542 4,994
Other accrued liabilities 55,482 42,472
Accrued income taxes 3,504 1,824
- - - - --------------------------------------------------------------------------------
Total current liabilities 188,712 150,260
- - - - --------------------------------------------------------------------------------
Deferred income taxes -- 1,372
Long-term debt, less current portion 81,025 122,970
Deferred income 5,250 --
Common stockholder's equity:
Common stock, par value $1.00, authorized
35,000,000 shares; issued and outstanding
12,561,204 shares in 1994 (net of 76,153
treasury shares) and 12,270,404 shares in
1993 (net of 307,469 treasury shares) 12,561 12,270
Additional paid-in capital 49,420 44,898
Retained earnings 109,688 93,451
Foreign currency translation adjustment (405) (795)
- - - - --------------------------------------------------------------------------------
Subtotal 171,264 149,824
Receivable from ESOP (2,612) (5,223)
- - - - --------------------------------------------------------------------------------
Total common stockholders' equity 168,652 144,601
- - - - --------------------------------------------------------------------------------
Total liabilities and common stockholders' equity $443,639 $419,203
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
The financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements.
20 The Toro Company 1994 Annual Report
THE TORO COMPANY
Consolidated Statements of Cash Flows
- - - - --------------------------------------------------------------------------------
(Dollars in thousands) Years ended July 31 1994 1993 1992
- - - - --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 22,230 $ 13,040 $(23,753)
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Provision for depreciation and amortization 18,839 19,245 21,971
Loss on disposal of property, plant
and equipment 1,265 1,230 1,037
Deferred income taxes (2,668) (1,547) (13,263)
Tax benefits related to employee
stock option transactions 953 -- --
Changes in operating assets and
liabilities:
Net receivables (3,320) 28,199 21,376
Inventories (40,056) (4,583) 9,174
Prepaid expenses and deferred
income tax benefits (2,551) 3,396 (4,057)
Accounts payable and accrued expenses 31,472 11,438 28,025
Accrued income taxes 1,680 1,714 413
- - - - --------------------------------------------------------------------------------
Net cash provided by operating
activities 27,844 72,132 40,923
- - - - --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (18,173) (11,397) (13,687)
Proceeds from asset disposals 267 2,323 220
(Increase) decrease in other assets (4,973) 2,319 (1,603)
- - - - --------------------------------------------------------------------------------
Net cash used in investing activities (22,879) (6,755) (15,250)
- - - - --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in sale of receivables -- (1,892) (21,809)
Proceeds from issuance of long-term debt 4,000 -- 20,000
Repayments of long-term debt (40,645) (26,130) (11,195)
Proceeds from deferred income 5,250 -- --
Proceeds from exercise of stock options 6,144 3,771 2,355
Purchases of common stock (2,284) (816) (794)
Dividends on common stock (5,993) (5,824) (5,753)
Repayments from ESOP 2,611 2,611 --
- - - - --------------------------------------------------------------------------------
Net cash used in financing activities (30,917) (28,280) (17,196)
- - - - --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT 390 (795) _
Net increase (decrease) in cash (25,562) 36,302 8,477
Cash and cash equivalents at
beginning of year 61,793 25,491 17,014
- - - - --------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 36,231 $ 61,793 $ 25,491
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 14,092 $ 17,138 $ 22,245
Income taxes 19,498 8,148 1,548
- - - - --------------------------------------------------------------------------------
The financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements.
The Toro Company 1994 Annual Report 21
THE TORO COMPANY
Notes to Consolidated Financial Statements
1 Summary of Significant Accounting Policies
and Related Data
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of The
Toro Company and all of its domestic and foreign subsidiaries (the company).
Investments in 50% or less owned companies are accounted for by the equity
method. The accounts of foreign subsidiaries, which are not material, have been
adjusted to conform to U.S. accounting principles and practices and have been
converted to appropriate U.S. dollar equivalents. All material intercompany
accounts and transactions have been eliminated from the consolidated financial
statements.
CASH AND CASH EQUIVALENTS
The company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The provision for doubtful accounts included in selling, general and
administrative expense was $3,032,000 in 1994, $2,500,000 in 1993 and $4,083,000
in 1992.
INVENTORIES
The majority of all inventories are valued at the lower of cost or net
realizable value with cost determined by the last-in, first-out (LIFO) method.
Had the first-in, first-out (FIFO) method of cost determination been used,
inventories would have been $19,204,000 and $17,221,000 higher than reported at
July 31, 1994 and 1993, respectively. Using the FIFO method, inventories were
$63,473,000 and $51,252,000 of work-in-process and $74,495,000 and $44,677,000
of finished goods at July 31, 1994 and 1993, respectively. During 1992 the
company liquidated certain LIFO inventory quantities carried at lower costs
prevailing in prior years. The effect was to reduce the 1992 net loss by
$4,120,000 or $0.34 per common share.
PROPERTY AND DEPRECIATION
Property, plant and equipment are carried at cost. The company provides for
depreciation of plant and equipment utilizing the straight-line method over the
estimated useful lives of the assets. Buildings, including leasehold
improvements, are generally depreciated over 10 to 45 years and equipment over 3
to 7 years. Tooling costs are generally amortized using the units of production
basis. Expenditures for major renewals and betterments which substantially
increase the useful lives of existing assets are capitalized, and maintenance
and repairs are charged to operating expenses as incurred. The cost and related
accumulated depreciation of all plant and equipment disposed of are removed from
the accounts, and any gain or loss from such disposal is included in current
period earnings.
ACCRUED WARRANTY
The company provides an accrual for estimated future warranty costs based upon
the historical relationship of warranty costs to sales.
DEFERRED INCOME
An interest rate exchange agreement was entered into primarily as a hedge
against interest costs on long-term debt. The net interest differential to be
received or paid and the $5,250,000 deferred income will be recognized,
commencing August 1, 1997, over the term of the agreement as an adjustment to
interest expense.
FOREIGN CURRENCY TRANSLATION
The functional currency of the company's foreign operations is the applicable
local currency. The functional currency is translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation" which is performed for 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 period. The
gains or losses resulting from such translations are included in stockholders'
equity. Gains or losses resulting from foreign currency transactions are
included in other income, net.
ACCOUNTING FOR REVENUES
Revenue is recognized at the time products are shipped to distributors, dealers
or direct accounts.
COST OF FINANCING DISTRIBUTOR/DEALER INVENTORY (FLOOR PLAN)
Included in selling, general and administrative expense are costs associated
with various programs in which the company shares costs of financing distributor
and dealer inventories. These costs of $8,587,000 in 1994, $7,606,000 in 1993
and $13,483,000 in 1992 are charged against operations as incurred.
RESEARCH AND DEVELOPMENT
Expenditures for research and development, including engineering, of $30,864,000
in 1994, $25,293,000 in 1993 and $26,932,000 in 1992 are charged against
operations as incurred.
DISTRIBUTION
Included in selling, general and administrative expense are costs associated
with changes to the company's distribution channels. These costs were $4,300,000
in 1994 and $4,500,000 in 1993. Costs for distribution changes were not
separately identified in 1992. Those costs associated with business changes are
accrued on the basis of historical experience, while costs related to specific
changes to the company's distribution system are recorded when authorized.
22 The Toro Company 1994 Annual Report
INCOME TAXES
Effective August 1, 1992, the company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," (FAS 109) which requires a
change from the deferred method of accounting for income taxes of APB Opinion 11
to the asset and liability method of accounting for income taxes. Under the new
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. Adoption
of Statement 109 had an immaterial effect on the company's 1992 consolidated
statement of operations. The company has reflected the necessary deferred tax
asset/liability in the accompanying balance sheets. Management believes the
future tax deductions will be realized in periods in which the company will
generate sufficient taxable income to realize the benefit of the tax deductions.
EARNINGS (LOSS) PER SHARE OF COMMON STOCK AND COMMON STOCK EQUIVALENT
Earnings (loss) per share of common stock and common stock equivalent are
computed by dividing net earnings (loss) by the weighted average number of
common shares and common stock equivalents outstanding during the respective
periods. Common stock equivalents include potentially dilutive stock options.
These shares are included under the treasury stock method using the average
market price of the company's stock during each period. The effect of full
dilution using the year-end price of the company's shares is immaterial. Loss
per share calculations for 1992 are based on weighted average common shares
outstanding excluding common stock equivalents due to their anti-dilutive
affect.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the current
year presentation.
2 Short-term Capital Resources
At July 31, 1994, the company had available unsecured lines of credit with five
banks in the aggregate of $100,000,000. The terms of these agreements require
the company to pay a fee of 1/4 percent per year on the available lines of
credit. This fee is recorded by the company as interest expense. The company had
no amounts outstanding under these lines at July 31, 1994, and 1993.
In addition, the company's capital resources include two $20,000,000
bankers' acceptance financing agreements in 1994 and one $20,000,000 bankers'
acceptance financing agreement in 1993. The company had no amounts outstanding
under these agreements at July 31, 1994, and 1993.
3 Long-term Debt
A summary of long-term debt is as follows:
- - - - --------------------------------------------------------------------------------
(Dollars in thousands) July 31 1994 1993
- - - - --------------------------------------------------------------------------------
11% Sinking Fund Debentures due annually
August 1998-2017 $ 50,000 $ 50,000
Industrial Revenue Bonds due annually
August 1995-2009 with various interest rates 2,325 2,970
Industrial Revenue Bond due annually
June 1995-2004 with various interest rates 4,000 --
10.0% senior note due September 1993 -- 15,000
9.0% senior notes due August 1994,
paid July 1994 -- 25,000
9.4% senior notes due September 1994 10,000 10,000
9.45% senior note due February 1995 10,000 10,000
7.38% senior note due August 1995 10,000 10,000
9.57% senior note due January 1996 5,000 5,000
9.53% senior note due August 1996 10,000 10,000
- - - - --------------------------------------------------------------------------------
101,325 137,970
Less current portion 20,300 15,000
- - - - --------------------------------------------------------------------------------
Long-term debt, less current portion $ 81,025 $122,970
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
The weighted average interest rate on long-term debt for 1994 was 9.8
percent (9.8 percent in 1993 and 9.9 percent in 1992) based upon actual interest
expense of $12,236,000 in 1994 ($16,118,000 in 1993 and $16,248,000 in 1992),
including commitment and facility fees and weighted average long-term debt
outstanding of $125,388,000 in 1994 ($164,107,000 in 1993 and $164,876,000 in
1992).
During the year the company entered into an interest rate exchange
agreement with a bank to preserve the value of the call option included in the
$50,000,000, 11%, long-term sinking fund notes due August 1, 1998-2017, and to
realize the benefit of current interest rates. As a result of this agreement the
company received $5,250,000 which is recorded as deferred income on the
consolidated balance sheets. In return, the company is obligated to pay 10.25%
on a notational amount of $50,000,000 from August 1, 1997 through July 31, 2002
and the company will receive payments based on a floating rate equal to the
London Interbank Offered Rate (LIBOR) on the notational amount of $50,000,000
for the same period.
The Toro Company 1994 Annual Report 23
Under the terms of the long-term debt agreements and the interest rate
exchange agreement, the company is subject to certain covenants. At July 31,
1994, the company was in compliance with all such covenants.
The terms of certain agreements of the Toro Credit Company restrict the
payment of dividends and loans or advances to the parent company. Toro Credit
retained earnings of approximately $22,192,000 were available for dividends to
its parent at July 31, 1994.
Principal payments required on long-term debt in each of the next five
years ending July 31 are as follows: 1995, $20,300,000; 1996, $16,090,000; 1997,
$10,460,000; 1998, $485,000; 1999, $515,000; and after 1999, $53,475,000.
4 Income Taxes
A reconciliation of the statutory federal income tax rate to the company's
effective tax rate is summarized as follows:
- - - - --------------------------------------------------------------------------------
Years ended July 31 1994 1993 1992
- - - - --------------------------------------------------------------------------------
Statutory federal income tax rate 35.0% 34.0% (34.0)%
Increase (reduction) in income taxes
resulting from:
Benefits from foreign sales
corporation (1.6) (1.7) (0.3)
State and local income taxes, net
of federal income tax benefit 2.4 1.9 1.7
Effect of foreign source income 1.3 0.5 0.2
Other, net 2.9 4.2 0.5
- - - - --------------------------------------------------------------------------------
Consolidated effective tax rate 40.0% 38.9% (31.9)%
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Components of the provision (benefit) for income taxes are as follows:
- - - - --------------------------------------------------------------------------------
(Dollars in thousands)
Years ended July 31 1994 1993 1992
- - - - --------------------------------------------------------------------------------
Current:
Federal $18,487 $ 8,986 $ 1,233
State 2,610 876 880
- - - - --------------------------------------------------------------------------------
21,097 9,862 2,113
- - - - --------------------------------------------------------------------------------
Deferred:
Federal (5,059) (1,288) (13,263)
State (1,218) (259) --
- - - - --------------------------------------------------------------------------------
(6,277) (1,547) (13,263)
- - - - --------------------------------------------------------------------------------
Provision (benefit) for income taxes $14,820 $ 8,315 $(11,150)
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to the deferred
assets and deferred liabilities at July 31, 1994, and 1993 are presented below.
- - - - --------------------------------------------------------------------------------
(Dollars in thousands)
Years ended July 31 1994 1993
- - - - --------------------------------------------------------------------------------
Inventory reserves $ (902) $(1,649)
Depreciation expense 1,296 (1,372)
Warranty reserves 12,688 9,859
Provision for doubtful accounts 3,256 3,265
Distributor reserves 2,858 2,148
Uniform capitalization 2,310 1,213
Restructuring expense 1,965 3,691
Accrued retirement 1,820 1,600
Other 711 (1,337)
- - - - --------------------------------------------------------------------------------
Consolidated deferred income tax assets and (liabilities) $26,002 $17,418
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
The significant components of deferred income tax expense for the year
ended July 31, 1992, resulting from timing differences in the recognition of
income and expense for income tax and financial reporting purposes are as
follows:
- - - - --------------------------------------------------------------------------------
(Dollars in thousands)
Year ended July 31 1992
- - - - --------------------------------------------------------------------------------
Accrued warranty costs $ (1,962)
Addition to allowance for doubtful accounts (1,430)
Accrued expenses (836)
Depreciation (2,261)
Restructuring accruals (6,290)
Other (484)
- - - - --------------------------------------------------------------------------------
Provision for deferred income taxes $(13,263)
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
During the year ended July 31, 1994, $953,000 was added to additional paid-
in capital in accordance with "Accounting Principal Board" opinion 25 reflecting
the permanent book to tax difference in accounting for tax benefits related to
employee stock option transactions.
24 The Toro Company 1994 Annual Report
5 Stockholders' Equity
Changes in common stock, additional paid-in capital, retained earnings,
receivable from ESOP and foreign currency translation adjustment during fiscal
years ended July 31, 1994, 1993 and 1992 were as follows:
- - - - ----------------------------------------------------------------------------------------------------------------
Foreign
Additional Receivable Currency
Common Paid-in Retained from Translation
(Dollars in thousands) Stock Capital Earnings ESOP Adjustment
- - - - ----------------------------------------------------------------------------------------------------------------
Balance at July 31, 1991 $11,913 $40,739 $115,741 $(7,834) $ --
Common dividends paid ($0.48 per share) -- -- (5,753) -- --
Issuance of 178,848 shares under stock
option plans 179 2,176 -- -- --
Purchase of 50,269 common shares (50) (744) -- -- --
Net loss -- -- (23,753) -- --
- - - - ----------------------------------------------------------------------------------------------------------------
Balance at July 31, 1992 12,042 42,171 86,235 (7,834) --
- - - - ----------------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------------
Common dividends paid ($0.48 per share) -- -- (5,824) -- --
Issuance of 272,149 shares under stock
option plans 272 3,499 -- -- --
Purchase of 43,242 common shares (44) (772) -- -- --
Payment received from ESOP -- -- -- 2,611 --
Foreign currency translation adjustment -- -- -- -- (795)
Net earnings -- -- 13,040 -- --
- - - - ----------------------------------------------------------------------------------------------------------------
Balance at July 31, 1993 12,270 44,898 93,451 (5,223) (795)
- - - - ----------------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------------
Common dividends paid ($0.48 per share) -- -- (5,993) -- --
Issuance of 388,558 shares under stock
option plans 388 5,756 -- -- --
Purchase of 97,758 common shares (97) (2,187) -- -- --
Payment received from ESOP -- -- -- 2,611 --
Foreign currency translation adjustment -- -- -- -- 390
Tax benefits related to employee
stock option transactions -- 953 -- -- --
Net earnings -- -- 22,230 -- --
- - - - ----------------------------------------------------------------------------------------------------------------
Balance at July 31, 1994 $12,561 $49,420 $109,688 $(2,612) $(405)
- - - - ----------------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------------
Under the terms of a Preferred Stock Rights Agreement established June 14,
1988, each share of the company's common stock entitles its holder to one
preferred share purchase right. Each right entitles the registered holder to
purchase from the company one one-hundredth of a share of Series B Junior
Participating Voting Preferred Stock, $1.00 par value at a price of $85 per one
one-hundredth of a Preferred Share. The rights become exercisable and tradable
10 days after a person or a group acquires 20% or more, or makes an offer to
acquire 20% or more, of the company's outstanding common stock. At no time do
the rights have any voting power. The rights may be redeemed by the company for
$0.01 per right at any time prior to the time that a person or group has
acquired beneficial ownership of 20% or more of the common shares.
6 Stock Option Plans
Incentive stock options and non-qualified options may be granted under the terms
of the 1985 Incentive Stock Option Plan, the 1989 Stock Option Plan and the 1993
Stock Option Plan (the "Plans"). Each incentive stock option is granted at an
exercise price equal to 100% of the fair market value of the common stock on the
date of the grant. The exercise price of a non-qualified stock option may be
determined by the Compensation Committee of the Board of Directors, but may not
be less than 50% of the fair market value of the common stock on the date of
grant. Stock options granted under the Plans may be exercised in whole or in
part from time to time, not later than 10 years from the date of grant or other
period, as specified in the option agreement. Most stock options are subject to
cancellation upon termination of the optionee's employment. However, some non-
qualified options granted under the Plans can be exercised for up to four years
after retirement, at or after age 60, but not beyond the date the option
originally expires. During 1992, the stockholders voted to increase the shares
reserved for future stock option grants under the 1989 plan by 500,000 shares.
During 1994, the stockholders approved the 1993 Stock Option Plan authorizing a
reserve of 1,000,000 shares for future stock option grants. Stock option
transactions are summarized as follows:
- - - - --------------------------------------------------------------------------------
Years ended July 31 1994 1993 1992
- - - - --------------------------------------------------------------------------------
Outstanding at beginning of year 1,421,923 1,329,069 922,590
Granted 264,217 418,200 822,414
Excercised or cancelled (426,631) (325,346) (415,935)
- - - - --------------------------------------------------------------------------------
Outstanding at end of year 1,259,509 1,421,923 1,329,069
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Price range of granted options $18.75--25.50 $10.90--19.75 $11.70--16.39
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Shares reserved for granting
future stock options:
Beginning of year 136,642 497,060 595,447
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
End of year 923,240 136,642 497,060
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Options exercisable at end
of year 765,510 941,090 874,642
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Price range of exercisable
options $10.70--25.875 $10.70--22.50 $10.10--22.50
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
The options outstanding at July 31, 1994, were granted in 1990, (77,013
shares); 1991, (154,754 shares); 1992, (502,077 shares); 1993, (271,563 shares);
and 1994, (254,102 shares).
The Toro Company 1994 Annual Report 25
7 Employee Benefit Programs
The company has an Employee Stock Ownership Plan (ESOP) which covers
substantially all employees. The ESOP currently owns 1,260,000 common shares
which represents 10.03% of Toro's outstanding common stock. The Plan is a
leveraged ESOP which means funds were borrowed to purchase the shares. The
company's contributions to the Plan, net of dividends, were $2,929,000 in 1994,
$3,085,000 in 1993 and $467,000 in 1992. Principal payments of ESOP debt were
$2,611,000 in 1994, $2,611,000 in 1993 and $0 in 1992. Interest incurred on ESOP
debt and interest received by the company was $512,000 in 1994, $774,000 in 1993
and $786,000 in 1992. Dividends on the ESOP shares used for debt service by the
ESOP were $195,000 in 1994, $300,000 in 1993 and $319,000 in 1992. The expenses
recognized related to the ESOP were $2,416,000 in 1994, $2,311,000 in 1993 and
$0 in 1992. At July 31, 1994, the ESOP indebtedness to the company, which bears
an interest rate of 10% and is due in 1995, was $2,612,000 and has been shown as
a reduction of common stockholders' equity in the consolidated balance sheets.
Contributions to employees' profit sharing plans which cover substantially
all employees of the company and its subsidiaries were $4,150,000 in 1994,
$4,254,000 in 1993 and $3,277,000 in 1992. Such amounts are based upon annual
earnings before income taxes and minimum contributions required under the plans.
Under the company's matching stock plan, a total of 1,000,000 shares of
common stock may be acquired by employees through payroll deductions and
employer matching contributions pursuant to the plan. Contributions were
$485,000 in 1994, $510,000 in 1993 and $224,000 in 1992.
In addition, the company and its subsidiaries have supplemental and other
retirement plans covering certain employees. Pension expense under these plans
in 1994, 1993 and 1992 was not significant.
8 Segment Data
The company classifies its operations into one industry segment,
yard maintenance equipment. International sales were $130,053,000,
$129,422,000 and $132,154,000 for 1994, 1993 and 1992, respectively. Of these
amounts, export sales were $109,344,000, $111,263,000 and $109,076,000 for 1994,
1993 and 1992, respectively. Export sales by geographic area are as follows:
- - - - --------------------------------------------------------------------------------
(Dollars in thousands)
Years ended July 31 1994 1993 1992
- - - - --------------------------------------------------------------------------------
Europe $ 48,976 $ 53,992 $ 52,867
Canada 28,039 26,573 25,326
Pacific Rim 27,535 26,208 26,343
Other 4,794 4,490 4,540
- - - - --------------------------------------------------------------------------------
Total export sales $109,344 $111,263 $109,076
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Sales to any particular customer were not significant.
9 Lease Commitments
Minimum lease commitments in future years under noncancelable operating leases
are as follows: 1995, $3,211,000; 1996, $1,908,000; 1997, $1,196,000; 1998,
$481,000; 1999, $450,000 and after 1999, $1,430,000.
Total lease expense was as follows:
- - - - --------------------------------------------------------------------------------
(Dollars in thousands)
Years ended July 31 1994 1993 1992
- - - - --------------------------------------------------------------------------------
Warehouse and office space $2,198 $1,800 $2,199
Trucks and autos 2,039 1,024 1,240
Equipment 3,044 3,154 4,142
- - - - --------------------------------------------------------------------------------
Total $7,281 $5,978 $7,581
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
10 Commitments and Contingent Liabilities
Certain receivables have been sold to financial institutions. Under these
arrangements, the company acts as agent for collections and/or was contingently
liable for $659,000 at July 31, 1994, and $644,000 at July 31, 1993. The company
was also contingently liable to repurchase $5,222,000 at July 31, 1994 and
$8,535,000 at July 31, 1993, of inventory relating to receivables under dealer
financing (floor plan) arrangements. Additionally, debts incurred by
distributors, aggregating $1,486,000 at July 31, 1994, and $3,278,000 at July
31, 1993, have been guaranteed by the company.
At July 31, 1994, the company had contracts maturing at various dates to
purchase $8,372,000 in foreign currency (845,000,000 yen) and to sell
$10,153,000 in foreign currency (13,000,000 Deutschemarks and 2,825,000 Canadian
Dollars) at the spot rate on the maturity dates.
26 The Toro Company 1994 Annual Report
In the ordinary course of business, the company may become liable with
respect to pending and threatened litigation, taxes and environmental and other
matters. While the ultimate results of investigations, lawsuits and claims
involving the company cannot be determined, management does not expect that
these matters will have a material adverse effect on the consolidated financial
position of the company.
11 Financial Instruments
OFF-BALANCE SHEET RISK
Letters of credit are issued by the company during the ordinary course of
business, as required by certain vendor contracts, through major domestic banks.
As of July 31, 1994, and 1993, the company had $16,872,000 and $11,876,000,
respectively, in outstanding letters of credit.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the company to concentrations of
credit risk consist principally of accounts receivable which are concentrated in
the lawn and turf care business sector. The credit risk associated with this
sector is limited because of the large number of customers in the company's
customer base and their geographic dispersion. Generally, the company does not
require collateral or other security to support customer receivables.
FAIR VALUE
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of FAS Statement 107 "Disclosures about
Fair Value of Financial Instruments." Estimated fair value amounts have been
determined using available information and appropriate valuation methodologies.
Because considerable judgement is required in developing the estimates of fair
value, these estimates are not necessarily indicative of the amounts that could
be realized in a current market exchange.
The carrying and estimated fair values of the company's financial
instruments at July 31, 1994, are as follows:
- - - - --------------------------------------------------------------------------------
Carrying Estimated
(Dollars in millions) Value Fair Value
- - - - --------------------------------------------------------------------------------
Long-term debt $101,325 $105,107
Deferred income (interest rate exchange agreement) 5,250 3,928
- - - - --------------------------------------------------------------------------------
For cash and cash equivalents, receivables, and accounts payable, carrying
value is a reasonable estimate of fair value.
For long-term debt with fixed interest rates, fair value is estimated
by discounting the projected cash flows using the rate at which similar amounts
could currently be borrowed.
The fair value of the 11% sinking fund debentures represents the amount the
company would pay to redeem the notes based on the terms of the debenture.
The estimated fair value of the deferred income represents the cost to
terminate the interest rate exchange agreement, had management elected to do so,
which would have resulted in a gain of approximately $1,300,000.
12 Restructuring Expense
In 1992, the company recognized $24,900,000 of restructuring charges (after-tax
effect of $16,900,000 or $1.41 per share) related to the consolidations of its
consumer products manufacturing, marketing and administrative operations, its
irrigation manufacturing operations and its distribution facilities. The charges
included costs for plant and office closings, workforce reductions, inventory
obsolescence and other related costs.
13 Consolidated Finance Subsidiary --
Toro Credit Company
Toro Credit Company is a consolidated finance subsidiary of the company and
operates primarily in the finance industry with wholesale financing of
distributor and dealer inventories under various financing (floor plan)
arrangements and other programs.
- - - - --------------------------------------------------------------------------------
(Dollars in thousands)
Years ended July 31 1994 1993 1992
- - - - --------------------------------------------------------------------------------
SUMMARY OF EARNINGS
Finance revenues $17,436 $17,060 $17,702
Expenses:
Operating 2,068 1,841 1,659
Interest 4,737 5,879 6,279
Foreign currency exchange
net losses 96 31 37
- - - - --------------------------------------------------------------------------------
Total expenses 6,901 7,751 7,975
Earnings before income taxes 10,535 9,309 9,727
Provision for income taxes 3,669 3,310 3,049
- - - - --------------------------------------------------------------------------------
Net earnings $ 6,866 $ 5,999 $ 6,678
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
(Dollars in thousands)
Years ended July 31 1994 1993
- - - - --------------------------------------------------------------------------------
Summary Balance Sheets
ASSETS
Cash and cash equivalents $ 4,394 $ 18,602
Receivables-net 99,932 94,628
Other receivables and assets 1,377 1,510
- - - - --------------------------------------------------------------------------------
Total assets $105,703 $114,740
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of long-term debt $ 20,000 $ 15,000
Other liabilities 7,994 8,897
Long-term debt, less current portion 25,000 45,000
Shareholders' equity 52,709 45,843
- - - - --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $105,703 $114,740
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
The Toro Company 1994 Annual Report 27
Of the finance revenues presented previously, $13,272,000 in 1994,
$12,659,000 in 1993 and $13,314,000 in 1992 represent transactions with TCC's
parent company, The Toro Company, which are eliminated in consolidation. The
remaining finance revenues of $4,164,000 in 1994, $4,401,000 in 1993 and
$4,388,000 in 1992 are included in other income, net in The Toro Company's
Consolidated Statements of Operations. The expenses and balance sheet items (net
of eliminations) are included in the Consolidated Statements of Operations and
Consolidated Balance Sheets under the corresponding classifications.
14 Quarterly Financial Data (unaudited)
Summarized quarterly financial data for 1994 and 1993 is as follows:
- - - - --------------------------------------------------------------------------------
(Dollars in thousands except per-share data)
Quarter First Second Third Fourth
- - - - --------------------------------------------------------------------------------
1994
Net sales $135,761 $189,413 $276,476 $192,691
Gross profit 49,035 66,587 97,689 74,214
Net earnings (loss) (1,895) 4,477 15,637 4,011
Net earnings (loss) per share
of common stock and common
stock equivalent (0.15) 0.35 1.19 0.31
Dividends per common share 0.12 0.12 0.12 0.12
Market price of common stock
High bid 26 3/4 28 30 1/2 26 3/4
Low bid 19 3/4 23 5/8 25 20 7/8
- - - - --------------------------------------------------------------------------------
1993
Net sales $113,443 $153,172 $241,347 $176,362
Gross profit 38,889 53,709 83,794 62,437
Net earnings (loss) (4,135) 1,816 12,742 2,617
Net earnings (loss) per
share of common stock and
common stock equivalent (0.34) 0.15 1.01 0.21
Dividends per common share 0.12 0.12 0.12 0.12
Market price of common stock
High bid 15 1/4 19 3/8 21 7/8 20 1/4
Low bid 11 3/8 14 1/8 18 16 3/4
- - - - --------------------------------------------------------------------------------
28 The Toro Company 1994 Annual Report
Exhibit 21
THE TORO COMPANY
SUBSIDIARIES OF REGISTRANT
All the following subsidiaries are included in the consolidated financial
statements of The Toro Company as of
July 31, 1994.
STATE OR OTHER PERCENTAGE OF VOTING
JURISDICTION SECURITIES OWNED
NAME OF INCORPORATION BY IMMEDIATE PARENT
------------------------------------------ ----------------- ----------------------
Toro Australia Pty. Limited Australia 100%
Toro Credit Company Minnesota 100%
Toro Europe Belgium 100%
Toro Foreign Sales Corporation Barbados 100%
Lawn-Boy Inc. Delaware 100%
Toro Probiotic Products, Inc. Minnesota 100%
Toro Sales Company Minnesota 100%
Toro Southwest, Inc. California 100%
EXHIBIT 23
[KPMG Peat Marwick LLP Letterhead]
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Toro Company:
We consent to incorporation by reference in the registration statements (Nos.
33-22469, 33-31586, 33-26268, 33-38308, 33-44668, 33-51563, 33-55550, 33-67748)
on Form S-8 of The Toro Company of our reports dated September 8, 1994, relating
to the consolidated balance sheets of The Toro Company and subsidiaries as of
July 31, 1994 and 1993, and the related consolidated statements of operations
and cash flows and related financial statement schedules for each of the years
in the three-year period ended July 31, 1994, which reports are included in or
incorporated by reference in the July 31, 1994 annual report on Form 10-K of The
Toro Company.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 28, 1994
