Toro 2013 Annual Report Download - page 19

following factors could have an adverse effect on our professional distribution channels could have a material adverse impact on our
segment net sales: business and operating results. Changing buying patterns of cus-
•
reduced levels of investment in golf course renovations and tomers could also result in reduced sales of one or more of our
improvements and new golf course development; reduced num- residential segment products, resulting in increased inventory
ber of golf rounds played at public and private golf courses levels. Our residential lawn and garden products are generally
resulting in reduced revenue for such golf courses; decreased manufactured throughout the year and our residential snow
membership at private golf courses resulting in reduced revenue removal products are manufactured in the summer and fall months
and, in certain cases, financial difficulties for such golf courses; but may be extended into the winter months, depending upon
and increased number of golf course closures, any one of which demand. However, our production levels and inventory manage-
or any combination of which could result in a decrease in spend- ment goals for our residential segment products are based on esti-
ing and demand for our products; mates of retail demand for our products, taking into account pro-
•
reduced consumer and business spending, causing homeowners duction capacity, timing of shipments, and field inventory levels. If
and landscape contractor professionals to forego or postpone we overestimate or underestimate demand during a given season,
purchases of our products; we may not maintain the appropriate inventory levels, which could
•
low or reduced levels of commercial and residential construction, negatively impact our net sales or working capital, and hinder our
resulting in a decrease in demand for our products; ability to meet customer demand.
•
a decline in acceptance of and demand for micro-irrigation solu-
We face intense competition in all of our product lines
tions for agricultural markets;
with numerous manufacturers, including some that have
•
reduced tax revenue, increased governmental expenses in other
larger operations and financial resources than us. We
areas, tighter government budgets and government deficits, gen-
may not be able to compete effectively against
erally resulting in reduced government spending for grounds
competitors’ actions, which could harm our business
maintenance equipment; and
and operating results.
•
product availability issues if we underestimate or overestimate
demand, which could negatively impact our net sales and hinder Our products are sold in highly competitive markets throughout the
our ability to meet customer demand. world. Principal competitive factors in our markets include product
Additionally, lower sales of professional segment products that innovation, quality and reliability, pricing, product support and cus-
carry higher profit margins than our residential segment products tomer service, warranty, brand awareness, reputation, distribution,
could negatively impact our profit margins and net earnings. product placement and shelf space, and financing options. We
compete in many product lines with numerous manufacturers,
Our residential segment net sales are dependent upon some of which have substantially larger operations and financial
consumers buying our residential segment products at resources than us. As a result, they may be able to adapt more
mass retailers and home centers, such as The Home quickly to new or emerging technologies and changes in customer
Depot, Inc., the amount of product placement at preferences, or devote greater resources to the development, pro-
retailers, consumer confidence and spending levels, and motion, and sale of their products than we can. In addition, compe-
changing buying patterns of customers. tition could increase if new companies enter the market, existing
The elimination or reduction of shelf space assigned to our resi- competitors consolidate their operations or if existing competitors
dential products by retailers could adversely affect our residential expand their product lines or intensify efforts within existing prod-
segment net sales. Our residential segment net sales also are uct lines. Our current products, products under development, and
dependent upon buying patterns of customers. For example, as our ability to develop new and improved products may be insuffi-
consumers purchase products at home centers and mass retailers cient to enable us to compete effectively with our competitors.
that offer broader and lower price points, we have experienced Internationally, our residential segment products typically face more
increased demand and sales of our residential segment products competition where foreign competitors design, manufacture, and
purchased at retailers. The Home Depot is a substantial customer market products in their respective countries. We experience this
of ours, which accounted for approximately 10 to 11 percent of our competition primarily in Europe. In addition, fluctuations in the
total consolidated gross sales in each of fiscal 2013, 2012, and value of the U.S. dollar may affect the price of our products in
2011. We believe that our diverse distribution channels and cus- foreign markets, thereby impacting their competitiveness. We may
tomer base should reduce the long-term impact on us if we were not be able to compete effectively against competitors’ actions,
to lose The Home Depot or any other substantial customer. How- which may include the movement by competitors with manufactur-
ever, the loss of any substantial customer, a significant reduction ing operations to low cost countries for significant cost and price
in sales to The Home Depot or other customers, or our inability to reductions, and could harm our business and operating results.
respond to future changes in buying patterns of customers or new
13