Toro 2009 Annual Report Download

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The Toro Company
2009 Annual Report
Strong roots
Endless possibilities

Table of contents

  • Page 1
    The Toro Company 2009 Annual Report Strong roots Endless possibilities

  • Page 2
    .... Earlier this year, we were named the exclusive provider of turf maintenance equipment and precision irrigation systems for our hometown team - the Minnesota Twins™. They will be the first team in Major League Baseball to use Toro's Turf Guard® wireless soil monitoring technology to save water...

  • Page 3
    ...landscape contractors, the economic uncertainty forced many to extend the life of their existing ï¬,eets rather than purchase new equipment. Not to mention, the decline in residential and commercial construction had a major impact on sales of both equipment and irrigation products into these markets...

  • Page 4
    ...made a difference in helping us take share in most of our markets. In the residential segment, we launched a new line of Toro® and Lawn-Boy® walk power mowers across a broader range of price points that resulted in significant share growth. Another area of strong customer acceptance came from our...

  • Page 5
    ...scal 2009 to help us reach our working capital goal in the coming year. We formed Red Iron Acceptance, LLC, a new joint venture with TCF Inventory Finance to provide ï¬,oor plan and open account financing to our U.S. and Canadian distributors and dealers. Taking the place of Toro Credit Company and...

  • Page 6
    ... expect even stronger results as our markets improve. Adding to the momentum generated from our 2009 product lineup, we have even more innovative new offerings poised to launch in fiscal 2010 that are expected to drive demand and compete for our customers' business. In closing, we acknowledge there...

  • Page 7
    UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Fiscal Year Ended October 31, 2009 THE TORO COMPANY (Exact name of registrant as specified in its charter) Delaware (State of ...

  • Page 8
    ... Disclosures about Market Risk ...Financial Statements and Supplementary Data ...Management's Report on Internal Control over Financial Reporting ...Report of Independent Registered Public Accounting Firm ...Consolidated Statements of Earnings for the fiscal years ended October 31, 2009, 2008, and...

  • Page 9
    ... and companies who maintain and create residential and commercial landscapes on behalf of property owners. We market products to landscape contractors under the Toro and Exmark brands. In fiscal 2009, we introduced the next generation of Toro and Exmark zero-turn radius riding mowers. The Toro brand...

  • Page 10
    ... application and cultivation equipment to help customers achieve improved agronomic conditions of turf. Residential/Commercial Irrigation Market. Turf irrigation products marketed under the Toro and Irritrol brands include sprinkler heads, plastic and brass valves, and electric and hydraulic control...

  • Page 11
    ... on our commercial zero-turn mowers. Home Solutions Products. We design and market home solutions products under the Toro and Pope brand names, including electric and battery operated flexible line grass trimmers, electric blowervacuums, electric blowers, and electric snow throwers. In Australia, we...

  • Page 12
    ... lines. Warranty coverage ranges from a period of six months to seven years and generally covers parts, labor, and other expenses for non-maintenance repairs. Warranty coverage generally does not cover operator abuse or improper use. An authorized distributor or dealer must perform warranty work...

  • Page 13
    ... facilities, contractors, municipalities, rental stores, and golf courses. We also sell some professional segment products directly to government customers and rental companies, as well as directly to end-users in certain international markets. Select residential/commercial irrigation products are...

  • Page 14
    ... of customer satisfaction. Our current marketing strategy is to maintain distinct brands and brand identification for Toroா, Exmarkா, Irritrolா, Hayterா, Popeா, Lawn-Boyா, and Lawn Genieா products. We advertise our residential products during appropriate seasons throughout the year on...

  • Page 15
    ... party financing companies to provide financing programs under a private label program in the U.S. This program, offered primarily to Toro and Exmark dealers, provides end-user customers a revolving line of credit for Toro and Exmark products, parts, and services. Distributor Financing. Occasionally...

  • Page 16
    ... and Senior Financial Officers, a Code of Conduct for all employees, and a Board of Directors Business Ethics Policy Statement. Copies of these documents are posted on our website at www.thetorocompany.com (select the ''Investor Information'' link and then the ''Corporate Governance'' link). We also...

  • Page 17
    ... segment products are sold by distributors or dealers, or directly to government customers, rental companies, and professional users engaged in maintaining and creating landscapes, such as golf courses, sports fields, municipal properties, and residential and commercial landscapes. Accordingly...

  • Page 18
    ... to fund advertising, marketing, promotional programs, and research and development. Our residential segment net sales are dependant upon consumer spending levels, the amount of product placement at retailers, changing buying patterns of customers, and The Home Depot, Inc. as a major customer. The...

  • Page 19
    ...quickly to new or emerging technologies and changes in customer preferences, or to devote greater resources to the development, promotion, and sale of their products than we can. In addition, competition could increase if new companies enter the market or if existing competitors expand their product...

  • Page 20
    ... exchange rate risk arising from transactions in the normal course of business, such as sales and loans to wholly owned subsidiaries as well as sales to third party customers, purchases from suppliers, and bank lines of credit with creditors denominated in foreign currencies. Our reported net sales...

  • Page 21
    ... programs, including floor plan and open account receivable financing, to certain distributors and dealers of our products. Any difficulty in transitioning our inventory financing programs to the joint venture, any material change in the availability or terms of credit offered to our customers...

  • Page 22
    ... customer demand for our products relative to the product offerings of our competitors. For example, any fiscal-stimulus or other legislative enactment that impacts the lawn and garden, outdoor power equipment, or irrigation industries generally by promoting the purchase, such as through customer...

  • Page 23
    ... of business opportunities and respond to changing business, market, and economic conditions. Additionally, we are subject to counterparty risk in our credit arrangements. Our credit arrangements and the indentures governing our 6.625% senior notes and 7.800% debentures include a number of financial...

  • Page 24
    ...shortages of raw materials and components, higher fuel costs, and increase in insurance premiums; • financial viability of distributors and dealers, changes in distributor ownership, our success in partnering with new dealers, and our customers' ability to pay amounts owed to us; and • continued...

  • Page 25
    ... in use to be in good operating condition and adequate for its present use. Management believes we have sufficient manufacturing capacity for fiscal 2010. The below schedule outlines our significant facilities by location, ownership, and function as of October 31, 2009: Location Bloomington, MN El...

  • Page 26
    .... Textron alleges that we willfully infringed certain claims of three Textron patents by selling its Groundsmasterா commercial mowers. Textron seeks damages for our past sales and an injunction against future infringement. In August and November 2005, we answered the complaint, asserting defenses...

  • Page 27
    ... of Marketing - Golf for the Commercial Business. General Manager, Sitework Systems since February 2009. From November 2004 to February 2009, he served as General Manager, Landscape Contractor Business - Toro. General Manager, Exmark since November 2004. Vice President, Finance and Chief Financial...

  • Page 28
    ... The following table sets forth information with respect to shares of Toro common stock purchased by the company during each of the three fiscal months in the period ended October 31, 2009. Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs 512,177 First Second Third...

  • Page 29
    ... stock, the S&P 500 Index, and an industry peer group for the five year period from October 31, 2004 through October 31, 2009. $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 2004 2005 2006 2007 2008 2009 The Toro Company Fiscal year ending October 31, The Toro Company S&P 500 Peer Group 2004 $100...

  • Page 30
    ...OVERVIEW We design, manufacture, and market professional turf maintenance equipment and services, turf and agricultural micro-irrigation systems, landscaping equipment, and residential yard and snow removal products worldwide. We sell our products through a network of distributors, dealers, hardware...

  • Page 31
    ..., we increased our market share for Toro and Lawn-Boy walk power mowers as a result of additional product placement at a key retailer for a new and broader line of walk power mowers. Our riding products also gained market share, in part from our new platform of Toro TITANா zero-turning mowers that...

  • Page 32
    ... acceptance for a new line of zero-turning riding mowers, and a decrease in electric blower product sales. Sales of snow thrower products were also down due to the timing of the introduction for a new redesigned offering of snow thrower products that shipped to customers in the first quarter...

  • Page 33
    ... well with market share gains and additional product placement for our walk power mower and riding mower products. As we anticipate a slow economic recovery in fiscal 2010, we expect our residential segment net sales to be about even with fiscal 2009 net sales. • During fiscal 2010, we anticipate...

  • Page 34
    ... acceptance for a new line of zero-turn radius riding mowers, a decrease in electric blower product sales, and a decrease in sales of snow thrower products due to the timing of the introduction for a new redesigned offering of snow thrower products that shipped to customers in the first quarter...

  • Page 35
    ... of foreign currency exchange rate fluctuations. In addition, our fiscal 2007 tax rate was benefited by the increase in benefits related to the domestic research credit as a result of the retroactive extension of this credit by the Tax Relief and Health Care Act of 2006. PERFORMANCE BY BUSINESS...

  • Page 36
    ...and commercial construction markets. • A stronger average U.S. dollar compared to most other currencies in which we transact business. • Decreased sales of landscape contractor equipment, despite the fact that our new products, which included our next generation of zero-turn radius riding mowers...

  • Page 37
    ... walk power mowers. • Positive customer response for our new line of zero-turn radius riding mowers. Worldwide net sales for the residential segment in fiscal 2008 were slightly up by 0.3 percent compared to fiscal 2007. This increase was due primarily to strong snow thrower product sales in North...

  • Page 38
    ... distributors and dealers of our products at a purchase price equal to the face value of the receivables or the purchase price paid for such receivables. The joint venture began financing floor plan receivables in the fourth quarter of fiscal 2009. The joint venture also began financing open account...

  • Page 39
    ... 2009 by Standard and Poor's Ratings Group at BBB- and by Moody's Investors Service at Baa3. Share Repurchase Plan Credit Lines and Other Capital Resources Our businesses are seasonal, with accounts receivable balances historically increasing between January and April, as a result of higher sales...

  • Page 40
    ... common stock Average price paid per share 2009 2008 2007 3,316,536 2,809,927 3,342,729 $ 115.3 $ 110.4 $ 182.8 $ 34.76 $ 39.27 $ 54.70 and Canada, and Red Iron began financing new receivables during the first quarter of fiscal 2010. Third party financing companies and Red Iron purchased $311...

  • Page 41
    ... irrigation central controllers and other products for the commercial landscape market. In fiscal 2007, we also completed the purchase of certain assets and assumed certain liabilities of Allen Hover Mower. Allen Hover Mower sells walk power mowers worldwide for the golf course and grounds...

  • Page 42
    ... products sold to distributors, volume discounts, retail financing support, floor planning, cooperative advertising, commissions, and other sales discounts and promotional programs. The estimates for sales promotion and incentive costs are based on the terms of the arrangements with customers...

  • Page 43
    ... fiscal 2009 has had or is expected to have a material impact on our consolidated financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk stemming from changes in foreign currency exchange rates, interest rates, and commodity prices...

  • Page 44
    ... not able to increase selling prices of our products or obtain manufacturing efficiencies to offset increases in commodity costs. Further information regarding rising prices for commodities is presented in Part II, Item 7, ''Management's Discussion and Analysis of Financial Condition and Results of...

  • Page 45
    ... system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The company's internal control over financial reporting includes...

  • Page 46
    Report of Independent Registered Public Accounting Firm The Stockholders and Board of Directors The Toro Company: We have audited the accompanying consolidated balance sheets of The Toro Company as of October 31, 2009 and 2008 and the related consolidated statements of earnings, stockholders' equity...

  • Page 47
    CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and shares in thousands, except per share data) Fiscal years ended October 31 2009 $1,523,447 1,012,...436 3.50 3.40 40,682 41,864 Net sales Cost of sales Gross profit Selling, general, and administrative expense Earnings from operations Interest expense ...

  • Page 48
    ... assets Property, plant, and equipment, net Deferred income taxes Other assets Goodwill Other intangible assets, net Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term debt Short-term debt Accounts payable Accrued liabilities: Warranty Advertising and marketing programs...

  • Page 49
    ... as of the end of the fiscal year Supplemental disclosures of cash flow information: Cash paid during the fiscal year for: Interest Income taxes Shares issued in connection with stock-based compensation plans Long-term debt issued in connection with acquisitions The financial statements should be...

  • Page 50
    ... trust Purchase of 3,316,536 shares of common stock Excess tax benefits from stock options Pension liability adjustment, net of tax Foreign currency translation adjustments Unrealized loss on derivative instruments, net of tax Net earnings Total comprehensive income Balance as of October 31, 2009...

  • Page 51
    ...facts and circumstances dictate. A number of these factors are discussed in Part I, Item 1A, ''Risk Factors'' of this report, which include, among others, the recessionary economic conditions, unfavorable foreign currency exchange rate changes, commodity costs, tight credit markets, and a decline in...

  • Page 52
    ... of corporate assets and liabilities based on key financial ratios, such as a proportion of the total account balances to net sales or cost of sales of the respective reporting unit. Growth rates for sales and profits are determined using inputs from the company's annual long-range planning process...

  • Page 53
    Accounts Payable In fiscal 2009, the company entered into a customer-managed services agreement with a third party to provide a web-based platform that facilitates participating suppliers' ability to finance payment obligations from the company with a designated third party financial institution. ...

  • Page 54
    ... purchases. These financing arrangements are used by the company as a marketing tool to assist customers to buy inventory. The financing costs for distributor and dealer inventories were $9,452, $12,597, and $13,559 for the fiscal years ended October 31, 2009, 2008, and 2007, respectively. Sales...

  • Page 55
    ... its fiscal year ending October 31, 2009, as required. There was no change to the company's consolidated financial statements due to the implementation of this Statement. In May 2009, the FASB issued SFAS No. 165, ''Subsequent Events.'' This Statement sets forth: (i) the period after the balance 49

  • Page 56
    ...Green's versatile line of Soil Relieverா aerators increased Toro's offering of highly-productive turf cultivation equipment and provided entry into a new product category for its golf course and sports field markets. The purchase price was $4,900, with $3,430 paid in cash and $1,470 in a long-term...

  • Page 57
    ... receivables during the company's fourth quarter of fiscal 2009. With respect to the joint venture, the company sold to Red Iron certain inventory receivables, including floor plan and open account receivables, from distributors and dealers of the company's products, at a purchase price equal to the...

  • Page 58
    ... certain receivables the company has provided recourse with Red Iron as of October 31, 2009. The weighted-average interest rate on short-term debt outstanding as of October 31, 2008 was 6.25 percent. The company was in compliance with all covenants related to the lines of credit described above as...

  • Page 59
    ...date on a semi-annual basis at the treasury rate plus 30 basis points, plus, in both cases, accrued and unpaid interest. In the event of the occurrence of both (i) a change of control of the company, and (ii) a downgrade of the notes below an investment grade rating by both Moody's Investors Service...

  • Page 60
    ... on the date of grant, as reported by the New York Stock Exchange. Options are generally granted to non-employee directors, officers, and other key employees in the first quarter of the company's fiscal year. Option awards vest one-third each year over a three-year period and have a ten-year term...

  • Page 61
    ...The number of unissued shares of common stock available for future stock option grants under the company's stock-based compensation plans was 781,907 as of October 31, 2009. The company also has a long-term incentive plan called The Toro Company Performance Share Plan. Under this plan, key employees...

  • Page 62
    ...: Fiscal years ended October 31 Service cost Interest cost Curtailment Prior service credit Amortization of losses Net expense 2009 $ 218 701 - (194) 191 $ 916 2008 $ 358 514 230 (193) 213 $1,122 2007 $ 378 495 - (194) 217 $ 896 11 EMPLOYEE RETIREMENT PLANS The company maintains The Toro Company...

  • Page 63
    ... equipment, landscape contractor mowing equipment, landscape creation equipment, and other maintenance equipment. Irrigation products consist of sprinkler heads, electric and hydraulic valves, controllers, computer irrigation central control systems, and micro-irrigation drip tape and hose products...

  • Page 64
    ... and commercial landscapes, as well as directly to government customers and rental companies. The residential segment consists of walk power mowers, riding mowers, snow throwers, replacement parts, and home solutions products, including trimmers, blowers, blower-vacuums, and underground and hose-end...

  • Page 65
    ...first quarter of fiscal 2010, Red Iron began financing open account receivables, as well as floor plan receivables previously financed by a third party financing company. Some products sold to independent dealers in Australia finance their products with third party sources. Excluding Red Iron, third...

  • Page 66
    ... liability with respect to others' patents, the company regularly reviews certain patents issued by the United States Patent and Trademark Office (USPTO) and foreign patent offices. Management believes these activities help minimize its risk of being a defendant in patent infringement litigation...

  • Page 67
    ... credit risk, consist principally of accounts receivable that are concentrated in two business segments: professional and residential markets for outdoor landscape equipment and systems. The credit risk associated with these segments is limited because of the large number of customers in the company...

  • Page 68
    ... $6,779 - $3,685 The following table presents the impact of derivative instruments on the consolidated statements of earnings for the company's derivatives designed as cash flow hedging instruments for the fiscal years ended October 31, 2009 and 2008, respectively. Gain (Loss) Recognized...

  • Page 69
    ... recognition in the financial statements or disclosure in the notes to the financial statements. 16 QUARTERLY FINANCIAL DATA (unaudited) Summarized quarterly financial data for fiscal 2009 and 2008 are as follows: Fiscal year ended October 31, 2009 Quarter Net sales Gross profit Net earnings...

  • Page 70
    ... fourth fiscal quarter ended October 31, 2009 that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting. ITEM 9B.OTHER INFORMATION None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information on...

  • Page 71
    ...Data'' of this report: • Management's Report on Internal Control over Financial Reporting. • Report of Independent Registered Public Accounting Firm. • Consolidated Statements of Earnings for the fiscal years ended October 31, 2009, 2008, and 2007. • Consolidated Balance Sheets as of October...

  • Page 72
    ... on Form 10-Q for the quarter ended May 1, 2009).* 10.12 Form of Nonqualified Stock Option Agreement between The Toro Company and its Non-Employee Directors (incorporated by reference to Exhibit 10.20 to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 2008).* 10.13...

  • Page 73
    ...Red Iron Acceptance, LLC and TCF Inventory Finance, Inc. (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K dated August 12, 2009, Commission File No. 1-8649). 10.25 Asset Purchase Agreement, dated as of February 8, 2005, by and among Editland Limited, Toro Hayter...

  • Page 74
    ...,724 202,435 203,806 Balance as of the end of the fiscal year $45,298 48,412 53,765 (Dollars in thousands) Fiscal year ended October 31, 2009 Accrued advertising and marketing programs Fiscal year ended October 31, 2008 Accrued advertising and marketing programs Fiscal year ended October 31, 2007...

  • Page 75
    ..., thereunto duly authorized. THE TORO COMPANY (Registrant) /s/ Stephen P. Wolfe Stephen P. Wolfe Vice President, Finance and Chief Financial Officer By: Dated: December 22, 2009 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by...

  • Page 76
    ...Retired F2 Intelligence Group Gregg W. Steinhafel Chairman, Chief Executive Officer and President Target Corporation Shareholder Information Shareholder Assistance Communications concerning transfer requirements, address changes, dividends and lost certificates should be directed to our transfer...

  • Page 77
    ... to partner with this historic venue and help them care for what many refer to as "the home of golf." International Growth Expanding our partnership with Glasgow's Hampden Park in the United Kingdom, we are excited that Toro® turf maintenance equipment and precision irrigation systems will be used...

  • Page 78
    The Toro Company 8111 Lyndale Avenue South Bloomington, MN 55420-1196 952-888-8801 www.thetorocompany.com Cert no. SCS-COC-00648