Attached files
file | filename |
---|---|
EX-32 - 906 CERTIFICATION - TORO CO | ex32.htm |
EX-31.A - CEO 302 CERTIFICATION - TORO CO | ex31a.htm |
EX-31.B - CFO 302 CERTIFICATION - TORO CO | ex31b.htm |
EX-10.1 - RESTATED RED IRON PURCHASE AGREEMENT - TORO CO | ex10_2.htm |
EX-99.1 - STIPULATION OF SETTLEMENT - TORO CO | ex99_1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the Quarterly Period Ended January 29, 2010
THE
TORO COMPANY
(Exact
name of registrant as specified in its charter)
Delaware
|
1-8649
|
41-0580470
|
(State
of Incorporation)
|
(Commission
File Number)
|
(I.R.S.
Employer Identification Number)
|
8111
Lyndale Avenue South
Bloomington,
Minnesota 55420
Telephone
number: (952) 888-8801
(Address,
including zip code, and telephone number, including area code, of registrant's
principal executive offices)
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 (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes S No £
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes £ No £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer S
|
Accelerated
filer £
|
Non-accelerated
filer £
(Do
not check if a smaller
reporting
company)
|
Smaller
reporting company £
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes £ No S
The
number of shares of Common Stock outstanding as of February 26, 2010 was
33,626,015.
THE
TORO COMPANY
INDEX
TO FORM 10-Q
Page Number
|
||
PART
I.
|
FINANCIAL
INFORMATION:
|
|
Item
1.
|
Financial
Statements
|
|
Item
2.
|
||
Item
3.
|
||
Item
4.
|
||
PART
II.
|
OTHER
INFORMATION:
|
|
Item
1.
|
||
Item
1A.
|
||
Item
2.
|
||
Item
6.
|
||
2
PART
I. FINANCIAL INFORMATION
THE
TORO COMPANY AND SUBSIDIARIES
Condensed
Consolidated Statements of Earnings (Unaudited)
(Dollars
and shares in thousands, except per share data)
Three
Months Ended
|
||||||||
January
29,
|
January
30,
|
|||||||
2010
|
2009
|
|||||||
Net
sales
|
$ | 331,358 | $ | 340,172 | ||||
Cost
of
sales
|
214,967 | 221,912 | ||||||
Gross
profit
|
116,391 | 118,260 | ||||||
Selling,
general, and administrative
expense
|
96,599 | 104,559 | ||||||
Earnings
from
operations
|
19,792 | 13,701 | ||||||
Interest
expense
|
(4,245 | ) | (4,358 | ) | ||||
Other
income,
net
|
901 | 810 | ||||||
Earnings
before income
taxes
|
16,448 | 10,153 | ||||||
Provision
for income
taxes
|
5,530 | 3,422 | ||||||
Net
earnings
|
$ | 10,918 | $ | 6,731 | ||||
Basic
net earnings per share of common
stock
|
$ | 0.32 | $ | 0.19 | ||||
Diluted
net earnings per share of common
stock
|
$ | 0.32 | $ | 0.18 | ||||
Weighted-average
number of shares of common
|
||||||||
stock
outstanding –
Basic
|
34,030 | 36,366 | ||||||
|
||||||||
Weighted-average
number of shares of common
|
||||||||
stock
outstanding –
Diluted
|
34,294 | 36,805 |
See
accompanying notes to condensed consolidated financial
statements.
3
THE
TORO COMPANY AND SUBSIDIARIES
(Dollars
in thousands)
January
29,
|
January
30,
|
October
31,
|
||||||||||
2010
|
2009
|
2009
|
||||||||||
ASSETS
|
||||||||||||
Cash
and cash equivalents
|
$ | 158,210 | $ | 35,597 | $ | 187,773 | ||||||
Receivables,
net
|
167,260 | 297,962 | 143,709 | |||||||||
Inventories,
net
|
191,071 | 238,704 | 176,275 | |||||||||
Prepaid
expenses and other current assets
|
18,441 | 23,813 | 14,914 | |||||||||
Deferred
income taxes
|
58,316 | 55,311 | 59,467 | |||||||||
Total
current assets
|
593,298 | 651,387 | 582,138 | |||||||||
Property,
plant, and equipment
|
560,001 | 526,938 | 551,747 | |||||||||
Less
accumulated depreciation
|
394,074 | 359,211 | 385,031 | |||||||||
165,927 | 167,727 | 166,716 | ||||||||||
Deferred
income taxes
|
3,572 | 6,454 | 3,585 | |||||||||
Other
assets
|
12,774 | 7,686 | 10,512 | |||||||||
Goodwill
|
86,427 | 86,385 | 86,407 | |||||||||
Other
intangible assets, net
|
22,636 | 18,548 | 23,324 | |||||||||
Total
assets
|
$ | 884,634 | $ | 938,187 | $ | 872,682 | ||||||
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
||||||||||||
Current
portion of long-term debt
|
$ | 3,985 | $ | 3,377 | $ | 3,765 | ||||||
Short-term
debt
|
700 | 25,000 | 4,529 | |||||||||
Accounts
payable
|
109,556 | 89,561 | 91,074 | |||||||||
Accrued
liabilities
|
205,651 | 214,403 | 217,433 | |||||||||
Total
current liabilities
|
319,892 | 332,341 | 316,801 | |||||||||
Long-term
debt, less current portion
|
224,062 | 226,396 | 225,046 | |||||||||
Deferred
revenue
|
7,904 | 8,785 | 8,510 | |||||||||
Other
long-term liabilities
|
7,526 | 6,227 | 7,113 | |||||||||
Stockholders'
equity:
|
||||||||||||
Preferred
stock, par value $1.00 per share, authorized 1,000,000 voting and
850,000 non-voting shares, none issued and outstanding
|
— | — | — | |||||||||
Common
stock, par value $1.00 per share, authorized 100,000,000 shares,
issued and outstanding 33,615,011 shares as of January 29, 2010,
35,804,195 shares as of January 30, 2009, and 33,369,486
shares as of October 31, 2009
|
33,615 | 35,804 | 33,369 | |||||||||
Retained
earnings
|
300,750 | 342,081 | 291,246 | |||||||||
Accumulated
other comprehensive loss
|
(9,115 | ) | (13,447 | ) | (9,403 | ) | ||||||
Total
stockholders' equity
|
325,250 | 364,438 | 315,212 | |||||||||
Total
liabilities and stockholders' equity
|
$ | 884,634 | $ | 938,187 | $ | 872,682 |
See
accompanying notes to condensed consolidated financial
statements.
4
THE
TORO COMPANY AND SUBSIDIARIES
(Dollars in
thousands)
Three
Months Ended
|
||||||||
January
29,
|
January
30,
|
|||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
earnings
|
$ | 10,918 | $ | 6,731 | ||||
Adjustments
to reconcile net earnings to net cash
|
||||||||
used
in operating activities:
|
||||||||
Equity
losses from affiliates
|
143 | 32 | ||||||
Provision
for depreciation, amortization, and impairment losses
|
11,248 | 10,389 | ||||||
Loss
on disposal of property, plant, and equipment
|
45 | 18 | ||||||
Stock-based
compensation expense
|
1,579 | 874 | ||||||
(Increase)
decrease in deferred income taxes
|
(331 | ) | 238 | |||||
Changes
in operating assets and liabilities:
|
||||||||
Receivables,
net
|
(28,629 | ) | (42,970 | ) | ||||
Inventories,
net
|
(13,099 | ) | (32,586 | ) | ||||
Prepaid
expenses and other assets
|
(3,492 | ) | (4,947 | ) | ||||
Accounts
payable, accrued expenses, deferred revenue, and other
long-term
liabilities
|
11,082 | (10,306 | ) | |||||
Net
cash used in operating activities
|
(10,536 | ) | (72,527 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Purchases
of property, plant, and equipment
|
(10,218 | ) | (9,499 | ) | ||||
Proceeds
from asset disposals
|
100 | 6 | ||||||
Increase
in investment in affiliates
|
(3,118 | ) | — | |||||
Decrease
(increase) in other assets
|
533 | (567 | ) | |||||
Acquisition,
net of cash acquired
|
(1,812 | ) | — | |||||
Net
cash used in investing activities
|
(14,515 | ) | (10,060 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Increase
in short-term debt
|
— | 22,675 | ||||||
Repayments
of long-term debt, net of costs
|
(750 | ) | (1,005 | ) | ||||
Excess
tax benefits from stock-based awards
|
2,078 | 2,023 | ||||||
Proceeds
from exercise of options
|
4,986 | 2,073 | ||||||
Purchases
of Toro common stock
|
(3,682 | ) | (1,579 | ) | ||||
Dividends
paid on Toro common stock
|
(6,129 | ) | (5,456 | ) | ||||
Net
cash (used in) provided by financing activities
|
(3,497 | ) | 18,731 | |||||
Effect
of exchange rates on cash
|
(1,015 | ) | 94 | |||||
Net
decrease in cash and cash equivalents
|
(29,563 | ) | (63,762 | ) | ||||
Cash
and cash equivalents as of the beginning of the fiscal period
|
187,773 | 99,359 | ||||||
Cash
and cash equivalents as of the end of the fiscal period
|
$ | 158,210 | $ | 35,597 | ||||
See accompanying notes to condensed
consolidated financial statements.
5
THE TORO COMPANY AND
SUBSIDIARIES
January
29, 2010
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
the information and notes required by U.S. generally accepted accounting
principles (GAAP) for complete financial statements. Unless the context
indicates otherwise, the terms “company” and “Toro” refer to The Toro Company
and its consolidated subsidiaries. In the opinion of management, the unaudited
condensed consolidated financial statements include all adjustments, consisting
primarily of recurring accruals, considered necessary for a fair presentation of
the financial position and results of operations. Certain amounts from prior
periods’ financial statements have been reclassified to conform to this period’s
presentation. Since the company’s business is seasonal, operating results for
the three months ended January 29, 2010 cannot be annualized to determine the
expected results for the fiscal year ending October 31, 2010. Additional factors
that could cause our actual results to differ materially from our expected
results, including any forward-looking statements made in this report, are
described in our most recently filed Annual Report on Form 10-K (Item 1A) and
later in this report under Item 2, Management’s Discussion and Analysis of
Financial Condition and Results of Operations– Forward-Looking
Information.
The
company’s fiscal year ends on October 31, and quarterly results are reported
based on three month periods that generally end on the Friday closest to the
quarter end. For comparative purposes, however, the company’s second and third
quarters always include exactly 13 weeks of results so that the quarter end date
for these two quarters is not necessarily the Friday closest to the quarter
end.
For
further information, refer to the consolidated financial statements and notes
included in the company’s Annual Report on Form 10-K for the fiscal year ended
October 31, 2009. The policies described in that report are used for preparing
quarterly reports.
Accounting
Policies
In preparing the consolidated financial
statements in conformity with U.S. GAAP, management must make decisions that
impact the reported amounts of assets, liabilities, revenues, expenses, and the
related disclosures, including disclosures of contingent assets and liabilities.
Such decisions include the selection of the appropriate accounting principles to
be applied and the assumptions on which to base accounting estimates. Estimates
are used in determining, among other items, sales promotions and incentives
accruals, inventory valuation, warranty accruals, allowance for doubtful
accounts, pension and postretirement accruals, self-insurance accruals, useful
lives for intangible assets, and future cash flows associated with impairment
testing for goodwill and other long-lived assets. These estimates and
assumptions are based on management’s best estimates and judgments. Management
evaluates its estimates and assumptions on an ongoing basis using historical
experience and other factors that management believes to be reasonable under the
circumstances, including the current economic environment. Management adjusts
such estimates and assumptions when facts and circumstances dictate. A number of
these factors are discussed in our Annual Report on Form 10-K (Item 1A. Risk
Factors) for the fiscal year ended October 31, 2009, which include, among
others, economic conditions, foreign currency exchange rate impact, commodity
costs, credit conditions, and consumer spending and confidence
levels, all of which may increase the uncertainty inherent in such estimates and
assumptions. As future events and their effects cannot be determined with
precision, actual amounts could differ significantly from those estimated at the
time the consolidated financial statements are prepared. Changes in those
estimates resulting from changes in the economic environment will be reflected
in the consolidated financial statements in future periods.
Acquisition
and Divestiture
On
December 1, 2009, during the first quarter of fiscal 2010, the company’s wholly
owned domestic distribution company completed the acquisition of certain assets
and the assumption of certain liabilities of one of the company’s independent
Midwestern-based distribution companies.
During
the first quarter of fiscal 2009, the company completed the sale of a portion of
the operations of our company-owned distributorship.
This
acquisition and divestiture were immaterial based on the company’s consolidated
financial condition and results of operations.
6
Comprehensive
Income
Comprehensive
income and the components of other comprehensive income (loss) were as
follows:
Three
Months Ended
|
||||||||
(Dollars
in thousands)
|
January
29,
|
January
30,
|
||||||
2010
|
2009
|
|||||||
Net
earnings
|
$ | 10,918 | $ | 6,731 | ||||
Other
comprehensive income (loss):
|
||||||||
Cumulative
translation adjustments
|
(2,132 | ) | (1,756 | ) | ||||
Pension
liability adjustment, net of tax
|
671 | — | ||||||
Unrealized
gain (loss) on derivative
instruments,
net of tax
|
1,749 | (3,147 | ) | |||||
Comprehensive
income
|
$ | 11,206 | $ | 1,828 |
Stock-Based
Compensation
Under the
company’s stock option plans, option awards are granted with an exercise price
equal to the closing price of the company’s common stock on the date of grant,
as reported by the New York Stock Exchange. Options are generally granted to
non-employee directors, officers, and other key employees in the first quarter
of the company’s fiscal year. Option awards vest one-third each year over a
three-year period and have a ten-year term. Compensation expense equal to the
grant date fair value is generally recognized for these awards over the vesting
period. However, if a director has served on the company’s Board of Directors
for ten full fiscal years or longer, the fair value of the options granted is
fully expensed as of the date of the grant. Similarly, options granted to
officers and other key employees are also subject to accelerated expensing if
the option holder meets the retirement definition set forth in The Toro Company
2000 Stock Option Plan. In that case, the fair value of the options is expensed
in the year of grant because the option holder must be employed as of the end of
the fiscal year in which the options are granted in order for the option to
continue to vest following retirement. The company also has a long-term
incentive plan called The Toro Company Performance Share Plan. Under this plan,
key employees are granted the right to receive shares of common stock or
deferred performance share units, contingent on the achievement of performance
goals of the company, which are generally measured over a three-year period. The
number of shares of common stock a participant receives will be increased (up to
200 percent of target levels) or reduced (down to zero) based on the level of
achievement of performance goals and vest over a three-year period. Performance
share awards are granted in the first quarter of the company’s fiscal year.
Compensation expense is recognized for these awards on a straight-line basis
over the vesting period based on the fair value as of the date of grant and the
probability of achieving performance goals. Total compensation expense for
option and performance share awards for the first quarter of each of fiscal 2010
and 2009 was $1.6 million and $0.9 million, respectively.
The
fair value of each share-based option is estimated on the date of grant using a
Black-Scholes valuation method that uses the assumptions noted in the table
below. The expected life is a significant assumption as it determines the period
for which the risk-free interest rate, volatility, and dividend yield must be
applied. The expected life is the average length of time over which the employee
groups are expected to exercise their options, which is based on historical
experience with similar grants. Separate groups of employees that have similar
historical exercise behavior are considered separately for valuation purposes.
Expected volatilities are based on the movement of the company’s common stock
over the most recent historical period equivalent to the expected life of the
option. The risk-free interest rate for periods within the contractual life of
the option is based on the U.S. Treasury rate over the expected life at the time
of grant. Dividend yield is estimated over the expected life based on the
company’s dividend policy, historical dividends paid, expected future cash
dividends, and expected changes in the company’s stock price. The following
table illustrates the assumptions for options granted in the following fiscal
periods.
Fiscal
2010
|
Fiscal
2009
|
||
Expected
life of option in years
|
6
|
6
|
|
Expected
volatility
|
33.00%
- 33.07%
|
30.57%
- 30.60%
|
|
Weighted-average
volatility
|
33.00%
|
30.60%
|
|
Risk-free
interest rate
|
2.509%
- 2.865%
|
2.26%
- 3.155%
|
|
Expected
dividend yield
|
1.52%
- 1.68%
|
1.53%-
1.81%
|
|
Weighted-average
dividend yield
|
1.54%
|
1.79%
|
7
The
weighted-average fair value of options granted during the first quarter of each
of fiscal 2010 and 2009 was $12.33 per share and $7.93 per share, respectively.
The fair value of performance share awards granted during the first quarter of
each of fiscal 2010 and 2009 was $40.73 per share and $28.62 per share,
respectively.
Inventories
Inventories
are valued at the lower of cost or net realizable value, with cost determined by
the last-in, first-out (LIFO) method for most inventories and first-in,
first-out (FIFO) method for all other inventories. The company establishes a
reserve for excess, slow-moving, and obsolete inventory that is equal to the
difference between the cost and estimated net realizable value for that
inventory. These reserves are based on a review and comparison of current
inventory levels to the planned production, as well as planned and historical
sales of the inventory.
Inventories
were as follows:
(Dollars
in thousands)
|
January
29,
|
January
30,
|
October
31,
|
|||||||||
2010
|
2009
|
2009
|
||||||||||
Raw
materials and work in process
|
$ | 61,937 | $ | 66,039 | $ | 56,679 | ||||||
Finished
goods and service parts
|
179,277 | 222,968 | 169,739 | |||||||||
Total
FIFO value
|
241,214 | 289,007 | 226,418 | |||||||||
Less:
adjustment to LIFO value
|
50,143 | 50,303 | 50,143 | |||||||||
Total
|
$ | 191,071 | $ | 238,704 | $ | 176,275 |
Per
Share Data
Reconciliations
of basic and diluted weighted-average shares of common stock outstanding are as
follows:
Three
Months Ended
|
|||
(Shares
in thousands)
|
January
29,
|
January
30,
|
|
Basic
|
2010
|
2009
|
|
Weighted-average
number of shares of common stock
|
34,022
|
36,350
|
|
Assumed
issuance of contingent shares
|
8
|
16
|
|
Weighted-average
number of shares of common stock and assumed issuance of contingent
shares
|
34,030
|
36,366
|
|
Diluted
|
|||
Weighted-average
number of shares of common stock and assumed issuance of contingent
shares
|
34,030
|
36,366
|
|
Effect
of dilutive securities
|
264
|
439
|
|
Weighted-average
number of shares of common stock, assumed issuance of contingent shares,
and effect of dilutive securities
|
34,294
|
36,805
|
Options
to purchase an aggregate of 742,607 and 1,521,421 shares of common stock
outstanding as of January 29, 2010 and January 30, 2009, respectively,
were excluded from the diluted net earnings per share calculations because
their exercise prices were greater than the average market price of the
company’s common stock during the same respective
periods.
|
Goodwill
The
changes in the net carrying amount of goodwill for the first quarter of fiscal
2010 were as follows:
(Dollars
in thousands)
|
Professional
|
Residential
|
||||||||||
Segment
|
Segment
|
Total
|
||||||||||
Balance
as of October 31, 2009
|
$ | 75,514 | $ | 10,893 | $ | 86,407 | ||||||
Translation
adjustment
|
8 | 12 | 20 | |||||||||
Balance
as of January 29, 2010
|
$ | 75,522 | $ | 10,905 | $ | 86,427 |
8
Other Intangible
Assets
The
components of other amortizable intangible assets were as follows:
(Dollars
in thousands)
January 29, 2010
|
Estimated
Life
(Years)
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
|
||||||||||||
Patents
|
5-13 | $ | 8,653 | $ | (6,733 | ) | $ | 1,920 | ||||||||
Non-compete
agreements
|
2-10 | 2,839 | (1,610 | ) | 1,229 | |||||||||||
Customer
related
|
10-13 | 6,532 | (1,584 | ) | 4,948 | |||||||||||
Developed
technology
|
2-10 | 12,789 | (3,531 | ) | 9,258 | |||||||||||
Other
|
800 | (800 | ) | — | ||||||||||||
Total
amortizable
|
31,613 | (14,258 | ) | 17,355 | ||||||||||||
Non-amortizable
- trade name
|
5,281 | — | 5,281 | |||||||||||||
Total
other intangible assets, net
|
$ | 36,894 | $ | (14,258 | ) | $ | 22,636 |
(Dollars
in thousands)
October 31, 2009
|
Estimated
Life
(Years)
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
|
||||||||||||
Patents
|
5-13 | $ | 8,654 | $ | (6,641 | ) | $ | 2,013 | ||||||||
Non-compete
agreements
|
2-10 | 2,839 | (1,517 | ) | 1,322 | |||||||||||
Customer
related
|
10-13 | 6,549 | (1,458 | ) | 5,091 | |||||||||||
Developed
technology
|
2-10 | 12,799 | (3,182 | ) | 9,617 | |||||||||||
Other
|
800 | (800 | ) | — | ||||||||||||
Total
amortizable
|
31,641 | (13,598 | ) | 18,043 | ||||||||||||
Non-amortizable
- trade name
|
5,281 | — | 5,281 | |||||||||||||
Total
other intangible assets, net
|
$ | 36,922 | $ | (13,598 | ) | $ | 23,324 |
Amortization
expense for intangible assets during the first quarter of fiscal 2010 was $0.7
million. Estimated amortization expense for the remainder of fiscal 2010 and
succeeding fiscal years is as follows: fiscal 2010 (remainder), $1.9 million;
fiscal 2011, $2.5 million; fiscal 2012, $2.5 million; fiscal 2013, $2.3 million;
fiscal 2014, $1.9 million; fiscal 2015, $1.8 million; and after fiscal 2015,
$4.5 million.
Investment
in Joint Venture
On August
12, 2009, the company and TCF Inventory Finance, Inc. (TCFIF), a subsidiary of
TCF National Bank, established a joint venture in the form of a Delaware limited
liability company named Red Iron Acceptance, LLC (Red Iron) to provide inventory
financing, including floor plan and open account receivable financing, to
distributors and dealers of the company’s products in the U.S. and to select
distributors of the company’s products in Canada. The initial term of the joint
venture will continue until October 31, 2014, subject to unlimited automatic
two-year extensions thereafter. Either the company or TCFIF may elect not to
extend the initial term or any subsequent term by giving one-year notice to the
other party of its intention not to extend the term. Red Iron began financing
floor plan receivables during the company’s fourth quarter of fiscal
2009.
The
company sells to Red Iron certain inventory receivables, including floor plan
and open account receivables, from distributors and dealers of the company’s
products, at a purchase price equal to the face value of the receivables. As the
company sells receivables to Red Iron, the company derecognizes non-recourse
receivables from its books upon receipt of cash from Red Iron for receivables
sold. During the first quarter of fiscal 2010, the company sold to Red Iron open
account receivables for customers whose floor plan receivables were sold to Red
Iron during the fourth quarter of fiscal 2009, as well as for customers whose
floor plan receivables were previously financed by a third party financing
company, in the aggregate amount of $18.1 million.
The
company owns 45 percent of Red Iron and TCFIF owns 55 percent of Red Iron. The
company accounts for its investment in Red Iron under the equity method of
accounting. Each of the company and TCFIF contributed a specified amount of the
estimated cash required to enable Red Iron to purchase the company’s inventory
financing receivables and to provide financial support for Red Iron’s inventory
financing programs. Red Iron borrows the remaining requisite estimated cash
utilizing a $450 million secured revolving credit facility established under a
credit agreement between Red Iron and TCFIF. The company’s total investment in
Red Iron as of January 29, 2010 was $6.5 million. The company has not guaranteed
the outstanding indebtedness of Red Iron. The company has agreed to repurchase
products repossessed by Red Iron, up to a maximum aggregate amount of $7.5
million in a calendar year. In addition, the company provided recourse to Red
Iron for certain outstanding receivables, which amounted to $0.7 million as of
January 29, 2010.
9
Red
Iron purchased $177.6 million of receivables from the company during the first
quarter of fiscal 2010, which includes the initial purchase of open accounts
receivable in the aggregate amount of $18.1 million. As of January 29, 2010, Red
Iron’s total assets were $127.9 million and total liabilities were $113.0
million. Red Iron’s net loss from operations through January 29, 2010 was $0.9
million.
Segment
Data
The
presentation of segment information reflects the manner in which management
organizes segments for making operating decisions and assessing performance. On
this basis, the company has determined it has three reportable business
segments: professional, residential, and distribution. The distribution segment,
which consists of a wholly owned domestic distribution company, has been
combined with our corporate activities and elimination of intersegment revenues
and expenses that is shown as “Other” in the following tables.
The
following table shows the summarized financial information concerning the
company’s reportable segments:
(Dollars
in thousands)
|
||||||||||||||||
Three months ended January 29,
2010
|
Professional
|
Residential
|
Other
|
Total
|
||||||||||||
Net
sales
|
$ | 212,800 | $ | 116,756 | $ | 1,802 | $ | 331,358 | ||||||||
Intersegment
gross sales
|
2,112 | 262 | (2,374 | ) | — | |||||||||||
Earnings
(loss) before income taxes
|
25,810 | 13,427 | (22,789 | ) | 16,448 | |||||||||||
Total
assets
|
436,521 | 180,922 | 267,191 | 884,634 |
Three months ended January 30,
2009
|
Professional
|
Residential
|
Other
|
Total
|
||||||||||||
Net
sales
|
$ | 229,369 | $ | 107,024 | $ | 3,779 | $ | 340,172 | ||||||||
Intersegment
gross sales
|
1,970 | 769 | (2,739 | ) | — | |||||||||||
Earnings
(loss) before income taxes
|
30,129 | 4,840 | (24,816 | ) | 10,153 | |||||||||||
Total
assets
|
500,937 | 210,398 | 226,852 | 938,187 |
The following table presents the details of the Other segment operating loss
before income taxes:
Three
Months Ended
|
||||||||
(Dollars
in thousands)
|
January
29,
|
January
30,
|
||||||
2010
|
2009
|
|||||||
Corporate
expenses
|
$ | (17,944 | ) | $ | (22,378 | ) | ||
Finance
charge
revenue
|
— | 178 | ||||||
Elimination
of corporate financing expense
|
— | 1,515 | ||||||
Interest
expense
|
(4,245 | ) | (4,358 | ) | ||||
Other
|
(600 | ) | 227 | |||||
Total
|
$ | (22,789 | ) | $ | (24,816 | ) |
Warranty
Guarantees
The
company’s products are warranted to ensure customer confidence in design,
workmanship, and overall quality. Warranty coverage ranges from a period of six
months to seven years, and generally covers parts, labor, and other expenses for
non-maintenance repairs. Warranty coverage generally does not cover operator
abuse or improper use. An authorized Toro distributor or dealer must perform
warranty work. Distributors and dealers submit claims for warranty reimbursement
and are credited for the cost of repairs, labor, and other expenses as long as
the repairs meet prescribed standards. Warranty expense is accrued at the time
of sale based on the estimated number of products under warranty, historical
average costs incurred to service warranty claims, the trend in the historical
ratio of claims to sales, the historical length of time between the sale and
resulting warranty claim, and other minor factors. Special warranty reserves are
also accrued for major rework campaigns. The company also sells extended
warranty coverage on select products for a prescribed period after the factory
warranty period expires.
Warranty
provisions, claims, and changes in estimates for the first quarter of each of
fiscal 2010 and 2009 were as follows:
(Dollars
in thousands)
|
Beginning
|
Warranty
|
Warranty
|
Changes
in
|
Ending
|
|||||||||||||||
Three Months Ended
|
Balance
|
Provisions
|
Claims
|
Estimates
|
Balance
|
|||||||||||||||
January
29, 2010
|
$ | 54,273 | $ | 6,764 | $ | (7,089 | ) | $ | 827 | $ | 54,775 | |||||||||
January
30, 2009
|
$ | 58,770 | $ | 7,502 | $ | (8,131 | ) | $ | 732 | $ | 58,873 |
10
Postretirement
Benefit and Deferred Compensation Plans
The
following table presents the components of net periodic benefit costs of the
company’s postretirement medical and dental benefit plan:
Three
Months Ended
|
||||||||
(Dollars
in thousands)
|
January
29,
|
January
30,
|
||||||
2010
|
2009
|
|||||||
Service
cost
|
$ | 55 | $ | 54 | ||||
Interest
cost
|
101 | 175 | ||||||
Prior
service cost
|
(48 | ) | (48 | ) | ||||
Amortization
of losses
|
30 | 48 | ||||||
Net
expense
|
$ | 138 | $ | 229 |
As
of January 29, 2010, the company contributed approximately $0.1 million to its
postretirement medical and dental benefit plan in fiscal 2010. The company
expects to contribute a total of $0.3 million in fiscal 2010, including
contributions made through January 29, 2010.
The
company maintains The Toro Company Investment, Savings and Employee Stock
Ownership Plan for eligible employees. The company’s expenses under this plan
were $3.4 million for the first quarter of fiscal 2010 and $3.8 million for the
first quarter of fiscal 2009.
The
company also offers participants in the company’s deferred compensation plans
the option to invest their deferred compensation in multiple investment options.
The fair value of the investment in the deferred compensation plans as of
January 29, 2010 was $14.9 million, which reduced the company’s deferred
compensation liability reflected in accrued liabilities on the consolidated
balance sheet.
Effective
December 31, 2009, the company amended The Toro Company Retirement Plan for
Office and Hourly Employees such that no additional benefits will be earned
under this plan after December 31, 2009. This amendment resulted in a
curtailment adjustment of $0.7 million, which reduced the company’s pension
expense in the first quarter of fiscal 2010.
Income
Taxes
The
company is subject to U.S. federal income tax, as well as income tax of numerous
state and foreign jurisdictions. The company is generally no longer subject to
U.S. federal tax examinations for taxable years before fiscal 2006 and with
limited exceptions, state and foreign income tax examinations for fiscal years
before 2005. The Internal Revenue Service is currently examining the company’s
income tax returns for the 2006 and 2007 fiscal years. It is possible that the
examination phase of the audit may conclude in the next 12 months, and the
related unrecognized tax benefits for tax positions taken may change from those
recorded as liabilities for uncertain tax positions in the company’s financial
statements as of January 29, 2010. Although the outcome of this matter cannot
currently be determined, the company believes adequate provisions have been made
for any potential unfavorable financial statement impact.
As
of January 29, 2010 and January 30, 2009, the company had $6.0 million and $5.5
million, respectively, of liabilities recorded related to unrecognized tax
benefits. Accrued interest and penalties on these unrecognized tax benefits were
$1.0 million and $0.8 million as of January 29, 2010 and January 30, 2009,
respectively. The company recognizes potential interest and penalties related to
income tax positions as a component of the provision for income taxes. To the
extent interest and penalties are not assessed with respect to uncertain tax
positions, the amounts accrued will be revised and reflected as an adjustment to
the provision for income taxes. Included in the liability balance as of January
29, 2010 are approximately $4.0 million of unrecognized tax benefits that, if
recognized, will affect the company’s effective tax rate.
The
company does not anticipate that the total amount of unrecognized tax benefits
will significantly change during the next twelve months.
Derivative
Instruments and Hedging Activities
The
company is exposed to foreign currency exchange rate risk arising from
transactions in the normal course of business, such as sales to third party
customers, sales and loans to wholly owned foreign subsidiaries, foreign plant
operations, and purchases from suppliers. The company actively manages the
exposure of its foreign currency market risk by entering into various hedging
instruments, authorized under company policies that place controls on these
activities, with counterparties that are highly rated financial institutions.
The company’s hedging activities involve the primary use of forward currency
contracts. The company uses
11
derivative
instruments only in an attempt to limit underlying exposure from foreign
currency exchange rate fluctuations and to minimize earnings and cash flow
volatility associated with foreign currency exchange rate changes. Decisions on
whether to use such contracts are made based on the amount of exposure to the
currency involved, and an assessment of the near-term market value for each
currency. The company’s policy does not allow the use of derivatives for trading
or speculative purposes. The company’s primary foreign currency exchange rate
exposures are with the Euro, the Australian dollar, the Canadian dollar, the
British pound, the Mexican peso, and the Japanese yen against the U.S.
dollar.
Cash flow
hedges. The company recognizes all derivative instruments as either
assets or liabilities at fair value on its consolidated balance sheet and
formally documents relationships between cash flow hedging instruments and
hedged items, as well as its risk-management objective and strategy for
undertaking hedge transactions. This process includes linking all derivatives to
the forecasted transactions, such as sales to third parties and foreign plant
operations. Changes in the fair value of outstanding derivative instruments that
are designated and qualify as a cash flow hedge are recorded in other
comprehensive income (OCI), except for the ineffective portion, until net
earnings is affected by the variability of cash flows of the hedged transaction.
Gains and losses on the derivative representing either hedge ineffectiveness or
hedge components excluded from the assessment of effectiveness are recognized in
net earnings. The consolidated statement of earnings classification of effective
hedge results is the same as that of the underlying exposure. Results of hedges
of sales and foreign plant operations are recorded in net sales and cost of
sales, respectively, when the underlying hedged transaction affects net
earnings. The maximum amount of time the company hedges its exposure to the
variability in future cash flows for forecasted trade sales and purchases is two
years.
The
company formally assesses at a hedge’s inception and on an ongoing basis whether
the derivatives that are used in the hedging transaction have been highly
effective in offsetting changes in the cash flows of the hedged items and
whether those derivatives may be expected to remain highly effective in future
periods. When it is determined that a derivative is not, or has ceased to be,
highly effective as a hedge, the company discontinues hedge accounting
prospectively. When the company discontinues hedge accounting because it is no
longer probable, but it is still reasonably possible that the forecasted
transaction will occur by the end of the originally expected period or within an
additional two-month period of time thereafter, the gain or loss on the
derivative remains in accumulated other comprehensive loss (AOCL) and is
reclassified to net earnings when the forecasted transaction affects net
earnings. However, if it is probable that a forecasted transaction will not
occur by the end of the originally specified time period or within an additional
two-month period of time thereafter, the gains and losses that were accumulated
in OCI are recognized immediately in net earnings. In all situations in which
hedge accounting is discontinued and the derivative remains outstanding, the
company carries the derivative at its fair value on the balance sheet,
recognizing future changes in the fair value in other income, net. For the first
quarter of fiscal 2010, there were no gains or losses on contracts reclassified
into earnings as a result of the discontinuance of cash flow hedges. As of
January 29, 2010, the notional amount outstanding of forward contracts
designated as cash flow hedges was $60.3 million.
Derivatives not
designated as hedging instruments. The company also enters into forward
currency contracts to mitigate the change in fair value of specific assets and
liabilities on the consolidated balance sheet. These contracts are not
designated as hedging instruments. Accordingly, changes in the fair value of
hedges of recorded balance sheet positions, such as cash, receivables, payables,
intercompany notes, and other various contractual claims to pay or receive
foreign currencies other than the functional currency, are recognized
immediately in other income, net, on the consolidated statements of earnings
together with the transaction gain or loss from the hedged balance sheet
position.
The
following table presents the fair value of the company’s derivatives and
consolidated balance sheet location.
Asset
Derivatives
|
Liability
Derivatives
|
|||||||||||||||||||
January
29, 2010
|
January
30, 2009
|
January
29, 2010
|
January
30, 2009
|
|||||||||||||||||
Balance
|
Balance
|
Balance
|
Balance
|
|||||||||||||||||
Sheet
|
Fair
|
Sheet
|
Fair
|
Sheet
|
Fair
|
Sheet
|
Fair
|
|||||||||||||
(Dollars
in thousands)
|
Location
|
Value
|
Location
|
Value
|
Location
|
Value
|
Location
|
Value
|
||||||||||||
Derivatives
Designated as
|
||||||||||||||||||||
Hedging
Instruments
|
||||||||||||||||||||
Foreign
exchange contracts
|
Prepaid
expenses
|
$ | - |
Prepaid
expenses
|
$ | 6,020 |
Accrued
liabilities
|
$ | 1,446 |
Accrued
liabilities
|
$ | - | ||||||||
Derivatives
Not Designated
|
||||||||||||||||||||
as
Hedging Instruments
|
||||||||||||||||||||
Foreign
exchange contracts
|
Prepaid
expenses
|
- |
Prepaid
expenses
|
4,009 |
Accrued
liabilities
|
751 |
Accrued
liabilities
|
- | ||||||||||||
Total
Derivatives
|
$ | - | $ | 10,029 | $ | 2,197 | $ | - |
12
The
following table presents the impact of derivative instruments on the
consolidated statements of earnings for the company’s derivatives designed as
cash flow hedging instruments for the three months ended January 29, 2010 and
January 30, 2009, respectively.
Location
of Gain (Loss)
|
Gain
(Loss)
|
|||||||||||||||||||||||||
Location
of Gain
|
Recognized
in Income
|
Recognized
in Income
|
||||||||||||||||||||||||
Gain
(Loss)
|
(Loss)
Reclassified
|
Gain
(Loss)
|
on
Derivatives
|
on
Derivatives
|
||||||||||||||||||||||
Recognized
in OCI on
|
from
AOCL
|
Reclassified
from
|
(Ineffective
Portion
|
(Ineffective
Portion and
|
||||||||||||||||||||||
Derivatives
|
into
Income
|
AOCL
into Income
|
and
excluded from
|
Excluded
from
|
||||||||||||||||||||||
(Effective
Portion)
|
(Effective
Portion)
|
(Effective
Portion)
|
Effectiveness
Testing)
|
Effectiveness
Testing)
|
||||||||||||||||||||||
(Dollars
in thousands)
|
January
29,
|
January
30,
|
January
29,
|
January
30,
|
January
29,
|
January
30,
|
||||||||||||||||||||
For
the three months ended
|
2010
|
2009
|
2010
|
2009
|
2010
|
2009
|
||||||||||||||||||||
Foreign
exchange contracts
|
$ | (2,752 | ) | $ | 10 |
Net
sales
|
$ | (890 | ) | $ | 2,741 |
Other
income, net
|
$ | (123 | ) | $ | (1,228 | ) | ||||||||
Foreign
exchange contracts
|
(47 | ) | 1,307 |
Cost
of sales
|
(39 | ) | (910 | ) | ||||||||||||||||||
Total
|
$ | (2,799 | ) | $ | 1,317 | $ | (929 | ) | $ | 1,831 |
As
of January 29, 2010, the company expects to reclassify approximately $1.4
million of losses from AOCL to earnings during the next twelve
months.
The
following table presents the impact of derivative instruments on the
consolidated statements of earnings for the company’s derivatives not designated
as hedging instruments.
Gain
(Loss) Recognized in Net Earnings
|
|||||||||
Location
of Gain (Loss)
|
Three
Months Ended
|
||||||||
(Dollars
in thousands)
|
Recognized
in Net Earnings
|
January
29, 2010
|
January
30, 2009
|
||||||
Foreign
exchange contracts
|
Other
income, net
|
$ | 833 | $ | 3,729 |
Fair
Value Measurements
The
company categorizes its assets and liabilities into one of three levels based on
the assumptions (inputs) used in valuing the asset or liability. Level 1
provides the most reliable measure of fair value, while Level 3 generally
requires significant management judgment. The three levels are defined as
follows:
Level 1 — Unadjusted quoted prices in active markets for identical assets or
liabilities.
Level 2 — Observable inputs other than
Level 1 prices, such as quoted prices for similar assets or liabilities in
active markets; quoted prices for identical assets or liabilities in markets
that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or
liabilities.
Level
3 — Unobservable inputs reflecting management’s assumptions about the inputs
used in pricing the asset or liability.
Cash
and cash equivalents are valued at their carrying amounts in the consolidated
balance sheets, which are reasonable estimates of their fair value due to their
short maturities. Foreign currency forward exchange contracts are valued at fair
market value, which is the amount the company would receive or pay to terminate
the contracts at the reporting date. The unfunded deferred compensation
liability is primarily subject to changes in fixed-income investment
contracts.
The
company adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 157, “Fair Value Measurements” for nonfinancial assets and
liabilities that are not required to be measured on a recurring basis during the
first quarter of fiscal 2010, as required. The adoption of this provision had no
impact on the company’s financial position or results of operations for the
first quarter of fiscal 2010.
Assets
and liabilities measured at fair value on a recurring basis, as of January 29,
2010, are summarized below:
(Dollars
in thousands)
|
Fair
Value
|
Level 1
|
Level
2
|
Level 3
|
||||||||||||
Assets:
|
||||||||||||||||
Cash
and cash equivalents
|
$ | 158,210 | $ | 158,210 | — | — | ||||||||||
Total
Assets
|
$ | 158,210 | $ | 158,210 | — | — | ||||||||||
Liabilities:
|
||||||||||||||||
Foreign
exchange contracts
|
$ | 2,197 | — | $ | 2,197 | — | ||||||||||
Deferred
compensation liabilities
|
5,601 | — | 5,601 | — | ||||||||||||
Total
Liabilities
|
$ | 7,798 | — | $ | 7,798 | — |
13
Contingencies
Litigation
General.
The company is party to litigation in the ordinary course of business.
Litigation occasionally involves claims for punitive as well as compensatory
damages arising out of use of the company’s products. Although the company is
self-insured to some extent, the company maintains insurance against certain
product liability losses. The company is also subject to administrative
proceedings with respect to claims involving the discharge of hazardous
substances into the environment. Some of these claims assert damages and
liability for remedial investigations and clean up costs. The company is also
typically involved in commercial disputes, employment disputes, and patent
litigation cases in the ordinary course of business. To prevent possible
infringement of the company’s patents by others, the company periodically
reviews competitors’ products. To avoid potential liability with respect to
others’ patents, the company regularly reviews certain patents issued by the
United States Patent and Trademark Office (USPTO) and foreign patent offices.
Management believes these activities help minimize its risk of being a defendant
in patent infringement litigation. The company is currently involved in patent
litigation cases, both where it is asserting patents and where it is defending
against charges of infringement.
Lawnmower Engine
Horsepower Marketing and Sales Practices Litigation. In June 2004,
individuals who claim to have purchased lawnmowers in Illinois and Minnesota
filed a class action lawsuit in Illinois state court against the company and
other defendants alleging that the horsepower labels on the products the
plaintiffs purchased were inaccurate. Those individuals later amended their
complaint to add additional plaintiffs and an additional defendant. The
plaintiffs asserted violations of the federal Racketeer Influenced and Corrupt
Organizations Act (RICO) and state statutory and common law claims. The
plaintiffs sought certification of a class of all persons in the United States
who, beginning January 1, 1994 through the present, purchased a lawnmower
containing a two-stroke or four-stroke gas combustible engine up to 30
horsepower that was manufactured or sold by the defendants. The amended
complaint also sought an injunction, unspecified compensatory and punitive
damages, treble damages under RICO, and attorneys’ fees.
In
May 2006, the case was removed to federal court in the Southern
District of Illinois. In August 2006, the company, together with the other
defendants other than MTD Products Inc. (MTD), filed a motion to dismiss the
amended complaint. Also in August 2006, the plaintiffs filed a motion for
preliminary approval of a settlement agreement with MTD and certification of a
settlement class. In December 2006, another defendant, American Honda Motor
Company (“Honda”), notified the company and the other defendants that it had
reached a settlement agreement with the plaintiffs.
In
May 2008, the court issued a memorandum and order that (i) dismissed the RICO
claim in its entirety; (ii) dismissed all non-Illinois state-law claims but with
instructions that such claims could be re-filed in local courts; and (iii)
rejected the proposed settlement with MTD. The proposed Honda settlement was not
under consideration by the court and was not addressed in the memorandum and
order. Also in May 2008, the plaintiffs (i) re-filed the Illinois claims with
the court; and (ii) filed non-Illinois claims in federal courts in the District
of New Jersey and the Northern District of California with essentially the same
state law claims.
In
June 2008, the plaintiffs filed a motion with the United States Judicial Panel
on Multidistrict Litigation (the “MDL Panel”) that (i) stated their intent to
file lawsuits in all 50 states and the District of Columbia; and (ii) sought to
have all of the cases transferred for coordinated pretrial proceedings. In
August 2008, the MDL Panel issued an order denying the transfer request.
Additional lawsuits, some of which included additional plaintiffs, were filed in
various federal and state courts asserting essentially the same state law
claims. To date, lawsuits have been filed in federal and state courts throughout
the United States, which collectively assert claims under the laws of each
state.
In
September 2008, the company and other defendants filed a motion with the MDL
Panel that sought to transfer the multiple actions for coordinated pretrial
proceedings. In early December 2008, the MDL Panel issued an order that; (i)
transferred 23 lawsuits, which collectively asserted claims under the laws of 16
states, for coordinated or consolidated pretrial proceedings; (ii) selected the
United States District Court for the Eastern District of Wisconsin as the
transferee district, and (iii) provided that additional lawsuits will be treated
as “tag-along” actions in accordance with its rules.
An initial hearing was held in the United States District Court for the Eastern
District of Wisconsin in January 2009. At that hearing, the Court (i) appointed
lead plaintiffs’ counsel, and (ii) entered a stay of all litigation so that the
parties could explore mediation. Formal mediation proceedings were commenced,
settlement discussions were conducted, and as of the date hereof, all defendants
have entered into settlement agreements with the plaintiffs. On February 24,
2010, the company and certain other defendants entered into a settlement
agreement with the plaintiffs which provides for, among other things, (i) a
monetary settlement, (ii) an additional warranty period for some engines that
are subject to the litigation, and (iii) injunctive relief relating to power
rating labeling practices. The plaintiffs filed a motion for preliminary
approval of the settlement agreement and certification of a settlement class,
and on February 26, 2010, the court granted the motion. The settlement is not
final for all purposes until after members of the proposed settlement class
receive notice of the settlement, the Court determines that the settlement is
fair, and applicable appeal periods expire without appeal. At this time,
management is unable to provide assurance that the settlement will become
final.
14
Management
continues to evaluate these lawsuits. If the settlement becomes final, the
company’s obligations under the settlement agreement will not have a material
adverse effect on the company’s operating results or financial position. The
expected costs of the company’s settlement obligations are consistent with
accruals established in prior periods. In the event the settlement does not
become final, management is unable to assess at this time whether these lawsuits
would have a material adverse effect on the company’s annual consolidated
operating results or financial condition, although an unfavorable resolution or
outcome could be material to the company’s consolidated operating results for a
particular period.
Textron
Innovations Inc. v. The Toro Company. In July 2005, Textron Innovations
Inc., the patent holding company of Textron, Inc., filed a lawsuit in Delaware
Federal District Court against the company for patent infringement. Textron
alleged that the company willfully infringed certain claims of three Textron
patents by selling its Groundsmaster® commercial mowers. Textron sought damages
for the company’s past sales and an injunction against future infringement. In
August and November 2005, management answered the complaint, asserting defenses
and counterclaims of non-infringement, invalidity, and equitable estoppel.
Following the Court’s order in October 2006 construing the claims of Textron’s
patents, discovery in the case was closed in February 2007. In March 2007,
following unsuccessful attempts to mediate the case, management filed with the
USPTO to have Textron’s patents reexamined. The reexamination proceedings are
pending in the USPTO, and all of the claims asserted against the company in all
three patents stand rejected. In April 2007, the Court granted the company’s
motion to stay the litigation and, in June 2007, denied Textron’s motion for
reconsideration of the Court’s order staying the proceedings. On February 26,
2010, the company entered into a Settlement Agreement with Textron that provides
that the Delaware lawsuit, as well as a related lawsuit filed by the company
against Textron in Minnesota Federal District Court relative to certain of the
company’s patents, will each be dismissed in their
entirety.
Subsequent
Events
The
company evaluated all subsequent events and concluded that no additional
subsequent events have occurred that would require recognition in the financial
statements or disclosure in the notes to the financial statements.
15
AND
RESULTS OF OPERATIONS
Nature
of Operations
The Toro
Company is in the business of designing, manufacturing, and marketing
professional turf maintenance equipment and services, turf and agricultural
micro-irrigation systems, landscaping equipment, and residential yard and snow
removal products. We sell our products through a network of distributors,
dealers, hardware retailers, home centers, mass retailers, and over the
Internet. Our businesses are organized into three reportable business segments:
professional, residential, and distribution. Our distribution segment, which
consists of our company-owned domestic distribution company, has been combined
with our corporate activities. Our emphasis is to provide innovative,
well-built, and dependable products supported by an extensive service network. A
significant portion of our revenues has historically been, and we expect it to
continue to be, attributable to new and enhanced products.
The
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) for the first quarter of fiscal 2010 should be read in
conjunction with the MD&A included in our Annual Report on Form 10-K for the
fiscal year ended October 31, 2009.
RESULTS
OF OPERATIONS
Overview
For the
first quarter of fiscal 2010, our net sales were down 2.6 percent, as compared
to the first quarter of fiscal 2009. Professional segment net sales were down by
7.2 percent as shipments for most professional segment products were down as
customers aligned their orders closer to retail demand, leading to a further
reduction in field inventory levels. However, international sales of
micro-irrigation products were up due to market growth and increased demand for
water-conserving products and additional manufacturing capacity that was added
to increase production and sales of our water conserving products to meet the
growing market demand. Residential segment sales increased 9.1 percent for the
first quarter of fiscal 2010 compared to the first quarter of fiscal 2009,
primarily as a result of higher net sales of Pope irrigation products in
Australia and increased worldwide shipments of snow thrower products. Our net
earnings were up 62.2 percent for the first quarter of fiscal 2010 compared to
the first quarter of fiscal 2009, primarily from gross margin improvement due
mainly to lower commodity costs in the first quarter of fiscal 2010 compared to
average prices paid for commodities in the first quarter of fiscal 2009. In
addition, the improvement in net earnings was also attributable to lower
selling, general, and administrative (SG&A) expenses as a result of our
leaner cost structure from actions we took in fiscal 2009.
We
continued to focus on reducing working capital and improving asset management.
As a result of our efforts, our inventory levels were down 20 percent as of the
end of the first quarter of fiscal 2010 compared to the end of the first quarter
of fiscal 2009, and our customers’ field inventory levels decreased
significantly from the same comparable period last fiscal year. Our receivables
were also down, by 43.9 percent, as of the end of the first quarter of fiscal
2010 compared to the end of the first quarter of fiscal 2009 due mainly to the
sale of certain receivables to Red Iron Acceptance, LLC (Red Iron), our recently
established financing joint venture with TCFIF. The impact of our efforts to
reduce working capital resulted in a significant improvement of our cash flows
from operating activities for the first quarter of fiscal 2010 compared to the
first quarter of fiscal 2009. We also increased our first quarter cash dividend
by 20 percent from $0.15 to $0.18 per share compared to the quarterly cash
dividend paid in the first quarter of fiscal 2009.
After
experiencing one of the most economically challenging years during fiscal 2009,
we expect fiscal 2010 will provide opportunities to begin our anticipated
recovery and return to higher profitability levels. We intend to take the best
of what we learned from the past to launch our new initiative, “5 in One: Back
on Course.” This one-year initiative is intended to guide us through this year
of recovery with an even stronger focus on the customer and a single financial
goal: five percent profit after tax as a percentage of net sales for fiscal
2010. We believe we have taken the necessary proactive measures through our
continued focus on asset management, reducing our cost structure, and our
commitment to product innovation to position us well to benefit from a recovery
as our markets improve.
Our
net sales and earnings for the first quarter of our fiscal year are typically
lower than other quarters, and the results of our first quarter are not
necessarily an indicator of spring season sales trends. Our focus as we enter
our peak selling season is on generating customer demand for our innovative new
products, while keeping production closely aligned with expected shipment
volumes. We will continue to keep a cautionary eye on the global economies,
retail demand, field inventory levels, commodity prices, weather, competitive
actions, expenses, and other factors identified below under the heading
“Forward-Looking Information,” which could cause our actual results to differ
from our outlook.
16
Net
Earnings
Net
earnings for the first quarter of fiscal 2010 were $10.9 million, or $0.32 per
diluted share, compared to $6.7 million, or $0.18 per diluted share, for the
first quarter of fiscal 2009, an increase in net earnings per diluted share of
77.8 percent. The primary factor contributing to this increase was a decrease in
SG&A expense, somewhat offset by lower net sales. In addition, fiscal 2010
first quarter diluted net earnings per share were benefited by approximately
$0.02 per share compared to the fiscal 2009 first quarter as a result of reduced
shares outstanding from repurchases of our common stock during the last twelve
months.
The
following table summarizes the major operating costs and other income as a
percentage of net sales:
Three
Months Ended
|
||||||||
January
29,
|
January
30,
|
|||||||
2010
|
2009
|
|||||||
Net
sales
|
100.0 | % | 100.0 | % | ||||
Cost
of sales
|
(64.9 | ) | (65.2 | ) | ||||
Gross
margin
|
35.1 | 34.8 | ||||||
SG&A
expense
|
(29.2 | ) | (30.7 | ) | ||||
Interest
expense
|
(1.3 | ) | (1.3 | ) | ||||
Other
income, net
|
0.4 | 0.2 | ||||||
Provision
for income taxes
|
(1.7 | ) | (1.0 | ) | ||||
Net
earnings
|
3.3 | % | 2.0 | % |
Net
Sales
Worldwide
consolidated net sales for the first quarter of fiscal 2010 were $331.4 million
compared to $340.2 million in the first quarter of fiscal 2009, a decrease of
2.6 percent. Worldwide professional segment net sales were down 7.2 percent,
mainly from decreased sales of golf and grounds maintenance equipment resulting
from customers aligning their orders closer to retail demand and leading to a
further reduction in field inventory levels, as well as the timing of initial
stocking orders in fiscal 2009 for new landscape contractor equipment products.
However, international sales of micro-irrigation products were up due to market
growth and increased demand for water-conserving products and additional
manufacturing capacity that was added to increase production and sales of our
water conserving products to meet the growing market demand. Residential segment
sales increased 9.1 percent for the first quarter of fiscal 2010 compared to the
first quarter of fiscal 2009, primarily as a result of higher net sales of Pope
irrigation products sold in Australia due to dry weather conditions in that
region. In addition, worldwide shipments of snow thrower products were up due to
the timing of the introduction of our new redesigned offering of snow thrower
products that shipped to customers in the first quarter of fiscal 2010.
International sales were down 1.5 percent, as compared to the first quarter of
fiscal 2009. However, a weaker U.S. dollar compared to other worldwide
currencies in which we transact business accounted for approximately $9 million
of additional net sales for the first quarter of fiscal 2010.
Gross
Profit
As a
percentage of net sales, gross profit for the first quarter of fiscal 2010
increased to 35.1 percent compared to 34.8 percent in the first quarter of
fiscal 2009. This improvement was due to the following factors: (i) lower
average commodity costs in the first quarter of fiscal 2010 compared to the
first quarter of fiscal 2009; (ii) a weaker U.S. dollar compared to other
currencies in which we transact business; and (iii) cost reduction efforts.
Somewhat offsetting those positive factors were lower sales of our higher-margin
professional segment products and increased tooling expense from investments in
tooling for new products.
Selling,
General, and Administrative Expense
SG&A
expense for the first quarter of fiscal 2010 decreased $8.0 million, or 7.6
percent, compared to the same period last fiscal year. SG&A expense as a
percentage of net sales also decreased to 29.2 percent in the first quarter of
fiscal 2010 compared to 30.7 percent in the first quarter of fiscal 2009. These
declines were primarily attributable to our leaner cost structure from actions
we took in fiscal 2009, many of which were implemented after last year’s first
quarter, costs incurred in the first quarter of fiscal 2009 in the amount of
$1.3 million for workforce adjustments, and a decrease in bad debt expense of
$1.1 million. Somewhat offsetting those declines was an increase in incentive
compensation expense of $1.7 million from anticipated improved financial
performance in fiscal 2010, as compared to fiscal 2009.
17
Interest
Expense
Interest
expense for the first quarter of fiscal 2010 decreased 2.6 percent compared to
the first quarter of fiscal 2009 due to lower average debt levels.
Other
Income, Net
Other
income, net for the first quarter of fiscal 2010 was $0.9 million compared to
$0.8 million for the same period last fiscal year, an increase of $0.1 million.
The increase was due primarily to higher currency exchange rate gains and the
gain on the sale of a portion of the operations of our company-owned
distributorship, somewhat offset by an increase in litigation settlement
costs.
Provision
for Income Taxes
The
effective tax rate for the first quarter of fiscal 2010 was slightly down to
33.6 percent compared to 33.7 percent in the first quarter of fiscal
2009.
BUSINESS
SEGMENTS
As
described previously, we operate in three reportable business segments:
professional, residential, and distribution. Our distribution segment, which
consists of our wholly owned domestic distribution company, has been combined
with our corporate activities that is shown as “Other” in the following tables.
Operating earnings for our professional and residential segments are defined as
earnings from operations plus other income, net. Operating loss for “Other”
includes earnings (loss) from operations, corporate activities, other income,
net, and interest expense.
The
following table summarizes net sales by segment:
Three
Months Ended
|
||||||||||||||||
(Dollars
in thousands)
|
January
29,
|
January
30,
|
||||||||||||||
2010
|
2009
|
$
Change
|
%
Change
|
|||||||||||||
Professional
|
$ | 212,800 | $ | 229,369 | $ | (16,569 | ) | (7.2 | )% | |||||||
Residential
|
116,756 | 107,024 | 9,732 | 9.1 | ||||||||||||
Other
|
1,802 | 3,779 | (1,977 | ) | (52.3 | ) | ||||||||||
Total*
|
$ | 331,358 | $ | 340,172 | $ | (8,814 | ) | (2.6 | )% | |||||||
*
Includes international sales of:
|
$ | 128,383 | $ | 130,391 | $ | (2,008 | ) | (1.5 | )% |
The
following table summarizes segment earnings (loss) before income
taxes:
Three
Months Ended
|
||||||||||||||||
(Dollars
in thousands)
|
January
29,
|
January
30,
|
||||||||||||||
2010
|
2009
|
$
Change
|
%
Change
|
|||||||||||||
Professional
|
$ | 25,810 | $ | 30,129 | $ | (4,319 | ) | (14.3 | )% | |||||||
Residential
|
13,427 | 4,840 | 8,587 | 177.4 | ||||||||||||
Other
|
(22,789 | ) | (24,816 | ) | 2,027 | 8.2 | ||||||||||
Total
|
$ | 16,448 | $ | 10,153 | $ | 6,295 | 62.0 | % |
18
Professional
Net
Sales. Worldwide
net sales for the professional segment in the first quarter of fiscal 2010 were
down 7.2 percent compared to the first quarter of fiscal 2009. Shipments
declined mainly for golf and grounds maintenance equipment products as customers
aligned their orders closer to retail demand, leading to a further reduction in
field inventory levels. Sales of landscape contractor equipment were also down
for the first quarter comparison due mainly to the timing of initial stocking
orders in fiscal 2009 for new products. However, international sales of
micro-irrigation products were up due to market growth and increased demand for
water-conserving products and additional manufacturing capacity that was added
to increase production and sales of our water conserving products to meet the
growing market demand.
Operating
Earnings. Operating earnings for the professional segment were $25.8
million in the first quarter of fiscal 2010 compared to $30.1 million in the
first quarter of fiscal 2009, a decrease of 14.3 percent. Expressed as a
percentage of net sales, professional segment operating margins decreased to
12.1 percent compared to 13.1 percent in the first quarter of fiscal 2009. These
profit declines were primarily attributable to lower sales volumes and lower
gross margins due to increased tooling expense from investments in tools for new
products. Other income, net was also down due mainly to lower currency exchange
rate gains in the first quarter of fiscal 2010 compared to the same period last
year.
Residential
Net
Sales. Worldwide net sales for the residential segment in the first
quarter of fiscal 2010 were up by 9.1 percent compared to the first quarter of
fiscal 2009. This increase was primarily the result of increased net sales of
Pope irrigation products sold in Australia due to dry weather conditions in that
region. In addition, worldwide shipments of snow thrower products were up due to
the timing of the introduction of our new redesigned offering of snow thrower
products that shipped to customers in the first quarter of fiscal 2010. Sales of
riding products and parts were also up in the first quarter of fiscal 2010
compared to fiscal 2009 first quarter.
Operating
Earnings. Operating earnings for the residential segment were $13.4
million in the first quarter of fiscal 2010 compared to $4.8 million in the
first quarter of fiscal 2009, an increase of $8.6 million. Expressed as a
percentage of net sales, residential segment operating margins increased to 11.5
percent compared to 4.5 percent in the first quarter of fiscal 2009. These
increases were due to improved gross margins due to lower average commodity
costs in the first quarter of fiscal 2010 compared to the first quarter of
fiscal 2009, a weaker U.S. dollar compared to other currencies in which we
transact business, cost reduction efforts, and increased sales volumes of
higher-margin products. Lower SG&A expense as a percent of net sales also
contributed to the operating profit improvement as a result of budget reductions
and leveraging fixed SG&A costs over higher sales volumes. In addition, an
increase in other income, net from an increase in currency exchange rate gains
for the first quarter comparison benefited residential segment operating
earnings.
Other
Net
Sales. Net sales for the other segment include sales from our wholly
owned domestic distribution company less sales from the professional and
residential segments to that distribution company. In fiscal 2009, “Other” also
included elimination of the professional and residential segments’ floor plan
interest costs from Toro Credit Company (TCC), our wholly owned financing
company. With the establishment of Red Iron, net sales for the other segment no
longer includes corporate financing activities, including the elimination of
floor plan costs from TCC, which results in lower net sales for the other
segment. The other segment net sales decreased $2.0 million, or 52.3 percent, in
the first quarter of fiscal 2010 compared to the first quarter of fiscal 2009,
since “Other” no longer includes elimination of TCC floor plan interest costs
and from lower net sales at our company-owned distributorship.
Operating
Losses. Operating losses for the other segment were down $2.0 million, or
8.2 percent, for the first quarter of fiscal 2010 compared to the first quarter
of fiscal 2009. This decrease was primarily attributable to our leaner cost
structure from actions we implemented in fiscal 2009, primarily after the first
quarter of fiscal 2009, costs incurred for workforce adjustments in fiscal 2009,
and a decrease in bad debt expense. Somewhat offsetting those declines was an
increase in incentive compensation expense due to anticipated improved financial
performance in fiscal 2010, as compared to fiscal 2009.
19
FINANCIAL
POSITION
Working
Capital
We have
taken proactive measures to improve working capital utilization, including
adjusting production plans, controlling costs, and managing our assets. As such,
our financial condition remains strong. We continue to place emphasis on asset
management, with a focus on minimizing the amount of working capital in the
supply chain and maintaining or improving order replenishment and service levels
to end users. In connection with the establishment of Red Iron, our financing
joint venture with TCFIF, we sold certain receivables, including floor plan and
open account receivables, from most U.S. and Canadian distributors and dealers
of our products at a purchase price equal to the face value of the receivables
or the purchase price paid for such receivables. Red Iron generally began
financing floor plan receivables in the fourth quarter of fiscal 2009. Red Iron
also began financing open account receivables, as well as floor plan receivables
previously financed by a third party financing company, during our first quarter
of fiscal 2010. The sale of these receivables enables us to use our working
capital for other strategic purposes, such as strategic acquisitions, research
and development of innovative new products, improvements in the quality and
performance of existing products, and general corporate purposes.
Receivables
as of the end of the first quarter of fiscal 2010 were down 43.9 percent
compared to the end of the first quarter of fiscal 2009 and our average days
sales outstanding for receivables improved to 60 days based on sales for the
last twelve months ended January 29, 2010, compared to 68 days for the twelve
months ended January 30, 2009. These improvements were due mainly to the sale of
our floor plan receivables and certain open account receivables to Red Iron.
Inventory was also down as of the end of the first quarter of fiscal 2010 by
20.0 percent compared to the end of the first quarter of fiscal 2009, and
average inventory turnover improved 7.5 percent for the twelve months ended
January 29, 2010 compared to the twelve months ended January 30, 2009. In
addition, as part of our working capital initiative, accounts payable increased
as of the end of our first quarter of fiscal 2010, by $20.0 million or 22.3
percent, driven by our supply chain initiatives.
Liquidity and Capital Resources
Our
businesses are working capital intensive and require funding for purchases of
raw materials used in production, replacement parts inventory, payroll and other
administrative costs, capital expenditures, expansion and upgrading of existing
facilities, as well as receivables from customers that are not financed with Red
Iron. We believe that anticipated cash generated from operations, together with
our fixed rate long-term debt, bank credit lines, and cash on hand, will provide
us with adequate liquidity to meet our anticipated operating requirements. One
of the purposes of establishing Red Iron was to free up our working capital for
other strategic purposes, which may include, among other things, strategic
acquisitions, research and development of innovative new products, improvements
in the quality and performance of existing products, and general corporate
purposes. We believe that the funds available through existing financing
arrangements and forecasted cash flows will be sufficient to provide the
necessary capital resources for our anticipated working capital needs, capital
expenditures, investments, debt repayments, and quarterly cash dividend payments
for at least the next twelve months.
Our
Board of Directors approved a cash dividend of $0.18 per share for the first
quarter of fiscal 2010 paid on January 12, 2010, which was an increase of 20
percent over our cash dividend of $0.15 per share for the first quarter of
fiscal 2009.
Cash
Flow. Our first fiscal quarter historically uses more operating cash than
other fiscal quarters due to the seasonality of our business. Cash used in
operating activities for the first three months of fiscal 2010 was $10.5 million
for the first three months of fiscal 2009 compared to $72.5 million for the
first three months of fiscal 2009, a reduction of $62.0 million, or 85.5
percent. This decrease was due to declines in receivables and inventory levels
and an increase in accounts payable, as previously discussed, as well as higher
net earnings, all for the first three months of fiscal 2010 compared to the
first three months of fiscal 2009. Cash used in investing activities was up by
$4.5 million compared to the first quarter of fiscal 2009, due mainly to an
increase in investments in affiliates and cash utilized for an acquisition of an
independent distribution company. Cash used in financing activities for the
first quarter of fiscal 2010 was $3.5 million compared to cash provided by
financing activities of $18.7 million for the first quarter of fiscal 2009. This
change was due mainly to short-term borrowing under our revolving credit
facility as of the end of the first quarter of fiscal 2009, whereas we did not
have any short-term debt outstanding under our revolving credit facility as of
the end of the first quarter of fiscal 2010.
Credit
Lines and Other Capital Resources. Our
businesses are seasonal, with accounts receivable balances historically
increasing between January and April, as a result of higher sales volumes and
payment terms made available to our customers and decreasing between May and
December when payments are received. The seasonality of production and shipments
causes our working capital requirements to fluctuate during the year. Seasonal
cash requirements are financed from operations, cash on hand, and with
short-term financing arrangements, including a $225.0 million unsecured senior
five-year revolving credit facility that expires in January 2012. Interest
expense on this credit line is determined based on a LIBOR rate plus a basis
point spread
20
defined
in the credit agreement. In addition, our non-U.S. operations maintain unsecured
short-term lines of credit of approximately $20 million. These facilities bear
interest at various rates depending on the rates in their respective countries
of operation. We also have a letter of credit subfacility as part of our credit
agreement. As of January 29, 2010, we had $10.1 million of outstanding standby
letters of credit. We had no outstanding short-term debt as of January 29, 2010
and $25.0 million outstanding short-term debt as of January 30, 2009, under
these lines of credit. As of January 29, 2010, we had $255.6 million of
unutilized availability under our credit agreements. In addition, we had $0.7
million in short-term debt for certain receivables we provided recourse to Red
Iron as of January 29, 2010.
Significant
financial covenants in our credit agreement include interest coverage and
debt-to-capitalization ratios. We were in compliance with all covenants related
to our credit agreements as of January 29, 2010, and expect to be in compliance
with all covenants during the remainder of fiscal 2010.
Customer
Financing Arrangements and Contractual Obligations
Third
party financing companies and Red Iron purchased $190.6 million of receivables
from us during the first three months of fiscal 2010, and $180.4 million was
outstanding as of January 29, 2010. See our most recently filed Annual Report on
Form 10-K for further details regarding our customer financing arrangements and
contractual obligations.
Inflation
We are
subject to the effects of inflation and changing prices. In the first quarter of
fiscal 2010, average prices paid for commodities we purchase were lower compared
to the average prices paid for commodities in the first quarter of fiscal 2009,
which benefited our gross margin rate in the first quarter of fiscal 2010
compared to the first quarter of fiscal 2009. We will continue to closely follow
the commodities that affect our product lines, and we anticipate average prices
paid for commodities to be lower for the remainder of fiscal 2010 as compared to
fiscal 2009. We plan to attempt to mitigate the impact of any inflationary
pressures by engaging in proactive vendor negotiations, reviewing alternative
sourcing options, substituting materials, engaging in internal cost reduction
efforts, and increasing prices on some of our products, as
appropriate.
Significant
Accounting Policies and Estimates
See our
most recent Annual Report on Form 10-K for the fiscal year ended
October 31, 2009 for a discussion of our critical accounting
policies.
New Accounting Pronouncements to be Adopted
In
January 2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2010-06, “Fair Value Measurements and Disclosures
(Topic 820).” ASU No. 2010-06 requires new disclosures about recurring and
nonrecurring fair-value measurements including significant transfers in and out
of Level 1 and Level 2 fair-value measurements and a description of the reasons
for the transfers. In addition, ASU No. 2010-06 requires new disclosures
regarding activity in Level 3 fair value measurements, including information on
purchases, sales, issuances, and settlements on a gross basis in the
reconciliation of Level 3 fair-value measurements. We will adopt the provision
of ASU No. 2010-06 for Level 1 and Level 2 fair-value measurements for our
second fiscal quarter beginning on January 30, 2010, as required. We will adopt
the provision of ASU No. 2010-06 for Level 3 fair-value measurements for our
second fiscal quarter beginning on January 30, 2011, as required. We do not
expect the adoption of ASU No. 2010-06 will have a material impact on our
disclosures for fair-value measurements.
In
June 2009, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 167, “Amendments to FASB Interpretation No. 46(R),” and
SFAS No. 166, “Accounting for Transfers of Financial Assets—an amendment of
FASB Statement No. 140.” SFAS No. 167 amends FASB Interpretation
46(R) to eliminate the quantitative approach previously required for
determining the primary beneficiary of a variable interest entity and requires
ongoing qualitative reassessments of whether an enterprise is the primary
beneficiary of a variable interest entity. SFAS No. 166 amends SFAS
No. 140 by removing the exemption from consolidation for Qualifying Special
Purpose Entities. SFAS No. 166 also limits the circumstances in which a
financial asset, or portion of a financial asset, should be derecognized when
the transferor has not transferred the entire original financial asset to an
entity that is not consolidated with the transferor in the financial statements
being presented and/or when the transferor has continuing involvement with the
transferred financial asset. We will adopt both SFAS No. 167 and SFAS No. 166 on
November 1, 2010, as required. We are currently evaluating the impact the
adoption of these standards will have on our consolidated financial statements
and related disclosures.
21
No
other new accounting pronouncement that has been issued but not yet effective
for us during fiscal 2010 has had or is expected to have a material impact on
our consolidated financial statements.
Forward-Looking
Information
This Quarterly Report on Form 10-Q
contains not only historical information, but also forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and that are
subject to the safe harbor created by those sections. In addition, we or others
on our behalf may make forward-looking statements from time to time in oral
presentations, including telephone conferences and/or web casts open to the
public, in press releases or reports, on our web sites, or otherwise. Statements
that are not historical are forward-looking and reflect
expectations and assumptions. We try to identify forward-looking statements in
this report and elsewhere by using words such as “expect,” “strive,” “looking
ahead,” “outlook,” ”forecast,” “optimistic,” “plan,” “anticipate,” “continue,”
“estimate,” “believe,” “could,” “should,” ”will,” ”would,” “may,” “possible,”
“likely,” “intend,” and similar expressions. Our forward-looking statements
generally relate to our future performance, including our anticipated operating
results and liquidity requirements, our business strategies and goals, and the
effect of laws, rules, regulations, and new accounting pronouncements and
outstanding litigation, on our business, operating results, and financial
condition.
Forward-looking
statements involve risks and uncertainties that could cause actual results to
differ materially from those projected or implied. These risks and uncertainties
include factors that affect all businesses operating in a global market as well
as matters specific to Toro. The following are some of the factors known to us
that could cause our actual results to differ materially from what we have
anticipated in our forward-looking statements:
·
|
Economic
conditions and outlook in the United States and around the world could
adversely affect our net sales and earnings, which includes but is not
limited to recessionary conditions in the U.S. and other regions around
the world and worldwide slow or negative economic growth rates; slow down
or reductions in levels of golf course development, renovation, and
improvement; slow down or reductions in levels of home ownership,
construction, and home sales; consumer spending levels; credit
availability or credit terms for our distributors, dealers, and end-user
customers; short-term, mortgage, and other interest rates; unemployment
rates; inflation; consumer confidence; and general economic and political
conditions and expectations in the U.S. and the foreign economies in which
we conduct business.
|
·
|
Increases
in the cost or disruption in the availability of raw materials and
components that we purchase and increases in our other costs of doing
business, including transportation costs, may adversely affect our profit
margins and business.
|
·
|
Weather
conditions may reduce demand for some of our products and adversely affect
our net sales.
|
·
|
Our
professional segment net sales are dependent upon the level of residential
and commercial construction, the level of homeowners’ outsourcing lawn
care, the amount of investment in golf course renovations and
improvements, new golf course development, golf course closures,
availability of credit on acceptable credit terms to finance product
purchases, and the level of government and municipal revenue, budget, and
spending levels for grounds maintenance equipment and other
factors.
|
·
|
Our
residential segment net sales are dependent upon consumer spending levels,
the amount of product placement at retailers, changing buying patterns of
customers, and The Home Depot, Inc. as a major
customer.
|
·
|
If
we are unable to continue to enhance existing products and develop and
market new products that respond to customer needs and preferences and
achieve market acceptance, or if we experience unforeseen product quality
or other problems in the development, production, or use of new and
existing products, we may experience a decrease in demand for our
products, and our business could
suffer.
|
·
|
We
face intense competition in all of our product lines with numerous
manufacturers, including from some competitors that have greater
operations and financial resources than us. We may not be able to compete
effectively against competitors’ actions, which could harm our business
and operating results.
|
·
|
A
significant percentage of our consolidated net sales are generated outside
of the United States, and we intend to continue to expand our
international operations. Our international operations require significant
management attention and financial resources, expose us to difficulties
presented by international economic, cultural, political, legal,
accounting, and business factors; and may not be successful or produce
desired levels of net sales.
|
·
|
Fluctuations
in foreign currency exchange rates could result in declines in our
reported net sales and net
earnings.
|
·
|
We
manufacture our products at and distribute our products from several
locations in the United States and internationally. Any disruption at any
of these facilities or our inability to cost-effectively expand existing
and/or move production between manufacturing facilities could adversely
affect our business and operating
results.
|
22
·
|
We
intend to grow our business in part through additional acquisitions,
alliances, stronger customer relations, and new joint ventures and
partnerships, which are risky and could harm our business, particularly if
we are not able to successfully integrate such acquisitions, alliances,
joint ventures, and partnerships.
|
·
|
We
rely on our management information systems for inventory management,
distribution, and other functions. If our information systems fail to
adequately perform these functions or if we experience an interruption in
their operation, our business and operating results could be adversely
affected.
|
·
|
As
a result of our recently established financing joint venture with TCFIF,
we are dependent upon the joint venture to provide competitive inventory
financing programs, including floor plan and open account receivable
financing, to certain distributors and dealers of our products. Any
difficulty in transitioning our inventory financing programs to the joint
venture, any material change in the availability or terms of credit
offered to our customers by the joint venture, any termination or
disruption of our joint venture relationship or any delay in securing
replacement credit sources could adversely affect our net sales and
operating results.
|
·
|
A
portion of our international net sales are financed by third parties. The
termination of our agreements with these third parties, any material
change to the terms of our agreements with these third parties or in the
availability or terms of credit offered to our international customers by
these third parties, or any delay in securing replacement credit sources,
could adversely affect our sales and operating
results.
|
·
|
Our
reliance upon patents, trademark laws, and contractual provisions to
protect our proprietary rights may not be sufficient to protect our
intellectual property from others who may sell similar products. Our
products may infringe the proprietary rights of
others.
|
·
|
Our
business, properties, and products are subject to governmental regulation
with which compliance may require us to incur expenses or modify our
products or operations and non-compliance may expose us to penalties.
Governmental regulation may also adversely affect the demand for some of
our products and our operating
results.
|
·
|
Legislative
enactments could impact the competitive landscape within our markets and
affect demand for our products.
|
·
|
We
are subject to product liability claims, product quality issues, and other
litigation from time to time that could adversely affect our operating
results or financial condition, including without limitation the pending
litigation against us and other defendants that challenges the horsepower
labels on the products the plaintiffs purchased were inaccurate. In the
event that settlement discussions do not result in an executed or court
approved settlement agreement and these lawsuits go to trial, even if the
plaintiffs’ claims are found to be without merit, we have incurred, and
expect to continue to incur, substantial costs in defending the lawsuit.
The lawsuit could divert the time and attention of our management and
could result in adverse publicity, either of which could significantly
harm our operating results and financial condition. In addition, an
unfavorable resolution or outcome could have a material adverse effect on
our operating results or financial
condition.
|
·
|
If
we are unable to retain our key employees, and attract and retain other
qualified personnel, we may not be able to meet strategic objectives and
our business could suffer.
|
·
|
The
terms of our credit arrangements and the indentures governing our senior
notes and debentures could limit our ability to conduct our business, take
advantage of business opportunities, and respond to changing business,
market, and economic conditions. Additionally, we are subject to
counterparty risk in our credit arrangements. If we are unable to comply
with the terms of our credit arrangements and indentures, especially the
financial covenants, our credit arrangements could be terminated and our
senior notes and debentures could become due and
payable.
|
·
|
Our
business is subject to a number of other factors that may adversely affect
our operating results, financial condition, or business, such as natural
or man-made disasters or global pandemics that may result in shortages of
raw materials, higher fuel costs, and an increase in insurance premiums;
financial viability of our distributors and dealers, changes in
distributor ownership, changes in channel distribution of our products,
relationships with our distribution channel partners, our success in
partnering with new dealers, and our customers’ ability to pay amounts
owed to us; ability of management to adapt to unplanned events; drug
cartel-related violence, which may disrupt our production activities and
maquiladora operations based in Juarez, Mexico; and continued threat of
terrorist acts and war that may result in heightened security and higher
costs for import and export shipments of components or finished goods,
reduced leisure travel, and contraction of the U.S. and world
economies.
|
For more
information regarding these and other uncertainties and factors that could cause
our actual results to differ materially from what we have anticipated in our
forward-looking statements or otherwise could materially adversely affect our
business, financial condition, or operating results, see our most recently filed
Annual Report on Form 10-K, Part I, Item 1A, “Risk Factors.”
23
All
forward-looking statements included in this report are expressly qualified in
their entirety by the foregoing cautionary statements. We wish to caution
readers not to place undue reliance on any forward-looking statement which
speaks only as of the date made and to recognize that forward-looking statements
are predictions of future results, which may not occur as anticipated. 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 that we may consider immaterial or do not
anticipate at this time. The foregoing risks and uncertainties are not exclusive
and further information concerning the company and our businesses, including
factors that potentially could materially affect our financial results or
condition, may emerge from time to time. We assume no obligation to update
forward-looking statements to reflect actual results or changes in factors or
assumptions affecting such forward-looking statements. We advise you, however,
to consult any further disclosures we make on related subjects in our future
annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports
on Form 8-K we file with or furnish to the Securities and Exchange
Commission.
We are
exposed to market risk stemming from changes in foreign currency exchange rates,
interest rates, and commodity prices. Changes in these factors could cause
fluctuations in our net earnings and cash flows. See further discussions on
these market risks below. We are also exposed to equity market risk pertaining
to the trading price of our common stock.
Foreign
Currency Exchange Rate Risk. In the normal course of
business, we actively manage the exposure of our foreign currency exchange rate
market risk by entering into various hedging instruments, authorized under
company policies that place controls on these activities, with counterparties
that are highly rated financial institutions. Our hedging activities involve the
primary use of forward currency contracts. We use derivative instruments only in
an attempt to limit underlying exposure from currency fluctuations and to
minimize earnings and cash flow volatility associated with foreign currency
exchange rate changes and not for trading purposes. We are exposed to foreign
currency exchange rate risk arising from transactions in the normal course of
business, such as sales and loans to wholly owned foreign subsidiaries, foreign
plant operations, and purchases from suppliers. Because our products are
manufactured or sourced primarily from the United States and Mexico, a stronger
U.S. dollar and Mexican peso generally has a negative impact on our results from
operations, while a weaker dollar and peso generally has a positive effect. Our
primary currency exchange rate exposures are with the Euro, the Australian
dollar, the Canadian dollar, the British pound, the Mexican peso, and the
Japanese yen against the U.S. dollar.
We
enter into various contracts, principally forward contracts that change in value
as foreign currency exchange rates change, to protect the value of existing
foreign currency assets, liabilities, anticipated sales, and probable
commitments. Decisions on whether to use such contracts are made based on the
amount of exposures to the currency involved and an assessment of the near-term
market value for each currency. Worldwide foreign currency exchange rate
exposures are reviewed monthly. The gains and losses on these contracts offset
changes in market values of the related exposures. Therefore, 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. Additional information regarding gains and losses on
our derivative instruments is presented in the Notes to Condensed Consolidated
Financial Statements (Unaudited) in Item 1 of this Quarterly Report on Form
10-Q, in the section entitled “Derivative Instruments and Hedging
Activities.”
The
following foreign currency exchange contracts held by us have maturity dates in
fiscal 2010 and 2011. All items are non-trading and stated in U.S. dollars. Some
derivative instruments we enter into do not meet the cash flow hedging criteria;
therefore, changes in fair value are recorded in other (expense) income, net.
The average contracted rate, notional amount, pre-tax value of derivative
instruments in accumulated other comprehensive loss, and fair value impact of
derivative instruments in other income, net as of and for the fiscal period
ended January 29, 2010 were as follows:
Dollars
in thousands
(except
average contracted rate)
|
Average
Contracted
Rate
|
Notional
Amount
|
Value
in
Accumulated
Other
Comprehensive
Income (Loss)
|
Fair
Value
Impact
Gain
(Loss)
|
||||||||||||
Buy
US dollar/Sell Australian dollar
|
0.8330 | $ | 45,276.5 | $ | (1,828.4 | ) | $ | (1,614.8 | ) | |||||||
Buy
US dollar/Sell Canadian dollar
|
0.9312 | 8,148.2 | (75.8 | ) | (32.8 | ) | ||||||||||
Buy
US dollar/Sell Euro
|
1.4089 | 65,018.7 | 41.8 | (54.8 | ) | |||||||||||
Buy
US dollar/Sell British pound
|
1.6164 | 3,394.4 | — | — | ||||||||||||
Buy
Mexican peso/Sell US dollar
|
13.2888 | 13,771.0 | (7.7 | ) | (128.4 | ) |
24
Our
net investment in foreign subsidiaries translated into U.S. dollars is not
hedged. Any changes in foreign currency exchange rates would be reflected as a
foreign currency translation adjustment, a component of accumulated other
comprehensive loss in stockholders’ equity, and would not impact net
earnings.
Interest
Rate Risk. Our market risk on
interest rates relates primarily to LIBOR-based short-term debt from commercial
banks, as well as the potential increase in fair value of long-term debt
resulting from a potential decrease in interest rates. However, we do not have a
cash flow or earnings exposure due to market risks on long-term debt. We
generally do not use interest rate swaps to mitigate the impact of fluctuations
in interest rates. See our most recently filed Annual Report on Form 10-K (Item
7A). There has been no material change in this information.
Commodity
Price Risk. Some
raw materials used in our products are exposed to commodity price changes. The
primary commodity price exposures are with steel, aluminum, fuel,
petroleum-based resin, and linerboard. In addition, we are a purchaser of
components and parts containing various commodities, including steel, aluminum,
copper, lead, rubber, and others which are integrated into our end products.
Further information regarding rising prices for commodities is presented in Item
2 of this Quarterly Report on Form 10-Q, in the section entitled
“Inflation.”
We
enter into fixed-price contracts for future purchases of natural gas in the
normal course of operations as a means to manage natural gas price risks. These
contracts meet the definition of “normal purchases and normal sales” and,
therefore, are not considered derivative instruments for accounting
purposes.
We
maintain disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) that are designed to reasonably ensure that information
required to be disclosed by us in the reports we file or submit under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized,
and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms and that such information is accumulated and
communicated to our management, including our principal executive and principal
financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure. In designing and
evaluating our disclosure controls and procedures, we recognize that any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives, and we
are required to apply our judgment in evaluating the cost-benefit relationship
of possible internal controls. Our management evaluated, with the participation
of our Chief Executive Officer and Chief Financial Officer, the effectiveness of
the design and operation of our disclosure controls and procedures as of the end
of the period covered in this Quarterly Report on Form 10-Q. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of the end of such
period to provide reasonable assurance that information required to be disclosed
in our Exchange Act reports is recorded, processed, summarized, and reported
within the time periods specified in the SEC’s rules and forms, and that
material information relating to our company and our consolidated subsidiaries
is made known to management, including our Chief Executive Officer and Chief
Financial Officer, particularly during the period when our periodic reports are
being prepared. There was no change in our internal control over financial
reporting that occurred during our fiscal first quarter ended January 29, 2010
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Item
1. LEGAL PROCEEDINGS
General.
The company is party to litigation in the ordinary course of business.
Litigation occasionally involves claims for punitive as well as compensatory
damages arising out of use of the company’s products. Although the company is
self-insured to some extent, the company maintains insurance against certain
product liability losses. The company is also subject to administrative
proceedings with respect to claims involving the discharge of hazardous
substances into the environment. Some of these claims assert damages and
liability for remedial investigations and clean up costs. The company is also
typically involved in commercial disputes, employment disputes, and patent
litigation cases in the ordinary course of business. To prevent possible
infringement of the company’s patents by others, the company periodically
reviews competitors’ products. To avoid potential liability with respect to
others’ patents, the company regularly reviews certain patents issued by the
United States Patent and Trademark Office (USPTO) and foreign patent offices.
Management believes these activities help minimize its risk of being a defendant
in patent infringement litigation. The company is currently involved in patent
litigation cases, both where it is asserting patents and where it is defending
against charges of infringement.
Lawnmower Engine
Horsepower Marketing and Sales Practices Litigation. In June 2004,
individuals who claim to have purchased lawnmowers in Illinois and Minnesota
filed a class action lawsuit in Illinois state court against the company
and
25
other
defendants alleging that the horsepower labels on the products the plaintiffs
purchased were inaccurate. Those individuals later amended their complaint to
add additional plaintiffs and an additional defendant. The plaintiffs asserted
violations of the federal Racketeer Influenced and Corrupt Organizations Act
(RICO) and state statutory and common law claims. The plaintiffs sought
certification of a class of all persons in the United States who, beginning
January 1, 1994 through the present, purchased a lawnmower containing a
two-stroke or four-stroke gas combustible engine up to 30 horsepower that was
manufactured or sold by the defendants. The amended complaint also sought an
injunction, unspecified compensatory and punitive damages, treble damages under
RICO, and attorneys’ fees.
In
May 2006, the case was removed to federal court in the Southern
District of Illinois. In August 2006, the company, together with the other
defendants other than MTD Products Inc. (MTD), filed a motion to dismiss the
amended complaint. Also in August 2006, the plaintiffs filed a motion for
preliminary approval of a settlement agreement with MTD and certification of a
settlement class. In December 2006, another defendant, American Honda Motor
Company (“Honda”), notified the company and the other defendants that it had
reached a settlement agreement with the plaintiffs.
In
May 2008, the court issued a memorandum and order that (i) dismissed the RICO
claim in its entirety; (ii) dismissed all non-Illinois state-law claims but with
instructions that such claims could be re-filed in local courts; and (iii)
rejected the proposed settlement with MTD. The proposed Honda settlement was not
under consideration by the court and was not addressed in the memorandum and
order. Also in May 2008, the plaintiffs (i) re-filed the Illinois claims with
the court; and (ii) filed non-Illinois claims in federal courts in the District
of New Jersey and the Northern District of California with essentially the same
state law claims.
In
June 2008, the plaintiffs filed a motion with the United States Judicial Panel
on Multidistrict Litigation (the “MDL Panel”) that (i) stated their intent to
file lawsuits in all 50 states and the District of Columbia; and (ii) sought to
have all of the cases transferred for coordinated pretrial proceedings. In
August 2008, the MDL Panel issued an order denying the transfer request.
Additional lawsuits, some of which included additional plaintiffs, were filed in
various federal and state courts asserting essentially the same state law
claims. To date, lawsuits have been filed in federal and state courts throughout
the United States, which collectively assert claims under the laws of each
state.
In
September 2008, the company and other defendants filed a motion with the MDL
Panel that sought to transfer the multiple actions for coordinated pretrial
proceedings. In early December 2008, the MDL Panel issued an order that; (i)
transferred 23 lawsuits, which collectively asserted claims under the laws of 16
states, for coordinated or consolidated pretrial proceedings; (ii) selected the
United States District Court for the Eastern District of Wisconsin as the
transferee district, and (iii) provided that additional lawsuits will be treated
as “tag-along” actions in accordance with its rules.
An initial hearing was held in the United States District Court for the Eastern
District of Wisconsin in January 2009. At that hearing, the Court (i) appointed
lead plaintiffs’ counsel, and (ii) entered a stay of all litigation so that the
parties could explore mediation. Formal mediation proceedings were commenced,
settlement discussions were conducted, and as of the date hereof, all defendants
have entered into settlement agreements with the plaintiffs. On February 24,
2010, the company and certain other defendants entered into a settlement
agreement with the plaintiffs which provides for, among other things, (i) a
monetary settlement, (ii) an additional warranty period for some engines that
are subject to the litigation, and (iii) injunctive relief relating to power
rating labeling practices. The plaintiffs filed a motion for preliminary
approval of the settlement agreement and certification of a settlement class,
and on February 26, 2010, the court granted the motion. The settlement is not
final for all purposes until after members of the proposed settlement class
receive notice of the settlement, the Court determines that the settlement is
fair, and applicable appeal periods expire without appeal. At this time,
management is unable to provide assurance that the settlement will become
final.
Management
continues to evaluate these lawsuits. If the settlement becomes final, the
company’s obligations under the settlement agreement will not have a material
adverse effect on the company’s operating results or financial position. The
expected costs of the company’s settlement obligations are consistent with
accruals established in prior periods. In the event the settlement does not
become final, management is unable to assess at this time whether these lawsuits
would have a material adverse effect on the company’s annual consolidated
operating results or financial condition, although an unfavorable resolution or
outcome could be material to the company’s consolidated operating results for a
particular period.
Textron
Innovations Inc. v. The Toro Company. In July 2005, Textron Innovations
Inc., the patent holding company of Textron, Inc., filed a lawsuit in Delaware
Federal District Court against the company for patent infringement. Textron
alleged that the company willfully infringed certain claims of three Textron
patents by selling its Groundsmaster® commercial mowers. Textron sought damages
for the company’s past sales and an injunction against future infringement. In
August and November 2005, management answered the complaint, asserting defenses
and counterclaims of non-infringement, invalidity, and equitable estoppel.
Following the Court’s order in October 2006 construing the claims of Textron’s
patents, discovery in the case was closed in February 2007. In March 2007,
following unsuccessful attempts to mediate the case, management filed with the
USPTO to have Textron’s patents reexamined. The reexamination proceedings are
pending in the USPTO, and all of the claims asserted against the company in all
three patents stand rejected. In April 2007, the Court granted the company’s
motion to stay the litigation and, in June 2007, denied Textron’s motion for
reconsideration of the Court’s order staying the proceedings. On February 26,
2010, the company entered into a Settlement Agreement with Textron that provides
that the Delaware lawsuit, as well as a related lawsuit filed by the company
against Textron in Minnesota Federal District Court relative to certain of the
company’s patents, will each be dismissed in their
entirety.
26
We are
affected by risks specific to us as well as factors that affect all businesses
operating in a global market. The significant factors known to us that could
materially adversely affect our business, financial condition, or operating
results or could cause our actual results to differ materially from our
anticipated results or other expectations, including those expressed in any
forward-looking statement made in this report, are described in our most
recently filed Annual Report on Form 10-K (Item 1A). There has been no material
change in those risk factors.
The
following table shows our first quarter of fiscal 2010 stock repurchase
activity:
Period
|
Total
Number of
Shares
(or Units) Purchased (1)
|
Average
Price
Paid
per Share
(or
Unit)
|
Total
Number of
Shares
(or Units) Purchased
As
Part of Publicly
Announced
Plans
or
Programs
|
Maximum
Number
of
Shares (or Units) that May
Yet
Be Purchased
Under
the Plans or
Programs
(1)
|
||||||||||||
November 1,
2009 through
November
27, 2009
|
42,398 | $ | 40.03 | 42,398 | 3,965,314 | |||||||||||
November
28, 2009 through
January
1, 2010
|
48,947 | 40.55 | 48,947 | 3,916,367 | ||||||||||||
January
2, 2010 through
January
29, 2010
|
2,402 | (2) | 43.59 | — | 3,916,367 | |||||||||||
Total
|
93,747 | $ | 40.39 | 91,345 |
|
(1)
|
On
July 21, 2009, the company’s Board of Directors authorized the repurchase
of 5,000,000 shares of the company’s common stock in open-market or in
privately negotiated transactions. This program has no expiration date but
may be terminated by the company’s Board of Directors at any
time.
|
|
(2)
|
Includes
2,402 units (shares) of the company’s common stock purchased in
open-market transactions at an average price of $43.59 per share on behalf
of a rabbi trust formed to pay benefit obligations of the company to
participants in deferred compensation plans. These 2,402 shares were not
repurchased under the company’s repurchase program described in footnote 1
above.
|
27
(a)
|
Exhibits
|
|
3.1
and 4.1
|
Restated
Certificate of Incorporation of The Toro Company (incorporated by
reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated
June 17, 2008, Commission File No. 1-8649).
|
|
3.2
and 4.2
|
Amended
and Restated Bylaws of The Toro Company (incorporated by reference to
Exhibit 3.2 to Registrant’s Current Report on Form 8-K dated June 17,
2008, Commission File No. 1-8649).
|
|
4.3
|
Specimen
Form of Common Stock Certificate (incorporated by reference to Exhibit
4(c) to Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter
ended August 1, 2008).
|
|
4.4
|
Indenture
dated as of January 31, 1997, between Registrant and First National Trust
Association, as Trustee, relating to The Toro Company’s 7.80% Debentures
due June 15, 2027 (incorporated by reference to Exhibit 4(a) to
Registrant’s Current Report on Form 8-K dated June 24, 1997, Commission
File No. 1-8649).
|
|
4.5
|
Indenture
dated as of April 20, 2007, between Registrant and The Bank of New
York Trust Company, N.A., as Trustee, relating to The Toro Company’s
6.625% Notes due May 1, 2037 (incorporated by reference to Exhibit 4.3 to
Registrant’s Registration Statement on Form S-3 filed with the Securities
and Exchange Commission on April 23, 2007, Registration No.
333-142282).
|
|
4.6
|
First
Supplemental Indenture dated as of April 26, 2007, between Registrant and
The Bank of New York Trust Company, N.A., as Trustee, relating to The Toro
Company’s 6.625% Notes due May 1, 2037 (incorporated by reference to
Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated April 23,
2007, Commission File No. 1-8649).
|
|
4.7
|
Form
of The Toro Company 6.625% Note due May 1, 2037 (incorporated by reference
to Exhibit 4.2 to Registrant’s Current Report on Form 8-K dated April 23,
2007, Commission File No. 1-8649).
|
|
10.1
|
Amended
and Restated Repurchase Agreement (Two Step) effective as of January 29,
2010, by and between The Toro Company and Red Iron Acceptance, LLC (filed
herewith).
|
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Rule 13a-14(a) (Section 302 of the
Sarbanes-Oxley Act of 2002) (filed herewith).
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Rule 13a-14(a) (Section 302 of the
Sarbanes-Oxley Act of 2002) (filed herewith).
|
|
32
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (furnished herewith).
|
|
99.1
|
Stipulation
of Settlement dated as of February 24, 2010 In Re: Lawnmower Engine
Horsepower Marketing and Sales Practices Litigation (filed
herewith).
|
|
28
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
|
THE TORO
COMPANY
(Registrant)
Date: March
5, 2010
|
By
/s/ Stephen P.
Wolfe
|
Stephen
P. Wolfe
|
|
Vice
President, Finance
|
|
and
Chief Financial Officer
|
|
(duly
authorized officer and principal financial
officer)
|
29