form_10q.htm
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the Quarterly Period Ended May 2, 2008
THE
TORO COMPANY
(Exact
name of registrant as specified in its charter)
Delaware
|
1-8649
|
41-0580470
|
(State
of Incorporation)
|
(Commission
File Number)
|
(I.R.S.
Employer Identification Number)
|
8111
Lyndale Avenue South
Bloomington,
Minnesota 55420
Telephone
number: (952) 888-8801
(Address,
including zip code, and telephone number, including area code, of registrant's
principal executive offices)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes S No £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer S
|
Accelerated
filer £
|
Non-accelerated
filer £
|
Smaller
reporting company £
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes £ No S
The
number of shares of Common Stock outstanding as of May 30, 2007 was
37,507,093.
THE
TORO COMPANY
INDEX
TO FORM 10-Q
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Page Number
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3
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4
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5
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6-12
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13-22
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22-23
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23
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24
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25
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25
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26
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26-27
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28
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Item
1. FINANCIAL STATEMENTS
THE
TORO COMPANY AND SUBSIDIARIES
Condensed
Consolidated Statements of Earnings (Unaudited)
(Dollars
and shares in thousands, except per share data)
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
May
2,
|
|
|
May
4,
|
|
|
May
2,
|
|
|
May
4,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net
sales
|
|
$ |
638,510 |
|
|
$ |
686,653 |
|
|
$ |
1,044,309 |
|
|
$ |
1,065,741 |
|
Cost
of sales
|
|
|
410,744 |
|
|
|
441,937 |
|
|
|
667,406 |
|
|
|
680,960 |
|
Gross
profit
|
|
|
227,766 |
|
|
|
244,716 |
|
|
|
376,903 |
|
|
|
384,781 |
|
Selling,
general, and administrative expense
|
|
|
124,943 |
|
|
|
125,843 |
|
|
|
242,060 |
|
|
|
238,124 |
|
Earnings
from operations
|
|
|
102,823 |
|
|
|
118,873 |
|
|
|
134,843 |
|
|
|
146,657 |
|
Interest
expense
|
|
|
(5,419 |
) |
|
|
(5,789 |
) |
|
|
(10,302 |
) |
|
|
(10,276 |
) |
Other
(expense) income, net
|
|
|
(798 |
) |
|
|
1,476 |
|
|
|
900 |
|
|
|
3,867 |
|
Earnings
before income taxes
|
|
|
96,606 |
|
|
|
114,560 |
|
|
|
125,441 |
|
|
|
140,248 |
|
Provision
for income taxes
|
|
|
33,822 |
|
|
|
39,594 |
|
|
|
44,030 |
|
|
|
46,832 |
|
Net
earnings
|
|
$ |
62,784 |
|
|
$ |
74,966 |
|
|
$ |
81,411 |
|
|
$ |
93,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net earnings per share of common stock
|
|
$ |
1.64 |
|
|
$ |
1.82 |
|
|
$ |
2.12 |
|
|
$ |
2.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net earnings per share of common stock
|
|
$ |
1.60 |
|
|
$ |
1.77 |
|
|
$ |
2.07 |
|
|
$ |
2.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Weighted-average
number of shares of common
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
stock
outstanding – Basic
|
|
|
38,239 |
|
|
|
41,098 |
|
|
|
38,313 |
|
|
|
41,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Weighted-average
number of shares of common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
stock
outstanding – Diluted
|
|
|
39,126 |
|
|
|
42,253 |
|
|
|
39,263 |
|
|
|
42,255 |
|
See
accompanying notes to condensed consolidated financial
statements.
Condensed
Consolidated Balance Sheets (Unaudited)
(Dollars
in thousands, except per share data)
|
|
May
2,
|
|
|
May
4,
|
|
|
October
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
32,053 |
|
|
$ |
40,797 |
|
|
$ |
62,047 |
|
Receivables,
net
|
|
|
547,192 |
|
|
|
577,223 |
|
|
|
283,115 |
|
Inventories,
net
|
|
|
265,428 |
|
|
|
247,906 |
|
|
|
251,275 |
|
Prepaid
expenses and other current assets
|
|
|
13,698 |
|
|
|
12,904 |
|
|
|
10,677 |
|
Deferred
income taxes
|
|
|
56,633 |
|
|
|
58,042 |
|
|
|
57,814 |
|
Total
current assets
|
|
|
915,004 |
|
|
|
936,872 |
|
|
|
664,928 |
|
|
|
|
|
|
|
|
|
|
|
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|
Property,
plant, and equipment
|
|
|
599,189 |
|
|
|
562,220 |
|
|
|
577,082 |
|
Less
accumulated depreciation
|
|
|
426,986 |
|
|
|
393,097 |
|
|
|
406,410 |
|
|
|
|
172,203 |
|
|
|
169,123 |
|
|
|
170,672 |
|
|
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|
Deferred
income taxes
|
|
|
6,508 |
|
|
|
1,861 |
|
|
|
5,185 |
|
Other
assets
|
|
|
7,953 |
|
|
|
11,057 |
|
|
|
9,153 |
|
Goodwill
|
|
|
86,097 |
|
|
|
81,665 |
|
|
|
86,224 |
|
Other
intangible assets, net
|
|
|
16,122 |
|
|
|
5,683 |
|
|
|
14,675 |
|
Total
assets
|
|
$ |
1,203,887 |
|
|
$ |
1,206,261 |
|
|
$ |
950,837 |
|
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LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
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|
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Current
portion of long-term debt
|
|
$ |
2,341 |
|
|
$ |
75,000 |
|
|
$ |
1,611 |
|
Short-term
debt
|
|
|
151,500 |
|
|
|
45,825 |
|
|
|
372 |
|
Accounts
payable
|
|
|
117,425 |
|
|
|
120,642 |
|
|
|
90,966 |
|
Accrued
liabilities
|
|
|
275,911 |
|
|
|
280,069 |
|
|
|
248,521 |
|
Total
current liabilities
|
|
|
547,177 |
|
|
|
521,536 |
|
|
|
341,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
227,753 |
|
|
|
223,141 |
|
|
|
227,598 |
|
Deferred
revenue and other long-term liabilities
|
|
|
16,813 |
|
|
|
9,681 |
|
|
|
11,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, par value $1.00, authorized 1,000,000 voting
and
850,000 non-voting shares, none issued and outstanding
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Common
stock, par value $1.00, authorized 100,000,000 shares,
issued
and outstanding 37,364,763 shares as of May 2,
2008
(net of 16,667,457 treasury shares), 40,109,017 shares as
of
May 4, 2007 (net of 13,923,203 treasury shares), and
37,950,831
shares as of October 31, 2007 (net of 16,081,389
treasury
shares)
|
|
|
37,365 |
|
|
|
40,109 |
|
|
|
37,951 |
|
Retained
earnings
|
|
|
374,335 |
|
|
|
416,692 |
|
|
|
335,384 |
|
Accumulated
other comprehensive income (loss)
|
|
|
444 |
|
|
|
(4,898 |
) |
|
|
(2,897 |
) |
Total
stockholders' equity
|
|
|
412,144 |
|
|
|
451,903 |
|
|
|
370,438 |
|
Total
liabilities and stockholders' equity
|
|
$ |
1,203,887 |
|
|
$ |
1,206,261 |
|
|
$ |
950,837 |
|
See
accompanying notes to condensed consolidated financial
statements.
Condensed
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in
thousands)
|
|
Six
Months Ended
|
|
|
|
May
2,
|
|
|
May
4,
|
|
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
81,411 |
|
|
$ |
93,416 |
|
Adjustments
to reconcile net earnings to net cash
|
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
|
Equity
losses from investments
|
|
|
324 |
|
|
|
125 |
|
Provision
for depreciation and amortization
|
|
|
21,836 |
|
|
|
20,393 |
|
Gain
on disposal of property, plant, and equipment
|
|
|
(81 |
) |
|
|
(99 |
) |
Gain
on sale of a business
|
|
|
(113 |
) |
|
|
- |
|
Stock-based
compensation expense
|
|
|
3,281 |
|
|
|
3,828 |
|
Increase
in deferred income taxes
|
|
|
(1,463 |
) |
|
|
(1,982 |
) |
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Receivables,
net
|
|
|
(260,988 |
) |
|
|
(282,982 |
) |
Inventories,
net
|
|
|
(13,920 |
) |
|
|
(5,628 |
) |
Prepaid
expenses and other assets
|
|
|
(2,870 |
) |
|
|
(2,322 |
) |
Accounts
payable, accrued liabilities, and deferred revenue and
other
long-term liabilities
|
|
|
61,291 |
|
|
|
54,941 |
|
Net
cash used in operating activities
|
|
|
(111,292 |
) |
|
|
(120,310 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of property, plant, and equipment
|
|
|
(22,479 |
) |
|
|
(21,752 |
) |
Proceeds
from asset disposals
|
|
|
871 |
|
|
|
117 |
|
Increase
in investment in affiliates
|
|
|
(250 |
) |
|
|
- |
|
Increase
in other assets
|
|
|
(279 |
) |
|
|
(48 |
) |
Proceeds
from sale of a business
|
|
|
1,048 |
|
|
|
- |
|
Acquisitions,
net of cash acquired
|
|
|
(1,000 |
) |
|
|
(1,088 |
) |
Net
cash used in investing activities
|
|
|
(22,089 |
) |
|
|
(22,771 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Increase
in short-term debt
|
|
|
151,128 |
|
|
|
45,455 |
|
Issuance
of long-term debt, net of costs
|
|
|
- |
|
|
|
121,436 |
|
Repayments
of long-term debt, net of costs
|
|
|
(750 |
) |
|
|
- |
|
Excess
tax benefits from stock-based awards
|
|
|
339 |
|
|
|
5,464 |
|
Proceeds
from exercise of stock options
|
|
|
1,718 |
|
|
|
6,992 |
|
Purchases
of Toro common stock
|
|
|
(36,906 |
) |
|
|
(41,912 |
) |
Dividends
paid on Toro common stock
|
|
|
(11,478 |
) |
|
|
(9,865 |
) |
Net
cash provided by financing activities
|
|
|
104,051 |
|
|
|
127,570 |
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(664 |
) |
|
|
785 |
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(29,994 |
) |
|
|
(14,726 |
) |
Cash
and cash equivalents as of the beginning of the fiscal
period
|
|
|
62,047 |
|
|
|
55,523 |
|
Cash
and cash equivalents as of the end of the fiscal period
|
|
$ |
32,053 |
|
|
$ |
40,797 |
|
See
accompanying notes to condensed consolidated financial
statements.
|
|
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
May
2, 2008
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
the information and notes required by accounting principles generally accepted
in the United States of America for complete financial statements. Unless the
context indicates otherwise, the terms “company” and “Toro” refer to The Toro
Company and its subsidiaries. In the opinion of management, the unaudited
condensed consolidated financial statements include all adjustments, consisting
primarily of recurring accruals, considered necessary for a fair presentation of
the financial position and results of operations. Since the company’s business
is seasonal, operating results for the six months ended May 2, 2008 cannot be
annualized to determine the expected results for the fiscal year ending October
31, 2008. Additional factors that could cause our actual results to differ
materially from our expected results, including any forward-looking statements
made in this report, are described in our most recently filed Annual Report on
Form 10-K (Item 1A) and later in this report under Item 2, Management’s
Discussion and Analysis of Financial Condition and Results of Operations–
Forward-Looking Information.
The
company’s fiscal year ends on October 31, and quarterly results are reported
based on three month periods that generally end on the Friday closest to the
quarter end. For comparative purposes, however, the company’s second and third
quarters always include exactly 13 weeks of results so that the quarter end date
for these two quarters is not necessarily the Friday closest to the quarter
end.
For
further information, refer to the consolidated financial statements and notes
included in the company’s Annual Report on Form 10-K for the fiscal year ended
October 31, 2007. The policies described in that report are used for preparing
quarterly reports.
Accounting
Policies
In
preparing the consolidated financial statements in conformity with U.S.
generally accepted accounting principles, management must make decisions that
impact the reported amounts and the related disclosures. Such decisions include
the selection of the appropriate accounting principles to be applied and the
assumptions on which to base accounting estimates. In reaching such decisions,
management applies judgments based on its understanding and analysis of the
relevant circumstances, historical experience, and actuarial valuations. Actual
amounts could differ from those estimated at the time the consolidated financial
statements are prepared. Note 1 to the consolidated financial statements in the
company’s most recent Annual Report on Form 10-K provides a summary of the
significant accounting policies followed in the preparation of the financial
statements. Other footnotes to the consolidated financial statements in the
company’s Annual Report on Form 10-K describe various elements of the financial
statements and the assumptions made in determining specific
amounts.
Comprehensive
Income
Comprehensive
income and the components of other comprehensive income (loss) were as
follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(Dollars
in thousands)
|
|
May
2,
|
|
|
May
4,
|
|
|
May
2,
|
|
|
May
4,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net
earnings
|
|
$ |
62,784 |
|
|
$ |
74,966 |
|
|
$ |
81,411 |
|
|
$ |
93,416 |
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
translation adjustments
|
|
|
3,052 |
|
|
|
2,765 |
|
|
|
1,128 |
|
|
|
3,324 |
|
Minimum
pension liability adjustment,
net
of tax
|
|
|
- |
|
|
|
- |
|
|
|
175 |
|
|
|
- |
|
Unrealized
gain (loss) on derivative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments,
net of tax
|
|
|
779 |
|
|
|
(1,274 |
) |
|
|
2,038 |
|
|
|
(1,373 |
) |
Comprehensive
income
|
|
$ |
66,615 |
|
|
$ |
76,457 |
|
|
$ |
84,752 |
|
|
$ |
95,367 |
|
Stock-Based
Compensation
The
company accounts for stock-based compensation awards in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 123
(Revised 2004), “Share-Based Payment.” During the first quarter of fiscal 2008,
option awards were granted with an exercise price equal to the closing price of
the company’s common stock on the date of grant, as reported by the New York
Stock Exchange. No options were granted during the second quarter of fiscal
2008. For certain non-officer employees, the options vest in full two years from
the date of grant and have a five-year term. For officers, certain key
employees, and members of our Board of Directors, the options vest one-third
each year over a three-year period and have a ten-year term. Compensation
expense equal to the grant date fair value is recognized for these awards over
the vesting period. The company also issues performance share awards to officers
and other key employees. The company determines the fair value of these
performance share awards as of the date of grant and recognizes the expense over
the three-year vesting period. Total compensation expense for option and
performance share awards for the second quarter of fiscal 2008 and 2007 was $1.4
million and $1.9 million, respectively. Year-to-date compensation expense for
option and performance share awards through the second quarter of fiscal 2008
and 2007 was $3.3 million and $3.8 million, respectively.
The
fair value of each share-based option is estimated on the date of grant using a
Black-Scholes valuation method that uses the assumptions noted in the table
below. The expected life is a significant assumption as it determines the period
for which the risk-free interest rate, volatility, and dividend yield must be
applied. The expected life is the average length of time over which the employee
groups are expected to exercise their options, which is based on historical
experience with similar grants. Separate groups of employees that have similar
historical exercise behavior are considered separately for valuation purposes.
Expected volatilities are based on the movement of the company’s common stock
over the most recent historical period equivalent to the expected life of the
option. The risk-free interest rate for periods within the contractual life of
the option is based on the U.S. Treasury rate over the expected life at the time
of grant. Dividend yield is estimated over the expected life based on the
company’s dividend policy, historical dividends paid, expected increase in
future cash dividends, and expected increase in the company’s stock price. The
following table illustrates the assumptions for options granted in the following
fiscal periods.
|
Fiscal 2008
|
|
Fiscal 2007
|
Expected
life of option in years
|
3 –
6.5
|
|
3 –
6.5
|
Expected
volatility
|
24.84%
- 25.75%
|
|
24.96%
- 26.44%
|
Weighted-average
volatility
|
25.26%
|
|
25.65%
|
Risk-free
interest rate
|
3.10%
- 4.08%
|
|
4.42%
- 4.53%
|
Expected
dividend yield
|
0.92%-
0.95%
|
|
0.78%-
0.90%
|
Weighted-average
dividend yield
|
0.94%
|
|
0.84%
|
The
weighted-average fair value of options granted during the first quarter of
fiscal 2008 was $13.90 per share and during the first two quarters of fiscal
2007 was $12.32 per share. The fair value of performance share awards granted
during the first quarters of fiscal 2008 and 2007 was $58.96 per share and
$44.90 per share, respectively. No performance share awards were granted during
the second quarters of fiscal 2008 or fiscal 2007.
Inventories
Inventories
are valued at the lower of cost or net realizable value, with cost determined by
the last-in, first-out (LIFO) method for most inventories and first-in,
first-out (FIFO) method for all other inventories. The company establishes a
reserve for excess, slow-moving, and obsolete inventory that is equal to the
difference between the cost and estimated net realizable value for that
inventory. These reserves are based on a review and comparison of current
inventory levels to the planned production as well as planned and historical
sales of the inventory.
Inventories
were as follows:
(Dollars
in thousands)
|
|
May
2,
|
|
|
May
4,
|
|
|
October
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
Raw
materials and work in process
|
|
$ |
70,001 |
|
|
$ |
67,298 |
|
|
$ |
68,367 |
|
Finished
goods and service parts
|
|
|
255,914 |
|
|
|
240,531 |
|
|
|
242,965 |
|
|
|
|
325,915 |
|
|
|
307,829 |
|
|
|
311,332 |
|
Less:
LIFO
|
|
|
42,889 |
|
|
|
40,860 |
|
|
|
42,889 |
|
Other
reserves
|
|
|
17,598 |
|
|
|
19,063 |
|
|
|
17,168 |
|
Total
|
|
$ |
265,428 |
|
|
$ |
247,906 |
|
|
$ |
251,275 |
|
Per
Share Data
Reconciliations
of basic and diluted weighted-average shares of common stock outstanding are as
follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(Shares
in thousands)
|
|
May
2,
|
|
|
May
4,
|
|
|
May
2,
|
|
|
May
4,
|
|
Basic
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Weighted-average
number of shares of common stock
|
|
|
38,239 |
|
|
|
41,098 |
|
|
|
38,301 |
|
|
|
41,078 |
|
Assumed
issuance of contingent shares
|
|
|
- |
|
|
|
- |
|
|
|
12 |
|
|
|
41 |
|
Weighted-average
number of shares of common stock and assumed issuance of contingent
shares
|
|
|
38,239 |
|
|
|
41,098 |
|
|
|
38,313 |
|
|
|
41,119 |
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares of common stock and assumed issuance of contingent
shares
|
|
|
38,239 |
|
|
|
41,098 |
|
|
|
38,313 |
|
|
|
41,119 |
|
Effect
of dilutive securities
|
|
|
887 |
|
|
|
1,155 |
|
|
|
950 |
|
|
|
1,136 |
|
Weighted-average
number of shares of common stock, assumed issuance of contingent shares,
and effect of dilutive securities
|
|
|
39,126 |
|
|
|
42,253 |
|
|
|
39,263 |
|
|
|
42,255 |
|
Options
to purchase an aggregate of 715,135 shares of common stock outstanding during
the second quarter of fiscal 2008 were excluded from the diluted net earnings
per share calculation because their exercise prices were greater than the
average market price of the company’s common stock during the second quarter of
fiscal 2008. Options to purchase an aggregate of 164,940 and 11,240 shares of
common stock outstanding during the year-to-date periods through the second
quarter of fiscal 2008 and 2007, respectively, were excluded from the diluted
net earnings per share calculations because their exercise prices were greater
than the average market price of the company’s common stock during the
year-to-date periods through the second quarters of fiscal 2008 and
2007.
Goodwill
The
changes in the net carrying amount of goodwill for the first six months of
fiscal 2008 were as follows:
(Dollars
in thousands)
|
|
Professional
|
|
|
Residential
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Total
|
|
Balance
as of October 31, 2007
|
|
$ |
75,457 |
|
|
$ |
10,767 |
|
|
$ |
86,224 |
|
Translation
adjustment
|
|
|
(63 |
) |
|
|
(64 |
) |
|
|
(127 |
) |
Balance
as of May 2, 2008
|
|
$ |
75,394 |
|
|
$ |
10,703 |
|
|
$ |
86,097 |
|
Other
Intangible Assets
The
components of other amortizable intangible assets were as follows:
|
|
May
2, 2008
|
|
|
October
31, 2007
|
|
(Dollars
in thousands)
|
|
Gross
Carrying
|
|
|
Accumulated
|
|
|
Gross
Carrying
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
Patents
|
|
$ |
6,553 |
|
|
$ |
(6,223 |
) |
|
$ |
6,553 |
|
|
$ |
(6,155 |
) |
Non-compete
agreements
|
|
|
1,939 |
|
|
|
(1,050 |
) |
|
|
1,400 |
|
|
|
(938 |
) |
Customer
related
|
|
|
6,592 |
|
|
|
(765 |
) |
|
|
6,655 |
|
|
|
(504 |
) |
Developed
technology
|
|
|
5,557 |
|
|
|
(2,058 |
) |
|
|
3,490 |
|
|
|
(1,536 |
) |
Other
|
|
|
800 |
|
|
|
(800 |
) |
|
|
800 |
|
|
|
(800 |
) |
Total
|
|
$ |
21,441 |
|
|
$ |
(10,896 |
) |
|
$ |
18,898 |
|
|
$ |
(9,933 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other intangible assets, net
|
|
$ |
10,545 |
|
|
|
|
|
|
$ |
8,965 |
|
|
|
|
|
Amortization
expense for intangible assets during the first six months of fiscal 2008 was
$994,000. Estimated amortization expense for the remainder of fiscal 2008 and
succeeding fiscal years is as follows: fiscal 2008 (remainder), $822,000; fiscal
2009, $1,499,000; fiscal 2010, $1,206,000; fiscal 2011, $1,132,000; fiscal 2012,
$1,099,000; fiscal 2013, $926,000; and after fiscal 2013,
$3,861,000.
The
company also had $5.6 million of non-amortizable intangible assets related to
the Hayter and Rain Master brand names as of May 2, 2008 and October 31,
2007.
Segment
Data
The
presentation of segment information reflects the manner in which management
organizes segments for making operating decisions and assessing performance. On
this basis, the company has determined it has two reportable business segments:
Professional and Residential. The Other segment consists of company-owned
distributor operations in the United States and corporate activities, including
corporate financing activities and elimination of intersegment revenues and
expenses.
The
following table shows the summarized financial information concerning the
company’s reportable segments:
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May
2, 2008
|
|
Professional
|
|
|
Residential
|
|
|
Other
|
|
|
Total |
|
Net
sales
|
|
$ |
429,884 |
|
|
$ |
201,315 |
|
|
$ |
7,311 |
|
|
$ |
638,510 |
|
Intersegment
gross sales
|
|
|
11,117 |
|
|
|
2,538 |
|
|
|
(13,655 |
) |
|
|
- |
|
Earnings
(loss) before income taxes
|
|
|
96,616 |
|
|
|
21,073 |
|
|
|
(21,083 |
) |
|
|
96,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May
4, 2007
|
|
Professional
|
|
|
Residential
|
|
|
Other
|
|
|
Total
|
|
Net
sales
|
|
$ |
447,857 |
|
|
$ |
228,204 |
|
|
$ |
10,592 |
|
|
$ |
686,653 |
|
Intersegment
gross sales
|
|
|
17,185 |
|
|
|
2,514 |
|
|
|
(19,699 |
) |
|
|
- |
|
Earnings
(loss) before income taxes
|
|
|
108,490 |
|
|
|
27,430 |
|
|
|
(21,360 |
) |
|
|
114,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended May
2, 2008
|
|
Professional
|
|
|
Residential
|
|
|
Other
|
|
|
Total
|
|
Net
sales
|
|
$ |
723,080 |
|
|
$ |
309,491 |
|
|
$ |
11,738 |
|
|
$ |
1,044,309 |
|
Intersegment
gross sales
|
|
|
15,961 |
|
|
|
4,454 |
|
|
|
(20,415 |
) |
|
|
- |
|
Earnings
(loss) before income taxes
|
|
|
149,126 |
|
|
|
23,897 |
|
|
|
(47,582 |
) |
|
|
125,441 |
|
Total
assets
|
|
|
634,679 |
|
|
|
308,713 |
|
|
|
260,495 |
|
|
|
1,203,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended May
4, 2007
|
|
Professional
|
|
|
Residential
|
|
|
Other
|
|
|
Total
|
|
Net
sales
|
|
$ |
719,999 |
|
|
$ |
330,062 |
|
|
$ |
15,680 |
|
|
$ |
1,065,741 |
|
Intersegment
gross sales
|
|
|
23,040 |
|
|
|
3,245 |
|
|
|
(26,285 |
) |
|
|
- |
|
Earnings
(loss) before income taxes
|
|
|
156,850 |
|
|
|
31,809 |
|
|
|
(48,411 |
) |
|
|
140,248 |
|
Total
assets
|
|
|
577,430 |
|
|
|
303,855 |
|
|
|
324,976 |
|
|
|
1,206,261 |
|
The
following table presents the details of the other segment operating loss before
income taxes:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(Dollars
in thousands)
|
|
May
2,
|
|
|
May
4,
|
|
|
May
2,
|
|
|
May
4,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Corporate
expenses
|
|
$ |
(19,396 |
) |
|
$ |
(22,704 |
) |
|
$ |
(43,889 |
) |
|
$ |
(48,293 |
) |
Finance
charge revenue
|
|
|
239 |
|
|
|
240 |
|
|
|
606 |
|
|
|
861 |
|
Elimination
of corporate financing
expense
|
|
|
3,048 |
|
|
|
4,424 |
|
|
|
5,250 |
|
|
|
7,106 |
|
Interest
expense, net
|
|
|
(5,419 |
) |
|
|
(5,789 |
) |
|
|
(10,302 |
) |
|
|
(10,276 |
) |
Other
|
|
|
445 |
|
|
|
2,469 |
|
|
|
753 |
|
|
|
2,191 |
|
Total
|
|
$ |
(21,083 |
) |
|
$ |
(21,360 |
) |
|
$ |
(47,582 |
) |
|
$ |
(48,411 |
) |
Warranty
Guarantees
The
company’s products are warranted to ensure customer confidence in design,
workmanship, and overall quality. Warranty coverage ranges from a period of six
months to seven years, and generally covers parts, labor, and other expenses for
non-maintenance repairs. Warranty coverage generally does not cover operator
abuse or improper use. An authorized Toro distributor or dealer must perform
warranty work. Distributors, dealers, and contractors submit claims for warranty
reimbursement and are credited for the cost of repairs, labor, and other
expenses as long as the repairs meet prescribed standards. Warranty expense is
accrued at the time of sale based on the estimated number of products under
warranty, historical average costs incurred to service warranty claims, the
trend in the historical ratio of claims to sales, the historical length of time
between the sale and resulting warranty claim, and other minor factors. Special
warranty reserves are also accrued for major rework campaigns. The company also
sells extended warranty coverage on select products for a prescribed period
after the factory warranty period expires.
Warranty
provisions, claims, and changes in estimates for the first six-month periods in
fiscal 2008 and 2007 were as follows:
(Dollars
in thousands)
|
|
Beginning
|
|
|
Warranty
|
|
|
Warranty
|
|
|
Changes
in
|
|
|
Ending
|
|
Six Months Ended
|
|
Balance
|
|
|
Provisions
|
|
|
Claims
|
|
|
Estimates
|
|
|
Balance
|
|
May
2, 2008
|
|
$ |
62,030 |
|
|
$ |
24,497 |
|
|
$ |
(16,934 |
) |
|
$ |
(32 |
) |
|
$ |
69,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
4, 2007
|
|
$ |
65,235 |
|
|
$ |
26,061 |
|
|
$ |
(17,657 |
) |
|
$ |
(1,448 |
) |
|
$ |
72,191 |
|
Postretirement
Benefit and Deferred Compensation Plans
The
following table presents the components of net periodic benefit costs of the
postretirement health-care benefit plan:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(Dollars
in thousands)
|
|
May
2,
|
|
|
May
4,
|
|
|
May
2,
|
|
|
May
4,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Service
cost
|
|
$ |
90 |
|
|
$ |
95 |
|
|
$ |
179 |
|
|
$ |
189 |
|
Interest
cost
|
|
|
128 |
|
|
|
123 |
|
|
|
257 |
|
|
|
247 |
|
Prior
service cost
|
|
|
(48 |
) |
|
|
(48 |
) |
|
|
(96 |
) |
|
|
(96 |
) |
Amortization
of losses
|
|
|
53 |
|
|
|
54 |
|
|
|
106 |
|
|
|
108 |
|
Net
expense
|
|
$ |
223 |
|
|
$ |
224 |
|
|
$ |
446 |
|
|
$ |
448 |
|
As of May
2, 2008, the company had made approximately $250,000 of contributions in fiscal
2008. The company presently expects to contribute a total of $500,000 to its
postretirement health-care benefit plan in fiscal 2008, including contributions
made through May 2, 2008.
The
company maintains The Toro Company Investment, Savings and Employee Stock
Ownership Plan for eligible employees. The company’s expenses under this plan
were $3.8 million and $8.2 million for the second quarter and year-to-date
periods in fiscal 2008, respectively, and $4.2 million and $9.9 million for the
second quarter and year-to-date periods in fiscal 2007,
respectively.
During
the first quarter of fiscal 2007, the company began to offer participants in the
company’s deferred compensation plans the option to invest their deferred
compensation in multiple investment options. At the same time, the company
elected to fund the majority of the deferred compensation plans, which amounted
to $18 million. The fair value of the company’s investment in the deferred
compensation plans as of May 2, 2008 was $18.8 million, which reduced the
company’s deferred compensation liability reflected in accrued liabilities on
the condensed consolidated balance sheet.
Income
Taxes
As of
November 1, 2007, the company adopted the provisions of Financial Accounting
Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes” (FIN 48). This interpretation clarifies the accounting for income taxes
by prescribing the minimum threshold a tax position is required to meet before
being recognized in the financial statements, as well as guidance on
de-recognition, measurement, classification, and disclosure of tax positions.
The adoption of FIN 48 resulted in no cumulative effect of accounting change by
the company as of November 1, 2007. As of May 2, 2008 and October 31, 2007, the
company had $5.5 million and $5.6 million, respectively, of liabilities recorded
related to unrecognized tax benefits. Accrued interest and penalties on these
unrecognized tax benefits was $0.9 million as of May 2, 2008 and October 31,
2007. As of October 31, 2007, the liability accrual including interest and
penalties was classified as a component of accrued liabilities – income taxes on
the company’s consolidated balance sheet. In accordance with the adoption of FIN
48, the liability
accrual
including interest and penalties was classified as a component of deferred
revenue and other long-term liabilities on the company’s condensed consolidated
balance sheet as of February 1, 2008 and May 2, 2008. The company recognizes
potential interest and penalties related to income tax positions as a component
of provision for income taxes on the consolidated statements of earnings.
Included in the liability balance as of May 2, 2008 are approximately $3.1
million of unrecognized tax benefits that, if recognized, will affect the
company’s effective tax rate. The company does not anticipate that the total
amount of unrecognized tax benefits will significantly change during the next
twelve months. With few exceptions, the company is no longer subject to federal,
state, or foreign income tax examinations for fiscal years prior to fiscal
2004.
Derivative
Instruments and Hedging Activities
The
company uses derivative instruments to manage exposure to foreign currency
exchange rates. The company uses derivative instruments only in an attempt to
limit underlying exposure to currency exchange rate fluctuations, and not for
trading purposes. The company documents relationships between hedging
instruments and the hedged items, as well as its risk-management objectives and
strategy for undertaking various hedge transactions. The company assesses, both
at the hedge’s inception and on an ongoing basis, whether the derivative
instruments that are used in hedging transactions are effective in offsetting
changes in cash flows of the hedged item.
The
company enters into foreign currency exchange contracts to hedge the risk from
forecasted settlement in local currencies of trade sales and purchases. These
contracts are designated as cash flow hedges with the fair value recorded in
accumulated other comprehensive income and as a hedge asset or liability in
prepaid expenses or accrued liabilities, as applicable. Once the forecasted
transaction has been recognized as a sale or inventory purchase and a related
asset or liability recorded in the balance sheet, the related fair value of the
derivative hedge contract is reclassified from accumulated other comprehensive
income to sales or cost of sales. During the three and six months ended May 2,
2008, the amount of losses reclassified to earnings for such cash flow hedges
was $3.7 million and $5.6 million, respectively. For the six months ended May 2,
2008, the losses treated as a reduction to net sales for contracts to hedge
trade sales were $5.8 million and the gains treated as a reduction of cost of
sales for contracts to hedge inventory purchases were $0.2 million. As of May 2,
2008, the notional amount of such contracts outstanding was $95.2 million. The
unrecognized after-tax loss portion of the fair value of the contracts recorded
in accumulated other comprehensive income as of May 2, 2008 was $1.7
million.
The
company also enters into other foreign currency exchange contracts to hedge
intracompany financing transactions and other activities, which do not meet the
hedge accounting criteria of SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities;” therefore, changes in the fair value of
these instruments are recorded in other income, net.
Contingencies
We are a
party to litigation in the ordinary course of business. Litigation occasionally
involves claims for punitive as well as compensatory damages arising out of use
of our products. Although we are self-insured to some extent, we maintain
insurance against certain product liability losses. We are also subject to
administrative proceedings with respect to claims involving the discharge of
hazardous substances into the environment. Some of these claims assert damages
and liability for remedial investigations and clean up costs. We are also
typically involved in commercial disputes, employment disputes, and patent
litigation cases in the ordinary course of business. To prevent possible
infringement of our patents by others, we periodically review competitors’
products. To avoid potential liability with respect to others’ patents, we
regularly review certain patents issued by the United States Patent and
Trademark Office (USPTO) and foreign patent offices. We believe these activities
help us minimize our risk of being a defendant in patent infringement
litigation. We are currently involved in patent litigation cases, both where we
are asserting patents and where we are defending against charges of
infringement. While the ultimate results of the current cases are unknown at
this time, we believe that the outcome of these cases is unlikely to have a
material adverse effect on our consolidated financial condition or results of
operations.
On
June 3, 2004, eight individuals who claim to have purchased lawnmowers in
Illinois and Minnesota filed a lawsuit in Illinois state court against us and
eight other defendants alleging that the horsepower labels on the products the
plaintiffs purchased were inaccurate. The plaintiffs amended their complaint to
add 89 additional plaintiffs and an engine manufacturer as an additional
defendant. The amended complaint asserted violations of the federal Racketeer
Influenced and Corrupt Organizations Act (“RICO”) and statutory and common law
claims arising from the laws of 48 states. The plaintiffs sought certification
of a class of all persons in the United States who, beginning January 1,
1994 through the present, purchased a lawnmower containing a two-stroke or
four-stroke gas combustible engine up to 30 horsepower that was manufactured or
sold by the defendants. The amended complaint also sought an injunction,
unspecified compensatory and punitive damages, treble damages under RICO, and
attorneys’ fees. In late May 2006, the case was removed to federal
court in the Southern District of Illinois. On August 1, 2006, all of the
defendants, except MTD Products Inc. (“MTD”), filed motions to dismiss the
claims in the amended complaint. On August 4, 2006, the plaintiffs filed a
motion for preliminary approval of a settlement agreement with MTD and
certification of a settlement class. All remaining non-settling defendants filed
counterclaims against MTD for potential contribution amounts, and MTD filed
cross claims against the non-settling defendants. On December 21, 2006, another
defendant, American Honda Motor Company (“Honda”), notified us that it had
reached an agreement of settlement with the plaintiffs. On March 30, 2007, the
court entered an order dismissing plaintiffs’ complaint, subject to the ability
to re-plead certain claims pursuant to a detailed written order to follow. On
May 8, 2008, the court issued a memorandum and order that (i) dismissed the RICO
claims in their entirety with prejudice; (ii) dismissed all non-Illinois
state-law claims without prejudice and with instructions that such claims must
be filed in local courts; and (iii) rejected the proposed settlement with MTD.
The proposed Honda settlement was not under consideration by the court and was
not addressed in teh memorandum and order. As of the date hereof, the plaintiffs
have (i) re-filed the Illinois claims with the court; and (ii) commenced the
process of filing non-Illinois claims in various local courts, including filings
made in the federal courts in the District of New Jersey and the Northern
District of California with essentially the same state law claims. On June
2, 2008, the plaintiffs filed a motion with the Judicial Panel on Multidistrict
Litigation that (i) states their intent to file lawsuits in all 50 states and
the District of Columbia; and (ii) seeks to have all of the cases transferred to
the District of New Jersey for coordinated pretrial proceedings. We
continue to evaluate this lawsuit and are unable to reasonably estimate the
likelihood of loss or the amount or range of potential loss that could result
from this litigation. Therefore, no accrual has been established for potential
loss in connection with this lawsuit. We are also unable to assess at this time
whether the lawsuit will have a material adverse effect on our annual
consolidated operating results or financial condition, although an unfavorable
resolution could be material to our consolidated operating results for a
particular period.
In July 2005, Textron
Innovations Inc., the patent holding company of Textron, Inc., filed a lawsuit
in Delaware Federal District Court against us for patent infringement. Textron
alleges that we willfully infringe certain claims of three Textron patents by
selling our Groundsmaster® commercial mowers. Textron seeks damages for our past
sales and an injunction against future infringement. In August and November
2005, we answered the complaint, asserting defenses and counterclaims of
non-infringement, invalidity, and equitable estoppel. Following the Court’s
order in October 2006 construing the claims of Textron’s patents, discovery in
the case was closed in February 2007. In March 2007, following unsuccessful
attempts to mediate the case, we filed with the USPTO to have Textron’s patents
reexamined. The reexamination proceedings are pending in the USPTO. In April
2007, the Court granted our motion to stay the litigation and, in June 2007,
denied Textron’s motion for reconsideration of the Court’s order staying the
proceedings. We continue to evaluate this lawsuit and are unable to reasonably
estimate the likelihood of loss or the amount or range of potential loss that
could result from the litigation. Therefore, no accrual has been established for
potential loss in connection with this lawsuit. While we do not believe that the
lawsuit will have a material adverse effect on our consolidated financial
condition, an unfavorable resolution could be material to our consolidated
operating results for a particular period.
AND
RESULTS OF OPERATIONS
Nature
of Operations
The Toro
Company is in the business of designing, manufacturing, and marketing
professional turf maintenance equipment and services, turf and agricultural
micro-irrigation systems, landscaping equipment, and residential yard and
irrigation products worldwide. We sell our products through a network of
distributors, dealers, hardware retailers, home centers, mass retailers, and
over the Internet, mainly through internet retailers. Our businesses are
organized into two reportable business segments: professional and residential. A
third segment called “other” consists of domestic company-owned distribution
companies and corporate activities, including corporate financing activities.
Our emphasis is to provide well-built, dependable, and innovative products
supported by an extensive service network. A significant portion of our revenues
has historically been attributable to new and enhanced products. As part of our
“GrowLean” initiative, we are focusing our efforts on revenue growth, profit
improvement, and asset management while maximizing our use of Lean methods to
reduce costs and improve quality and efficiency in our manufacturing facilities
and corporate offices. We believe we have opportunities to create a leaner,
cohesive enterprise that has the potential to deliver sustainable long-term
financial performance. The goals of this initiative are to grow net sales at an
average annual rate of 8 percent or more and achieve a consistent after-tax
annual return on net sales of 7 percent or more over the three-year period
ending October 31, 2009. Our long-term asset management goal is to reduce
average net working capital as a percent of net sales below 20 percent, or in
the “teens.” We define net working capital as accounts receivable plus inventory
less trade payables.
RESULTS
OF OPERATIONS
Overview
Our
results for the second quarter of fiscal 2008 were down with a net sales decline
of 7.0 percent and a net earnings decrease of 16.3 percent each as compared to
the second quarter of fiscal 2007. Year-to-date net earnings were down 12.9
percent in fiscal 2008 compared to the same period last fiscal year on a
year-to-date net sales decline of 2.0 percent. These results were attributable
to the continued weakening of the domestic economy and a late spring in many of
our key markets, which led to cautious ordering from our domestic customers and
resulted in a reduction of field inventory levels for most of our domestic
businesses as of the end of the second quarter of fiscal 2008 compared to the
same period last fiscal year. International continued to grow with an increase
in net sales of 4.7 percent and 10.8 percent for the second quarter and
year-to-date periods of fiscal 2008, respectively, compared to the same periods
last fiscal year. Net earnings as a percentage of net sales declined from 10.9
percent and 8.8 percent in the second quarter and year-to-date periods of fiscal
2007, respectively, to 9.8 percent and 7.8 percent in the second quarter and
year-to-date periods of fiscal 2008, respectively. This decline in net earnings
as a percent of net sales was the result of an increase in selling, general, and
administrative (SG&A) expenses as a percent of net sales for the second
quarter and year-to-date periods of fiscal 2008 compared to the same periods
last fiscal year, a higher effective tax rate, and lower other
income.
We
increased our second quarter cash dividend by 25 percent from $0.12 to $0.15 per
share compared to the quarterly cash dividend paid in the second quarter of
fiscal 2007. In addition, our Board of Directors recently authorized the
repurchase of an additional 4 million shares of the company’s common
stock.
We
expect the difficult domestic economic environment encountered in the first half
of fiscal 2008 to persist for the remainder of the fiscal year. We are taking
proactive measures to manage through the tough economic environment by adjusting
production plans, controlling costs, and managing our assets. We expect our
fiscal 2008 net sales to be equal to our fiscal 2007 net sales levels and
anticipate our net earnings per share to be flat to down 5 percent compared to
our fiscal 2007 results. We continue to keep a cautionary eye on the domestic
and global economies, weather, field inventory levels, retail demand, commodity
prices, competitive actions, and other factors identified below under the
heading “Forward-Looking Information,” which could cause our actual results to
differ from our outlook.
Net
Earnings
Net
earnings for the second quarter of fiscal 2008 were $62.8 million or $1.60 per
diluted share compared to $75.0 million or $1.77 per diluted share for the
second quarter of fiscal 2007, a net earnings per diluted share decrease of 9.6
percent. Year-to-date net earnings in fiscal 2008 were $81.4 million or $2.07
per diluted share compared to $93.4 million or $2.21 per diluted share last
fiscal year, a net earnings per diluted share decrease of 6.3 percent. The
primary factors contributing to these declines were lower sales volumes, fixed
SG&A costs over lower sales volumes, increased spending for marketing,
additional investments in engineering, and a higher effective tax rate. In
addition, second quarter and year-to-date fiscal 2008 net earnings per diluted
share were benefited by approximately $0.11 per share and $0.14 per share,
respectively, compared to the same periods in fiscal 2007, as a result of
reduced shares outstanding from repurchases of our common stock.
The
following table summarizes the major operating costs and other income as a
percentage of net sales:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
May
2,
|
|
|
May
4,
|
|
|
May
2,
|
|
|
May
4,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost
of
sales
|
|
|
(64.3 |
) |
|
|
(64.4 |
) |
|
|
(63.9 |
) |
|
|
(63.9 |
) |
Gross
profit
|
|
|
35.7 |
|
|
|
35.6 |
|
|
|
36.1 |
|
|
|
36.1 |
|
Selling,
general, and administrative
expense
|
|
|
(19.6 |
) |
|
|
(18.3 |
) |
|
|
(23.2 |
) |
|
|
(22.3 |
) |
Interest
expense
|
|
|
(0.8 |
) |
|
|
(0.8 |
) |
|
|
(1.0 |
) |
|
|
(1.0 |
) |
Other
(expense) income, net
|
|
|
(0.2 |
) |
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.4 |
|
Provision
for income
taxes
|
|
|
(5.3 |
) |
|
|
(5.8 |
) |
|
|
(4.2 |
) |
|
|
(4.4 |
) |
Net
earnings
|
|
|
9.8 |
% |
|
|
10.9 |
% |
|
|
7.8 |
% |
|
|
8.8 |
% |
Net
Sales
Worldwide
consolidated net sales for the second quarter and year-to-date periods of fiscal
2008 were down 7.0 percent and 2.0 percent, respectively, from the same periods
in the prior fiscal year. Professional segment net sales were down for the
second quarter of fiscal 2008 compared to the second quarter of fiscal 2007 for
most product lines as a result of continued weakening of the domestic economy,
unfavorable weather in key markets, and customers’ reluctance to place orders
due to the uncertain economic environment, which has resulted in lower field
inventory levels for most of our domestic businesses. In addition, sales of
domestic landscape contractor equipment were also down as a result of the same
previously mentioned factors, as well as from distribution changes. Residential
segment net sales declined for the second quarter and year-to-date periods of
fiscal 2008 compared to the same periods in fiscal 2007 as a result of the
continued weakening of the domestic economy and a late spring in key markets.
However, the year-to-date results were somewhat tempered by higher snow thrower
product sales due to heavy snowfalls during the winter season of 2007-2008.
Other segment net sales were also down for the second quarter and year-to-date
periods of fiscal 2008 compared to the same periods in fiscal 2007 as a result
of the weak domestic economic conditions and late arriving spring weather, as
well as the sale of a portion of the operations of one of our company-owned
distributorships. On a positive note, international sales increased for the
second quarter and year-to-date periods of fiscal 2008 compared to the same
periods in fiscal 2007 as a result continued demand for our products in
international markets. A weaker U.S. dollar compared to other worldwide
currencies in which we transact business benefited our net sales by
approximately $11.3 million and $19.6 million for the second quarter and
year-to-date periods of fiscal 2008, respectively.
Gross
Profit
As a
percentage of net sales, gross profit for the second quarter of fiscal 2008
increased slightly to 35.7 percent compared to 35.6 percent in the second
quarter of fiscal 2007. Gross profit as a percent of net sales for the
year-to-date period of fiscal 2008 remained unchanged at 36.1 percent compared
to the year-to-date period of fiscal 2007. Higher commodity costs and increased
freight expense from higher fuel prices led to the decrease in gross profit and
were offset by the following factors: (i) favorable product mix (ii) a weaker
U.S. dollar compared to other worldwide currencies in which we transact
business; and (iii) continued focus on cost reduction efforts and productivity
improvements as part of our GrowLean initiative.
Selling,
General, and Administrative Expense
Selling,
general, and administrative expense decreased slightly by 0.7 percent for the
second quarter of fiscal 2008 compared to the second quarter of fiscal 2007.
However, SG&A expense increased by 1.7 percent for the year-to-date period
of fiscal 2008 compared to the year-to-date period of fiscal 2007. SG&A
expense as a percentage of net sales for the second quarter and year-to-date
periods of fiscal 2008 increased to 19.6 percent and 23.2 percent, respectively,
compared to 18.3 percent and 22.3 percent for the second quarter and
year-to-date periods of fiscal 2007, respectively. The increase in SG&A
expense as a percentage of net sales was due primarily to fixed SG&A costs
over lower sales volumes, increased spending for marketing, and additional
investments in engineering. Somewhat offsetting those increases was a decline in
incentive compensation expense for the second quarter and year-to-date periods
of fiscal 2008 compared to the same periods last fiscal year.
Interest
Expense
Interest
expense for the second quarter of fiscal 2008 was down 6.4 percent compared to
the second quarter of fiscal 2007 as a result of lower levels of average
short-term debt and a decline in average interest rates. However, interest
expense for the year-to-date period of fiscal 2008 increased slightly by 0.3
percent compared to the same period in the prior fiscal year due to higher
average debt levels somewhat offset by a decline in average interest
rates.
Other
(Expense) Income, Net
Other
income, net for the second quarter of fiscal 2008 decreased $2.3 million
compared to the second quarter of fiscal 2007. Other income, net for the
year-to-date period of fiscal 2008 declined by $3.0 million compared to the same
period last fiscal year. These decreases were due to the following factors: (i)
foreign currency exchange rate losses this year compared to foreign currency
exchange rate gains last year; (ii) a decline in financing charge revenue; and
(iii) lower interest income.
Provision
for Income Taxes
The
effective tax rate for the second quarter of fiscal 2008 was 35.0 percent
compared to 34.6 percent for the second quarter of fiscal 2007. The effective
tax rate for the year-to-date period of fiscal 2008 was 35.1 percent compared to
33.4 percent for the same period in the prior fiscal year. The increase in the
effective tax rate was due to the accelerated phase-out of benefits for foreign
export incentives as compared to the phase-in benefit for the domestic
manufacturing credit, as well as the expiration of the federal research and
experimentation tax credit on December 31, 2007.
In
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (FIN 48), which clarifies the accounting for uncertainty in income
taxes recognized in a company’s financial statements in accordance with FASB
Statement No. 109, “Accounting for Income Taxes.” FIN 48 describes when an
uncertain tax item should be recorded in the financial statements and for how
much, provides guidance on recording interest and penalties, and prescribes
accounting and reporting for income taxes in interim periods. FIN 48 was
effective for us on November 1, 2007. The adoption of FIN 48 had no material
impact on our consolidated financial position or results of operations for the
first and second quarters of fiscal 2008.
BUSINESS
SEGMENTS
As
described previously, we operate in two reportable business segments:
professional and residential. A third reportable segment called “other” consists
of company-owned domestic distributorships, corporate activities, and financing
functions. Operating earnings for each of our two business segments is defined
as earnings from operations plus other income, net. Operating loss for our third
“other” segment includes earnings (loss) from operations, corporate activities,
including corporate financing activities, other income, net, and interest
expense.
The
following table summarizes net sales by segment:
|
|
Three
Months Ended
|
|
(Dollars
in thousands)
|
|
May
2,
|
|
|
May
4,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
Professional
|
|
$ |
429,884 |
|
|
$ |
447,857 |
|
|
$ |
(17,973 |
) |
|
|
(4.0 |
)% |
Residential
|
|
|
201,315 |
|
|
|
228,204 |
|
|
|
(26,889 |
) |
|
|
(11.8 |
) |
Other
|
|
|
7,311 |
|
|
|
10,592 |
|
|
|
(3,281 |
) |
|
|
(31.0 |
) |
Total
*
|
|
$ |
638,510 |
|
|
$ |
686,653 |
|
|
$ |
(48,143 |
) |
|
|
(7.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Includes international sales of:
|
|
$ |
197,770 |
|
|
$ |
188,861 |
|
|
$ |
8,909 |
|
|
|
4.7 |
% |
|
|
|
|
|
|
Six
Months Ended
|
|
(Dollars
in thousands)
|
|
May
2,
|
|
|
May
4,
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
Professional
|
|
$ |
723,080 |
|
|
$ |
719,999 |
|
|
$ |
3,081 |
|
|
|
0.4 |
% |
Residential
|
|
|
309,491 |
|
|
|
330,062 |
|
|
|
(20,571 |
) |
|
|
(6.2 |
) |
Other
|
|
|
11,738 |
|
|
|
15,680 |
|
|
|
(3,942 |
) |
|
|
(25.1 |
) |
Total
*
|
|
$ |
1,044,309 |
|
|
$ |
1,065,741 |
|
|
$ |
(21,432 |
) |
|
|
(2.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Includes international sales of:
|
|
$ |
356,227 |
|
|
$ |
321,474 |
|
|
$ |
34,753 |
|
|
|
10.8 |
% |
The
following table summarizes operating earnings (loss) before income taxes by
segment:
|
|
Three
Months Ended
|
|
(Dollars
in thousands)
|
|
May
2,
|
|
|
May
4,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
Professional
|
|
$ |
96,616 |
|
|
$ |
108,490 |
|
|
$ |
(11,874 |
) |
|
|
(10.9 |
)% |
Residential
|
|
|
21,073 |
|
|
|
27,430 |
|
|
|
(6,357 |
) |
|
|
(23.2 |
) |
Other
|
|
|
(21,083 |
) |
|
|
(21,360 |
) |
|
|
277 |
|
|
|
1.3 |
|
Total
|
|
$ |
96,606 |
|
|
$ |
114,560 |
|
|
$ |
(17,954 |
) |
|
|
(15.7 |
)% |
|
|
|
|
|
|
Six
Months Ended
|
|
(Dollars
in thousands)
|
|
May
2,
|
|
|
May
4,
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
Professional
|
|
$ |
149,126 |
|
|
$ |
156,850 |
|
|
$ |
(7,724 |
) |
|
|
(4.9 |
)% |
Residential
|
|
|
23,897 |
|
|
|
31,809 |
|
|
|
(7,912 |
) |
|
|
(24.9 |
) |
Other
|
|
|
(47,582 |
) |
|
|
(48,411 |
) |
|
|
829 |
|
|
|
1.7 |
|
Total
|
|
$ |
125,441 |
|
|
$ |
140,248 |
|
|
$ |
(14,807 |
) |
|
|
(10.6 |
)% |
Professional
Net
Sales. Worldwide
net sales for the professional segment in the second quarter of fiscal 2008 were
down 4.0 percent compared to the second quarter of fiscal 2007 and increased
slightly by 0.4 percent for year-to-date period of fiscal 2008 compared to the
same period last fiscal year. The second quarter net sales decrease was due to
lower sales of most domestic product lines as a result of decreased demand due
to the continued weakening of the domestic economy, unfavorable weather in key
domestic markets, and customers’ reluctance to place orders due to the uncertain
economic environment. In addition, sales of professionally installed irrigation
systems were down due to the same factors mentioned, and from the poor domestic
housing market. Sales of domestic landscape contractor equipment also declined
as a result of the same previously mentioned factors, as well as from
distribution changes. Domestic field inventory levels were lower as of the end
of the second quarter of fiscal 2008 compared to the end of the second quarter
of fiscal 2007, and retail demand increased slightly for the second quarter and
year-to-date period of fiscal 2008 from the same periods in the prior fiscal
year. Professional segment sales internationally were up in the
second
quarter and year-to-date periods of fiscal 2008 compared to the same periods in
the prior fiscal year due to the continued growth and demand for our products in
international markets, particularly in the golf market.
Operating
Earnings. Operating earnings for the professional segment in the second
quarter and year-to-date periods of fiscal 2008 decreased 10.9 percent and 4.9
percent, respectively, compared to the same periods last fiscal year. Expressed
as a percentage of net sales, professional segment operating margin decreased to
22.5 percent compared to 24.2 percent in the second quarter of fiscal 2007, and
the fiscal 2008 year-to-date professional segment operating margin decreased to
20.6 percent compared to 21.8 percent from the same period last fiscal year.
This profit decline was the result of lower gross margins due primarily to
higher commodity costs and fuel prices, somewhat offset by the same factors
discussed previously in the Gross Profit section. Higher SG&A expense as a
percentage of net sales also adversely affected operating earnings, which was
due primarily to fixed SG&A costs over lower sales volumes.
Residential
Net
Sales. Worldwide
net sales for the residential segment in the second quarter and year-to-date
periods of fiscal 2008 were down 11.8 percent and 6.2 percent, respectively,
compared to the same periods last fiscal year. These decreases were due
primarily to lower demand for walk power mowers and riding products as a result
of the continued weakening of the domestic economy and a late spring, as well as
increased competitive pressure for walk power mowers. Sales of electric trimmers
were also down due to lost placement at a key retailer; however electric blower
sales were up due to additional placement and an increase in retail demand. Net
sales for the year-to-date period of fiscal 2008 compared to the same period
last fiscal year were benefited by strong shipments of snow thrower products as
a result of heavy snowfalls in key markets during the 2007/2008 winter
season.
Operating
Earnings.
Operating earnings for the residential segment in the second quarter of fiscal
2008 decreased 23.2 percent compared to the second quarter of fiscal 2007, and
fiscal 2008 year-to-date operating earnings were down 24.9 percent compared to
the same period last fiscal year. Expressed as a percentage of net sales,
residential segment operating margin declined to 10.5 percent compared to 12.0
percent in the second quarter of fiscal 2007, and fiscal 2008 year-to-date
residential segment operating margin decreased to 7.7 percent compared to 9.6
percent last fiscal year. The profit declines were primarily attributable to
higher SG&A costs due to fixed SG&A costs over lower sales volumes.
Residential segment gross margin for the second quarter of fiscal 2008 slightly
improved compared to the second quarter of fiscal 2007; however, residential
segment gross margin was down for the year-to-date period of fiscal 2008
compared to the same period last fiscal year.
Other
Net
Sales. Net sales
for the other segment include sales from our wholly owned domestic distribution
companies less sales from the professional and residential segments to those
distribution companies. In addition, elimination of the professional and
residential segments’ floor plan interest costs from Toro Credit Company are
also included in this segment. Net sales for the other segment were down for the
second quarter and year-to-date periods of fiscal 2008 compared to the same
periods last fiscal year by $3.3 million, or 31.0 percent, and $3.9 million, or
25.1 percent, respectively, as a result of the continued weakening of the
domestic economy and late arriving spring weather, as well as the sale of a
portion of the operations of one of our company-owned distributorships in the
first quarter of fiscal 2008.
Operating
Losses. Operating losses for the other segment were slightly down for the
second quarter and year-to-date periods of fiscal 2008 by $0.3 million, or 1.3
percent, and $0.8 million, or 1.7 percent, respectively, compared to the same
periods last fiscal year.
FINANCIAL
POSITION
Working
Capital
Receivables
as of the end of the second quarter of fiscal 2008 were down 5.2 percent
compared to the end of the second quarter of fiscal 2007 due to the decline in
net sales. Our average days sales outstanding for receivables improved to 71
days based on sales for the last twelve months ended May 2, 2008, compared to 75
days for the twelve months ended May 4, 2007. Inventory was up as of the end of
the second quarter of fiscal 2008 by 7.1 percent compared to the end of the
second quarter of fiscal 2007, and average inventory turnover was down by 3.0
percent for the twelve months ended May 2, 2008 compared to the twelve months
ended May 4, 2007. We are taking proactive measures to manage through the tough
economic environment by adjusting production plans, controlling costs, and
managing our assets.
Liquidity
and Capital Resources
Our
businesses are seasonally working capital intensive and require funding for
purchases of raw materials used in production, replacement parts inventory,
capital expenditures, expansion and upgrading of existing facilities, as well as
for financing receivables from customers. We believe that cash generated from
operations, together with our fixed rate long-term debt, bank credit lines, and
cash on hand, will provide us with adequate liquidity to meet our anticipated
operating requirements. We believe that the funds available through existing
financing arrangements and forecasted cash flows will be sufficient to provide
the necessary capital resources for our anticipated working capital needs,
capital expenditures, investments, debt repayments, quarterly cash dividend
payments, and stock repurchases for at least the next twelve
months.
Our
Board of Directors approved a cash dividend of $0.15 per share for the second
quarter of fiscal 2008 paid on April 11, 2008, which was an increase over our
cash dividend of $0.12 per share for the second quarter of fiscal
2007.
On
May 21, 2008, our Board of Directors also authorized the repurchase of an
additional 4 million shares of our common stock in open-market or in privately
negotiated transactions.
Cash
Flow. Cash used in operating activities for the first six months of
fiscal 2008 was 7.5 percent lower than the first six months of fiscal 2007 due
primarily to a lower increase in receivables, somewhat offset by a decline in
net earnings and a higher increase in inventory levels for the first six months
of fiscal 2008 compared to the first six months of fiscal 2007. Cash used in
investing activities was lower by $0.7 million, or 3.0 percent, compared to the
first six months of fiscal 2007, due mainly to cash received from the sale of a
portion of the operations of one of our company-owned distributorships in the
first quarter of fiscal 2008. Cash provided by financing activities was lower by
18.4 percent compared to the first six months of fiscal 2007. This change of
$23.5 million was due primarily to a lower increase in debt levels and a decline
in proceeds and tax benefits from stock-based awards in the first six months of
fiscal 2008 compared to the first six months of fiscal 2007.
Credit
Lines and Other Capital Resources. Our
business is seasonal, with accounts receivable balances historically increasing
between January and April as a result of higher sales volumes and extended
payment terms made available to our customers, and decreasing between May and
December when payments are received. The seasonality of production and shipments
causes our working capital requirements to fluctuate during the year. Our peak
borrowing usually occurs between January and April. Seasonal cash requirements
are financed from operations and with short-term financing arrangements,
including a $225.0 million unsecured senior five-year revolving credit facility
that expires in January 2012. Interest expense on this credit line is determined
based on a LIBOR rate plus a basis point spread defined in the credit agreement.
In addition, our non-U.S. operations maintain unsecured short-term lines of
credit of approximately $21 million. These facilities bear interest at various
rates depending on the rates in their respective countries of operation. We also
have a letter of credit subfacility as part of our credit agreement. Average
short-term debt was $103.0 million in the first six months of fiscal 2008
compared to $95.1 million in the first six months of fiscal 2007, an increase of
8.3 percent. This increase was due primarily to additional net proceeds from the
issuance of the senior notes in April 2007 used to pay down short-term debt last
year. As of May 2, 2008, we had $94.5 million of unutilized availability under
our credit agreements.
Significant
financial covenants in our credit agreement are interest coverage and
debt-to-capitalization ratios. We were in compliance with all covenants related
to our credit agreements as of May 2, 2008, and expect to be in compliance with
all covenants during the remainder of fiscal 2008.
Off-Balance
Sheet Arrangements and Contractual Obligations
Our
off-balance sheet arrangements generally relate to customer financing
activities, inventory purchase commitments, deferred compensation arrangements,
and operating lease commitments. Third party financing companies purchased
$107.1 million of receivables from us during the first six months of fiscal
2008, of which $102.7 million was outstanding as of May 2, 2008. See our most
recently filed Annual Report on Form 10-K for further details regarding our
off-balance sheet arrangements and contractual obligations. No material change
in this information occurred during the first two quarters of fiscal
2008.
Inflation
We are
subject to the effects of inflation and changing prices. In the first half of
fiscal 2008, average prices paid for most commodities we purchase were higher
compared to the first half of fiscal 2007, which hampered our gross margin
growth rate in the first half of fiscal 2008 compared to the first half of
fiscal 2007. We expect average prices paid for commodities we purchase, mainly
steel, resin, and fuel, to increase for the remainder of fiscal 2008. We plan to
attempt to mitigate the impact of these anticipated increases in commodity costs
and other inflationary pressures by engaging in proactive vendor negotiations
and internal cost reduction efforts, reviewing alternative sourcing options, and
possible moderate price increases on some products.
Critical
Accounting Policies and Estimates
In
preparing our consolidated financial statements in conformity with U.S.
generally accepted accounting principles, we must make decisions that impact the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosures. Such decisions include the selection of the appropriate accounting
principles to be applied and the assumptions on which to base accounting
estimates. In reaching such decisions, we apply judgments based on our
understanding and analysis of the relevant circumstances, historical experience,
and actuarial valuations. Actual amounts could differ from those estimated at
the time the consolidated financial statements are prepared.
Our
significant accounting policies are described in Note 1 to the notes to our
consolidated financial statements included in our Annual Report on Form 10-K for
the fiscal year ended October 31, 2007. Some of those significant accounting
policies require us to make difficult subjective or complex judgments or
estimates. An accounting estimate is considered to be critical if it meets both
of the following criteria: (i) the estimate requires assumptions about matters
that are highly uncertain at the time the accounting estimate is made, and (ii)
different estimates reasonably could have been used, or changes in the estimate
that are reasonably likely to occur from period to period, may have a material
impact on the presentation of our financial condition, changes in financial
condition or results of operations. Our critical accounting estimates include
the following:
Warranty
Reserve. Warranty coverage on our products ranges from a period of six
months to seven years, and generally covers parts, labor, and other expenses for
non-maintenance repairs. Warranty coverage generally does not cover operator
abuse and improper use. At the time of sale, we accrue a warranty reserve by
product line for estimated costs in connection with future warranty claims. We
also establish reserves for major rework campaigns. The amount of our warranty
reserves is based primarily on the estimated number of products under warranty,
historical average costs incurred to service warranty claims, the trend in the
historical ratio of claims to sales, and the historical length of time between
the sale and resulting warranty claim. We periodically assess the adequacy of
our warranty reserves based on changes in these factors and record any necessary
adjustments if actual claim experience indicates that adjustments are necessary.
Actual claims could be higher or lower than amounts estimated, as the amount and
value of warranty claims are subject to variation due to such factors as
performance of new products, significant manufacturing or design defects not
discovered until after the product is delivered to customers, product failure
rates, and higher or lower than expected service costs for a repair. We believe
that analysis of historical trends and knowledge of potential manufacturing or
design problems provide sufficient information to establish a reasonable
estimate for warranty claims at the time of sale. However, since we cannot
predict with certainty future warranty claims or costs associated with servicing
those claims, our actual warranty costs may differ from our estimates. An
unexpected increase in warranty claims or in the costs associated with servicing
those claims may result in an increase in our warranty accrual and a decrease in
our net earnings.
Sales
Promotions and Incentives. At the time of sale to a customer, we record
an estimate for sales promotion and incentive costs, which are classified as a
reduction from gross sales or as a component of SG&A. Examples of sales
promotion and incentive programs include rebate programs on certain professional
products sold to distributors, volume discounts, retail financing support, floor
planning, cooperative advertising, commissions, and other sales discounts and
promotional programs. The estimates for sales promotion and incentive costs are
based on the terms of the arrangements with customers, historical payment
experience, field inventory levels, volume purchases, and expectations for
changes in relevant trends in the future. Actual results may differ from these
estimates if competitive factors dictate the need to enhance or reduce sales
promotion and incentive accruals or if the customer usage and field inventory
levels vary from historical trends. Adjustments to sales promotions and
incentive accruals are made from time to time as actual usage becomes known in
order to properly estimate the amounts necessary to generate consumer demand
based on market conditions as of the balance sheet date.
Inventory
Valuation. We value our inventories at the lower of the cost of inventory
or net realizable value, with cost determined by either the last-in, first-out
(LIFO) method for most U.S. inventories or the first-in, first-out (FIFO) method
for all other inventories. We establish reserves for excess, slow moving, and
obsolete inventory based on inventory levels, expected product lives, and
forecasted sales demand. Valuation of inventory can also be affected by
significant redesign of existing products or replacement of an existing product
by an entirely new generation product. In assessing the ultimate realization of
inventories, we are required to make judgments as to future demand requirements
compared with inventory levels. Reserve requirements are developed according to
our projected demand requirements based on historical demand, competitive
factors, and technological and product life cycle changes. It is possible that
an increase in our reserve may be required in the future if there is a
significant decline in demand for our products and we do not adjust our
manufacturing production accordingly.
We
also record a reserve for inventory shrinkage. Our inventory shrinkage reserve
represents anticipated physical inventory losses that are recorded based on
historical loss trends, ongoing cycle-count and periodic testing adjustments,
and inventory
levels.
Though management considers reserve balances adequate and proper, changes in
economic conditions in specific markets in which we operate could have an effect
on the reserve balances required.
Accounts
and Notes Receivable Valuation. We value accounts and notes receivable
net of an allowance for doubtful accounts. Each fiscal quarter, we prepare an
analysis of our ability to collect outstanding receivables that provides a basis
for an allowance estimate for doubtful accounts. In doing so, we evaluate the
age of our receivables, past collection history, current financial conditions of
key customers, and economic conditions. Based on this evaluation, we establish a
reserve for specific accounts and notes receivable that we believe are
uncollectible, as well as an estimate of uncollectible receivables not
specifically known. Portions of our accounts receivable are protected by a
security interest in products held by customers, which minimizes our collection
exposure. A deterioration in the financial condition of any key customer or a
significant slow down in the economy could have a material negative impact on
our ability to collect a portion or all of the accounts and notes receivable. We
believe that an analysis of historical trends and our current knowledge of
potential collection problems provide us with sufficient information to
establish a reasonable estimate for an allowance for doubtful accounts. However,
since we cannot predict with certainty future changes in the financial stability
of our customers or in the general economy, our actual future losses from
uncollectible accounts may differ from our estimates. In the event we determined
that a smaller or larger uncollectible accounts reserve is appropriate, we may
record a credit or charge to SG&A in the period that we made such a
determination.
New
Accounting Pronouncements to be Adopted
In March
2008, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133.”
SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133 with
the intent to provide users of financial statements with an enhanced
understanding of: (i) how and why an entity uses derivative instruments; (ii)
how derivative instruments and related hedged items are accounted for under SFAS
No. 133 and its related interpretations; and (iii) how derivative instruments
and related hedged items affect an entity’s financial position, financial
performance, and cash flows. This statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged.
In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
Combinations.” SFAS No. 141R applies to all business combinations and requires
most identifiable assets, liabilities, noncontrolling interests, and goodwill
acquired to be recorded at “full fair value.” We will adopt the provisions of
SFAS No. 141R for any business combination occurring on or after November 1,
2009, as required.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS
No. 157 defines fair value, establishes a framework for measuring fair value,
and expands disclosures concerning fair value. We will adopt the provisions of
SFAS No. 157 for financial assets and liabilities and nonfinancial assets and
liabilities measured at fair value on a recurring basis during the first quarter
of fiscal 2009, as required. We will adopt the provisions of SFAS No. 157 for
nonfinancial assets and liabilities that are not required or permitted to be
measured on a recurring basis during the first quarter of fiscal 2010, as
required. We are currently evaluating the requirements of SFAS No. 157, and we
do not expect this new pronouncement will have a material impact on our
consolidated financial condition or results of operations.
No
other new accounting pronouncement that has been issued but not yet effective
for us during the second quarter of fiscal 2008 has had or is expected to have a
material impact on our consolidated financial statements.
Forward-Looking
Information
This Quarterly Report on Form 10-Q
contains not only historical information, but also forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and that are
subject to the safe harbor created by those sections. In addition, we or others
on our behalf may make forward-looking statements from time to time in oral
presentations, including telephone conferences and/or web casts open to the
public, in press releases or reports, on our web sites, or otherwise. Statements
that are not historical are forward-looking and reflect
expectations and assumptions. We try to identify forward-looking statements in
this report and elsewhere by using words such as “expect”, “looking ahead”,
“outlook”, “optimistic”, “plan”, “anticipate”, “estimate”, “believe”, “could”,
“should”, “may”, “possible”, “intend”, and similar expressions. Our
forward-looking statements generally relate to our future performance, including
our anticipated operating results and liquidity requirements, our business
strategies and goals, and the effect of laws, rules, regulations, and new
accounting pronouncements and outstanding litigation, on our business, operating
results, and financial condition.
Forward-looking
statements involve risks and uncertainties. These risks and uncertainties
include factors that affect all businesses operating in a global market as well
as matters specific to Toro. The following are some of the factors known to us
that could cause our actual results to differ materially from what we have
anticipated in our forward-looking statements:
·
|
Changes
in economic conditions and outlook in the United States and around the
world, including but not limited to slow domestic and worldwide economic
growth rates; slow downs or reductions in home ownership, construction,
and home sales; consumer spending levels; employment rates; interest
rates; inflation; consumer confidence; and general economic and political
conditions and expectations in the United States and the foreign countries
in which we conduct business.
|
·
|
Increases
in the cost and availability of raw materials and components that we
purchase and increases in our other costs of doing business, including
transportation costs, may adversely affect our profit margins and
business.
|
·
|
Weather
conditions may reduce demand for some of our products and adversely affect
our net sales.
|
·
|
Our
professional segment net sales are dependent upon the level of growth in
the residential and commercial construction markets, growth of homeowners’
who outsource lawn care, the amount of investment in golf course
renovations and improvements, new golf course development, golf course
closures, and the amount of government spending for grounds maintenance
equipment.
|
·
|
Our
residential segment net sales are dependent upon the amount of product
placement at retailers, changing buying patterns of customers, and The
Home Depot, Inc. as a major
customer.
|
·
|
If
we are unable to continue to enhance existing products and develop and
market new products that respond to customer needs and preferences and
achieve market acceptance, we may experience a decrease in demand for our
products, and our business could
suffer.
|
·
|
We
face intense competition in all of our product lines with numerous
manufacturers, including from some competitors that have greater financial
and other resources than we do. We may not be able to compete effectively
against competitors’ actions, which could harm our business and operating
results.
|
·
|
A
significant percentage of our consolidated net sales is generated outside
of the United States, and we intend to continue to expand our
international operations. Our international operations require significant
management attention and financial resources; expose us to difficulties
presented by international economic, political, legal, accounting, and
business factors; and may not be successful or produce desired levels of
net sales.
|
·
|
Fluctuations
in foreign currency exchange rates could result in declines in our
reported net sales and net
earnings.
|
·
|
We
manufacture our products at and distribute our products from several
locations in the United States and internationally. Any disruption at any
of these facilities or our inability to cost-effectively expand existing
and/or move production between manufacturing facilities could adversely
affect our business and operating
results.
|
·
|
We
intend to grow our business in part through additional acquisitions and
alliances, stronger customer relations, and new partnerships, which are
risky and could harm our business, particularly if we are not able to
successfully integrate such acquisitions, alliances, and
partnerships.
|
·
|
We
rely on our management information systems for inventory management,
distribution, and other functions. If our information systems fail to
adequately perform these functions or if we experience an interruption in
their operation, our business and operating results could be adversely
affected.
|
·
|
A
significant portion of our net sales are financed by third parties. Some
Toro dealers and Exmark distributors and dealers finance their inventories
with third party financing sources. The termination of our agreements with
these third parties, any material change to the terms of our agreements
with these third parties or in the availability or terms of credit offered
to our customers by these third parties, or any delay in securing
replacement credit sources, could adversely affect our sales and operating
results.
|
·
|
Our
reliance upon patents, trademark laws, and contractual provisions to
protect our proprietary rights may not be sufficient to protect our
intellectual property from others who may sell similar products. Our
products may infringe the proprietary rights of
others.
|
·
|
Our
business, properties, and products are subject to governmental regulation
with which compliance may require us to incur expenses or modify our
products or operations and may expose us to penalties for non-compliance.
Governmental regulation may also adversely affect the demand for some of
our products and our operating
results.
|
·
|
We
are subject to product liability claims, product quality issues, and other
litigation from time to time that could adversely affect our operating
results or financial condition, including without limitation the pending
litigation against us and other defendants that challenges the horsepower
ratings of lawnmowers, of which we are currently unable to assess whether
such litigation would have a material adverse effect on our consolidated
operating results or financial condition, although an adverse result might
be material to our operating results in a particular
period.
|
·
|
If
we are unable to retain our key employees, and attract and retain other
qualified personnel, we may not be able to meet strategic objectives and
our business could suffer.
|
·
|
The
terms of our credit arrangements and the indentures governing our senior
notes and debentures could limit our ability to conduct our business, take
advantage of business opportunities, and respond to changing business,
market, and economic conditions. In addition, if we are unable to comply
with the terms of our credit arrangements and indentures, especially the
financial covenants, our credit arrangements could be terminated and our
senior notes and debentures could become due and
payable.
|
·
|
Our
business is subject to a number of other factors that may adversely affect
our operating results, financial condition, or business, such as natural
or man-made disasters that may result in shortages of raw materials,
higher fuel costs, and an increase in insurance premiums; financial
viability of some distributors and dealers and their ability to obtain
adequate financing, changes in distributor ownership, changes in channel
distribution of our products, relationships with our distribution channel
partners, our success in partnering with new dealers, and our customers’
ability to pay amounts owed to us; ability of management to adapt to
unplanned events; and continued threat of terrorist acts and war that may
result in heightened security and higher costs for import and export
shipments of components or finished goods, reduced leisure travel, and
contraction of the U.S. and world
economies.
|
For more
information regarding these and other uncertainties and factors that could cause
our actual results to differ materially from what we have anticipated in our
forward-looking statements or otherwise could materially adversely affect our
business, financial condition, or operating results, see our most recent filed
Annual Report on Form 10-K.
All
forward-looking statements included in this report are expressly qualified in
their entirety by the foregoing cautionary statements. We wish to caution
readers not to place undue reliance on any forward-looking statement which
speaks only as of the date made and to recognize that forward-looking statements
are predictions of future results, which may not occur as anticipated. Actual
results could differ materially from those anticipated in the forward-looking
statements and from historical results, due to the risks and uncertainties
described above, as well as others that we may consider immaterial or do not
anticipate at this time. The foregoing risks and uncertainties are not exclusive
and further information concerning the company and our businesses, including
factors that potentially could materially affect our financial results or
condition, may emerge from time to time. We assume no obligation to update
forward-looking statements to reflect actual results or changes in factors or
assumptions affecting such forward-looking statements. We advise you, however,
to consult any further disclosures we make on related subjects in our future
annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports
on Form 8-K we file with or furnish to the Securities and Exchange
Commission.
We are
exposed to market risk stemming from changes in foreign currency exchange rates,
interest rates, and commodity prices. Changes in these factors could cause
fluctuations in our net earnings and cash flows. See further discussions on
these market risks below.
Foreign
Currency Exchange Rate Risk. In the normal course of business, we
actively manage the exposure of our foreign currency market risk by entering
into various hedging instruments, authorized under company policies that place
controls on these activities, with counterparties that are highly rated
financial institutions. Our hedging activities involve the primary use of
forward currency contracts. We use derivative instruments only in an attempt to
limit underlying exposure from foreign currency exchange rate fluctuations and
to minimize earnings and cash flow volatility associated with foreign currency
exchange rate changes, and not for trading purposes. We are exposed to foreign
currency exchange rate risk arising from transactions in the normal course of
business, such as sales and loans to wholly owned subsidiaries as well as sales
to third party customers, and purchases from suppliers. Because our products are
manufactured or sourced primarily from the United States, a stronger U.S. dollar
generally has a negative impact on results from operations outside the United
States while a weaker dollar generally has a positive effect. Our primary
currency exchange rate exposures are with the Euro, the Japanese yen, the
Australian dollar, the Canadian dollar, the British pound, and the Mexican peso
against the U.S. dollar.
We
enter into various contracts, principally forward contracts that change in value
as foreign currency exchange rates change, to protect the value of existing
foreign currency assets, liabilities, anticipated sales, and probable
commitments. Decisions on whether to use such contracts are made based on the
amount of exposures to the currency involved, and an assessment of the near-term
market value for each currency. Worldwide foreign currency exchange rate
exposures are reviewed monthly. The gains and losses on these contracts offset
changes in the value of the related exposures. Therefore, changes in market
values of these hedge instruments are highly correlated with changes in market
values of underlying hedged items both at inception of the hedge and over the
life of the hedge contract. During the three and six months ended May 2, 2008,
the amount of losses reclassified to
earnings
for such cash flow hedges was $3.7 million and $5.6 million, respectively. For
the six months ended May 2, 2008, the losses treated as a reduction to net sales
for contracts to hedge trade sales were $5.8 million and the gains treated as a
reduction of cost of sales for contracts to hedge inventory purchases were $0.2
million.
The
following foreign currency exchange rate contracts held by us have maturity
dates in fiscal 2008 and fiscal 2009. All items are non-trading and stated in
U.S. dollars. Some derivative instruments we enter into do not meet the hedging
criteria of SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities;” therefore, changes in their fair value are recorded in other
income, net. The average contracted rate, notional amount, pre-tax value of
derivative instruments in accumulated other comprehensive income (AOCI), and
fair value impact of derivative instruments in other income, net for the six
months ended May 2, 2008 were as follows:
Dollars
in thousands
(except
average contracted rate)
|
|
Average
Contracted
Rate
|
|
|
Notional
Amount
|
|
|
Value
in
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Fair
Value
Impact
Gain
(Loss)
|
|
Buy
US dollar/Sell Australian dollar
|
|
|
0.8871 |
|
|
$ |
51,640.5 |
|
|
$ |
(1,441.6 |
) |
|
$ |
(1,519.5 |
) |
Buy
US dollar/Sell Canadian dollar
|
|
|
0.9865 |
|
|
|
6,000.0 |
|
|
|
139.6 |
|
|
|
(200.4 |
) |
Buy
US dollar/Sell Euro
|
|
|
1.5120 |
|
|
|
122,089.8 |
|
|
|
(1,809.4 |
) |
|
|
(6,506.2 |
) |
Buy
US dollar/Sell British pound
|
|
|
1.9641 |
|
|
|
12,570.2 |
|
|
|
- |
|
|
|
(126.5 |
) |
Buy
Mexican peso/Sell US dollar
|
|
|
11.0864 |
|
|
|
9,696.6 |
|
|
|
370.6 |
|
|
|
197.5 |
|
Our
net investment in foreign subsidiaries translated into U.S. dollars is not
hedged. Any changes in foreign currency exchange rates would be reflected as a
foreign currency translation adjustment, a component of accumulated other
comprehensive loss in stockholders’ equity, and would not impact net
earnings.
Interest
Rate Risk. Our market risk on
interest rates relates primarily to LIBOR-based short-term debt from commercial
banks as well as the potential increase in fair value of long-term debt
resulting from a potential decrease in interest rates. However, we do not have a
cash flow or earnings exposure due to market risks on long-term debt. We
generally do not use interest rate swaps to mitigate the impact of fluctuations
in interest rates. See our most recently filed Annual Report on Form 10-K (Item
7A). There has been no material change in this information.
Commodity
Price Risk. Some
raw materials used in our products are exposed to commodity price changes. The
primary commodity price exposures are with steel, aluminum, fuel,
petroleum-based resin, and linerboard. Further information regarding rising
prices for commodities is presented in Item 2 of this Quarterly Report on Form
10-Q, in the section entitled “Inflation.”
We
enter into fixed-price contracts for future purchases of natural gas in the
normal course of operations as a means to manage natural gas price risks. These
contracts meet the definition of “normal purchases and normal sales” and,
therefore, are not considered derivative instruments for accounting
purposes.
We
maintain disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) that are designed to reasonably ensure that information
required to be disclosed by us in the reports we file or submit under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized,
and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms and that such information is accumulated and
communicated to our management, including our principal executive and principal
financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure. In designing and
evaluating our disclosure controls and procedures, we recognize that any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives, and we
are required to apply our judgment in evaluating the cost-benefit relationship
of possible internal controls. Our management evaluated, with the participation
of our Chief Executive Officer and Chief Financial Officer, the effectiveness of
the design and operation of our disclosure controls and procedures as of the end
of the period covered in this Quarterly Report on Form 10-Q. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of the end of such
period to provide reasonable assurance that information required to be disclosed
in our Exchange Act reports is recorded, processed, summarized, and reported
within the time periods specified in the SEC’s rules and forms, and that
material information relating to our company and our consolidated subsidiaries
is made known to management, including our Chief Executive Officer and Chief
Financial Officer, particularly during the period when our periodic reports are
being prepared. There was no change in our internal control over financial
reporting that occurred during our fiscal second quarter ended May 2, 2008 that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Item
1. LEGAL PROCEEDINGS
We are a
party to litigation in the ordinary course of business. Litigation occasionally
involves claims for punitive as well as compensatory damages arising out of use
of our products. Although we are self-insured to some extent, we maintain
insurance against certain product liability losses. We are also subject to
administrative proceedings with respect to claims involving the discharge of
hazardous substances into the environment. Some of these claims assert damages
and liability for remedial investigations and clean up costs. We are also
typically involved in commercial disputes, employment disputes, and patent
litigation cases in the ordinary course of business. To prevent possible
infringement of our patents by others, we periodically review competitors’
products. To avoid potential liability with respect to others’ patents, we
regularly review certain patents issued by the United States Patent and
Trademark Office (USPTO) and foreign patent offices. We believe these activities
help us minimize our risk of being a defendant in patent infringement
litigation. We are currently involved in patent litigation cases, both where we
are asserting patents and where we are defending against charges of
infringement. While the ultimate results of the current cases are unknown at
this time, we believe that the outcome of these cases is unlikely to have a
material adverse effect on our consolidated financial condition or results of
operations.
On
June 3, 2004, eight individuals who claim to have purchased lawnmowers in
Illinois and Minnesota filed a lawsuit in Illinois state court against us and
eight other defendants alleging that the horsepower labels on the products the
plaintiffs purchased were inaccurate. The plaintiffs amended their complaint to
add 89 additional plaintiffs and an engine manufacturer as an additional
defendant. The amended complaint asserted violations of the federal Racketeer
Influenced and Corrupt Organizations Act (“RICO”) and statutory and common law
claims arising from the laws of 48 states. The plaintiffs sought certification
of a class of all persons in the United States who, beginning January 1,
1994 through the present, purchased a lawnmower containing a two-stroke or
four-stroke gas combustible engine up to 30 horsepower that was manufactured or
sold by the defendants. The amended complaint also sought an injunction,
unspecified compensatory and punitive damages, treble damages under RICO, and
attorneys’ fees. In late May 2006, the case was removed to federal
court in the Southern District of Illinois. On August 1, 2006, all of the
defendants, except MTD Products Inc. (“MTD”), filed motions to dismiss the
claims in the amended complaint. On August 4, 2006, the plaintiffs filed a
motion for preliminary approval of a settlement agreement with MTD and
certification of a settlement class. All remaining non-settling defendants filed
counterclaims against MTD for potential contribution amounts, and MTD filed
cross claims against the non-settling defendants. On December 21, 2006, another
defendant, American Honda Motor Company (“Honda”), notified us that it had
reached an agreement of settlement with the plaintiffs. On March 30, 2007, the
court entered an order dismissing plaintiffs’ complaint, subject to the ability
to re-plead certain claims pursuant to a detailed written order to follow. On
May 8, 2008, the court issued a memorandum and order that (i) dismissed the RICO
claims in their entirety with prejudice; (ii) dismissed all non-Illinois
state-law claims without prejudice and with instructions that such claims must
be filed in local courts; and (iii) rejected the proposed settlement with MTD.
The proposed Honda settlement was not under consideration by the court and was
not addressed in the memorandum and order. As of the date hereof, the plaintiffs
have (i) re-filed the Illinois claims with the court; and (ii) commenced the
process of filing non-Illinois claims in various local courts, including filings
made in the federal courts in the District of New Jersey and the Northern
District of California with essentially the same state law claims. On June
2, 2008, the plaintiffs filed a motion with the Judicial Panel on Multidistrict
Litigation that (i) states their intent to file lawsuits in all 50 states and
the District of Columbia; and (ii) seeks to have all of the cases transferred to
the District of New Jersey for coordinated pretrial proceedings. We
continue to evaluate this lawsuit and are unable to reasonably estimate the
likelihood of loss or the amount or range of potential loss that could result
from this litigation. Therefore, no accrual has been established for potential
loss in connection with this lawsuit. We are also unable to assess at this time
whether the lawsuit will have a material adverse effect on our annual
consolidated operating results or financial condition, although an unfavorable
resolution could be material to our consolidated operating results for a
particular period.
In
July 2005, Textron Innovations Inc., the patent holding company of Textron,
Inc., filed a lawsuit in Delaware Federal District Court against us for patent
infringement. Textron alleges that we willfully infringe certain claims of three
Textron patents by selling our Groundsmaster® commercial mowers. Textron seeks
damages for our past sales and an injunction against future infringement. In
August and November 2005, we answered the complaint, asserting defenses and
counterclaims of non-infringement, invalidity, and equitable estoppel. Following
the Court’s order in October 2006 construing the claims of Textron’s patents,
discovery in the case was closed in February 2007. In March 2007, following
unsuccessful attempts to mediate the case, we filed with the USPTO to have
Textron’s patents reexamined. The reexamination proceedings are pending in the
USPTO. In April 2007, the Court granted our motion to stay the litigation and,
in June 2007, denied Textron’s motion for reconsideration of the Court’s order
staying the proceedings. We continue to evaluate this lawsuit and are unable to
reasonably estimate the likelihood of loss or the amount or range of potential
loss that could result from the litigation. Therefore, no accrual has been
established for potential loss in connection with this lawsuit. While we do not
believe that the lawsuit will have a material adverse effect on our consolidated
financial condition, an unfavorable resolution could be material to our
consolidated operating results for a particular period.
We are
affected by risks specific to us as well as factors that affect all businesses
operating in a global market. The significant factors known to us that could
materially adversely affect our business, financial condition, or operating
results or could cause our actual results to differ materially from our
anticipated results or other expectations, including those expressed in any
forward-looking statement made in this report, are described in our most
recently filed Annual Report on Form 10-K (Item 1A). There has been no material
change in those risk factors.
The
following table shows our second quarter of fiscal 2008 stock repurchase
activity.
Period
|
|
Total
Number of
Shares
Purchased (1)
|
|
|
Average
Price
Paid
per Share
|
|
|
Total
Number of
Shares
Purchased
As
Part of Publicly
Announced
Plans
or
Programs
|
|
|
Maximum
Number
of
Shares that May
Yet
Be Purchased
Under
the Plans or
Programs
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2,
2008 through
February
29, 2008
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
544,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
1, 2008 through
March
28, 2008
|
|
|
20,000 |
|
|
|
41.92 |
|
|
|
20,000 |
|
|
|
524,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
29, 2008 through
May
2, 2008
|
|
|
103,719 |
(2) |
|
|
41.97 |
|
|
|
100,800 |
|
|
|
423,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
123,719 |
|
|
$ |
41.97 |
|
|
|
120,800 |
|
|
|
|
|
(1)
|
On
May 22, 2007, our Board of Directors authorized the repurchase of
3,000,000 shares of our common stock in open-market or in privately
negotiated transactions. This program has no expiration date but may be
terminated by our Board of Directors at any time. We purchased an
aggregate of 120,800 shares during the periods indicated above under this
program. There are 423,289 shares remaining for repurchase under this
program.
|
(2)
|
Includes
2,919 units (shares) of our common stock purchased in open-market
transactions at an average price of $41.34 per share on behalf of a rabbi
trust formed by us to pay benefit obligations to participants in deferred
compensation plans. These 2,919 shares were not repurchased under our
repurchase program described in footnote (1)
above.
|
On May
21, 2008, our Board of Directors authorized the repurchase of an additional
4,000,000 shares of our common stock in open-market or in privately negotiated
transactions. This program has no expiration date but may be terminated by our
Board of Directors at any time.
(a)
|
Our
Annual Meeting of Shareholders was held on March 11,
2008.
|
(b)
|
The
results of the shareholder votes on the proposals brought before the
meeting were as follows:
|
|
|
For
|
|
|
Against/
Withheld
|
|
|
Abstain
|
|
|
Broker
Non-Votes
|
|
1.
Election of Directors – for terms ending at the 2011
Annual
Meeting of Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Katherine
J. Harless
|
|
|
34,133,144 |
|
|
|
543,591 |
|
|
|
0 |
|
|
|
0 |
|
Michael
J. Hoffman
|
|
|
34,147,889 |
|
|
|
528,846 |
|
|
|
0 |
|
|
|
0 |
|
Inge
G. Thulin
|
|
|
34,132,447 |
|
|
|
544,288 |
|
|
|
0 |
|
|
|
0 |
|
2.
Approve amendment to The Toro Company 2000 Stock Option Plan to increase
the number of shares of our common stock authorized for
issuance under the plan by 800,000
|
|
|
26,924,161 |
|
|
|
2,097,690 |
|
|
|
475,399 |
|
|
|
5,179,484 |
|
3.
Ratify Selection of Independent Registered Public Accounting
Firm
|
|
|
34,234,406 |
|
|
|
333,261 |
|
|
|
109,067 |
|
|
|
0 |
|
|
Janet
K. Cooper, Gary L. Ellis, and Gregg W. Steinhafel continue to serve as
directors for terms ending at the 2009 Annual Meeting of
Shareholders.
|
|
Robert
C. Buhrmaster, Winslow H. Buxton, Robert H. Nassau, and Christopher A.
Twomey continue to serve as directors for terms ending at the 2010 Annual
Meeting of Shareholders.
|
|
Ronald
O. Baukol retired as a director upon the expiration of his term at the
2008 Annual Meeting of
Shareholders.
|
(a)
|
Exhibits
|
|
|
|
|
|
3(i)
and 4(a)
|
The
Amended and Restated Certificate of Incorporation of Registrant
(incorporated by reference to Exhibit 3(i)(a) and 4(a) to Registrant’s
Current Report on Form 8-K dated March 15, 2005, Commission File No.
1-8649).
|
|
|
|
|
3(ii)
and 4(b)
|
Bylaws
of Registrant (incorporated by reference to Exhibit 3 to Registrant’s
Current Report on Form 8-K dated November 30, 2005, Commission File No.
1-8649).
|
|
|
|
|
4(c)
|
Specimen
Form of Common Stock Certificate (incorporated by reference to Exhibit
4(c) to Registrant’s Annual Report on Form 10-K for the fiscal year ended
October 31, 2006, Commission File No. 1-8649).
|
|
|
|
|
4(d)
|
Rights
Agreement dated as of May 20, 1998, between Registrant and Wells Fargo
Bank Minnesota, National Association relating to rights to purchase Series
B Junior Participating Voting Preferred Stock, as amended (incorporated by
reference to Registrant’s Current Report on Form 8-K dated May 20, 1998,
Commission File No. 1-8649).
|
|
|
|
|
4(e)
|
Certificate
of Adjusted Purchase Price or Number of Shares dated April 14, 2003 filed
by Registrant with Wells Fargo Bank Minnesota, N.A., as Rights Agent, in
connection with Rights Agreement dated as of May 20, 1998 (incorporated by
reference to Exhibit 2 to Registrant’s Amendment No. 1 to Registration
Statement on Form 8-A/A as filed with the Securities and Exchange
Commission on April 14, 2003, Commission File No.
1-8649).
|
|
|
|
|
4(f)
|
Certificate
of Adjusted Purchase Price or Number of Shares dated April 12, 2005 filed
by Registrant with Wells Fargo Bank Minnesota, N.A., as Rights Agent, in
connection with Rights Agreement dated as of May 20, 1998 (incorporated by
reference to Exhibit 2 to Registrant’s Amendment No. 2 to Registration
Statement on Form 8-A/A as filed with the Securities and Exchange
Commission on March 21, 2005, Commission File No.
1-8649).
|
|
|
|
|
4(g)
|
Indenture
dated as of January 31, 1997, between Registrant and First National Trust
Association, as Trustee, relating to the Registrant’s 7.125% Notes due
June 15, 2007 and its 7.80% Debentures due June 15, 2027 (incorporated by
reference to Exhibit 4(a) to Registrant’s Current Report on Form 8-K dated
June 24, 1997, Commission File No. 1-8649).
|
|
|
|
|
4(h)
|
Indenture
dated as of April 20, 2007, between Registrant and The Bank of New
York Trust Company, N.A., as Trustee, relating to the Registrant’s 6.625%
Notes due May 1, 2037 (incorporated by reference to Exhibit 4.3 to
Registrant’s Registration Statement on Form S-3 as filed with the
Securities and Exchange Commission on April 23, 2007, Registration No.
333-142282).
|
|
|
|
|
4(i)
|
First
Supplemental Indenture dated as of April 26, 2007, between Registrant and
The Bank of New York Trust Company, N.A., as Trustee, relating to the
Registrant’s 6.625% Notes due May 1, 2037 (incorporated by reference to
Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated April 23,
2007, Commission File No. 1-8649).
|
|
|
|
|
4(j)
|
Form
of The Toro Company 6.625% Note due May 1, 2037 (incorporated by reference
to Exhibit 4.2 to Registrant’s Current Report on Form 8-K dated April 23,
2007, Commission File No. 1-8649).
|
|
|
|
|
10(a)
|
The
Toro Company 2000 Stock Option Plan (As Amended March 11, 2008)
(incorporated by reference to Exhibit 10.1 to Registrant’s Current Report
on Form 8-K dated March 11, 2008, Commission File No.
1-8649).
|
|
|
|
|
10(b)
|
Amendment
No.4 to Credit Agreement, dated as of February 29, 2008, among The Toro
Company, Toro Credit Company, Toro Manufacturing LLC, Exmark Manufacturing
Company Incorporated, and certain subsidiaries as Borrowers, the lenders
from time to time party thereto, and Bank of America, N.A., as
Administrative Agent, Swing Line Lender, and Letter of Credit Issuer
(incorporated by reference to Exhibit 10.1 to Registrant’s Current Report
on Form 8-K dated February 29, 2008, Commission File No.
1-8649).
|
|
|
|
|
31(a)
|
Certification
of Chief Executive Officer Pursuant to Rule 13a-14(a) (Section 302 of the
Sarbanes-Oxley Act of 2002) (filed herewith).
|
|
|
|
|
31(b)
|
Certification
of Chief Financial Officer Pursuant to Rule 13a-14(a) (Section 302 of the
Sarbanes-Oxley Act of 2002) (filed herewith).
|
|
|
|
|
32
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (furnished herewith).
|
|
|
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
|
THE TORO
COMPANY
(Registrant)
Date: June
6, 2008
|
By
/s/ Stephen P.
Wolfe
|
|
Stephen
P. Wolfe
|
|
Vice
President, Finance
|
|
and
Chief Financial Officer
|
|
(duly
authorized officer and principal financial
officer)
|