Toro 2008 Annual Report Download - page 41

Wholesale Financing. Toro Credit Company (TCC), a wholly entered into an amended agreement that eliminated our contingent
owned financing subsidiary, provides financing for our North Ameri- liability for any residual value risk on the underlying equipment
financed under this program. In addition, under the terms of the
can Toro distributors and approximately 170 of our domestic deal-
amended agreement, we are only contingently liable for a portion
ers for select products that we manufacture. Independent North
of the credit collection risk for leases entered into prior to the effec-
American Toro and Exmark distributors and dealers that do not
tive date of the amended agreement. Our maximum exposure for
finance through TCC generally finance their inventories with third
credit collection as of October 31, 2008 was $8.1 million.
party financing companies or pay cash. All outstanding receivables
We also have an agreement to sell certain accounts receivable
of TCC are reflected on our consolidated balance sheets.
and notes to a third party. The total amount of receivables and
TCC and third party financing companies purchase selected
notes outstanding under this agreement may not exceed $10.0 mil-
receivables from us and our distributors and dealers for extended
lion at any time. During fiscal 2008, the company sold $2.5 million
periods that assist our distributors and dealers in carrying repre-
of receivables and notes under the terms of this agreement.
sentative inventories of products. Down payments are not required
Termination or any material change to the terms of our end-user
and, depending on the finance program for each product line,
financing arrangements, availability of credit for our customers,
finance charges are incurred by us, shared between us and the
including any delay in securing replacement credit sources, or sig-
distributor and/or the dealer, or paid by the distributor or dealer.
nificant financed product repurchase requirements could have a
We retain a security interest in the distributors’ and dealers’ inven-
material impact on our future operating results.
tories, and those inventories are monitored regularly. Under the
sales terms to distributors and dealers, finance charges are Distributor Financing. From time to time, we enter into
applied to outstanding balances from the earlier of the date when long-term loan agreements with some distributors. These transac-
product is sold to a customer, or the expiration of company-sup- tions are used for expansion of the distributors’ businesses, acqui-
ported finance terms granted at the time of sale, until payment is sitions, refinancing working capital agreements, or facilitation of
received by TCC or the third party finance company. Rates are ownership changes. As of October 31, 2008 and 2007, we had
generally fixed or based on the prime rate plus a fixed percentage outstanding notes receivable of $2.3 million from two distribution
depending on whether the financing is for a distributor or dealer. companies. The amounts are included in other current and
Rates may also vary based on the product that is financed. Distrib- long-term assets on our consolidated balance sheets.
utors and dealers cannot cancel purchases after goods are
Purchase Commitments. We have purchase commitments with
shipped and are responsible for payment even if the equipment is some suppliers for materials and supplies as part of the normal
not sold to customers. course of business.
Third party financing companies purchased $210.5 million of
receivables from us during fiscal 2008, of which $69.7 million was Contractual Obligations. The following table summarizes our
outstanding as of October 31, 2008. Our maximum exposure for contractual obligations as of October 31, 2008.
credit recourse with a third party financing company related to
receivables under these financing arrangements was $0.6 million Payments Due By Period
as of October 31, 2008. We also enter into limited inventory repur- (Dollars in thousands) Less Than 1-3 3-5 More than
chase agreements with third party financing companies for receiv- Contractual Obligation 1 Year Years Years 5 Years Total
ables sold by us to third party financing companies. As of Octo- Long-term debt
1
$ 3,276 $ 4,280 $ – $225,000 $232,556
ber 31, 2008, we were contingently liable to repurchase up to Short-term debt
1
2,326 – – – 2,326
Interest payments 16,425 32,371 32,163 308,660 389,619
$5.6 million of inventory related to receivables under these financ-
Deferred compensation
ing arrangements. We have repurchased immaterial amounts of arrangements
2
1,015 1,717 1,489 2,317 6,538
inventory from third party financing companies over the past three Purchase obligations 3,136 – – – 3,136
fiscal years. However, a decline in retail sales or financial difficul- Operating leases
3
13,187 16,422 10,028 5,280 44,917
ties of our distributors or dealers could cause this situation to Total $39,365 $54,790 $43,680 $541,257 $679,092
change and thereby require us to repurchase financed product,
1
Principal payments
which could have an adverse effect on our operating results.
2
The unfunded deferred compensation arrangements, covering certain current and
retired management employees, consists primarily of salary and bonus deferrals under
End-User Financing. We have agreements with a third party our deferred compensation plans. Our estimated distributions in the contractual obliga-
financing company to provide lease-financing options to golf course tions table are based upon a number of assumptions including termination dates and
participant elections. Deferred compensation balances earn interest based on rates of
and sports fields and grounds equipment customers in the United
return on funds established by the Compensation and Human Resources Committee of
States and Europe. The purpose of these agreements is to the Board of Directors, and are payable at the election of the participants.
increase sales by giving buyers of our products alternative financ-
3
Operating lease obligations do not include payments to landlords covering real estate
ing options when purchasing our products. During fiscal 2007, we taxes and common area maintenance.
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