Toro 2007 Annual Report Download - page 45

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Third party financing companies purchased $164.6 million of
receivables from us during fiscal 2007, of which $57.7 million was
outstanding as of October 31, 2007. Our maximum exposure for
credit recourse with a third party financing company related to
receivables under these financing arrangements was $0.6 million
as of October 31, 2007. We also enter into limited inventory repur-
chase agreements with third party financing companies, which
includes receivables sold by us to third party financing companies,
as well as receivables sold by our distributors to the third party
financing companies. As of October 31, 2007, we were contin-
gently liable to repurchase up to $5.8 million of inventory related to
receivables under these financing arrangements. We have repur-
chased immaterial amounts of inventory from third party financing
companies over the past three years. However, a decline in retail
sales could cause this situation to change and thereby require us
to repurchase financed product.
End-User Financing. We have agreements with a third party
financing company to provide lease-financing options to golf
course and sports fields and grounds equipment customers in
North America, Europe, and Australia. The purpose of these
agreements is to increase sales by giving buyers of our products
alternative financing options when purchasing our products. During
fiscal 2007, we entered into an amended agreement that elimi-
nated our contingent liability for any residual value risk on the
underlying equipment financed under this program. In addition,
under the terms of the amended agreement, we are only contin-
gently liable for a portion of the credit collection risk for leases
entered into prior to the effective date of the amended agreement.
Our maximum exposure for credit collection as of October 31,
2007 was $7.2 million. We have established a reserve for our
estimated exposure related to this credit collection risk.
We also have an agreement to sell certain accounts receivable
and notes to a third party. The total amount of receivables and
notes outstanding under this agreement may not exceed $10.0
million at any time. During fiscal 2007, the company sold $1.1
million of receivables and notes under the terms of this agreement.
In the normal course of business, we have arrangements with
other financial institutions to provide various forms of financing
options to end-user customers. From time to time, our company-
owned distributorships also guarantee the residual value at the
end of leases with third-party financing companies for product sold
to customers. The amount of this potential contingent liability as of
October 31, 2007 was $4.4 million. None of these other arrange-
ments requires any additional material financial involvement by us.
Termination of our end-user financing arrangements, or any
material change to the terms in the financing arrangements,
availability of credit for our customers, including any delay in
securing replacement credit sources, or significant financed prod-
uct repurchase requirements could have a material impact on our
future operating results or financial condition; however, we do not
believe those events are likely to occur.
Distributor Financing. From time to time, we enter into long-term
loan agreements with some distributors. These transactions are
used for expansion of the distributors’ businesses, acquisitions,
refinancing working capital agreements, or facilitation of ownership
changes. As of October 31, 2007 and 2006, we had outstanding
notes receivable of $2.3 million and $2.8 million, respectively, from
two distribution companies. The amounts are included in other
current and long-term assets on our consolidated balance sheets.
The decrease of $0.5 million was the result of repayments on
these loans.
Purchase Commitments. We have purchase commitments with
some suppliers for materials and supplies as part of the normal
course of business.
Contractual Obligations. The following table summarizes our
contractual obligations as of October 31, 2007.
Payments Due By Period
(Dollars in thousands) Less Than 1-3 3-5 More than
Contractual Obligation 1 Year Years Years 5 Years Total
Long-term debt1$ 1,611 $ 3,923 $ 503 $ 225,000 $ 231,037
Short-term debt1372 – – – 372
Interest payments 16,354 32,438 32,169 324,742 405,703
Deferred
compensation
arrangements2513 1,774 1,441 2,730 6,458
Purchase obligations 2,877 – – – 2,877
Operating leases313,706 11,613 2,362 82 27,763
Total $ 35,433 $ 49,748 $ 36,475 $ 552,554 $ 674,210
1Principal payments
2The unfunded deferred compensation arrangements, covering certain current and
retired management employees, consists primarily of salary and bonus deferrals
under our deferred compensation plans. Our estimated distributions in the con-
tractual obligations table are based upon a number of assumptions including
termination dates and participant elections. Deferred compensation balances earn
interest based on rates of return on funds established by the Compensation and
Human Resources Committee of the Board of Directors, and are payable at the
election of the participants.
3Operating lease obligations do not include payments to landlords covering real
estate taxes and common area maintenance.
As of October 31, 2007, we also had $11.7 million in out-
standing letters of credit issued during the normal course of
business, as required by some vendor contracts.
Market Risk
Due to the nature and scope of our operations, we are subject to
exposures that arise from fluctuations in interest rates, foreign
currency exchange rates, and commodity prices. We are also
exposed to equity market risk pertaining to the trading price of our
common stock. Additional information is presented in Part II,
Item 7A, “Quantitative and Qualitative Disclosures about Market