TORO CO

Working Capital

Our ongoing goal is to maintain requisite inventory levels to meet our anticipated production requirements, avoid manufacturing delays, and meet the demand for our products, as well as working to ensure service parts availability for our customers. Accounts receivable as of the end of the third quarter of fiscal 2024 increased $141.6 million, or 36.2 percent, compared to the end of the third quarter of fiscal 2023, primarily driven by increased shipments to our mass channel, as well as payment terms to that channel. Inventory levels were down $30.7 million, or 2.8 percent, as of the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023, primarily due to a reduction in lawn care equipment finished goods balances and a reduction in work-in-process balances, partially offset by higher balances of compact utility loaders and snow and ice management products. Accounts payable increased $30.4 million, or 7.5 percent, as of the end of the third quarter of fiscal 2024 compared to the end of the third quarter of fiscal 2023, primarily due to the timing of material purchases.

Cash Flow

Cash Flows from Operating Activities

Net cash provided by operating activities for the first nine months of fiscal 2024 was $329.8 million compared to $154.7 million for the first nine months of fiscal 2023. This increase was mainly due to net favorable fluctuations in working capital during the current fiscal year period compared to the prior fiscal year period.

Cash Flows from Investing Activities

Net cash used in investing activities for the first nine months of fiscal 2024 was $43.4 million compared to $119.2 million for the first nine months of fiscal 2023. This decrease was primarily driven by lower purchases of property, plant, and equipment, lower cash outflows for acquisitions, and higher cash inflows from divestitures in each case during the current fiscal year period compared to the prior fiscal year period.

Cash Flows from Financing Activities

Net cash used in financing activities for the first nine months of fiscal 2024 was $260.5 million compared to $82.4 million for the first nine months of fiscal 2023. This increase was mainly due to changes in activity under the revolving credit facility and higher stock repurchases in each case during the current fiscal year period compared to the prior fiscal year period.

Liquidity and Capital Resources

As of August 2, 2024, we had available liquidity of $818.4 million, consisting of cash and cash equivalents of $221.1 million, of which $127.8 million was held by our foreign subsidiaries, and availability under our revolving credit facility of $597.3 million. We believe our current liquidity position, including the funds available through existing, and potential future, financing arrangements and forecasted cash flows from operations will be sufficient to provide the necessary capital resources for our anticipated working capital needs, payroll, and other administrative costs, capital expenditures, lease payments, purchase commitments, contractual obligations, acquisitions, investments, establishment of new facilities, expansion and renovation of existing facilities, financing receivables from customers that are not financed with Red Iron or other third-party financial institutions, contingent consideration payments, debt repayments, interest payments, quarterly cash dividend payments, and common stock repurchases, all as applicable, for at least the next twelve months.

Indebtedness

Our debt arrangements are described in further detail in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023. The following is a summary of our indebtedness:

As of August 2, 2024, we had no outstanding borrowings under our revolving credit facility and $2.7 million outstanding under the sublimit for standby letters of credit, which resulted in $597.3 million of unutilized availability under our revolving credit facility.

We are in compliance with our debt covenants and other requirements of our revolving credit facility and term loan credit agreements, indentures, and private placement note purchase agreements.

Cash Dividends

Our Board of Directors approved a cash dividend of $0.36 per share for the third quarter of fiscal 2024 that was paid on July 11, 2024. This was an increase of 5.9 percent over our cash dividend of $0.34 per share for the third quarter of fiscal 2023. Weexpect to continue paying our quarterly cash dividend to shareholders for the remainder of fiscal 2024.

Share Repurchases

During the first nine months of fiscal 2024, we repurchased 1,178,074 shares of our common stock in the open market under our Board authorized repurchase program, thereby reducing our total shares outstanding. As of August 2, 2024, 5,771,417 shares remained available for repurchase under our Board authorized repurchase program. We expect to continue to repurchase shares of our common stock throughout the remainder of fiscal 2024, depending on our cash balance, debt repayments, market conditions, our anticipated working capital needs, the price of our common stock, and/or other factors.

Customer Financing Arrangements

Our customer financing arrangements are described in further detail in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023. There have been no material changes to our customer financing arrangements during the first nine months of fiscal 2024.

Inventory Financing

We are party to inventory financing arrangements with Red Iron, HCFC, and other third-party financial institutions which provide inventory financing to certain dealers and distributors of certain of our products in the U.S. and internationally.

The net amount of receivables financed for dealers and distributors under the arrangement with Red Iron for the nine month periods ended August 2, 2024 and August 4, 2023 were $1,882.3 million and $2,160.8 million, respectively. The total amount of net receivables outstanding under the arrangement with Red Iron as of August 2, 2024, August 4, 2023 and October 31, 2023 were $927.8 million, $1,010.5 million and $1,019.0 million, respectively. The total amount of receivables due from Red Iron to us as of August 2, 2024, August 4, 2023 and October 31, 2023 were $28.6 million, $30.4 million and $34.4 million, respectively.

The net amount of receivables financed for dealers and distributors under the arrangements with HCFC and the other third-party financial institutions for the nine month periods ended August 2, 2024 and August 4, 2023 were $442.0 million and $367.6 million, respectively. The total amount of net receivables outstanding under the arrangements with HCFC and the other third-party financial institutions as of August 2, 2024, August 4, 2023, and October 31, 2023 were $228.5 million, $187.2 million, and $234.7 million, respectively.

Inventory Repurchase Agreements

We have entered into a limited inventory repurchase agreement with Red Iron and HCFC under which we have agreed to repurchase certain repossessed products, up to a maximum aggregate amount of $7.5 million in a calendar year.

Additionally, as a result of our financing agreements with the other third-party financial institutions, we have also entered into inventory repurchase agreements with the other third-party financial institutions. Under such inventory repurchase agreements, we have agreed to repurchase products repossessed by the other third-party financial institutions. As of August 2, 2024, August 4, 2023, and October 31, 2023, we were contingently liable to repurchase up to a maximum amount of $30.2 million, $118.8 million, and $32.2 million, respectively, of inventory related to receivables under these inventory repurchase agreements.

Our financial exposure under these inventory repurchase agreements is limited to the difference between the amount paid to Red Iron, HCFC or other third-party financing institutions for repurchases of inventory and the amount received upon subsequent resale of the repossessed product. We have repurchased immaterial amounts of inventory pursuant to such arrangements for the nine months ended August 2, 2024 and August 4, 2023. However, a decline in retail sales or financial difficulties of our distributors or dealers could cause this situation to change and thereby require us to repurchase financed product, which could have an adverse effect on our results of operations, financial position, or cash flows.