Toro 2014 Annual Report Download - page 20

of new golf course development and golf course closures; the level dependent upon buying patterns of customers. For example, as
of homeowners who outsource their lawn care; acceptance of and consumers purchase products at home centers and mass retailers
demand for micro-irrigation solutions for agricultural markets; the that offer broader and lower price points, we have experienced
integration of the BOSS business into our professional portfolio; increased demand and sales of our residential segment products
the demand for our products in the rental and specialty construc- purchased at retailers. The Home Depot is a substantial customer
tion market; the level of residential and commercial construction; of ours, which accounted for approximately 10 to 11 percent of our
availability of cash or credit on acceptable terms to finance new total consolidated gross sales in each of fiscal 2014, 2013, and
product purchases; and the amount of government spending for 2012. We believe that our diverse distribution channels and cus-
new grounds maintenance equipment. Among other things, any tomer base should reduce the long-term impact on us if we were
one or a combination of the following factors could have an to lose The Home Depot or any other substantial customer. How-
adverse effect on our professional segment net sales: ever, the loss of any substantial customer, a significant reduction
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reduced levels of investment in golf course renovations and in sales to The Home Depot or other customers, or our inability to
improvements and new golf course development; reduced num- respond to future changes in buying patterns of customers or new
ber of golf rounds played at public and private golf courses distribution channels could have a material adverse impact on our
resulting in reduced revenue for such golf courses; decreased business and operating results. Changing buying patterns of cus-
membership at private golf courses resulting in reduced revenue tomers could also result in reduced sales of one or more of our
and, in certain cases, financial difficulties for such golf courses; residential segment products, resulting in increased inventory
and increased number of golf course closures, any one of which levels. Our residential lawn and garden products are generally
or any combination of which could result in a decrease in spend- manufactured throughout the year and our residential snow thrower
ing and demand for our products; products are manufactured in the summer and fall months but may
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reduced consumer and business spending, causing homeowners be extended into the winter months, depending upon demand.
and landscape contractor professionals to forego or postpone However, our production levels and inventory management goals
purchases of our products; for our residential segment products are based on estimates of
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low or reduced levels of commercial and residential construction, retail demand for our products, taking into account production
resulting in a decrease in demand for our products; capacity, timing of shipments, and field inventory levels. If we over-
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a decline in acceptance of and demand for micro-irrigation solu- estimate or underestimate demand during a given season, we may
tions for agricultural markets and our products in the rental and not maintain the appropriate inventory levels, which could nega-
specialty construction market; tively impact our net sales or working capital, and hinder our ability
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reduced tax revenue, increased governmental expenses in other to meet customer demand.
areas, tighter government budgets and government deficits, gen-
Our business and operating results are subject to the
erally resulting in reduced government spending for grounds
inventory management decisions of our distribution
maintenance equipment; and
channel customers.
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product availability issues if we underestimate or overestimate
demand and do not maintain appropriate inventory levels, which We sell many of our products through various distribution channels
could negatively impact our net sales or working capital and hin- and are subject to risks relating to their inventory management
der our ability to meet customer demand. decisions and operational and sourcing practices. Our distribution
Additionally, lower sales of professional segment products that channel customers carry inventories of our products as part of their
carry higher profit margins than our residential segment products ongoing operations and adjust those inventories based on their
could negatively impact our profit margins and net earnings. assessments of future needs. Such adjustments may impact our
inventory management and working capital goals as well as oper-
Our residential segment net sales are dependent upon ating results. If the inventory levels of our distribution channel cus-
consumers buying our residential segment products at tomers are higher than they desire, they may postpone product
dealers, mass retailers, and home centers, such as The purchases from us, which could cause our sales to be lower than
Home Depot, Inc., the amount of product placement at the end-user demand for our products and negatively impact our
retailers, consumer confidence and spending levels, and inventory management and working capital goals as well as our
changing buying patterns of customers. operating results. Similarly, our results could be negatively
The elimination or reduction of shelf space assigned to our resi- impacted through the loss of sales if our distribution channel cus-
dential products by retailers could adversely affect our residential tomers do not maintain field inventory levels sufficient to meet end-
segment net sales. Our residential segment net sales also are user demand.
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