Toro 2008 Annual Report Download - page 36

SG&A costs that outpaced our sales growth rate of 2.2 percent, as Professional
well as the following other factors: Professional segment net sales represented 68 percent of consoli-
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Fiscal 2007 self-insurance costs were up because we did not dated net sales for each of fiscal 2008 and 2007, and 67 percent
have the same reduction of insurance costs from favorable for fiscal 2006. The following table shows the professional segment
claims experience as in fiscal 2006. net sales, operating earnings, and operating earnings as a percent
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Increased investments for engineering. of net sales.
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Higher incentive compensation expense.
Somewhat offsetting those increases were: (Dollars in millions)
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Lower warranty expense due to a reduction of special warranty Fiscal years ended October 31 2008 2007 2006
provisions for major product modifications in fiscal 2007, com- Net sales $1,283.1 $1,270.5 $1,224.8
% change from prior year 1.0% 3.7% 6.9%
pared to fiscal 2006 in which we incurred special warranty provi-
Operating earnings $ 234.8 $ 254.2 $ 227.7
sions for major product modifications and a product recall. As a percent of net sales 18.3% 20.0% 18.6%
Interest Expense. Interest expense for fiscal 2007 increased by
Net Sales. Worldwide net sales for the professional segment in
10.0 percent compared to fiscal 2006 due to higher average levels
fiscal 2008 were up 1.0 percent compared to fiscal 2007 primarily
of debt and slightly higher average interest rates.
as a result of the following factors:
Other Income, Net. Other income, net for fiscal 2007 increased
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Higher international net sales as a result of continued strong
$1.5 million compared to fiscal 2006. This increase was due mainly demand and growth in international markets, particularly in the
to the following factors: golf market, as well as a weaker average U.S. dollar compared
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Higher interest income. to the other currencies in which we transact business.
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Lower losses on investments.
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The success of new products introduced within the past two
Somewhat offsetting those increases were: years.
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Lower litigation settlement recoveries compared to those we
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Incremental sales from strategic acquisitions.
received in fiscal 2006. Partially offsetting those positive factors were:
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A decline in financing revenue.
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Lower domestic product shipments as a result of decreased
Provision for Income Taxes. The effective tax rate for fiscal demand due to the weak domestic economy, as well as the poor
2007 was 33.2 percent compared to 33.0 in fiscal 2006. The domestic housing market that led to a decline in professionally
increase in the effective tax rate was due to the unfavorable timing installed irrigation systems. The lower shipments also resulted in
of the phase-out/phase-in provisions of the United States export a decline of our domestic field inventory levels, which were down
exclusion compared to the domestic manufacturing deduction, as of the end of fiscal 2008 as compared to the end of fiscal
somewhat offset by an increase in benefits related to the domestic 2007.
research credit in fiscal 2007 compared to fiscal 2006 as a result Worldwide net sales for the professional segment in fiscal 2007
of the retroactive extension of this credit by the Tax Relief and were up 3.7 percent compared to fiscal 2006. Higher international
Health Care Act of 2006. shipments led this increase as a result of strong demand and
growth in international markets, particularly in the golf market, as
PERFORMANCE BY BUSINESS SEGMENT well as a weaker U.S. dollar compared to the other currencies in
As more fully described in Note 11 of the notes to consolidated which we transact business. In addition, strong worldwide demand
financial statements, we operate in two reportable business seg- and growth in the sports fields and grounds markets resulted in
ments: professional and residential. A third reportable segment higher equipment product sales, as well as the success of new
called ‘‘other’’ consists of company-owned distribution companies products introduced within the past two years. Somewhat offsetting
and corporate activities, including corporate financing functions. those positive factors were lower shipments of landscape contrac-
Operating earnings for each of our two business segments is tor equipment due mainly to efforts to reduce field inventory levels.
defined as earnings from operations plus other income, net. Oper- Looking ahead, net sales for the professional segment are
ating loss for the ‘‘other’’ segment includes earnings (loss) from expected to decrease in fiscal 2009 compared to fiscal 2008 as we
domestic wholly owned distribution company operations, corporate anticipate the current recessionary domestic economy to continue
activities, including corporate financing activities, other income, and through fiscal 2009, and we also anticipate international economic
interest expense. growth to slow down in fiscal 2009. However, we expect new prod-
The following information provides perspective on our business ucts to be well received and we plan to increase our market share
segments’ net sales and operating results. in fiscal 2009.
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