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 first quarter of fiscal 2025 increased $5.2 million, or 1.1 percent, compared to the end of the first quarter of fiscal 2024, primarily driven by increased international shipments, partially offset by lower mass channel shipments. Inventory levels were down $34.0 million, or 2.9 percent, as of the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024, primarily due to lower balances of lawn care products, partially offset by higher balances of compact utility loaders. Accounts payable increased $25.3 million, or 6.0 percent, as of the end of the first quarter of fiscal 2025 compared to the end of the first quarter of fiscal 2024, primarily due to higher purchases.

Cash Flow

Cash Flows from Operating Activities

Net cash used in operating activities for the first three months of fiscal 2025 was $48.6 million compared to $92.2 million for the first three months of fiscal 2024. This change was mainly due to net favorable fluctuations in working capital.

Cash Flows from Investing Activities

Net cash used in investing activities for the first three months of fiscal 2025 was $19.1 million compared to $19.1 million for the first three months of fiscal 2024.

Cash Flows from Financing Activities

Net cash provided by financing activities for the first three months of fiscal 2025 was $44.6 million compared to $114.1 million for the first three months of fiscal 2024. This change was mainly due to higher common stock repurchases, partially offset by higher borrowings under the revolving credit facility.

Liquidity and Capital Resources

As of January 31, 2025, we had available liquidity of $884.1 million, consisting of cash and cash equivalents of $171.3 million, of which $117.6 million was held by our foreign subsidiaries, and availability under our revolving credit facility of $712.8 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, 2024. The following is a summary of our indebtedness:

As of January 31, 2025, we had $185.0 million outstanding borrowings under our revolving credit facility and $2.2 million outstanding under the sublimit for standby letters of credit, which resulted in $712.8 million of unutilized availability under our revolving credit facility's $900 million borrowing capacity.

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 $0.38 per share for the first quarter of fiscal 2025 that was paid on January 13, 2025. This was an increase of 5.6 percent over our cash dividend of $0.36 per share for the first quarter of fiscal 2024. Weexpect to continue paying our quarterly cash dividend to shareholders for the remainder of fiscal 2025.

Common Stock Repurchases

During the first three months of fiscal 2025, we repurchased 1,240,496 shares of our common stock under our stock repurchase program, thereby reducing our total shares of common stock outstanding. As of January 31, 2025, 6,931,461 shares of common stock remained available for repurchase under our stock repurchase program. We expect to continue to repurchase shares of our common stock throughout the remainder of fiscal 2025, depending on our cash balance, debt repayments, market conditions, our anticipated working capital needs, the price of our common stock, investment priorities, 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, 2024. There have been no material changes to our customer financing arrangements during the first three months of fiscal 2025.

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 three month periods ended January 31, 2025 and February 2, 2024 were $552.9 million and $425.6 million, respectively. The total amount of net receivables outstanding under the arrangement with Red Iron as of January 31, 2025, February 2, 2024 and October 31, 2024 were $960.5 million, $963.9 million and $979.6 million, respectively. The total amount of receivables due from Red Iron to us as of January 31, 2025, February 2, 2024 and October 31, 2024 were $31.6 million, $25.6 million and $26.0 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 three month periods ended January 31, 2025 and February 2, 2024 were $148.9 million and $131.0 million, respectively. The total amount of net receivables outstanding under the arrangements with HCFC and the other third-party financial institutions as of January 31, 2025, February 2, 2024, and October 31, 2024 were $266.5 million, $202.6 million, and $272.2 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 January 31, 2025, February 2, 2024, and October 31, 2024, we were contingently liable to repurchase up to a maximum amount of $28.1 million, $28.7 million, and $29.5 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 three months ended January 31, 2025 and February 2, 2024. 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.