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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, 1998.
/ / 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
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)
--------------------------
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 New York Stock Exchange
share
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 non-affiliates of the
Registrant, based upon the closing price of the Common Stock on January 7, 1999
as reported by the New York Stock Exchange, was approximately $384,891,687.
The number of shares of Common Stock outstanding as of January 7, 1999 was
12,565,257.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended October 31, 1998 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 24, 1999 are incorporated by reference into Part
III.
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THE TORO COMPANY
FORM 10-K
TABLE OF CONTENTS
PART I. DESCRIPTION PAGE NUMBERS
ITEM 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . .3-10
ITEM 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 12
ITEM 4. Submission of Matters to a Vote of Security Holders . . . . 12
Executive Officers of the Registrant. . . . . . . . . . . 13-14
PART II.
ITEM 5. Market for the Registrant's Common Stock and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . 15
ITEM 6. Selected Financial Data . . . . . . . . . . . . . . . . . . 15
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 16-17
ITEM 7A. Quantitative and Qualitative Disclosures about
Market Risk . . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 8. Financial Statements and Supplementary Data . . . . . . . . 17
ITEM 9. Disagreements on Accounting and Financial Disclosure. . . . 17
PART III.
ITEM 10. Directors and Executive Officers of the Registrant. . . . . 18
ITEM 11. Executive Compensation. . . . . . . . . . . . . . . . . . . 18
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . . 18
ITEM 13. Certain Relationships and Related Transactions. . . . . . . 18
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . 19-21
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . 22
2
Part I
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ITEM 1. BUSINESS
INTRODUCTION
The company designs, manufactures, and markets professional turf maintenance
equipment, irrigation systems, landscaping equipment, agricultural irrigation
systems, and consumer products. The company produced its first lawn mower for
golf course fairways in 1921 and its first lawn mower for home use in 1939 and
has continued to enhance its product lines ever since.
Toro's web sites on the Internet are at www.toro.com, www.exmark.com,
www.irritrolsystems.com, www.lawnboy.com, www.lawngenie.com, www.nsn.com. You
can learn about the company and its products by visiting these web sites.
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. The company's commitment and funding
for engineering costs, as well as acquisition strategy and its licensing and
related agreements, have all contributed to improvement of existing products and
new product development efforts. Through these efforts, the company is
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.
The company has expanded its product lines and services in recent years by
making acquisitions and strategic alliances. See "Acquisitions, Divestitures,
and Strategic Alliances" below.
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
Toro markets its consumer products to homeowners through a variety of
distribution channels, including distributors, dealers, home centers, and mass
retailers. These products are sold mainly in North America, Europe, Asia, and
Australia, with the exception of snow removal products which are only sold in
North America and Europe.
WALK POWER MOWERS. The company has manufactured walk power mowers for
residential use since 1939. Its walk power lawn mowers are gasoline,
battery, and electric powered. The company manufactures numerous models of
walk power mowers under its brand names Toro-Registered Trademark- and
Lawn-Boy-Registered Trademark-, including both four-cycle and two-cycle gas
engine models, and corded and battery 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 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 engine manufactured by the company. In fiscal 1998, the company
introduced its new two-cycle low-emission Lawn-Boy-Registered Trademark-
DuraForce-TM- walk power mower and a new line of shorter-width European
Toro-Registered Trademark- walk power mowers.
3
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 rear engine rider model with a 25 inch deck, to a
23 horsepower diesel engine garden tractor model with a 60 inch
side-discharge deck. The front engine model's are available with a variety
of decks and accessories. Recycler-Registered Trademark- technology is
available in select models. Some models are equipped with hydrostatic
transmissions and/or low-emission engines.
HOME SOLUTIONS PRODUCTS. The company designs and markets electrical and
gas products under the Toro-Registered Trademark- brand name. These
products, which include homeowner-installed, plastic and metal, low-voltage
and solar lighting, gas and electric flexible line trimmers, and electric
blowers, are intended to require little or no after sales service. In
fiscal 1998, Toro introduced a more powerful and quieter version of its
electric blower, the Toro-Registered Trademark- QuieTech-TM-. Toro also
sells do-it-yourself irrigation products under the Toro-Registered
Trademark- and Lawn Genie-Registered Trademark- brand names to certain home
centers and mass retailers.
SNOW REMOVAL PRODUCTS. The company manufactures and markets a range of
electric and gas single-stage and gas two-stage snowthrower models 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 or some including Power Curve-Registered
Trademark- snowthrower technology for general residential use. Two-stage
snowthrowers are designed for relatively large areas with engines ranging
from five to twelve horsepower. Units with eight horsepower and above
can be equipped with the Power Shift-Registered Trademark- snowthrower
technology.
PROFESSIONAL TURF PRODUCTS
Toro markets professional turf products worldwide through a network of
distributors and dealers. The products are then sold to the end user
professional who maintains golf courses, sports fields, municipality properties,
and landscapes.
COMMERCIAL PRODUCTS. Professional turf maintenance equipment marketed
under the Toro-Registered Trademark- brand name is the company's
oldest product line, which began in 1921 with tractor-pulled reel mowers
for golf courses. Today, the company's expanded product line includes
products designed for 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, with the exception
of Asia which is experiencing an economic recession, and existing courses
continue to provide the greatest market for Toro products. Increasing
emphasis is being placed on the golf and landscape contractor markets.
Products for the golf course include turf sprayer equipment, utility
vehicles, riding and walk power reel mowers for the putting green, and
riding and pull-behind large reel and rotary products for the fairway,
rough and trim cutting, turf aeration, and sandtrap/bunker maintenance.
Products for the landscape contractor market include mid-size walk power
mowers, zero-turning radius riding mowers, handheld trimmers, and compact
utility vehicles. The company markets products for landscape contractors
under both the Toro-Registered Trademark- and Exmark-Registered Trademark-
brands. See "Recent Developments - Acquisitions, Divestitures, and
Strategic Alliances" below for information on the company's recent
acquisition of Exmark products.
The company acquired the manufacturing, sales, and distribution rights to
Dingo-Registered Trademark- Digging Systems (Dingo) in fiscal 1997. The
Dingo-Registered Trademark- utility vehicle is a cornerstone product for
the newly established Toro-Registered Trademark- Sitework-TM- Systems
product line, which improves efficiency in the construction and creation of
landscapes. The company began manufacturing and selling the Toro-Registered
Trademark- Sitework-TM- Systems in fiscal 1998 for the U.S. market.
Other products for all commercial markets include riding rotary units with
out-front cutting decks ranging from 52 inches to 16 feet, turf sweepers,
and multipurpose vehicles and attachments designed for flexibility of use.
4
IRRIGATION PRODUCTS. Turf irrigation products marketed under the
Toro-Registered Trademark- and Irritrol-Registered Trademark- Systems brand
names include sprinkler heads and electric and hydraulic control devices
designed to be used in turf irrigation systems for residential, commercial,
golf course, and agricultural 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.
Control valves activate the sprinkler heads and controllers typically
activate electric or hydraulic lines to control the valves and sprinkler
heads. The acquisition of Drip In in fiscal 1998 enhanced Toro's product
line for the agricultural micro-irrigation market, including drip tape,
hose, emitters, and other micro-irrigation products. The company's
irrigation products are used in 74 of the golf courses rated among the top
100 courses in the United States by GOLF DIGEST, dated May 1997.
See the table entitled "Net Sales By Product Line" under the caption "Results of
Operations" in the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on page 12 of the company's
Annual Report to Stockholders for the fiscal year ended October 31, 1998 for
information regarding revenues in the consumer, commercial, and irrigation
product lines, which information is incorporated herein by reference.
INTERNATIONAL OPERATIONS
The company currently distributes its products worldwide with sales and/or
distribution offices in the United States, Canada, Belgium, the United Kingdom,
Australia, Singapore, Japan, and Italy. New product development is pursued
primarily in the United States.
Products marketed outside of North America are sold in compliance with local
safety standards. All products shipped to Europe are designed to conform to
European Community Certification standards. In addition to developing new
market-specific products, the International business is adding customers in new
regions. Emerging markets in Argentina, Russia, and the Czech Republic have
recently been added to the distribution base.
RECENT DEVELOPMENTS
PROFIT IMPROVEMENT PLAN
In fiscal 1998, Toro implemented a profit improvement plan to reposition
the consumer business and improve overall company profitability and
competitiveness. This strategy included organizational changes in the
consumer division, decentralizing manufacturing and inventory management,
initiating a multi-year strategy for warehousing and transportation
services with third party vendors, sale of the recycling equipment
business, the restructuring of the professional fertilizer business, and
plant closings.
ACQUISITIONS, DIVESTITURES, AND STRATEGIC ALLIANCES
In fiscal 1998, Toro announced the establishment of Logistics 2000, a
multi-year supply chain management program to streamline the supply chain
and provide greater inventory control and management. Toro entered into a
contract with GATX Logistics, Inc. for logistics management and systems
integration services. These services include transportation, storage, and
distribution of selected Toro products. The first phase of the plan
includes closing leased warehouses in Riverside and Laguna Niguel,
California, and transferring their irrigation inventories to GATX's
facility in Mira Loma, California. Also, GATX will assume management and
warehousing responsibilities of the recently closed Sardis, Mississippi
manufacturing facility. The company is currently evaluating expansion of
Logistics 2000. Phase two of the program could include additional
GATX-managed regional distribution centers for all Toro goods. The
expected benefits after Logistics 2000 is fully implemented are greater
efficiency along with better fill rates, improved time of delivery, and
reduced overall system inventories.
In February 1998, the company acquired GR Driplines, Incorporated (Drip
In), a manufacturer of agricultural micro-irrigation products with a
reputation for quality and innovation. Drip In is headquartered in Madera,
California and employs approximately 60 people in a 58,000 square foot
facility.
5
In November 1997, the company acquired Exmark Manufacturing Company
Incorporated (Exmark), a leading manufacturer of equipment for the
professional landscape contractor industry. Exmark is headquartered in
Beatrice, Nebraska and produces mid-sized walk-behind power mowers and
zero-turning radius riding mowers for professional contractors. Exmark
employs approximately 280 people in a 164,000 square foot facility.
In September 1997, the company acquired the manufacturing, sales, and
distribution rights to Dingo-Registered Trademark- Digging Systems (Dingo).
The Dingo-Registered Trademark- utility vehicle is the cornerstone product
for the newly established Toro-Registered Trademark- Sitework-TM- Systems
product line. The Dingo-Registered Trademark- is a rugged, compact, and
powerful piece of equipment with more than 35 attachments that can
dramatically increase landscape contractors' productivity. The company
manufactures and sells Dingo-Registered Trademark- landscape products under
the Toro-Registered Trademark- Sitework-TM- brand name for U.S markets.
In December 1996, the company acquired James Hardie Irrigation Group
(Hardie) from James Hardie Industries Limited of Australia (JHI Limited).
Hardie was a worldwide leader in the production of irrigation systems to
the residential/commercial landscape market. Hardie manufactured products
for all major segments of the irrigation market, except for the golf
market, and sold to distributors and retailers worldwide. Hardie offered a
broad range of irrigation products and had leading positions in valves and
controllers worldwide. Hardie products are now marketed under the
Irritrol-Registered Trademark- Systems brand through its existing global
distribution network. The Lawn Genie-Registered Trademark- brand for the
mass retailer market is expected to become a leading presence in
do-it-yourself home irrigation.
In the fourth quarter of fiscal 1998, Toro completed the sale of its
non-core recycling equipment business. The company also announced that it
is restructuring its non-core professional fertilizer business, including
the possibility of selling portions of the business.
SOFTWARE AND ISO 9000
In 1998, the company continued integrating its operations to an
enterprise-wide software system, which is expected to be completed in
fiscal 1999 with the exception of two domestic subsidiaries and the
company's European subsidiaries. ISO 9000 continues to be a priority for
the company's manufacturing facilities. The manufacturing facilities at
Tomah, Wisconsin, Shakopee, Minnesota, Riverside, California, and the
commercial business unit at Bloomington, Minnesota maintained their
certification in fiscal 1998 and Windom, Minnesota and Oxford, Mississippi
are working towards ISO 9000 certification in fiscal 1999.
MANUFACTURING AND PRODUCTION
In some areas of its business, the company is primarily an assembler while in
others it is a fully integrated manufacturer. 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. A majority of the company's manufacturing
facilities are located in the United States, with the exception of some
irrigation production facilities that are located in Australia and Italy.
Sales to independent distributors and dealers closely correspond with Toro's
production levels, which are based on its estimates of the demand for its
products, taking into account the timing of shipments, distributor and dealer
inventory levels, the need to shut down production to enable manufacturing
facilities to be prepared for the manufacture of new or different models, the
efficient use of manpower and facilities, labor disruptions, and other matters
not within Toro's control.
Management continues to seek greater efficiencies and improve work processes
throughout the company. Toro's total quality process is focused on improving
product quality, customer response time, and reducing overall product cost.
6
SOURCES AND AVAILABILITY OF RAW MATERIALS
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. In fiscal 1998, Toro experienced no significant or unusual problems in
the purchase of raw materials or commodities. 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 from around the world. In addition, the company manufactures
two-cycle engines for some of its consumer products.
SERVICE AND WARRANTY
Toro products are warranted to the end-user to ensure end-user confidence in
design, workmanship, and material quality. Warranty lengths vary depending on
whether use is "residential" or "commercial" within individual product lines.
Some products have an over-the-counter exchange option and some have a 30-day
satisfaction guarantee. In general, warranties tend to be for six months to
five years, and cover all parts and labor for non-maintenance repairs and wear
items, provided the repair was not necessitated by operator abuse, improper use,
or negligence. An authorized independent Toro distributor or dealer must
perform warranty work. Distributors and dealers submit claims for warranty
reimbursement to Toro and are credited for the cost of repairs and labor as long
as the repairs meet Toro's prescribed standards. Warranty expense is accrued at
the time of sale based upon historical claims by individual products. Special
warranty reserves are also accrued for specific known product modifications.
Service support outside of the warranty period is provided by independent Toro
distributors and dealers at the customer's expense.
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-, Lawn-Boy-Registered Trademark-, Irritrol-Registered
Trademark- Systems, and Lawn Genie-Registered Trademark-, all of which are
registered in the United States and in the principal foreign countries in which
the company markets its products. With the recent acquisitions of Exmark and
Drip In, the company acquired the Exmark-Registered Trademark- and Drip
In-Registered Trademark- brand names. The company also manufactures and sells
Dingo-Registered Trademark- landscape products under the Toro-Registered
Trademark- Sitework-TM- Systems brand name for U.S. markets.
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 materially dependent on any one or more of its
patents.
SEASONALITY
Sales of the company's consumer products, which accounted for approximately 34
percent of total sales in fiscal 1998, are seasonal with greater sales of lawn
and garden products occurring between February and July, and of snow removal
equipment occurring 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 April as a result of extended
payment terms made available to the company's customers. Accounts receivable
balances decrease between May and August when payments are made. The seasonal
requirements of the business are financed from operations and with short-term
bank lines of credit, where the peak borrowing usually occurs between February
and May.
7
DISTRIBUTION AND MARKETING
The company markets the majority of its Toro branded products principally
through 39 domestic and 107 foreign distributors, and a number of home centers
and mass retailers in more than 70 countries worldwide. Toro-Registered
Trademark- and certain Lawn-Boy-Registered Trademark- consumer products such as
walk 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 also sold directly to home
centers and mass retailers. Beginning in the spring of fiscal 1999, the
Toro-Registered Trademark- Recycler-Registered Trademark- walk power mower will
be sold in certain home centers. Commercial and irrigation products are sold to
distributors for resale to irrigation contractors, municipalities, and golf
courses. Irrigation products are also sold through distributors to irrigation
dealers and direct to irrigation dealers, mass retailers, and home centers 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-, Lawn-Boy-Registered Trademark-,
and Irritrol-Registered Trademark- products, as well as the recently acquired
Exmark-Registered Trademark- and Drip In-Registered Trademark- products. The
Exmark-Registered Trademark- brand is distributed through approximately 25
distributors for resale to retail dealers throughout North America.
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 competitive
asset in marketing Toro-Registered Trademark-, Toro-Registered Trademark- Wheel
Horse-Registered Trademark-, Lawn-Boy-Registered Trademark-, Irritrol-Registered
Trademark-, and Exmark-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 paid by the company as well as
through cooperative programs with distributors, dealers, home centers, and mass
retailers.
CUSTOMERS
No material part of the company's business is dependent upon a single customer.
While the loss of any substantial customer could have a material short-term
impact on the company's business, Toro believes that its diverse distribution
channels should minimize the long-term impact on any such loss.
BACKLOG OF ORDERS
The approximate backlog of orders believed to be firm at October 31, 1998 was
$27,693,000.
Due to the company's implementation of its enterprise-wide software system that
was in progress at the time, it was necessary to estimate the backlog of orders
at October 31, 1997. That estimate at October 31, 1997 was $68,525,000, which
was an estimate based on sales for the first quarter of fiscal 1998. The
backlog of orders for October 31, 1998 was based on an actual run from the
company's now-installed operating system at October 31, 1998 and should not be
compared to the October 31, 1997 number.
The company expects that all existing backlog can be filled in fiscal 1999.
COMPETITION
The company's products are sold in highly competitive markets throughout the
world. The principal competitive factors in the company's markets are pricing,
product innovation, quality, and service. Pricing has become more of a factor,
especially for the consumer and commercial products. Management believes the
company offers total solution, full service packages with high quality products
that have the latest technology and design innovations. Also, by selling
Toro-Registered Trademark-, Toro-Registered Trademark-Wheel Horse-Registered
Trademark-, Lawn-Boy-Registered Trademark-, Exmark-Registered Trademark-, and
Irritrol-Registered Trademark- Systems branded products through a network of
distributors, dealers, hardware, home center, and mass retailers, the company
offers comprehensive service support 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.
8
CONSUMER
The company's principal competitors for mowing and snow equipment are
Frigidaire Home 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 Metro Media), Ariens
Company, Cub Cadet Power Equipment, Garden Way, Incorporated, and
Simplicity Manufacturing Company. The principal competitors in home
solutions products are The Black and Decker Corporation, Malibu Lighting (a
registered trademark of Intermatic, Inc.), Poulan/Weed Eater, and Homelite
(a division of Deere & Company).
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, Lesco Inc., National Mower,
Jacobsen/Textron, and Ransomes Sims & Jefferies PLC (recently acquired by
Textron, Inc.)
IRRIGATION
The company's principal competitors in irrigation products are Hunter
Industries, Rain Bird Sprinkler Manufacturing Corporation, Netafim, and
T-Systems International.
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.
GOVERNMENTAL REGULATION
The company's consumer products are subject to various federal statutes designed
to protect consumers and are subject to the administrative jurisdiction of the
Consumer Product Safety Commission. The company is also subject to certain
federal and state environmental, occupational safety, transportation, and other
regulations, none of which has had a material adverse effect 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 currently in compliance with these regulations.
The company received certification in January 1998 on its own two-cycle walk
power mower engines and earlier on the two-cycle snowthrower engines. Both now
comply with Phase I regulations. This will allow the company to continue
producing its two-cycle engines at its Oxford, Mississippi plant through the
calendar year 2002.
9
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
With the exception of irrigation production facilities in Australia and Italy,
all of the company's production facilities are located in the United States.
Substantially all financial transactions are in U.S. dollars, although sales of
the company's foreign subsidiaries, which are insignificant when compared to
total company sales, may be conducted in local currencies.
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 foreign currency exchange contracts. These contracts are
designed to hedge firm and anticipated foreign currency transactions.
Export sales were $153,500,000 for the year ended October 31, 1998, $161,836,000
for the year ended October 31, 1997, and $140,919,000 for the year ended October
31, 1996. The identifiable assets attributable to foreign operations were not
significant as of October 31, 1998.
See Notes to the Consolidated Financial Statements of the company contained in
the company's Annual Report to Stockholders for the fiscal year ended October
31, 1998 for additional information relating to currency risk management on page
18 and for information on international and export sales by geographic area on
page 32, which information is incorporated herein by reference.
WHOLESALE FINANCING
Toro Credit Company, a wholly owned finance subsidiary of the company, provides
financing of products manufactured by Toro for North American distributors and
approximately 250 domestic dealers. Toro Credit Company purchases selected
receivables from Toro and its independent consumer product distributors for
extended periods, which enables the independent distributors and dealers to
carry representative inventories of equipment. Down payments are not required,
and for each product line, finance charges during the pre-season period are
incurred primarily by Toro. During the in-season period, finance charges are
accrued to the accounts of the distributor or dealers, and during the carry-over
period, finance charges may be shared. A security interest is retained in the
distributors' and dealers' inventories, and periodic physical checks are made of
those inventories. Generally, terms to the distributors and dealers require
payments as the equipment which secures the indebtedness is sold to customers.
Rates are generally based on prime rate plus a fixed percentage that differs
based on whether the financing is for a distributor or dealer. Rates may also
vary based upon the product that is financed.
Independent Toro dealers that do not finance through the Toro Credit Company
finance their inventories with a third party financing source. The finance
charges represent interest for a pre-established length of time at a predefined
rate from a contract with this third party financing source.
Dealer and distributor defaults in recent years have not been significant.
YEAR 2000
The discussion of year 2000 issues in the Management Discussion and Analysis
section in the Annual Report, on page 17, is incorporated herein by reference.
EMPLOYEES
During fiscal 1998, the company employed an average of 4,695 employees. The
total number of employees at October 31, 1998 was 4,381. Four collective
bargaining agreements, one expiring in October 1999, one expiring in May 2000,
one expiring in August 2000, and one expiring in September 2001 cover
approximately 22 percent of these employees.
As a result of the acquisitions of Exmark and Drip In, the company added
approximately 320 non-union employees.
Management considers its overall relations with its employees to be good.
10
ITEM 2. PROPERTIES
The company utilizes manufacturing and office facilities, which total
approximately 3,751,000 square feet of space. Toro also utilizes 20.34 acres as
a testing facility. Plant utilization varies during the year depending upon the
production cycle. In fiscal 1998, the company announced the closing of its
production facilities at Sardis, Mississippi and Olathe, Kansas. The company
considers each of its current facilities in use to be in good operating
condition and adequate for its present use. Management believes that it has
sufficient capacity to meet its current production needs. The following
schedule outlines the company's significant facilities by location, ownership
and function:
- ---------------------------------------------------------------------------------------------------------------
Location Ownership Products Manufactured / Use
- ---------------------------------------------------------------------------------------------------------------
Plymouth, WI Owned Parts distribution center, office
Windom, MN Owned/Leased Consumer components and products and warehouse
Lakeville, MN Leased Finished Goods distribution center, office
Bloomington, MN Owned/Leased Corporate headquarters and test facility
Tomah, WI Owned/Leased Consumer and Commercial products and warehouse
Baraboo, WI Leased Finished Goods distribution center, office
Riverside, CA Owned/Leased Irrigation and Consumer products and warehouse, office
Evansville, IN Leased Consumer and Commercial products
Beatrice, NE Owned Commercial products, office
Shakopee, MN Owned Components for consumer and commercial products
El Paso, TX Owned/Leased Irrigation and Consumer products and warehouse
Beverley, Australia Owned Office and distribution center
Murray Bridge, Australia Owned Irrigation products and warehouse
El Cajon, California Owned Irrigation products and warehouse
Oxford, MS Owned Components for consumer products
Oevel, Belgium Owned Finished goods distribution center, office
Madera, CA Owned Agricultural irrigation products and warehouse, office
Laguna, CA Leased Irrigation products warehouse
Braeside, Australia Leased Irrigation products warehouse
Lincoln, NE Leased Commercial products warehouse
DFW Airport, TX Leased Distribution facility
Mountaintop, PA Leased Parts distribution center
Toro also owns and leases other facilities that are currently idle and available
for sale or subleasing.
11
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
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.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
None.
12
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 7, 1999
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
page 36 of the company's Annual Report to Stockholders for the year ended
October 31, 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
Name, Age and Position with the Company Business Experience During the Last Five Years
- ------------------------------------------------------------------------------------------------------------------------------------
Kendrick B. Melrose Elected Chairman of the Board in December 1987 and Chief Executive Officer in
58, Chairman and Chief Executive Officer December 1983.
- ------------------------------------------------------------------------------------------------------------------------------------
J. David McIntosh Elected Executive Vice President, Professional Businesses and International
55, Executive Vice President, Professional August 1998. From September 1996 to August 1998, he served as Group Vice
Businesses and International President. From January 1992 to September 1996, he was appointed Vice
President and General Manager, Consumer Division.
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen P. Wolfe Elected Vice President Finance, Treasurer in June 1997 and Chief Financial
50, Vice President Finance, Treasurer and Officer in May 1997. Appointed Vice President in August 1994. Elected
Chief Financial Officer President, Toro Credit Company in July 1990.
- ------------------------------------------------------------------------------------------------------------------------------------
J. Lawrence McIntyre Elected Vice President in July 1993. Elected Secretary and General Counsel in
56, Vice President, Secretary and General Counsel August 1993. Prior to July 1993, he was a shareholder with Doherty, Rumble &
Butler Professional Association.
- ------------------------------------------------------------------------------------------------------------------------------------
Karen M. Meyer Elected Vice President, Administration August 1998. From December 1991 to
49, Vice President, Administration August 1998, she served as Vice President, Human Resources/Administrative
Services.
- ------------------------------------------------------------------------------------------------------------------------------------
Dennis P. Himan Appointed Vice President and General Manager, Landscape Contractor Businesses
54, Vice President and General Manager Landscape August 1998. From June 1997 to August 1998, he served as Vice President,
Contractor Businesses Distributor Development and Mergers/Acquisitions. From March 1996 to June
1997, he served as Vice President and Treasurer.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Hoffman Appointed Vice President and General Manager, Commercial Business November
43, Vice President and General Manager 1997. From November 1996 to November 1997, he served as General Manager of
Commercial Business the Commercial Division. He served as Managing Director, Recycling Division
from March 1994 to October 1996 and as Director of Marketing and Service,
Commercial Division from September 1989 to March 1994.
- ------------------------------------------------------------------------------------------------------------------------------------
William D. Hughes Appointed Vice President and General Manager, Consumer Business August 1998.
48, Vice President and General Manager From September 1983 to August 1998, he was Chairman and Chief Operating
Consumer Business Officer of Turf Equipment and Supply Company, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Randy B. James Appointed Vice President and Controller in December 1988.
55, Vice President and Controller
- ------------------------------------------------------------------------------------------------------------------------------------
13
- ------------------------------------------------------------------------------------------------------------------------------------
Richard W. Parod Appointed Vice President and General Manager, Irrigation Business March 1997.
45, Vice President and General Manager From December 1993 to March 1997, he served as President of James Hardie
Irrigation Business Irrigation, Inc. From September 1993 to December 1993, he served as Chief
Financial Officer of James Hardie Irrigation, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard R. Pollick Appointed Vice President and General Manager, International Business in March
59, Vice President and General Manager 1990.
International Business
- ------------------------------------------------------------------------------------------------------------------------------------
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.
14
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,
1998 ("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 January 7, 1999 there were
6,393 holders of record of the company's common stock.
See "Quarterly Financial Data" on page 33 of the Annual Report for dividends
paid and range of high and low sales prices for the company's common stock on
the New York Stock Exchange on a quarterly basis for the period from November 1,
1996 to October 31, 1998, which information is incorporated herein by reference.
Although the company intends to declare cash dividends on a quarterly basis in
the future, the determination as to the payment and the amount of any cash
dividend will depend upon the company's then current financial condition,
capital requirements, results of operations, and other factors deemed relevant
by the company's board of directors.
ITEM 6. SELECTED FINANCIAL DATA
See "Selected Financial Data" on page 20 of the Annual Report for financial data
for the years ended October 31, 1998, 1997, 1996, the 3 month period ended
October 31, 1995, and the years ended July 31, 1995 and 1994, which information
for these periods is incorporated herein by reference.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
See the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of the Annual Report to Stockholders on
pages 12 through 19, which section is incorporated herein by reference.
FORWARD-LOOKING INFORMATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: Part I of this Annual Report on Form 10-K and the "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
company's Annual Report to Stockholders for fiscal 1998 referred to above
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
In addition, forward-looking statements may be made orally or in press releases,
conferences, reports or otherwise, in the future by or on behalf of the company.
Statements that are not historical are forward-looking. When used by or on
behalf of the company, the words "expect", "anticipate", "estimate", "believe",
"intend" and similar expressions generally identify forward-looking statements.
Forward-looking statements involve risks and uncertainties. These uncertainties
include factors that affect all businesses operating in a global market, as well
as matters specific to the company and the markets it serves. Particular risks
and uncertainties facing the company at the present include political and
economic uncertainty throughout the world; whether the announced profit
improvement plan can be successfully implemented; increased competition in the
company's businesses from competitors that have greater financial resources; the
cost of closing certain plants and selling certain business units; the success
of new marketing programs; continued deterioration in the company's markets in
Asia and softening in other international markets; the strong dollar which
increases the cost of the company's products in foreign markets resulting in
cancellation of planned projects and limiting the company's ability to increase
prices; competitive implications and price transparencies related to the euro
conversion; changing buying patterns affecting the company's consumer business,
including but not limited to a trend away from purchases at dealer outlets to
price and value conscious purchases at hardware, home center, and mass
retailers; changes in distributor ownership; the company's expansion into
selected home center markets; the company's ability to integrate business
acquisitions and to manage alliances successfully; the addition of outside
providers for warehousing and transportation services; the company's ability to
develop and manufacture new and existing products profitably; market acceptance
of existing and new products; changes in distributors, dealers, home center, or
mass retailers' purchasing practices; the company's ability to rationalize its
product lines and plant configurations; the ability to eliminate cost overruns
affecting selected consumer and irrigation products at the El Paso, Texas
facility; the company's ability to maintain good relations with its union
employees; and the ability to retain and hire quality employees.
In addition, the company is subject to risks and uncertainties facing its
industry in general, including changes in business and political conditions and
the economy in general in both foreign and domestic markets; weather conditions
affecting demand, including warm winters and wet spring and summer weather;
slower growth in the company's markets; financial market changes including
increases in interest rates and fluctuations in foreign exchange rates;
unanticipated problems or costs associated with the transition of European
currencies to the common euro currency; a slowing in housing starts or new golf
course starts; inability to raise prices of products due to market conditions;
changes in market demographics; actions of competitors; unanticipated problems
or costs associated with accommodation of the year 2000 in computer applications
or products; the inability of the company's suppliers, customers, creditors,
government agencies, public utility providers, and financial service
organizations to implement computer applications accommodating the year 2000;
the inability of the company's suppliers, customers, creditors, government
agencies, public utility providers, and financial service organizations to
implement computer applications accommodating the year 2000; seasonal factors in
the company's industry; unforeseen litigation; government actions including
budget levels, regulation and legislation, primarily legislation relating to the
environment, commerce, infrastructure spending, health, and safety; and
availability of materials.
16
The company wishes to caution readers not to place undue reliance on any
forward-looking statement and to recognize that the statements are not
predictions of actual future results. Actual results could differ materially
from those anticipated in the forward-looking statements and from historical
results, due to the risks and uncertainties described above, as well as others
not now anticipated. The foregoing statements are not exclusive and further
information concerning the company and its businesses, including factors that
potentially could materially affect the company's financial results, may emerge
from time to time. It is not possible for management to predict all risk
factors or to assess the impact of such risk factors on the company's business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY
The company is exposed to foreign currency exchange risk arising from
transactions that are entered into during the normal course of business. To
mitigate the risk from foreign currency exchange rate fluctuations, the company
will generally enter into forward currency exchange contracts for the purchase
or sale of a currency. Decisions on whether to use forward currency exchange
contracts to hedge transactions exposed to foreign exchange rate changes are
made based on the amount of those exposures, by currency, and an assessment of
the near-term market value for each currency. These instruments used as hedges
are managed to reduce the risk associated with the exposure being hedged and are
designated as a hedge at the inception of the contract. Accordingly, changes in
market values of these hedge instruments are highly correlated with changes in
market values of underlying hedged items both at inception of the hedge and over
the life of the hedge contract. Gains and losses on foreign currency contracts
are recorded on the Consolidated Statements of Earnings.
The following forward exchange contracts held by the company have maturity dates
in fiscal year 1999. All items are non-trading and stated in U.S. dollars. The
average contracted rate, notional amount, and fair value impact at October 31,
1998 were as follows:
- --------------------------------------------------------------------------------
AVERAGE FAIR VALUE
DOLLARS IN THOUSANDS CONTRACTED NOTIONAL IMPACT
(EXCEPT AVERAGE CONTRACTED RATE) RATE AMOUNT GAIN (LOSS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Buy Australian dollar/Sell US dollar .6368 $ 1,022.8 $ (18.2)
- --------------------------------------------------------------------------------
Buy US dollar/Sell Australian dollar .6040 5,614.1 (206.9)
- --------------------------------------------------------------------------------
Buy US dollar/Sell Canadian dollar 1.5135 7,168.8 140.0
- --------------------------------------------------------------------------------
Buy German mark/Sell US dollar 1.7808 2,948.2 251.5
- --------------------------------------------------------------------------------
DEBT FINANCING
The company is exposed to interest rate risk arising from transactions that are
entered into during the normal course of business. The company's short-term
borrowing rates are dependent upon the LIBOR rate plus an additional percentage
based on the company's current borrowing level.
At October 31, 1998, the estimated fair value of long-term debt with fixed
interest rates was $182,273,000 compared to its carrying value of $197,424,000.
The fair value is estimated by discounting the projected cash flows using the
rate at which similar amounts of debt could currently be borrowed.
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 33 of the Annual Report to
Stockholders which is incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
17
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 company and additional information
regarding certain executive officers is incorporated herein by reference to
information to be contained in the company's Proxy Statement to be filed with
the Securities and Exchange Commission with respect to the next annual 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 information to be contained in the company's Proxy Statement to be
filed with the Securities and Exchange Commission 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 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the security ownership of certain beneficial owners and
management of the company is incorporated herein by reference to information to
be contained in the company's Proxy Statement to be filed with the Securities
and Exchange Commission 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 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
18
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, Pages in Fiscal 1998
Item 8 of this report: Annual Report
to Stockholders
---------------
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . .21
Consolidated Statements of Earnings for the years ended
October 31, 1998, 1997, and 1996. . . . . . . . . . . . . . . . .22
Consolidated Balance Sheets
as of October 31, 1998 and 1997 . . . . . . . . . . . . . . . . .23
Consolidated Statements of Cash Flows for the
years ended October 31, 1998, 1997 and 1996. . . . . . . . . . .24
Notes to Consolidated Financial Statements. . . . . . . . . . . . .25-33
(a) 2. INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report.
Independent Auditors' Report . . . . . . . . . . . . . . . . . .23
Schedule II - Valuation and Qualifying Accounts. . . . . . . . .24
All other schedules are omitted because the required information is inapplicable
or the information is presented in the consolidated financial statements or
related notes.
(a) 3. EXHIBITS
3(i)(a) and 4(a) Certificate of Incorporation of Registrant
(incorporated by reference to Exhibit 4.2 to
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 Registrant dated December 9, 1986
(incorporated by reference to Exhibit 3 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended
January 30, 1987, Commission File No. 1-8649).
3(i)(c) and 4(c) Certificate of Designation to Certificate of
Incorporation of Registrant dated May 28, 1998
(incorporated by reference to Exhibit (1)(A) to
Registrants' Current Report on Form 8-K dated May 27,
1998).
3(ii) and 4(d) Bylaws of Registrant, as amended.
4(e) Specimen form of Common Stock certificate (incorporated
by reference to Exhibit 4(c) to Registrant's
Registration Statement on Form S-8, Registration
No. 2-94417).
19
4(f) Rights Agreement dated as of May 20, 1998, between
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 Registrant's Current
Report on Form 8-K dated May 27, 1998, Commission File
No. 1-8649).
4(g) Indenture as dated as of January 31, 1997, between
Registrant and First National Trust Association, as
Trustee, relating to the Registrant's 7.125% Notes due
June 15, 2007 and its 7.80% Debentures due June 15,
2027 (incorporated by reference to Exhibit 4(a) to
Registrant's Current Report on Form 8-K for June 24,
1997, Commission File No. 1-8649).
10(a) Form of Employment Agreement in effect for certain
officers of Registrant (incorporated by reference
Exhibit 10(iii)(a) to Registrant's Quarterly Report on
Form 10-Q for the quarter ended May 1, 1998).*
10(b) Directors Stock Plan, as amended.*
10(c) Annual Management Incentive Plan II for officers of
Registrant, as amended.*
10(d) 1985 Incentive Stock Option Plan (incorporated by
reference to Exhibit 10(b) to Registrant's Annual
Report on Form 10-K for the fiscal year ended July 31,
1993).*
10(e) 1989 Stock Option Plan, as amended.*
10(f) 1993 Stock Option Plan, as amended.*
10(g) Continuous Performance Award Plan, as amended.*
10(h) The Toro Company Supplemental Management Retirement
Plan (incorporated by reference to Exhibit 10(iii)(h)
to Registrant's Annual Report on Form 10-K for the year
ended October 31, 1996).*
10(i) Chief Executive Officer Succession Incentive Agreement
dated as of July 31, 1995 (incorporated by reference to
Exhibit 10(iii)(i) to Registrant's Annual Report on
Form 10-K for the year ended October 31, 1997).*
10(j) The Toro Company Deferred Compensation Plan for
Officers, (incorporated by reference Exhibit 10(iii)(a)
to Registrant's Quarterly Report on Form 10-Q for the
quarter ended May 1, 1998).*
12 Computation of Ratio of Earnings to Fixed Charges.
13 Fiscal 1998 Annual Report to Stockholders for The Toro
Company.
21 Subsidiaries of Registrant.
23 Independent Auditors' Consent.
27 Supplemental Data Schedule.
*Management contract or compensatory plan or arrangements required to be filed
as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c).
20
(b) REPORTS ON FORM 8-K
None.
- --------------------------------------------------------------------------------
The company's Annual Report on Form 10-K for the fiscal year ended October 31,
1998, 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.
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE TORO COMPANY
-----------------------
(Registrant)
Dated: January 29, 1999
/s/ Stephen P. Wolfe
----------------------
Stephen P. Wolfe
Vice President - Finance
Treasurer and 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 29, 1999
- ------------------------------ Officer, and Director
Kendrick B. Melrose (principal executive officer)
/s/ Stephen P. Wolfe Vice President - Finance, January 29, 1999
- ------------------------------ Treasurer and Chief Financial Officer
Stephen P. Wolfe (principal financial officer)
/s/ Randy B. James Vice President, Controller January 29, 1999
- ------------------------------ (principal accounting officer)
Randy B. James
/s/ Ronald O. Baukol Director January 29, 1999
- ------------------------------
Ronald O. Baukol
/s/ Robert C. Buhrmaster Director January 29, 1999
- ------------------------------
Robert C. Buhrmaster
/s/ Winslow H. Buxton Director January 29, 1999
- ------------------------------
Winslow H. Buxton
/s/ Janet K. Cooper Director January 29, 1999
- ------------------------------
Janet K. Cooper
/s/ Alex A. Meyer Director January 29, 1999
- ------------------------------
Alex A. Meyer
/s/ Robert H. Nassau Director January 29, 1999
- ------------------------------
Robert H. Nassau
/s/ Dale R. Olseth Director January 29, 1999
- ------------------------------
Dale R. Olseth
/s/ Christopher A. Twomey Director January 29, 1999
- ------------------------------
Christopher A. Twomey
/s/ Edwin H. Wingate Director January 29, 1999
- ------------------------------
Edwin H. Wingate
22
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Toro Company:
Under the date of December 11, 1998, we reported on the consolidated balance
sheets of The Toro Company and subsidiaries (the Company) as of October 31, 1998
and 1997, and the related consolidated statements of earnings and cash flows for
each of the years in the three-year period ended October 31, 1998, as contained
in the 1998 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 1998. 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 11, 1998
23
Schedule II
THE TORO COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE CHARGED TO
DESCRIPTION AT BEGINNING COSTS AND OTHER (a) DEDUCTIONS (b) BALANCE AT END
OF YEAR EXPENSES OF YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1998
Allowance for doubtful accounts $ 9,832,000 $ 623,000 $ 250,000 $ 1,381,000 $ 9,324,000
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1997
Allowance for doubtful accounts $ 10,005,000 $ 812,000 $ (425,000) $ 560,000 $ 9,832,000
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1996
Allowance for doubtful accounts $ 7,542,000 $ 3,358,000 $ 330,000 $ 1,225,000 $ 10,005,000
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Additions to allowance for doubtful accounts due to
acquisitions and reductions due to reclassification.
(b) Uncollectible accounts charged off, net of recoveries.
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE CHARGED TO
DESCRIPTION AT BEGINNING COSTS AND OTHER (c) DEDUCTIONS (d) BALANCE AT END
OF YEAR EXPENSES OF YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1998
Accrued warranties $ 40,792,000 $ 39,877,000 $ 951,000 $ 35,276,000 $ 46,344,000
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1997
Accrued warranties $ 34,722,000 $ 35,045,000 $ 5,940,000 $ 34,915,000 $ 40,792,000
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1996
Accrued warranties $ 35,065,000 $ 28,567,000 $ 0 $ 28,910,000 $ 34,722,000
- ------------------------------------------------------------------------------------------------------------------------------------
(c) Additions to accrued warranties due to acquisitions.
(d) Warranty claims processed.
24