Toro 2013 Annual Report Download - page 39

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Higher SG&A expense rate due to fixed SG&A costs over lower FINANCIAL CONDITION
sales volumes, somewhat offset by lower warranty expense. Working Capital
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Higher other income due to a recovery from a litigation Throughout fiscal 2013, our average net working capital increased
settlement. primarily from higher average inventory levels as we built inventory
Operating earnings for the residential segment in fiscal 2012 in anticipation of higher demand for our products prior to the
increased 6.4 percent compared to fiscal 2011. Expressed as a phase-in of applicable Tier 4 diesel engine emission requirements,
percentage of net sales, residential segment operating margins as well as higher inventory levels from the rollout of product offer-
increased 80 basis points to 9.5 percent in fiscal 2012 compared ings due to the growth of our rental and construction business.
to 8.7 percent in fiscal 2011 due to higher gross margins from Additionally, average inventory levels were up for our residential
costs incurred in fiscal 2011 associated with a rework for a segment due to lower sales volumes as a result of unfavorable
non-safety quality issue that affected a large number of our walk weather conditions in the first half of fiscal 2013.
power mowers that was not duplicated in fiscal 2012, somewhat The following table highlights several key measures of our work-
offset by unfavorable product mix and higher commodity costs. ing capital performance.
Additionally, lower SG&A expense, mainly from a decrease in mar-
keting and warranty expense related to costs incurred in fiscal (Dollars in millions)
2011 for incentive programs and special warranty modifications, Fiscal years ended October 31 2013 2012
respectively, that were not duplicated in fiscal 2012, contributed to Average cash and cash equivalents $123.0 $104.3
our residential segment operating margin improvement in fiscal Average receivables, net 198.9 185.2
2012 as compared to fiscal 2011. Average inventories 298.0 260.8
Average accounts payable 158.3 149.0
Average days outstanding for receivables 36 35
Other
Average inventory turnover (times) 4.42 4.93
(Dollars in millions)
Fiscal years ended October 31 2013 2012 2011 Average net receivables increased by 7.4 percent in fiscal 2013
Net sales $ 21.8 $ 21.8 $ 21.0 compared to fiscal 2012 and our average days outstanding for
% change from prior year 0.0% 3.6% 37.7% receivables were slightly up, to 36 days in fiscal 2013 compared to
Operating loss $(89.7) $(93.7) $(84.6) 35 days in fiscal 2012 primarily as a result of customer mix. Aver-
age inventories increased by 14.3 percent in fiscal 2013 compared
Net Sales. Net sales for the other segment includes sales from to fiscal 2012, as described above. Additionally, average trade
our wholly owned domestic distribution companies less sales from payables increased by 6.2 percent due mainly to higher volume of
the professional and residential segments to those distribution purchases and our supply chain initiatives. As a result of higher
companies. The other segment net sales in fiscal 2013 were even average inventory levels and receivables, our average net working
at $21.8 million compared to fiscal 2012. capital (accounts receivable plus inventory less trade payables) as
The other segment net sales in fiscal 2012 increased 3.6 per- a percentage of net sales increased to 16.6 percent as of the end
cent compared to fiscal 2011 due to increased sales at our U.S. of fiscal 2013 compared to 15.2 percent as of the end of fiscal
Midwestern-based distribution company. 2012.
Operating Loss. Operating loss for the other segment in fiscal In fiscal 2014, we intend to place emphasis on improving asset
2013 decreased by 4.3 percent compared to fiscal 2012. This loss utilization, with an increased focus on reducing the amount of
decrease was primarily attributable to litigation recovery in fiscal working capital in the supply chain, adjusting production plans, and
2013, lower foreign currency exchange rate losses, and an maintaining or improving order replenishment and service levels to
increase in income from our equity investment in Red Iron. end users. Notwithstanding these efforts, we expect average
Operating loss for the other segment in fiscal 2012 increased by receivables to increase in fiscal 2014 compared to fiscal 2013 due
10.8 percent compared to fiscal 2011. This loss increase was pri- to anticipated higher sales volumes. We anticipate average inven-
marily attributable to an increase in our self-insured health care tory turnover to improve and average inventory levels to be slightly
costs and higher bad debt expense, somewhat offset by an lower in fiscal 2014 as compared to fiscal 2013 due, in part, to
increase in income from our equity investment in Red Iron and increasing emphasis on improving asset management. Additionally,
lower incentive compensation expense. inventory levels in fiscal 2013 were higher for products impacted
by Tier 4 diesel engine emission requirements, discussed previ-
ously, that will not be duplicated to the same extent in fiscal 2014.
We also anticipate average accounts payable to increase in fiscal
2014 as compared to fiscal 2013, driven by continued focus on our
supply chain initiatives.
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