Toro 2009 Annual Report Download - page 37

Somewhat offsetting those negative factors were: Other
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Increased shipments of walk power mowers as a result of addi-
tional product placement at a key retailer and a new and broader (Dollars in millions)
line of walk power mowers. Fiscal years ended October 31 2009 2008 2007
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Positive customer response for our new line of zero-turn radius Net sales $ 24.8 $ 31.2 $ 42.9
% change from prior year (20.5)% (27.2)% (3.9)%
riding mowers.
Operating loss $(78.2) $(87.4) $(82.8)
Worldwide net sales for the residential segment in fiscal 2008
were slightly up by 0.3 percent compared to fiscal 2007. This Net Sales. Net sales for the other segment includes sales from
increase was due primarily to strong snow thrower product sales in our wholly owned domestic distribution companies less sales from
North America due to heavy snow falls during the winter season of the professional and residential segments to those distribution
2007-2008 and low field inventory levels entering the 2008-2009 companies. In addition, elimination of the professional and residen-
winter season. In addition, strong demand in international markets, tial segments’ floor plan interest costs from Toro Credit Company
mainly for riding products and Pope products sold in Australia, also (TCC) are also included in this segment. During October 2009,
contributed to the residential segment sales growth. Somewhat off- TCC sold its receivable portfolio to Red Iron. The other segment
setting those positive factors was lower demand for walk power net sales in fiscal 2009 decreased 20.5 percent compared to fiscal
mowers as a result of the weak domestic economy and poor 2008 due to reduced demand largely resulting from the domestic
spring weather, as well as a reduction in product placement and economic recession, as well as a reduction in the elimination of
increased competitive pressure for walk power mowers. Electric floor plan interest costs as a result of lower receivables with TCC
trimmer product shipments were also down due to lost placement and a reduction in interest rates.
at a key retailer. The other segment net sales in fiscal 2008 decreased 27.2 per-
Operating Earnings. Operating earnings for the residential seg- cent compared to fiscal 2007 as a result of the weakening of the
ment in fiscal 2009 increased 31.3 percent compared to fiscal domestic economy and the sale of a portion of the operations of
2008. Expressed as a percentage of net sales, residential segment one of our company-owned distributorships in the first quarter of
operating margins improved to 8.7 percent in fiscal 2009 compared fiscal 2008.
to 6.5 percent in fiscal 2008. The following factors impacted resi- Operating Loss. Operating loss for the other segment in fiscal
dential segment operating earnings: 2009 decreased by 10.5 percent compared to fiscal 2008. This
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A slight improvement in gross margins primarily from a decrease loss decrease was primarily attributable to overall reduced spend-
in freight expense, as well as a decline in tooling expense result- ing in response to the economic downturn, foreign currency
ing from accelerated depreciation of tooling in fiscal 2008 that exchange rate gains in fiscal 2009 compared to foreign currency
was no longer used. These favorable improvements to residen- exchange rate losses in fiscal 2008, a decrease in incentive com-
tial segment gross margins were somewhat offset by unfavorable pensation expense, and a decline in interest expense, somewhat
product mix and a stronger average U.S. dollar compared to offset by expenses for several legal matters, an increase in bad
most other currencies in which we transact business. debt expense, and higher costs for distributor changes.
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A decline in SG&A expense from lower spending for marketing, Operating loss for the other segment in fiscal 2008 increased by
engineering, administration, and warehousing costs as a result of 5.6 percent compared to fiscal 2007. This loss increase was pri-
budget reductions. marily attributable to foreign currency exchange rate losses in fis-
Operating earnings for the residential segment in fiscal 2008 cal 2008 compared to foreign currency exchange rate gains in fis-
decreased 9.6 percent compared to fiscal 2007. Expressed as a cal 2007 and costs incurred in fiscal 2008 for workforce
percentage of net sales, residential segment operating margins adjustments, somewhat offset by a decrease in incentive compen-
declined to 6.5 percent compared to 7.2 percent in fiscal 2007 due sation expense.
to lower gross margins primarily from increased commodity costs
and tooling expense. A higher SG&A expense rate also contributed FINANCIAL CONDITION
to the operating earnings decline due mainly to increased spending
for marketing. Working Capital
We have taken proactive measures to improve working capital utili-
zation during the tough economic environment, including adjusting
production plans, controlling costs, and managing our assets. As
such, our financial condition remains strong. We continue to place
emphasis on asset management, with a focus on minimizing the
amount of working capital in the supply chain and maintaining or
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