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The Toro Company Reports Record Second Quarter Results; Declares 2-for-1 Stock Split

Selling, general and administrative (SG&A) expense as a percent of sales improved 40 basis points for the second quarter to 18.6 percent. The improvement in SG&A reflects further leveraging of costs over increased sales volumes. For the first six months, SG&A expense improved 90 basis points as a percent of sales to 21.7 percent.

Operating earnings as a percent of sales increased 60 basis points to 15.4 percent for the second quarter, and was up 70 basis points to 12.6 percent for the year to date.

Interest expense for the second quarter was $4.2 million, equal with the prior year period. For the first six months, interest expense totaled $8.6 million, up 3.5 percent from the same period last year.

The effective tax rate for the second quarter was 34.1 percent compared with 33.4 percent in the same period last year. For the year to date comparison, the tax rate increased to 34 percent from 32.6 percent. The increase in both periods was primarily the result of the expiration of the Federal Research and Engineering Tax Credit.

Accounts receivable at the end of the second quarter totaled $272.8 million, down 2 percent from the prior year period, on a sales increase of 9.5 percent. Net inventories were $250.8 million, down 3.5 percent from last year’s second quarter. Trade payables were $196.4 million, down 3.1 percent compared with last year.

About The Toro CompanyThe Toro Company is a leading worldwide provider of turf and landscape maintenance equipment, and precision irrigation systems, to help customers care for golf courses, sports fields, public green spaces, commercial and residential properties, and agricultural fields.


The Toro Company will conduct its earnings call and webcast for investors beginning at 10:00 a.m. CDT on May 24, 2012. The webcast will be available at or at . Webcast participants will need to complete a brief registration form and should allocate extra time before the webcast begins to register and, if necessary, download and install audio software.

Safe HarborStatements made in this news release, which are forward-looking, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or implied. These uncertainties include factors that affect all businesses operating in a global market as well as matters specific to Toro. Particular risks and uncertainties that may affect the company’s operating results or overall financial position at the present include: slow or negative growth rates in global and domestic economies, resulting in rising or persistent unemployment and weakened consumer confidence; the threat of terrorist acts and war, which may result in contraction of the U.S. and worldwide economies; drug cartel-related violence, which may disrupt our production activities and maquiladora operations based in Juarez, Mexico; fluctuations in the cost and availability of raw materials and components, including steel, engines, hydraulics, resins and other commodities and components; fluctuating fuel and other costs of transportation; the impact of abnormal weather patterns, natural disasters and global pandemics; the level of growth or contraction in our key markets; government and municipal revenue, budget and spending levels, which may negatively impact our grounds maintenance equipment business in the event of reduced tax revenues and tighter government budgets; dependence on The Home Depot as a customer for the residential segment; elimination of shelf space for our products at retailers; inventory adjustments or changes in purchasing patterns by our customers; market acceptance of existing and new products; increased competition; our ability to achieve the revenue growth, operating earnings and employee engagement goals of our multi-year employee initiative called “Destination 2014”; our increased dependence on international sales and the risks attendant to international operations and markets, including political, economic and/or social instability in the countries in which we manufacture or sell our products resulting in contraction or disruption of such markets; credit availability and terms, interest rates and currency movements including, in particular, our exposure to foreign currency risk; our relationships with our distribution channel partners, including the financial viability of distributors and dealers; our ability to successfully achieve our plans for and integrate acquisitions and manage alliances or joint ventures, including Red Iron Acceptance, LLC; the costs and effects of changes in tax, fiscal, government and other regulatory policies, including rules relating to environmental, health and safety matters, and Tier 4 emissions requirements; unforeseen product quality or other problems in the development, production and usage of new and existing products; loss of or changes in executive management or key employees; ability of management to manage around unplanned events; our reliance on our intellectual property rights and the absence of infringement of the intellectual property rights of others; and the occurrence of litigation or claims. In addition to the factors set forth in this paragraph, market, economic, financial, competitive, legislative, governmental, weather, production and other factors identified in Toro's quarterly and annual reports filed with the Securities and Exchange Commission, could affect the forward-looking statements in this press release. Toro undertakes no obligation to update forward-looking statements made in this release to reflect events or circumstances after the date of this release.
Condensed Consolidated Statements of Earnings (Unaudited)
(Dollars and shares in thousands, except per-share data)
    Three Months Ended     Six Months Ended

May 4, 2012

April 29, 2011

May 4, 2012

April 29, 2011
Net sales $ 691,485 $ 631,601 $ 1,115,320 $ 1,014,813
Gross profit 235,422 213,554 382,073 350,199
Gross profit percent 34.0 % 33.8 % 34.3 % 34.5 %
Selling, general, and administrative expense   128,922     120,199     241,552     229,643  
Operating earnings 106,500 93,355 140,521 120,556
Interest expense (4,165 ) (4,186 ) (8,593 ) (8,302 )
Other income, net   2,057     1,331     2,550     2,699  
Earnings before income taxes 104,392 90,500 134,478 114,953
Provision for income taxes   35,574     30,250     45,737     37,421  
Net earnings $ 68,818   $ 60,250   $ 88,741   $ 77,532  
Basic net earnings per share $ 2.30   $ 1.92   $ 2.96   $ 2.45  
Diluted net earnings per share $ 2.26   $ 1.88   $ 2.91   $ 2.41  
Weighted average number of shares of common
stock outstanding – Basic 29,939 31,447 29,967 31,650
Weighted average number of shares of common
stock outstanding – Diluted 30,480 32,020 30,481 32,228
Segment Data (Unaudited)
(Dollars in thousands)
    Three Months Ended     Six Months Ended
May 4,     April 29, May 4,     April 29,

Segment Net Sales
2012 2011 2012 2011
Professional $ 455,945 $ 418,284 $ 739,779 $ 676,564
Residential 231,897 209,632 369,505 332,925
Other   3,643     3,685     6,036     5,324  
Total * $ 691,485   $ 631,601   $ 1,115,320   $ 1,014,813  
* Includes international sales of $ 197,516 $ 201,896 $ 346,670 $ 340,647
Three Months Ended Six Months Ended
May 4, April 29, May 4, April 29,

Segment Earnings (Loss) Before Income Taxes
2012 2011 2012 2011
Professional $ 98,701 $ 85,606 $ 140,792 $ 123,525
Residential 28,518 26,539 41,126 37,907
Other   (22,827 )   (21,645 )   (47,440 )   (46,479 )
Total $ 104,392   $ 90,500   $ 134,478   $ 114,953  
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)

May 4, 2012

April 29, 2011

Cash and cash equivalents $ 82,572 $ 106,862
Receivables, net 272,819 278,491
Inventories, net 250,804 259,826
Prepaid expenses and other current assets 23,281 15,261
Deferred income taxes   62,209   59,535
Total current assets   691,685   719,975
Property, plant, and equipment, net 184,620 180,315
Deferred income taxes - 2,140
Goodwill and other assets, net   153,049   150,097
Total assets $ 1,029,354 $ 1,052,527

Current portion of long-term debt $ 1,858 $ 2,478
Short-term debt 7 64
Accounts payable 196,382 202,588
Accrued liabilities   278,491   285,896
Total current liabilities   476,738   491,026
Long-term debt, less current portion 223,701 224,897
Deferred revenue 9,347 10,673
Deferred income taxes 1,380 -
Other long-term liabilities 7,614 7,391
Stockholders’ equity   310,574   318,540
Total liabilities and stockholders’ equity $ 1,029,354 $ 1,052,527
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
Six Months Ended

May 4, 2012

April 29, 2011
Cash flows from operating activities:
Net earnings $ 88,741 $ 77,532
Adjustments to reconcile net earnings to net cash provided by operating activities:
Noncash income from affiliates (2,802 ) (2,239 )
Provision for depreciation, amortization, and impairment losses 25,664 22,880
Stock-based compensation expense 5,031 3,975
Increase in deferred income taxes (396 ) (882 )
Other (121 ) (11 )
Changes in operating assets and liabilities, net of effect of acquisitions:
Receivables, net (126,215 ) (131,433 )
Inventories, net (21,270 ) (61,490 )
Prepaid expenses and other assets (5,066 ) (4,012 )
Accounts payable, accrued liabilities, deferred revenue, and other long-term liabilities  


Net cash provided by operating activities   89,495     17,931  
Cash flows from investing activities:
Purchases of property, plant, and equipment (21,905 ) (25,925 )
Proceeds from asset disposals 96 95
Investment in finance affiliate, net (3,559 ) (4,563 )
Acquisitions, net of cash acquired   (9,663 )   (12,060 )
Net cash used in investing activities   (35,031 )   (42,453 )
Cash flows from financing activities:
Decrease in short-term debt (922 ) (776 )
Repayments of long-term debt (1,670 ) (1,162 )
Excess tax benefits from stock-based awards 6,879 2,339
Proceeds from exercise of stock options 13,268 11,248
Purchases of Toro common stock (56,067 ) (46,712 )
Dividends paid on Toro common stock   (13,228 )   (12,682 )
Net cash used in financing activities   (51,740 )   (47,745 )
Effect of exchange rates on cash   (1,038 )   1,763  
Net increase (decrease) in cash and cash equivalents 1,686 (70,504 )
Cash and cash equivalents as of the beginning of the period   80,886     177,366  
Cash and cash equivalents as of the end of the period $ 82,572   $ 106,862  

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