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. The following table highlights several key measures of our working capital performance (dollars in millions):

As of the end of fiscal 2024, our average net working capital was 25.9 percent compared to 23.3 percent as of the end of fiscal 2023. We calculate our average net working capital as average net accounts receivable plus average net inventory, less average accounts payable as a percentage of net sales for a twelve month period.

The following factors impacted our average net working capital during fiscal 2024 as compared to fiscal 2023:

•Average net receivables increased by 26.6 percent, primarily driven by increased mass channel and international shipments, as well as payment terms to our mass channel. Our average days outstanding for receivables increased to 38.2 days in fiscal 2024 compared to 30.4 days in fiscal 2023.

•Average net inventories increased by 2.0 percent, primarily due to higher balances of compact utility loaders and snow and ice management products.

•Average accounts payable decreased by 0.4 percent, primarily due to the timing of materials purchases.

Capital Expenditures

We make ongoing capital investments in our property, plant, and equipment and believe that in periods of normalized supply chain conditions our historical capital investments in our manufacturing facilities and other capital assets will increase the production capacity and efficiencies of our operations to better enable us to meet the needs of our customers. Fiscal 2024 capital expenditures of $103.5 million were $46.0 million lower than our fiscal 2023 capital expenditures of $149.5 million.

Cash Flows

Cash flows provided by/(used in) operating, investing, and financing activities during the past two fiscal years are shown in the following table (dollars in millions):

Cash Flows from Operating Activities

Our primary source of funds is cash generated from operations. In fiscal 2024, cash provided by operating activities increased $263.1 million from fiscal 2023. This increase was mainly due to net favorable fluctuations in working capital.

Cash Flows from Investing Activities

Acquisitions and capital expenditures are a significant use of our capital resources. These investments are intended to enable sales growth in new, existing, and expanding markets, help us meet product demand, and increase our manufacturing efficiencies and capacity. In fiscal 2024, cash used in investing activities decreased $98.0 million from fiscal 2023. This decrease was primarily driven by lower purchases of property, plant, and equipment, higher cash inflows from divestitures, and lower cash outflows for acquisitions, in each case during fiscal 2024 compared to fiscal 2023.

Cash Flows from Financing Activities

In fiscal 2024, cash used in financing activities increased $357.6 million from fiscal 2023. This increase was mainly due to higher repurchases of common stock, changes in activity under the revolving credit facility, and debt repayments, in each case during fiscal 2024 compared to fiscal 2023.

Liquidity and Capital Resources

As of October 31, 2024, we had available liquidity of $1,096.8 million, consisting of cash and cash equivalents of $199.5 million, of which $136.0 million was held by our foreign subsidiaries, and availability under our revolving credit facility of $897.3 million.

We expect that $47.1 million of cash and cash equivalents held by our foreign subsidiaries will be indefinitely reinvested. Should these cash and cash equivalents be distributed in the future in the form of dividends or otherwise, we may be subject to foreign withholding taxes, state income taxes, and/or additional federal taxes for currency fluctuations. As of October 31, 2024, the unrecognized deferred tax liabilities for temporary differences related to our investment in non-U.S. subsidiaries, and any withholding, state, or additional federal taxes upon any future repatriation, are not material and have not been recorded.

We believe our current liquidity position, including the funds available through existing, and potential future, financing arrangements and projected 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

The following is a summary of our indebtedness (dollars in millions):

Principal payments required on our outstanding indebtedness, based on the maturity dates defined within our debt arrangements, for each of the succeeding fiscal years is as follows (dollars in millions):

Interest payments required on our outstanding indebtedness, assuming no prepayments of indebtedness, for each of the succeeding fiscal years is as follows (dollars in millions):

Interest on variable rate debt was calculated using the interest rate as of October 31, 2024.

Our revolving credit facility has a borrowing capacity of up to $900.0 million that matures on October 2, 2029. Included in the revolving credit facility is a $10.0 million sublimit for standby letters of credit and a $75.0 million sublimit for swingline loans. At our election, and with the approval of the named borrowers on the revolving credit facility and the election of the lenders to fund such increase, the aggregate maximum principal amount available under the revolving credit facility may be increased by an amount of up to $450.0 million. As of October 31, 2024 we had no outstanding borrowings under the revolving credit facility and $2.7 million outstanding under the sublimit for standby letters of credit, resulting in $897.3 million of unutilized availability under our revolving credit facility. As of October 31, 2023 we had $40.0 million outstanding borrowings under the revolving credit facility and $2.6 million outstanding under the sublimit for standby letters of credit, resulting in $557.4 million of unutilized availability under our revolving credit facility. As of October 31, 2024, our debt ratings for long-term unsecured senior, non-credit enhanced debt by Standard and Poor's Ratings Group and by Moody's Investors Service were BBB and Baa1, respectively, and in both cases with a stable outlook.

The agreements governing our outstanding indebtedness are described in Note 6, Indebtedness, of the Notes to Consolidated Financial Statements. 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.

Capital Structure

The following table details the components of our capital structure and debt-to-capitalization ratio (dollars in millions, except percentage data):

Our debt-to-capitalization ratio decreased in fiscal 2024 compared to fiscal 2023 primarily due to fiscal 2024 debt repayments and our continued profitability.

Cash Dividends

In each quarter of fiscal 2024, our Board of Directors declared a common stock cash dividend of $0.36 per share, which was a 5.9 percent increase over our common stock cash dividend of $0.34 per share paid each quarter in fiscal 2023. On December 10, 2024, our Board of Directors increased our fiscal 2025 first quarter common stock cash dividend by 5.6 percent to $0.38 per share. Future common stock cash dividends will depend upon our financial condition, results of operations, capital requirements, and other factors deemed relevant by our Board of Directors.

Share Repurchases

Our share repurchase program provides shares for use in connection with our stock-based compensation plans, among other uses, and has no expiration. The following table provides information with respect to repurchases of our common stock during the past two fiscal years (dollars in millions, except share and per share data):

As of October 31, 2024, 8,171,957 shares remained available for repurchase under our share repurchase program. We currently expect to continue share repurchases in fiscal 2025, depending on our cash balance, debt repayments, common stock price and other market conditions, our anticipated working capital needs, and/or other factors.

We are party to inventory financing arrangements with Red Iron, HCFC, and other third-party financial institutions (collectively, the "financial institutions") which provide inventory financing to certain dealers and distributors of certain of our products in the U.S. and internationally. These financing arrangements are structured as an advance in the form of a payment by the financial institutions to us on behalf of a distributor or dealer with respect to invoices financed by the financial institution. These payments extinguish the obligation of the dealer or distributor to make payment to us under the terms of the applicable invoice.

Under separate agreements between the financial institutions and the dealers and distributors, the financial institutions provide loans to the dealers and distributors for the advances paid by the financial institutions to us. Under these financing arrangements, down payments are not required, and depending on the finance program for each product line, finance charges are incurred by us, shared between us and the distributor and/or the dealer, or paid by the distributor or dealer. The financial institutions retain a security interest in the distributors' and dealers' financed inventories and such inventories are monitored regularly through audits. Financing terms to the distributors and dealers require payment as the inventory, which secures the indebtedness, is sold to end-users or when payment otherwise becomes due under the agreements between the financial institutions and the distributors and dealers, whichever occurs first. Rates are generally indexed to the Secured Overnight Financing Rate ("SOFR"), or an alternative variable rate, plus a fixed percentage that differs based on whether the financing is for a distributor or dealer. Rates may also vary based on the product that is financed.

The net amount of receivables financed for dealers and distributors under the arrangement with Red Iron during fiscal 2024 and 2023 was $2,613.3 million and $2,789.5 million, respectively. The total amount of net receivables outstanding under the arrangement with Red Iron as of October 31, 2024 and 2023 was $979.6 million and $1,019.0 million, respectively. The total amount of receivables due from Red Iron to us as of October 31, 2024 and 2023 were $26.0 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 during fiscal 2024 and 2023 was $612.1 million and $545.4 million, respectively. As of October 31, 2024 and 2023, $272.2 million and $234.7 million, respectively, of receivables financed by HCFC and the other third-party financial institutions were outstanding.

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.

We have also entered into inventory repurchase agreements with the other third-party financial institutions under which we have agreed to repurchase certain repossessed products. As of October 31, 2024 and 2023, we were contingently liable to repurchase up to a maximum amount of $29.5 million and $32.2 million of repossessed inventory, respectively.

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 over the past three fiscal years. 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.

We have agreements with third-party financing companies to provide financing options to end-customers throughout the world. The purpose of these agreements is to provide end-users of our products alternative financing options when purchasing our products. We have no material contingent liabilities for residual value or credit collection risk under these agreements with third-party financing companies.

From time to time, we enter into agreements where we provide recourse to third-party finance companies in the event of default by the customer for financing payments to the third-party finance company. We may recover a portion of any required recourse payments incurred under these agreements from repossession and resale of the equipment collateralizing the receivables. Our maximum exposure for credit collection under those arrangements as of October 31, 2024 and 2023 was $2.9 million and $5.2 million, respectively.

Termination or any material change to the terms of our end-user financing arrangements, availability of credit for our customers, including any delay in securing replacement credit sources, or significant financed product repurchase requirements could have a material adverse impact on our future operating results.

Open Account Terms

We continue to provide financing in the form of open account terms directly to home centers and mass retailers, general line irrigation dealers, certain domestic and international distributors and dealers, ag-irrigation dealers and distributors, government customers, and rental companies.