Toro 2010 Annual Report Download - page 33

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A decline in incentive compensation expense of $5.7 million due
Fiscal 2009 Compared With Fiscal 2008
to lower than planned financial performance in fiscal 2009.
Net Sales. Worldwide net sales in fiscal 2009 were $1,523.4 mil- Offsetting those decreases were:
lion compared to $1,878.2 million in fiscal 2008, a decrease of
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An increase in product liability costs of $5.3 million as a result of
18.9 percent. This net sales decline was primarily driven by: unfavorable claims experience.
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Lower shipments of domestic professional segment products
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Higher bad debt expense and costs for distributor changes of
largely resulting from the global recession. $4.0 million.
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A significant decline in international sales due also to reduced
Interest Expense. Interest expense for fiscal 2009 decreased by
demand as a result of recessionary conditions affecting our key
9.1 percent compared to fiscal 2008 as a result of lower average
international markets, as well as a stronger average U.S. dollar
short-term debt levels and a decline in average interest rates.
compared to other currencies in which we transact business that
accounted for approximately $32 million of our net sales Other Income (Expense), Net. Other expense, net for fiscal
decrease. 2009 was $1.8 million compared to other income, net of $2.2 mil-
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A slight decline in residential segment net sales by 1.9 percent lion in fiscal 2008. This increase in other expense, net was due
in fiscal 2009 compared to fiscal 2008 primarily attributable to mainly to the following factors:
lower demand of riding products as a result of poor economic
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Expenses of $6.8 million in the aggregate for several legal
conditions, despite customer acceptance for our new line of matters.
zero-turn radius riding mowers, a decrease in electric blower
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A decline in financing revenue of $1.5 million.
product sales, and a decrease in sales of snow thrower products
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Lower interest income of $1.0 million.
due to the timing of the introduction for our redesigned offering Somewhat offsetting those increases were foreign currency
of snow thrower products that shipped to customers in the first exchange rate gains in fiscal 2009 of $0.6 million compared to
quarter of fiscal 2010. foreign currency exchange losses in fiscal 2008 of $5.0 million.
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Lower domestic field inventory levels as of the end of fiscal 2009
Provision for Income Taxes. The effective tax rate for fiscal
compared to the end of fiscal 2008 as our shipments decline
2009 was 34.4 percent compared to 34.0 percent in fiscal 2008.
more than retail demand, as well as improved field inventory
The increase in the effective tax rate was due to a valuation allow-
management.
ance of $1.5 million for foreign subsidiaries’ net operating loss
Partially offsetting those negative factors were strong shipments of
carry-forwards and other deferred tax assets reflecting the uncer-
walk power mowers due to additional product placement at a key
tainty over their future realization. This increase was partially offset
retailer and a new and broader line of walk power mowers.
by the tax impact of income from foreign jurisdictions subject to
Gross Margin. Gross margin decreased by 130 basis points to lower tax rates.
33.5 percent in fiscal 2009 from 34.8 percent in fiscal 2008. This
decline was mainly the result of the following factors: PERFORMANCE BY BUSINESS SEGMENT
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Lower sales of our higher-margin products. As more fully described in Note 12 of the notes to consolidated
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Higher manufacturing costs from lower plant utilization as we cut financial statements, we operate in three reportable business seg-
production to align it with the decline in sales volumes, com- ments: Professional, Residential, and Distribution. Our Distribution
bined with our ongoing efforts to lower inventory levels. segment, which consists of our company-owned domestic distribu-
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A stronger average U.S. dollar compared to most other curren- torships, has been combined with our corporate activities and is
cies in which we transact business. shown as ‘‘Other.’’ Operating earnings for our Professional and
Somewhat offsetting those negative factors were: Residential segments are defined as earnings from operations plus
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A reduction in our LIFO reserve of $3.3 million that benefited our other income (expense), net. Operating loss for the Other segment
gross margin due to a significant decline in our inventory levels. includes earnings (loss) from wholly owned domestic distribution
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A decline in freight expense. company operations, corporate activities, other income (expense),
and interest expense.
Selling, General, and Administrative (SG&A) Expense. SG&A
The following information provides perspective on our business
expense decreased $58.5 million, or 12.9 percent, from fiscal
segments’ net sales and operating results.
2008. SG&A expense rate in fiscal 2009 increased to 26.0 percent
compared to 24.2 percent in fiscal 2008 due to fixed SG&A costs Professional
spread over significantly lower sales volumes. The following factors
Professional segment net sales represented 64 percent of consoli-
decreased our SG&A expense:
dated net sales for fiscal 2010, 63 percent for fiscal 2009, and
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Overall reduced spending in response to the worldwide reces-
sionary economic conditions during fiscal 2009.
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