Toro 2012 Annual Report Download - page 35
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A decrease in international net sales in both our professional $7.3 million in fiscal 2011, an increase of $0.3 million, or 3.4 per-
and residential segments due mainly to lower sales in Europe as cent. This increase in other income, net was due mainly to an
a result of economic weakness and uncertainty in that region. increase in income from our equity investment in Red Iron, some-
what offset by lower interest income in fiscal 2012 compared to
Gross Margin. Gross margin represents gross profit (net sales fiscal 2011.
less cost of sales) as a percentage of net sales. See Note 1 of the
Notes to Consolidated Financial Statements, in the section entitled Provision for Income Taxes. The effective tax rate for fiscal
‘‘Cost of Sales,’’ for a description of expenses included in cost of 2012 was 34.0 percent compared to 32.7 percent in fiscal 2011.
sales. Gross margin increased by 60 basis points to 34.4 percent The increase in the effective tax rate was primarily the result of the
in fiscal 2012 from 33.8 percent in fiscal 2011. This improvement expiration of the domestic research tax credit on December 31,
was mainly the result of the following factors: 2011.
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Price increases on some of our products. We anticipate our tax rate for fiscal 2013 to be slightly lower
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Lower manufacturing costs from higher plant utilization, mainly than our fiscal 2012 tax rate.
related to increased production and demand for our products.
Fiscal 2011 Compared With Fiscal 2010
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Rework costs in fiscal 2011 for a non-safety quality issue that
affected a large number of our residential segment walk power Net Sales. Worldwide net sales in fiscal 2011 were $1,884.0 mil-
mowers that was not duplicated in fiscal 2012. lion compared to $1,690.4 million in fiscal 2010, an increase of
11.5 percent. This net sales improvement was primarily driven by:
Somewhat offsetting those positive factors were:
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Higher shipments of worldwide professional segment products
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Higher average prices paid for commodities in fiscal 2012 com- largely resulting from the successful introduction of new products
pared to fiscal 2011. that were well received by customers and resulted in increased
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Unfavorable product mix and lower gross margins on product sales, strong worldwide demand for golf equipment and irrigation
sales from acquisitions in fiscal 2012 compared to fiscal 2011. systems, additional manufacturing capacity that increased pro-
Selling, General, and Administrative Expense. SG&A expense duction and enabled higher sales of our water conserving prod-
increased $15.3 million, or 3.4 percent, in fiscal 2012 compared to ucts for agricultural markets to meet increased worldwide
fiscal 2011. See Note 1 of the Notes to Consolidated Financial demand, particularly in Eastern Europe, and incremental sales of
Statements, in the section entitled ‘‘Selling, General, and Adminis- $19 million from acquisitions.
trative Expense,’’ for a description of expenses included in SG&A
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An increase in residential segment net sales attributable to
expense. SG&A expense rate represents SG&A expense as a per- strong demand for snow thrower products as our channel part-
centage of net sales. SG&A expense rate in fiscal 2012 decreased ners purchased product to fill depleted field inventory levels for
by 10 basis points to 23.9 percent compared to 24.0 percent in the 2011-2012 snow season following strong sales from heavy
fiscal 2011 due to fixed SG&A costs spread over higher sales snow falls during the 2010-2011 snow season, as well as addi-
volumes. However, the increase in SG&A expense of $15.3 million tional product placement. In addition, riding product sales
was driven mainly by the following factors: increased primarily from positive customer acceptance for our
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Incremental costs from acquisitions of $7.2 million. new line of zero-turn radius riding mowers. However, sales of
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Higher self-insured health care expenses mainly from unfavora- walk power mowers and electric blowers were down due mainly
ble claims experience. to unfavorable weather conditions.
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An increase in international net sales in for both our professional
Somewhat offsetting those increases in SG&A expense were: and residential segments due to increased demand primarily
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A decline in marketing expenses of $6.3 million due mainly to from improved market conditions in our key international regions
incentive programs last year that were not duplicated to the and the successful introduction of new products that were well
same degree this fiscal year. received by customers. Additionally, a weaker average U.S. dol-
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Lower incentive compensation expense of $4.2 million attributa- lar compared to other currencies in which we transact business
ble to lower than planned financial results. accounted for approximately $21 million of our net sales
Interest Expense. Interest expense for fiscal 2012 slightly increase.
decreased by 0.4 percent compared to fiscal 2011 as a result of Gross Margin. Gross margin decreased by 30 basis points to
lower average debt levels. 33.8 percent in fiscal 2011 from 34.1 percent in fiscal 2010. This
Other Income, Net. Other income, net consists mainly of our decline was mainly the result of the following factors:
proportionate share of income or losses from equity investments
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Higher average prices paid for commodities in fiscal 2011 com-
(affiliates), currency exchange rate gains and losses, litigation set- pared to fiscal 2010.
tlements and recoveries, interest income, and retail financing reve-
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An increase in freight expense due to higher fuel prices.
nue. Other income for fiscal 2012 was $7.6 million compared to
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