Toro 2007 Annual Report Download - page 25

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A significant percentage of our consolidated net sales is
generated outside of the United States, and we intend to
continue to expand our international operations. Our
international operations require significant management
attention and financial resources; expose us to
difficulties presented by international economic,
political, legal, accounting, and business factors; and
may not be successful or produce desired levels of net
sales.
We manufacture our products in the United States, Mexico,
Australia, the United Kingdom, and Italy for sale throughout the
world and maintain sales offices in the United States, Belgium, the
United Kingdom, France, Australia, Singapore, Japan, China, Italy,
and Switzerland. Our net sales outside the United States were
29.0 percent, 27.0 percent, and 24.8 percent of our total
consolidated net sales for fiscal 2007, 2006, and 2005,
respectively. International markets have in the past and will
continue to be a focus for us to grow our revenues. For example,
in February 2005, we completed the acquisition of certain assets
and assumed certain liabilities of Hayter Limited, a company
located in the United Kingdom that designs, manufactures, and
markets residential and professional turf maintenance equipment,
primarily for the United Kingdom market. We believe many
opportunities exist in the international markets, and our goal is for
international net sales to comprise a larger percentage of our total
consolidated net sales. The expansion of our existing international
operations and entry into additional international markets requires
significant management attention and financial resources. Many of
the countries in which we sell our products or otherwise have an
international presence are, to some degree, subject to political,
economic, and/or social instability. Our international operations
expose us and our representatives, agents, and distributors to
risks inherent in operating in foreign jurisdictions. These risks
include:
• increased costs of customizing products for foreign countries;
• difficulties in managing and staffing international operations and
increases in infrastructure costs including legal, tax, accounting,
and information technology;
• the imposition of additional U.S. and foreign governmental
controls or regulations; new trade restrictions and restrictions on
the activities of foreign agents, representatives, and distributors;
and the imposition of increases in costly and lengthy export li-
censing requirements, customs duties and tariffs, license
obligations, and other non-tariff barriers to trade;
• the imposition of U.S. and/or international sanctions against a
country, company, person, or entity with whom we do business
that would restrict or prohibit our continued business with the
sanctioned country, company, person, or entity;
• international pricing pressures;
• laws and business practices favoring local companies;
• adverse currency exchange rate fluctuations;
• longer payment cycles and difficulties in enforcing agreements
and collecting receivables through certain foreign legal systems;
• difficulties in enforcing or defending intellectual property rights;
and
• multiple, changing, and often inconsistent enforcement of laws,
rules, and regulations, including, in particular, rules relating to
environmental, health, and safety matters.
Our operations in other countries may not produce desired lev-
els of net sales or one or more of the factors listed above may
harm our business and operating results. Any material decrease in
our international sales or profitability could also adversely impact
our operating results.
Fluctuations in foreign currency exchange rates could
result in declines in our reported net sales and net
earnings.
Because the functional currency of our foreign operations is the
applicable local currency, we are exposed to foreign currency
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 suppli-
ers, and bank lines of credit with creditors denominated in foreign
currencies. Our reported net sales and net earnings are subject to
fluctuations in foreign exchange rates. Because our products are
manufactured or sourced primarily from the United States, a
stronger U.S. dollar generally has a negative impact on results
from operations outside the United States while a weaker dollar
generally has a positive effect. Our primary exchange rate expo-
sure is with the Euro, the Australian dollar, the Canadian dollar, the
British pound, the Mexican peso, and the Japanese yen against
the U.S. dollar. While we actively manage the exposure of our
foreign currency market risk in the normal course of business by
entering into various foreign exchange contracts, these instru-
ments may not effectively limit our underlying exposure from
currency fluctuations or minimize our net earnings and cash
volatility associated with foreign currency exchange rate changes.
We manufacture our products at and distribute our
products from several locations in the United States and
internationally. Any disruption at any of these facilities
or our inability to cost-effectively expand existing and/or
move production between manufacturing facilities could
adversely affect our business and operating results.
We manufacture most of our products at seven locations in the
United States, two locations in Mexico, and one location in each of
Australia, Italy, and the United Kingdom. We also have several
locations that serve as distribution centers, warehouses, test
facilities, and corporate offices. In addition, we have agreements to
manufacture products at several third-party manufacturers. These