Toro 2011 Annual Report Download - page 34

in fiscal 2011 from 34.1 percent in fiscal 2010. This decline was Fiscal 2010 Compared With Fiscal 2009
mainly the result of the following factors: Net Sales. Worldwide net sales in fiscal 2010 were $1,690.4 mil-
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Higher average prices paid for commodities in fiscal 2011 com- lion compared to $1,523.4 million in fiscal 2009, an increase of
pared to fiscal 2010. 11.0 percent. This net sales improvement was primarily driven by:
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An increase in freight expense due to higher fuel prices.
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Higher shipments of worldwide professional segment products
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Rework costs for a non-safety quality issue that affected a large largely resulting from improved economic conditions, a significant
number of our residential segment walk power mowers. reduction in field inventory levels during fiscal 2009 that was not
Somewhat offsetting those negative factors were: duplicated during fiscal 2010, the successful introduction of new
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Lower manufacturing costs from higher plant utilization, mainly products that were well received by customers and resulted in
related to increased demand for our products. increased sales, and additional manufacturing capacity that
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A higher proportionate share of professional segment sales that increased production and enabled higher sales of our water con-
carry higher average gross margins than residential segment serving products for agricultural markets to meet growing world-
sales. wide demand.
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An increase in residential segment net sales attributable to
Selling, General, and Administrative Expense. SG&A expense strong demand, resulting in part from customer acceptance of
increased $27.0 million, or 6.4 percent, from fiscal 2010. See Note 1 and additional product placement for zero-turn radius riding
of the Notes to Consolidated Financial Statements, in the section mowers. In addition, shipments of snow thrower products were
entitled ‘‘Selling, General, and Administrative Expense,’’ for a up due to increased demand from heavy snow falls during the
description of expenses included in SG&A expense. SG&A expense winter season of 2009-2010 and the timing of the introduction for
rate represents SG&A expenses as a percentage of net sales. our redesigned offering of snow thrower products that shipped to
SG&A expense rate in fiscal 2011 decreased to 24.0 percent com- customers in the first quarter of fiscal 2010 instead of the fourth
pared to 25.1 percent in fiscal 2010 due to fixed SG&A costs spread quarter of fiscal 2009.
over higher sales volumes and lower product liability expense of
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International net sales were also up for both our professional
nearly $5 million due to favorable claims experience this fiscal year. and residential segments due also to increased demand primar-
However, marketing expenses increased by $19 million in fiscal ily from improved market conditions in our key international
2011 compared to fiscal 2010 due to higher sales volumes and regions and the successful introduction of new products that
incentive programs designed to promote sales growth. were well received by customers, as well as a weaker average
U.S. dollar compared to other currencies in which we transact
Interest Expense. Interest expense for fiscal 2011 slightly business that accounted for approximately $12 million of our net
decreased by 0.8 percent compared to fiscal 2010 as a result of sales increase.
lower average debt levels. Partially offsetting those positive factors was a decline in net sales
for our other segment due to the elimination of Toro Credit Com-
Other Income (Expense), Net. Other income (expense), net con-
pany (‘‘TCC’’), our wholly owned financing company, floor plan
sists mainly of our proportionate share of income or losses from
interest costs resulting from the establishment of Red Iron, our
equity investments (affiliates), currency exchange rate gains and
financing joint venture with TCFIF, as well as lower net sales at
losses, litigation settlements and recoveries, interest income, and
our wholly owned Midwestern distributorship.
financing revenue. Other income for fiscal 2011 was $7.3 million
compared to $7.1 million in fiscal 2010, an increase of $0.2 million, Gross Margin. Gross margin increased by 60 basis points to
or 2.7 percent. This increase in other income, net was due mainly 34.1 percent in fiscal 2010 from 33.5 percent in fiscal 2009. This
to an increase in income from affiliates, somewhat offset by higher improvement was mainly the result of the following factors:
foreign currency exchange rate losses in fiscal 2011 compared to
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A higher proportionate share of professional segment sales that
carry higher average gross margins than residential segment
fiscal 2010.
sales.
Provision for Income Taxes. The effective tax rate for fiscal
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Lower manufacturing costs from higher plant utilization, mainly
2011 was 32.7 percent compared to 34.0 percent in fiscal 2010. related to increased demand for our products.
The realization of deferred tax assets is assessed and a valuation
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Cost reduction efforts implemented during fiscal 2010 and 2009.
allowance is recorded to the extent it is more likely than not that Somewhat offsetting those positive factors were:
any portion of the deferred tax asset will not be recognized. The
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Higher average prices paid for commodities in fiscal 2010 com-
decrease in the effective tax rate was primarily the result of the pared to fiscal 2009.
retroactive reenactment of the domestic research tax credit.
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An increase in our last-in first-out (‘‘LIFO’’) reserve of $0.6 mil-
We anticipate our tax rate for fiscal 2012 to be higher than fiscal lion in fiscal 2010, as compared to a reduction in our LIFO
2011 due to the expiration of the domestic research tax credit on reserve in fiscal 2009 that benefited our gross margin by
December 31, 2011. $3.3 million in fiscal 2009.
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An increase in freight expense due to higher fuel prices.
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