Toro 2010 Annual Report Download - page 39

U.S. and Europe. The purpose of these agreements is to increase As of October 31, 2010, we also had $13.3 million in outstanding
sales by giving buyers of our products alternative financing options letters of credit issued during the normal course of business, as
when purchasing our products. During fiscal 2007, we entered into required by some vendor contracts. In addition to the above con-
an amended agreement with a third party financing company that tractual obligations, we may be obligated for additional cash out-
eliminated our contingent liability for any residual value risk on the flows of $6.8 million of unrecognized tax benefits. The payment
underlying equipment financed under this program. In addition, and timing of any such payments is affected by the ultimate resolu-
under the terms of the amended agreement, we are only contin- tion of the tax years that are under audit or remain subject to
gently liable for a portion of the credit collection risk for leases examination by the relevant taxing authorities.
entered into prior to the effective date of the amended agreement.
Market Risk
From time to time, we enter into agreements where we provide
Due to the nature and scope of our operations, we are subject to
recourse to the third party finance company in the event of default
exposures that arise from fluctuations in interest rates, foreign cur-
by the customer for lease payments to the third party finance com-
rency exchange rates, and commodity prices. We are also
pany. Our maximum exposure for credit collection as of Octo-
exposed to equity market risk pertaining to the trading price of our
ber 31, 2010 was $7.9 million.
common stock. Additional information is presented in Part II,
Termination or any material change to the terms of our end-user
Item 7A, ‘‘Quantitative and Qualitative Disclosures about Market
financing arrangements, availability of credit for our customers,
Risk,’’ and Note 14 of the notes to our consolidated financial
including any delay in securing replacement credit sources, or sig-
statements.
nificant financed product repurchase requirements could have a
material adverse impact on our future operating results.
Inflation
Distributor Financing. From time to time, we enter into We are subject to the effects of inflation, deflation, and changing
long-term loan agreements with some distributors. These transac- prices. During fiscal 2010, we experienced higher average com-
tions are used for expansion of the distributors’ businesses, acqui- modity costs compared to the average prices paid for commodities
sitions, refinancing working capital agreements, or facilitation of in fiscal 2009, particularly in the second half of fiscal 2010, which
ownership changes. As of October 31, 2010 and 2009, we had hampered our gross margin growth rate in fiscal 2010 as com-
outstanding notes receivable in the aggregate of $3.1 million and pared to fiscal 2009. We will continue to closely follow the com-
$3.2 million, respectively, from two distribution companies. The modities that affect our product lines, and we anticipate average
amounts are included in other current and long-term assets on our prices paid for commodities to be higher in fiscal 2011 as com-
consolidated balance sheets. pared to fiscal 2010. We expect to mitigate the impact of inflation-
ary pressures by engaging in proactive vendor negotiations,
Contractual Obligations reviewing alternative sourcing options, substituting materials,
The following table summarizes our contractual obligations as of engaging in internal cost reduction efforts, and increasing prices on
October 31, 2010. some of our products, all as appropriate.
Payments Due By Period
Acquisitions and Divestiture
(Dollars in thousands) Less Than 1-3 3-5 More than
Contractual Obligation 1 Year Years Years 5 Years Total On April 30, 2010, we completed the purchase of certain assets
Long-term debt
1
$ 1,970 $ 220 $ — $225,000 $227,190 and assumed certain liabilities from USPraxis, Inc., a manufacturer
Short-term debt
1
776 — — — 776 of stump grinders, wood chippers, and log splitters for rental cen-
Interest payments 16,162 32,171 32,162 276,498 356,993 ters and landscape professionals. The addition of these products
Deferred compensation
arrangements
2
799 1,633 1,061 1,501 4,994 broadens and strengthens our equipment solutions for the rental
Purchase obligations 3,933 — — — 3,933 and landscape markets.
Operating leases
3
12,956 17,854 9,128 15,523 55,461 On October 29, 2010, we completed the acquisition of certain
Total $36,596 $51,878 $42,351 $518,522 $649,347 assets and assumed certain liabilities of one of our independent
1
Principal payments under our lines of credit. U.S. Western-based distributorships. During the first quarter of fis-
2
The unfunded deferred compensation arrangements, covering certain current and
retired management employees, consists primarily of salary and bonus deferrals under cal 2010, our wholly owned domestic distribution company also
our deferred compensation plans. Our estimated distributions in the contractual obliga- completed the acquisition of certain assets and assumed certain
tions table are based upon a number of assumptions including termination dates and liabilities of one of our independent U.S. Midwestern-based distri-
participant elections. Deferred compensation balances are invested according to the
election of the participant in an array of funds that is substantially similar to the array of bution companies. During the first quarter of fiscal 2009, we also
funds offered under The Toro Company Investment, Savings and Employee Stock completed the sale of a portion of the operations of our company-
Ownership Plan, and are payable at the election of the participant.
3
Operating lease obligations do not include payments to landlords covering real estate owned distributorship.
taxes and common area maintenance.
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