Toro 2011 Annual Report Download - page 40

when purchasing our products. During fiscal 2007, we entered into
Customer Financing Arrangements
an amended agreement with a third party financing company that
Wholesale Financing. In fiscal 2009, we established our Red eliminated our contingent liability for any residual value risk on the
Iron joint venture with TCFIF. The purpose of Red Iron is to pro- underlying equipment financed under this program. In addition,
vide inventory financing, including floor plan and open account under the terms of the amended agreement, we are only contin-
receivable financing, to distributors and dealers of our products in gently liable for a portion of the credit collection risk for leases
the U.S. and to select distributors of our products in Canada to entered into prior to the effective date of the amended agreement.
enable our distributors and dealers to carry representative invento- Based on actual losses and balances outstanding for leases
ries of our products. Under a separate arrangement, TCFCFC pro- entered into prior to the effective date of the amended agreement,
vides inventory financing to dealers of our products in Canada. we do not anticipate we would have any contingent liability for
Under these financing arrangements, down payments are not potential future losses.
required and, depending on the finance program for each product From time to time, we enter into agreements where we provide
line, finance charges are incurred by us, shared between us and recourse to third party finance companies in the event of default by
the distributor and/or the dealer, or paid by the distributor or the customer for lease payments to the third party finance com-
dealer. Red Iron retains a security interest in the distributors’ and pany. Our maximum exposure for credit collection under those
dealers’ financed inventories, and those inventories are monitored arrangements as of October 31, 2011 was $2.3 million.
regularly. Floor plan terms to the distributors and dealers require Termination or any material change to the terms of our end-user
payment as the equipment, which secures the indebtedness, is financing arrangements, availability of credit for our customers,
sold to customers, or when payment terms become due, whichever including any delay in securing replacement credit sources, or sig-
occurs first. Rates are generally indexed to LIBOR plus a fixed nificant financed product repurchase requirements could have a
percentage that differs based on whether the financing is for a material adverse impact on our future operating results.
distributor or dealer. Rates may also vary based on the product
Distributor Financing. From time to time, we enter into
that is financed. Red Iron financed $1,111.8 million of new receiv-
long-term loan agreements with some distributors. These transac-
ables for dealers and distributors during fiscal 2011, of which
tions are used for expansion of the distributors’ businesses, acqui-
$232.6 million was outstanding as of October 31, 2011.
sitions, refinancing working capital agreements, or facilitation of
Some independent international dealers continue to finance their
ownership changes. As of October 31, 2011 and 2010, we had
products with a third party financing company. This third party
outstanding notes receivable in the aggregate of $2.4 million and
financing company purchased $21.1 million of receivables from us
$3.1 million, respectively, from two distribution companies. The
during fiscal 2011, of which $8.9 million was outstanding as of
amounts are included in other current and long-term assets on our
October 31, 2011.
consolidated balance sheets.
We also enter into limited inventory repurchase agreements with
third party financing companies and Red Iron for receivables
Contractual Obligations
financed by them. As of October 31, 2011, we were contingently
The following table summarizes our contractual obligations as of
liable to repurchase up to a maximum amount of $10.4 million of
October 31, 2011.
inventory related to receivables under these financing arrange-
ments. We have repurchased immaterial amounts of inventory from Payments Due By Period
third party financing companies and Red Iron over the past three (Dollars in thousands) Less Than 1-3 3-5 More than
fiscal years. However, a decline in retail sales or financial difficul- Contractual Obligation 1 Year Years Years 5 Years Total
ties of our distributors or dealers could cause this situation to Long-term debt
1
$ 1,978 $ 1,758 $ — $225,000 $228,736
Interest payments 16,231 32,233 32,162 260,417 341,043
change and thereby require us to repurchase financed product, Deferred compensation
which could have an adverse effect on our operating results. arrangements
2
818 1,455 970 1,054 4,297
Purchase obligations 17,085 — — — 17,085
We continue to provide financing in the form of open account Operating leases
3
13,573 18,235 9,905 15,404 57,117
terms to home centers and mass retailers; general line irrigation Total $49,685 $53,681 $43,037 $501,875 $648,278
dealers; international distributors and dealers other than the Cana-
1
Principal payments in accordance with our long-term debt agreements.
dian distributors and dealers to whom Red Iron provides financing
2
The unfunded deferred compensation arrangements, covering certain current and
retired management employees, consists primarily of salary and bonus deferrals under
arrangements; government customers; and rental companies. our deferred compensation plans. Our estimated distributions in the contractual obliga-
tions table are based upon a number of assumptions including termination dates and
End-User Financing. We have agreements with third party participant elections. Deferred compensation balances are invested according to the
financing companies to provide lease-financing options to golf election of the participant in an array of funds that is substantially similar to the array of
funds offered under The Toro Company Investment, Savings and Employee Stock
course and sports fields and grounds equipment customers in the Ownership Plan, and are payable at the election of the participant.
U.S. and Europe. The purpose of these agreements is to increase
3
Operating lease obligations do not include payments to property owners covering real
estate taxes and common area maintenance.
sales by giving buyers of our products alternative financing options
34