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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR FISCAL YEAR ENDED OCTOBER 31, 1996.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________________ TO ____________________
COMMISSION FILE NUMBER 1-8649
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THE TORO COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 41-0580470
(State of incorporation) (I.R.S. Employer Identification Number)
8111 LYNDALE AVENUE SOUTH
BLOOMINGTON, MINNESOTA 55420-1196
TELEPHONE NUMBER: (612) 888-8801
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, par value
$1.00 per share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant, based upon the closing price of the Common Stock on December 27,
1996 as reported by the New York Stock Exchange, was approximately $423,922,000.
The number of shares of Common Stock outstanding as of December 27, 1996 was
12,116,732.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended October 31, 1996, are incorporated by reference into Parts I, II and IV.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held March 13, 1997 are incorporated by reference into Part
III.
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Part I
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ITEM 1. BUSINESS
INTRODUCTION
The company designs, manufactures and markets consumer and professional turf
maintenance equipment, snow removal products and irrigation systems. The
company produced its first lawn mower for golf course fairways in 1922 and its
first lawn mower for home use in 1939 and has continued to enhance its product
lines ever since.
The company emphasizes quality and innovation in its products, manufacturing and
marketing. The company strives to provide well built, dependable products
supported by an extensive service network. Innovation is emphasized through the
introduction of new and enhanced products. The company's substantial funding of
research and development, as well as its acquisition strategy and its licensing
and related agreements, all contribute to its new product development efforts.
Through these efforts the company also attempts to be responsive to trends which
may affect its target markets, now and in the future. The company believes that
a significant portion of its revenues in recent years have been attributable to
its new and enhanced products. Examples of recently introduced products include
the Recycler-Registered Trademark- lawn mower which reduces the need for
disposal of grass clippings, a high pressure water jet turf aerator for
maintenance of golf course putting greens and an enhanced electronic controller
for residential irrigation systems which features programmable timing and zone
control functions.
The company was incorporated in Minnesota in 1935 as a successor to a business
founded in 1914. It was reincorporated in Delaware in 1983. The company's
executive offices are located at 8111 Lyndale Avenue South, Bloomington,
Minnesota 55420-1196, telephone number (612) 888-8801. Unless the context
indicates otherwise, the terms "company" and "Toro" refer to The Toro Company
and its subsidiaries. The company finances a significant portion of its
receivables through Toro Credit Company ("Toro Credit"), its wholly-owned
finance subsidiary.
OUTDOOR MAINTENANCE EQUIPMENT
The company classifies its operations into one industry segment, outdoor
maintenance equipment. The company continues to be a leader in transforming
advanced technologies into products and services that provide solutions for
landscape and turf care maintenance and beautification demands. Following is a
summary of Toro's product lines:
CONSUMER PRODUCTS
WALK-BEHIND MOWERS. The company has manufactured walk-behind mowers for
residential use since 1939. Its walk-behind lawn mowers are gasoline and
electric powered. The company manufactures numerous models of walk-behind
mowers under its brand names Toro-Registered Trademark- and Lawn-
Boy-Registered Trademark-, including both four-cycle and two-cycle engine
models, and new battery and electric models. Models differ as to cutting
width, type of starter mechanism, type of bagging, controls and power
sources, and are either self-propelled or push mowers. Certain of the
company's lawn mowers are backed by the company's "Guaranteed To Start"
program and some Lawn-Boy-Registered Trademark- models are equipped
with a two-cycle, oil injected engine manufactured by the company.
RIDING MOWERS AND LAWN AND GARDEN TRACTORS. The company manufactures
riding lawn mowers and lawn and garden tractors under its brand name
Toro-Registered Trademark-Wheel Horse-Registered Trademark- which range
from an eight horsepower, 25 inch deck, rear engine model to a 20
horsepower, front engine model. The front engine model is available with a
variety of decks and accessories (Recycler technology is available in
select models). Some recently introduced models are equipped with
hydrostatic transmissions and/or low emission engines.
2
HOME SOLUTIONS PRODUCTS. The company designs and markets electrical and
gas products under the Toro-Registered Trademark- brand name for mass
merchandisers and "do-it-yourself" home improvement markets. These
products, which include homeowner-installed low voltage lighting, flexible
line trimmers and electric blowers, are intended to require little or no
after sales service. Among recently introduced products are a complete
line of handheld products which include a cordless trimmer, hedge
trimmers, gas edgers, gas trimmers, and a gas blower.
SNOW REMOVAL PRODUCTS. The company manufactures and markets lightweight
and larger self-propelled walk-behind snowthrowers and electric Power
Shovel snowthrowers under the Toro-Registered Trademark- and Lawn-
Boy-Registered Trademark- brand names. Single-stage snowthrowers,
developed by the company and first introduced in 1965, are walk-behind
units with a lightweight gasoline engine or electric motor and the Power
Curve-Registered Trademark- snowthrower technology for general residential
use. Two-stage snowthrowers are designed for relatively large areas with
engines ranging from 5 to 12 horsepower. Units with 8 horsepower and above
are equipped with the Power Shift-Registered Trademark- snowthrower
technology.
PROFESSIONAL TURF PRODUCTS
COMMERCIAL PRODUCTS. Professional turf maintenance equipment marketed
under the Toro-Registered Trademark- brand name is the company's oldest
product line, which began in 1922 with the sale of tractor-pulled reel
mowers to golf courses. Today the company's expanded product line includes
products designed for the large turf areas of schools, parks, cemeteries,
sports fields, plant sites, apartment buildings and townhouse complexes, as
well as golf courses. Management believes that golf courses will continue
to be a significant market for turf maintenance equipment as new golf
course construction continues throughout the world. Increasing emphasis is
being placed on the sports field and landscape contractor markets.
Products for the golf course include turf sprayer equipment, riding and
walk-behind reel mowers for the putting green, and riding and pull-behind
large reel products for the fairway, rough and trim cutting, turf aeration,
and sandtrap/bunker maintenance.
Other products which service all commercial markets include riding rotary
units with out-front cutting decks ranging from 52 inches to 16 feet widths
of cut, turf sweepers, and multipurpose vehicles and attachments designed
for flexibility.
IRRIGATION PRODUCTS. Turf irrigation products marketed under the
Toro-Registered Trademark- brand name include sprinkler heads and electric
and hydraulic control devices designed to be used in turf irrigation
systems for residential, commercial and golf course use. These products
are installed in new systems and can also be used to replace or retrofit
existing systems. Most of the product line is designed for underground
irrigation systems. Sprinkler heads are buried underground and pop up when
in operation. Control valves activate the sprinkler heads and controllers
typically activate electric or hydraulic lines to control the valves and
sprinkler heads. Recently introduced products include more efficient
sprinkler heads and automatic electronic controllers for residential,
commercial and golf course irrigation systems. The acquisition of the
James Hardie Irrigation Group enhances Toro's product line for residential
and commercial irrigation systems and also provides products for the
agricultural micro-irrigation segment, including drip tape, hose, emitters
and other micro-irrigation products. See "Recent Developments" included
within Part I. The company's irrigation products are used in 75 of the
golf courses rated among the top 100 courses in the United States by GOLF
DIGEST.
See the tables entitled "Sales By Product Line" under the captions "Results of
Operations" in the sections entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 16 and 25 of the
company's Annual Report to Stockholders for the fiscal year ended October 31,
1996 for information regarding revenues in the consumer, commercial and
irrigation product lines, which information is incorporated herein by reference.
3
INTERNATIONAL OPERATIONS
The company currently distributes its products worldwide with sales and/or
distribution offices in Canada,Belgium, United Kingdom, Australia, Singapore,
Japan, Italy and Greece.
New product development is primarily pursued in the United States using a global
product platform strategy. Products marketed outside of North America are sold
in compliance with local safety standards. All products shipped to Europe
conform to the European Community Certification standards.
In addition to developing new market-specific products, the International
division is adding customers in new regions. Emerging markets in Eastern Europe
(such as the Czech Republic, Slovakia and Hungary) have been added to the
distribution base in the last year.
RECENT DEVELOPMENTS
On December 3, 1996, the company announced the completion of the acquisition of
James Hardie Irrigation Group (JHI) from James Hardie Limited of Australia. JHI
is a worldwide leader in the production of irrigation systems to the commercial
landscape market. JHI manufactures products for all major segments of the
irrigation market, except for the golf market, and sells to distributors and
retailers worldwide. JHI offers a broad range of irrigation products and has
leading positions in valves and controllers worldwide. In Australia, JHI has a
leading position in hose, hose-end and micro-irrigation products. Unless
otherwise indicated, the historical financial and statistical data included
herein does not reflect the completion of such acquisition.
The company also completed in fiscal 1996 the acquisition of Liquid Ag Systems
of Florida, a leader in fertigation systems, whereby an eco-product feeds turf
through existing irrigation systems resulting in less harmful runoff into ponds
and streams. Also acquired was National Service Network of Abilene, TX., which
provides technology and integrated services support to the company's customers.
The company teamed with Walt Disney World Sports to provide the turf expertise
to maintain the grounds for the new Wide World of Sports complex in Florida,
scheduled to open in the spring of 1997. A partnership with GeoFlow provided
the company with an important irrigation product for rootzone irrigation on
media strips, recreation areas and residential properties that can reduce water
consumption by up to 50%. The company also partnered with Ryobi Outdoor
Products, and Maruyama Manufacturing, Inc., in alliances that provide enhanced
visibility and expanded product lines in emerging markets such as the landscape
contractor business. This line includes cultivators, battery trimmers, hedge
trimmers and blower vacuums.
In 1996, the company continued to develop world class manufacturing processes
leading to more efficient plant operations through robotics, cellular
manufacturing, and just in time sourcing of products. Both the company's
Shakopee component manufacturing plant and the Bloomington headquarters'
commercial operations received ISO 9000 designations. Prior to 1996, both the
Riverside and Tomah manufacturing facilities achieved such designations.
The company continues to provide 2-cycle and 4-cycle gasoline walk-behind power
mowers that produce lower emissions. The company introduced electric mowers for
both the Toro-Registered Trademark- and Lawn-Boy-Registered Trademark- brands in
1996, including the Toro Carefree-TM- line which integrates Toro-Registered
Trademark- mulching technology in an electric mower. In addition, Lawn-
Boy-Registered Trademark- introduced a new line of snowthrowers and the E-
engine, a new low-emission 2-cycle engine for lawn mowers. Lawn-Boy-Registered
Trademark- also offers emission-free battery powered mowers. Consistent with
its long-term goal of expanding the professional turf maintenance market, the
company introduced an extensive line of new handheld, walk-behind and riding
products for the landscape contractor and has increased sales to this market.
The company improved truck fleet efficiency during the year using the QualComm
satellite tracking system to monitor and guide shipping and weather patterns.
The company also developed Consumer Gateway, an integrated hardware and software
computer system for outdoor power equipment dealers.
4
MANUFACTURING
The company's consumer spring and summer products are generally manufactured in
the winter and spring months and its consumer fall and winter products are
generally manufactured in the summer and fall months. The company's irrigation
and commercial products are manufactured throughout the year.
In some areas of its business the company is primarily an assembler while in
others it is a fully integrated manufacturer. Most of the components for the
company's products are commercially available from a number of sources and the
company is generally not dependent on any one supplier. The largest component
costs are generally engines, transmissions and electric motors. The company
purchases most of its engines and motors for consumer and commercial products
from several suppliers. In addition, the company manufactures three types of
two-cycle engines for its consumer products.
Management continues to seek greater efficiencies and improve work processes
throughout the company. Toro's total quality process is focused upon improving
product quality, customer response time and reducing overall product cost.
TRADEMARKS AND PATENTS
Products manufactured by the company are nationally advertised and sold at the
retail level under the trademarks Toro-Registered Trademark-, Wheel
Horse-Registered Trademark- and Lawn-Boy-Registered Trademark-, all of which are
registered in the United States and in the principal foreign countries in which
the company markets its products. The company holds patents in the United
States and foreign countries and applies for patents as applicable. Although
management believes patents have value to the company, patent protection does
not deter competitors from attempting to develop similar products. Although
patent protection is considered to be very beneficial, the company is not
dependent on any one or more of its patents.
In connection with the recent acquisition of James Hardie Irrigation Group, the
following brand names were acquired: Lawn Genie-Registered Trademark-,
Irritrol-Registered Trademark-, Richdel-Registered Trademark-, Hardie Pope,
Hardie, Blue Stripe, Hardie Tape and Aqua-Traxx. The company has agreed to
discontinue use of the term "Hardie" or any similar name within one year of the
acquisition. However, inventory manufactured prior to that one year may
continue to carry the term "Hardie" or similar name.
SEASONALITY
Sales of the company's consumer products, which accounted for approximately 50%
of total sales in fiscal 1996, are seasonal with greater sales of consumer
products, excluding snow removal equipment, occurring between February and April
and snow removal equipment between August and January. Opposite seasons in some
global markets somewhat moderate this seasonality in consumer product sales.
Seasonality in irrigation and commercial product sales also exists, but is
tempered because the selling season in west coast and southern states continues
for a longer portion of the year than in northern states. Overall, worldwide
sales levels are highest in the second quarter. Historically, accounts
receivable balances increase between January and March as a result of extended
payment terms made available to the company's customers. Accounts receivable
balances decrease between April and June when payments are made. The seasonal
requirements of the business are financed from operations and with short-term
bank lines of credit and off-balance sheet financing.
5
DISTRIBUTION AND MARKETING
The company markets the majority of its products principally through
approximately 40 domestic and 96 foreign distributors and a number of mass
merchandisers worldwide. Toro-Registered Trademark- and Lawn-Boy-Registered
Trademark- consumer products such as walk-behind power mowers, riding mowers and
snowthrowers are sold to distributors for resale to retail dealers throughout
the United States. Home solutions products and most Lawn-Boy-Registered
Trademark- products are sold directly to mass merchandisers and "do-it-yourself"
home improvement retailers. Commercial and irrigation products are sold to
distributors for resale to irrigation contractors and golf courses. Irrigation
products are also sold through distributors to irrigation dealers and direct to
irrigation dealers, mass merchandisers and "do-it-yourself" home improvement
retailers for resale to contractors, golf courses and end-users.
Internationally, consumer products are sold to distributors for resale to retail
dealers and mass merchandisers outside the United States, principally in Canada
and Western Europe. Some irrigation and consumer products are sold directly to
retail dealers in Canada, Australia and Western Europe.
The company's current marketing strategy is to maintain distinct and separate
brands and brand identification for Toro-Registered Trademark-, Toro-Registered
Trademark-Wheel Horse-Registered Trademark- and Lawn-Boy-Registered Trademark-
products. The company is currently evaluating its marketing strategies with
respect to the brand names acquired in connection with the acquisition of the
James Hardie Irrigation Group.
The company's distribution systems for the sale of its products are intended to
assure quality of sales and market presence as well as effective after-market
service. The company considers its distribution network to be a significant
competitive asset in marketing Toro-Registered Trademark-, Toro-Registered
Trademark-Wheel Horse-Registered Trademark- and Lawn-Boy-Registered Trademark-
products.
The company advertises its products during appropriate seasons throughout the
year on television, radio and in print. Most of the company's advertising
emphasizes its brand names. Advertising is directly paid by the company as well
as through cooperative programs with distributors, dealers and mass merchants.
BACKLOG OF ORDERS
The order backlog at October 31, 1996 and 1995 was as follows:
1996 1995
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Consumer $ 51,373,000 $ 46,087,000
Commercial 55,138,000 49,624,000
Irrigation 4,333,000 4,417,000
The increase in consumer product backlog reflects the sell-out of gas snow
products in fiscal 1996. This resulted in increased orders of gas snow products
at the end of fiscal 1996 in anticipation of another hard winter season. The
increase for commercial products reflects continued sales growth in most product
lines. The existing backlog is expected to be filled in the succeeding fiscal
year.
6
COMPETITION
The principal competitive factors in the company's markets are product
innovation, quality, service and pricing. Management believes the company
offers high quality products with the latest technology and design innovations.
Also, by selling Toro-Registered Trademark-, Toro-Registered Trademark-Wheel
Horse-Registered Trademark- and Lawn-Boy-Registered Trademark- brand products
through a network of distributors, dealers and mass merchants who provide
service, the company offers competitive service during and after the relevant
warranty period.
The company competes in all product lines with numerous manufacturers, many of
which have substantially greater financial resources than the company.
Management believes that its commitment to product innovation, its distribution
systems and its focus on target markets, position it well to compete in these
various markets.
CONSUMER
The company's principal competitors for mowing and snow equipment are
American Yard Products, Inc. (a subsidiary of Electrolux AB), Deere &
Company, Honda Motor Co., Ltd., MTD Products, Inc., Murray Ohio
Manufacturing Co., Inc. (a subsidiary of Tompkins Corp.), Sears, Roebuck
and Co., Snapper Power Equipment (a division of ACT), Ariens Company,
Bolens Corporation (a division of Garden Way, Incorporated), Noma Outdoor
Products, Simplicity Manufacturing Company and Yamaha Motor Corporation,
USA. The principal competitors in home solutions products are The Black
and Decker Corporation, K & S Industries, Inc., Malibu Lighting (a
registered trademark of Intermatic, Inc.) and Poulan/Weed Eater (a division
of Electrolux AB).
COMMERCIAL
The company's commercial products compete with products from numerous
manufacturers, but the principal competitors across most of the company's
commercial product lines are Deere & Company, American Honda Motor Co.,
Inc., Echo Inc., Stihl Inc., Scag Power Equipment, Shindaiwa Inc., Snapper
Inc., Gravely International, Exmark Manufacturing Co., Inc., Lesco Inc.,
Walker Manufacturing Co., Cub Cadet Power Equipment, American Yard
Products, Husqvarna Forest and Garden Co., The Ariens Co., MTD Products
Inc., Textron Jacobsen and Ransomes Sims & Jefferies PLC, (based in the
United Kingdom).
IRRIGATION
The company's principal competitors in irrigation products are Hunter
Industries and Rain Bird Sprinkler Manufacturing Corporation.
INTERNATIONAL
The international market is generally fragmented so that the degree of
competition varies among the different countries in which the company
markets its consumer, commercial and irrigation products. Most competitors
in the irrigation and commercial product lines are based in the United
States. Consumer product lines can face more competition where foreign
competitors manufacture and market competing products in their countries at
a lower cost. In addition, fluctuations in the value of the U.S. dollar
may affect the price of the company's products in such markets, thereby
affecting their competitiveness.
RESEARCH AND DEVELOPMENT
The company conducts research and development activities in an effort to improve
existing products and develop new products. Amounts expended on such
activities, including engineering costs, aggregated approximately $31.3 million,
or 3.4% of net sales for the year ended October 31, 1996, $6.9 million, or 3.6%
of net sales for the 3 months ended October 31, 1995, $26.5 million, or 2.8% of
net sales for the year ended July 31, 1995, and $24.6 million, or 3.1% of net
sales for the year ended July 31, 1994. Management believes that the company's
research and development efforts are important to the quality, mix and growth of
its businesses and plans to continue its strong commitment to such activities.
7
GOVERNMENTAL REGULATION
The company's products are subject to various federal statutes designed to
protect consumers and are subject to the administrative jurisdiction of the
federal Consumer Product Safety Commission. The company is also subject to
certain federal and state environmental, occupational safety and other
regulations, none of which has had a material adverse affect on its operations
or business. Management believes the company is in substantial compliance with
all such regulations. The Environmental Protection Agency (EPA) released Phase
I regulations for all gas engines under 25 horsepower in June of 1995. Toro's
four-cycle engine suppliers are required to comply with the EPA regulations on
or before September 1997. The company expects its own two-cycle walk-behind
power mower engines to be able to comply with Phase I regulations beginning in
September of 1997. This will allow the company to continue producing its two-
cycle walk-behind power mower engines at its Oxford, Mississippi plant through
the year 2002.
EMPLOYEES
During fiscal 1996 the company employed an average of 3,509 employees. The
total number of employees at October 31, 1996 was 3,280, reflecting the
company's normal seasonal fluctuation in employment. Approximately 20 % of
these employees are covered by four collective bargaining agreements, one
expiring in May 1997, two expiring in September 1997, and one expiring in
November 1999.
As a result of the acquisition of the James Hardie Irrigation Group, the company
added approximately 1,070 employees. JHI's Australian employees have three
local agreements with the National Union of Workers and the Australian Workers
Union which cover approximately 15% of all JHI employees. These agreements will
expire in June 1997. None of the JHI U.S. employees are represented by unions.
Management considers its overall relations with its employees to be good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
With the exception of the newly added JHI production facilities in Australia,
all of the company's production facilities are located within the United States.
Except for the sales of the company's foreign subsidiaries, which are not
significant when compared to total company sales, substantially all financial
transactions have been made in U.S. dollars. Consequently, the company did not
realize any significant impact to earnings due to fluctuations in foreign
currencies during the fiscal year ended October 31, 1996.
A portion of the company's cash flow is derived from sales and purchases
denominated in foreign currencies. To reduce the uncertainty of foreign
currency exchange rate movements on these sales and purchase commitments, the
company enters into forward exchange and range forward option contracts. These
contracts are designed to hedge firm and anticipated foreign currency
transactions. With the acquisition of the James Hardie Irrigation Group, the
company expects an increase in transactions denominated in Australian dollars.
Export sales were $154,716,000 for the year ended October 31, 1996, $18,557,000
for the 3 months ended October 31, 1995, and $126,560,000 and $109,344,000 for
the years ended July 31 1995 and 1994, respectively. The identifiable assets
attributable to foreign operations were not significant as of October 31, 1996.
See Note 8 to the Consolidated Financial Statements of the company contained in
the company's Annual Report to Stockholders for the fiscal year ended October
31, 1996 for additional information relating to international and export sales,
which information is incorporated herein by reference.
8
ITEM 2. PROPERTIES
The company utilizes manufacturing and office facilities which total
approximately 4,437,000 square feet of space. The manufacturing facilities,
excluding JHI, operated at about 62% of total plant capacity in fiscal 1996.
Actual plant utilization varies during the year depending upon the production
cycle. Management believes that the current facilities are sufficient for
current production needs. The following schedule outlines the company's
facilities by location, plant size, ownership and function:
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Location Square Feet Ownership Products Manufactured / Use
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Plymouth, WI 420,000 Owned Parts distribution center, office
Windom, MN 305,000 Owned Consumer components and products
Lakeville, MN 304,000 Leased Finished Goods distribution center, office
Bloomington, MN 300,000 Owned Corporate headquarters
Tomah, WI 274,000 Owned Consumer and Commercial products
Sardis, MS 245,000 Owned Consumer products
Baraboo, WI 228,000 Leased Finished Goods distribution center, office
South Bend, IN 226,000 Owned Facility closed in 1993 and is being held for resale
Riverside, CA 217,000 Owned Irrigation products
Evansville, IN 178,000 Leased Consumer and Commercial products
Olathe, KS 176,000 Leased Commercial products
Mound, MN 162,000 Leased Consumer products
Shakopee, MN 146,000 Owned Components for consumer and commercial products
El Paso, TX 143,000 Owned JHI irrigation products and warehouse
Springvale, Australia 109,000 Leased JHI irrigation products and warehouse
Beverley, Australia 109,000 Owned JHI Corporate office and distribution center
Murray Bridge, Australia 101,000 Owned JHI irrigation products and warehouse
El Cajon, California 92,000 Owned JHI irrigation products and warehouse
Oxford, MS 67,000 Owned Components for consumer products
Oevel, Belgium 63,000 Owned Finished goods distribution center, office
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Total Square Feet 3,865,000
Other leased office and warehouse space located in various cities in the United
States, Australia, Canada, France, Singapore, Japan and the United Kingdom
totaled approximately 572,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
The company is a party to litigation in the ordinary course of its business.
Ongoing litigation primarily involves claims for damages arising out of the use
of the company's products, some of which include claims for punitive as well as
compensatory damages. The company is also subject to administrative proceedings
in respect to certain claims involving the discharge of hazardous substances
into the environment. Certain of these claims assert damages and liability for
remedial investigations and clean up costs. Management is of the opinion that
the amounts which may be awarded or assessed in connection with these matters
will not have a material effect on the company's financial position. Further,
the company maintains insurance against product liability losses. Such
insurance presently covers claims in excess of $1,000,000 per claim or
$2,000,000 in the aggregate during any fiscal year. The company regularly
reviews these dollar limits.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
None.
9
EXECUTIVE OFFICERS OF THE REGISTRANT
The list below identifies those persons deemed to be executive officers of the
company, discloses their age and position with the company as of January 20,
1997, and positions held by them during the last five years. Officers are
elected or appointed annually. A complete list of all officers of the company
is found on the inside back cover of the Registrant's Annual Report for the year
ended October 31, 1996.
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Name, Age and Position with the Company Business Experience During the Last Five Years
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Randy B. James Appointed Vice President and Controller in December 1988.
53, Vice President and Controller
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Gerald T. Knight Elected Vice President-Finance and Chief Financial Officer in April 1992.
49, Vice President-Finance and From December 1990 to April 1992, was Executive Director - Finance and
Chief Financial Officer Corporate Controller of NeXT Computer, Inc.
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Charles B. Lounsbury Elected Group Vice President September 17, 1996. From November 1993 to
53, Group Vice President September 16, 1996 was appointed Vice President, Distribution Parts and
Office of the President Debris Management. From May 1991 to November 1993 was President and Chief
Operating Officer of Leaseway Transportation Corporation. While Mr. Lounsbury
served as President and a director of Leaseway, it filed for protection under
Chapter 11 and during that period it was discharged.
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J. David McIntosh Elected Group Vice President September 17, 1996. From February 1992 to
53, Group Vice President September 16, 1996 was appointed Vice President, Consumer Division.
Office of the President Appointed Vice President and General Manager, Home Improvement Division in
May 1986.
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J. Lawrence McIntyre Elected Vice President in July 1993. Elected Secretary and General Counsel
54, Vice President, Secretary and General Counsel in August 1993. Prior to July 1993, was a shareholder with Doherty, Rumble &
Butler Professional Association.
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Kendrick B. Melrose Elected Chairman of the Board in December 1987. Elected Chief Executive
56, Chairman and Chief Executive Officer Officer in December 1983.
Office of the President
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Karen M. Meyer Has served as Vice President, Human Resources/Administrative Services since
46, Vice President, December 1988.
Human Resources/Administrative Services
- - - - -----------------------------------------------------------------------------------------------------------------------------------
Richard R. Pollick Appointed Vice President, International Division in March 1990.
57, Vice President and General Manager
International Division
- - - - -----------------------------------------------------------------------------------------------------------------------------------
Stephen P. Wolfe Appointed Vice President in August 1994. Elected President, Toro Credit
48, Vice President, The Toro Company and President, Company in July 1990.
Toro Credit Company
- - - - -----------------------------------------------------------------------------------------------------------------------------------
There are no family relationships between any director, executive officer or
person nominated to become a director or executive officer. There are no
arrangements or understandings between any executive officer and any other
person pursuant to which he or she was selected as an officer.
10
Part II
- - - - --------------------------------------------------------------------------------
All information incorporated by reference in this Part II is from the
Registrant's Annual Report to Stockholders for the fiscal year ended October 31,
1996 ("Annual Report").
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Toro Common Stock (including related Preferred Share Purchase Rights) is listed
for trading on the New York Stock Exchange. As of October 31, 1996 there were
6,841 holders of record of the company's common stock.
See "Quarterly Financial Data" on page 44 of the Annual Report for dividends
paid on and range of high and low quotations for the company's common stock on
the New York Stock Exchange for the period from August 1, 1995 to October 31,
1996, which information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
See "Selected Financial Data" on page 24 of the Annual Report for financial data
for the year ended October 31, 1996, for the 3 month period ended October 31,
1995 and for the years ended July 31, 1995, 1994, 1993 and 1992 which
information for these periods is incorporated herein by reference.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See the sections entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of the Annual Report on pages 16 through 21
and pages 25 through 29 which sections are incorporated herein by reference.
FORWARD-LOOKING INFORMATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: This Annual Report on Form 10-K contains various forward-looking
statements, included under the captions entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of the Annual Report
which sections are incorporated herein by reference, within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Statements that are not historical are forward-looking.
When used in this document, the words "expect", "anticipate", "estimate", and
similar expressions are intended to identify forward-looking statements. In
addition, forward-looking statements are contained in Part I of this report and
may be made orally in the future by or on behalf of the company.
Forward-looking statements involve risks and uncertainties, including, but not
limited to, changes in business conditions and the economy in general in both
foreign and domestic markets; weather conditions affecting demand; seasonal
factors affecting the company's industry; lack of growth in the company's
markets; litigation; financial market changes including interest rates and
foreign exchange rates; trend factors including housing starts, new golf course
starts and market demographics; government actions including budget levels,
regulation, and legislation, primarily legislation relating to the environment,
commerce and infrastructure, and health and safety; labor relations;
availability of materials; actions of competitors; ability to integrate
acquisitions; and the company's ability to profitably develop, manufacture and
sell both new and existing products. Actual results could differ materially
from those projected in the forward-looking statements as a result of these risk
factors, and should not be relied upon as a prediction of actual future results.
The company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such statement is made,
or to reflect the occurrence of unanticipated events.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements described in Item 14(a)1 of this report are
incorporated herein by reference.
See "Quarterly Financial Data" appearing on page 44 of the Annual Report which
is incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
12
Part III
- - - - -------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See "Executive Officers of the Registrant" in Part I of this report for
information regarding the executive officers of the company, which information
is herein incorporated by reference.
Information regarding the directors of The Toro Company and additional
information regarding certain executive officers is incorporated by reference to
the information to be contained in the Proxy Statement to be filed with respect
to the next meeting of stockholders which involves the election of directors or,
if such Proxy Statement is not filed within 120 days after the end of the fiscal
year covered by this Form 10-K, such information will be filed as part of an
amendment to this Form 10-K not later than the end of the 120-day period.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated herein by
reference to the information to be contained in the Proxy Statement to be filed
with respect to the next meeting of stockholders which involves the election of
directors or, if such Proxy Statement is not filed within such 120 days after
the end of the fiscal year covered by this Form 10-K, such information will be
filed as part of an amendment to this Form 10-K not later than the end of the
120-day period.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the security ownership of certain beneficial owners and
management of The Toro Company is incorporated herein by reference to the
information to be contained in the Proxy Statement to be filed with respect to
the next meeting of stockholders which involves the election of directors or, if
such Proxy Statement is not filed within such 120 days after the end of the
fiscal year covered by this Form 10-K, such information will be filed as part of
an amendment to this Form 10-K not later than the end of the 120-day period.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
13
Part IV
- - - - --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Incorporated by reference into Part II, Item 8 of this report: Pages in Fiscal
1996
Annual Report
To Stockholders
---------------
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 30
Consolidated Statements of Earnings for the year ended
October 31, 1996, the 3 months ended October 31, 1995 and
the years ended July 31, 1995 and 1994. . . . . . . . . . . . . . . 30
Consolidated Balance Sheets
as of October 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . 31
Consolidated Statements of Cash Flows for the year ended
October 31, 1996, the 3 months ended October 31, 1995 and
the years ended July 31, 1995 and 1994. . . . . . . . . . . . . . . 32
Notes to Consolidated Financial Statements . . . . . . . . . . . . . .33-44
(a) 2. INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . 18
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . 19
All other schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or related
notes to the consolidated financial statements.
(a) 3. EXHIBITS
- - - - -----------------
2 and 10(iii)(j) Stock Purchase Agreement among The Toro Company,
James Hardie (USA) Inc., James Hardie Industries
Limited and RCI Pty. Ltd. (incorporated by reference
to the Exhibit to Registrant's Current Report on Form
8-K dated September 18, 1996).
3(i)(a) and 4(a) Certificate of Incorporation of the Registrant as
amended and corrected through May 18, 1987
(incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-3,
Registration No. 33-16125).
3(i)(b) and 4(b) Certificate of Amendment to Certificate of
Incorporation of the Registrant dated December 8,
1987 (incorporated by reference to Exhibit 3 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended January 29, 1988, Commission File No.
1-8649).
3(ii) and 4(c) Bylaws of the Registrant (incorporated by reference
to Exhibit 3.3 to the Registrant's Annual Report on
Form 10-K for the year ended July 31, 1991,
Commission File No. 1-8649)
14
4(d) Specimen form of Common Stock certificate
(incorporated by reference to Exhibit 4(c) to the
Registrant's Registration Statement on Form S-8,
Registration No. 2-94417).
4(e) Rights Agreement dated as of June 14, 1988, between
the Registrant and Norwest Bank Minnesota, National
Association relating to rights to purchase Series B
Junior Participating Voting Preferred Stock, as
amended (incorporated by reference to Exhibit 1 to
Registrant's Registration Statement on Form 8-A dated
June 17, 1988, Commission File No. 1-8649, as
amended).
4(f) Indenture dated as of July 15, 1987, between the
Registrant and Manufacturers Hanover Trust Company,
Trustee, relating to the Registrant's 11% Sinking
Fund Debentures Due August 1, 2017 (incorporated by
reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-3, Registration No.
33-15385).
10(iii)(a) * Form of Employment Agreement in effect for certain
officers of Registrant (incorporated by reference to
Exhibit 10(b) to Registrant's Annual Report on Form
10-K for the year ended July 31, 1995).
10(iii)(b) * 1992 Directors Stock Plan, as amended.
10(iii)(c) * Annual Management Incentive Plan for certain key
employees and officers of Registrant (incorporated by
reference to Exhibit A to Registrant's Proxy
Statement dated February 5, 1996).
10(iii)(d) * 1985 Incentive Stock Option Plan, as amended
(incorporated by reference Exhibit 10(b) to
Registrant's Annual Report on Form 10-K for the year
ended July 31, 1993).
10(iii)(e) * 1989 Stock Option Plan, as amended.
10(iii)(f) * 1993 Stock Option Plan, as amended.
10(iii)(g) * Continuous Performance Award Plan, as amended.
10(iii)(h) * The Toro Company Supplemental Management Retirement
Plan.
10(iii)(i) * Chief Executive Officer Succession Incentive
Agreement dated as of July 31, 1995.
11 Computation of Earnings per Share of Common Stock and
Common Stock Equivalents (page 19 of this report).
13 Registrant's Fiscal 1996 Annual Report to
Stockholders.
21 Subsidiaries of Registrant (page 20 of this report).
23 Independent Auditors' Consent (page 21 of this
report).
27 Supplemental Data Schedule; electronic filing only.
* Management contract or compensatory plan or arrangements required to be filed
as an exhibit to this form 10-K pursuant to Item 14(c).
15
(b) REPORTS ON FORM 8-K
Registrant filed its Current Report on Form 8-K dated October 17, 1996,
reporting the September 18, 1996 agreement entered into with James Hardie
Industries Limited of Australia and related companies, pursuant to which
Registrant agreed to purchase the stock of James Hardie Irrigation, Inc. and
certain related companies, all known as the James Hardie Irrigation Group,
subject to certain terms and conditions.
Registrant filed its Current Report on Form 8-K dated December 16, 1996,
reporting the completion of the acquisition of James Hardie Irrigation Group
from James Hardie Industries Limited of Australia on December 2, 1996 through
the acquisition of all of the outstanding stock of James Hardie Irrigation,
Inc., a Nevada corporation, James Hardie Irrigation Pty. Limited, a corporation
organized under the laws of South Australia, Australia, and James Hardie
Irrigation Europe S.p.A., a corporation organized under the laws of Italy.
- - - - --------------------------------------------------------------------------------
The company's Annual Report on Form 10-K for the fiscal year ended October 31,
1996, at the time of its filing with the Securities and Exchange Commission,
shall modify and supersede all prior documents filed pursuant to Sections 13, 14
and 15(d) of the 1934 Act for purposes of any offers or sales of any securities
after the date of such filing pursuant to any Registration Statement or
Prospectus filed pursuant to the Securities Act of 1933 which incorporates by
reference such Annual Report on Form 10-K.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE TORO COMPANY
--------------------------
(Registrant)
Dated: January 20, 1997
/s/ Gerald T. Knight
---------------------
Gerald T. Knight
Vice President - Finance
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
- - - - --------------------------------------------------------------------------------
Signature Title Date
- - - - --------------------------------------------------------------------------------
/s/ Kendrick B. Melrose Chairman, Chief Executive January 20, 1997
- - - - ------------------------- Officer, and Director
Kendrick B. Melrose (principal executive officer)
/s/ Gerald T. Knight Vice President - Finance, January 20, 1997
- - - - ------------------------- Chief Financial Officer
Gerald T. Knight (principal financial officer)
/s/ Randy B. James Vice President, Controller January 20, 1997
- - - - ------------------------- (principal accounting officer)
Randy B. James
/s/ Ronald O. Baukol Director January 20, 1997
- - - - -------------------------
Ronald O. Baukol
/s/ Robert C. Buhrmaster Director January 20, 1997
- - - - -------------------------
Robert C. Buhrmaster
/s/ Janet K. Cooper Director January 20, 1997
- - - - -------------------------
Janet K. Cooper
/s/ Alex A. Meyer Director January 20, 1997
- - - - -------------------------
Alex A. Meyer
/s/ Robert H. Nassau Director January 20, 1997
- - - - -------------------------
Robert H. Nassau
/s/ Dale R. Olseth Director January 20, 1997
- - - - -------------------------
Dale R. Olseth
/s/ Edwin H. Wingate Director January 20, 1997
- - - - -------------------------
Edwin H. Wingate
17
[Letterhead]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Toro Company:
Under date of December 16, 1996, we reported on the consolidated balance sheets
of The Toro Company and subsidiaries as of October 31, 1996 and 1995, and the
related consolidated statements of earnings and cash flows for the year ended
October 31, 1996, the three-month period ended October 31, 1995 and the years
ended July 31, 1995 and 1994, as contained in the 1996 annual report to
stockholders. These consolidated financial statements and our report thereon
are incorporated by reference in the annual report on Form 10-K for the fiscal
year 1996. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related consolidated financial
statement schedule listed in the accompanying index. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 16, 1996
18
THE TORO COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
- - - - -------------------------------------------------------------------------------------------------------------------------------
BALANCE CHARGED TO
DESCRIPTION AT BEGINNING COSTS AND OTHER (a) DEDUCTIONS BALANCE AT
OF YEAR EXPENSES (b) END OF YEAR
- - - - -------------------------------------------------------------------------------------------------------------------------------
- - - - -------------------------------------------------------------------------------------------------------------------------------
Year Ended October 31, 1996
Allowance for doubtful accounts $ 7,542,000 $ 3,358,000 $ 330,000 $ 1,225,000 $ 10,005,000
- - - - -------------------------------------------------------------------------------------------------------------------------------
Three Months Ended October 31, 1995
Allowance for doubtful accounts $ 7,343,000 $ 720,000 $ 0 $ 521,000 $ 7,542,000
- - - - -------------------------------------------------------------------------------------------------------------------------------
Year Ended July 31, 1995
Allowance for doubtful accounts $ 7,702,000 $ 1,543,000 $ 20,000 $ 1,922,000 $ 7,343,000
- - - - -------------------------------------------------------------------------------------------------------------------------------
Year Ended July 31, 1994
Allowance for doubtful accounts $ 5,589,000 $ 3,032,000 $ 765,000 $ 1,684,000 $ 7,702,000
- - - - -------------------------------------------------------------------------------------------------------------------------------
(a) Additions to allowance for doubtful accounts due to
reclassification and acquisitions.
(b) Uncollectible accounts charged off, net of recoveries.
19