form_10q.htm
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 30, 2009
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 is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
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 27, 2009 was
35,804,195.
THE
TORO COMPANY
INDEX
TO FORM 10-Q
|
|
Page Number
|
|
|
|
|
|
|
|
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|
|
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3
|
|
|
|
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4
|
|
|
|
|
|
5
|
|
|
|
|
|
6-14
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|
|
|
|
15-22
|
|
|
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|
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23-24
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|
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24
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|
|
|
|
|
|
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|
24-25
|
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25
|
|
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|
26
|
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26-27
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|
28
|
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
30,
|
|
|
February
1,
|
|
|
|
2009
|
|
|
2008
|
|
Net
sales
|
|
$ |
340,172 |
|
|
$ |
405,799 |
|
Cost
of
sales
|
|
|
221,912 |
|
|
|
256,662 |
|
Gross
profit
|
|
|
118,260 |
|
|
|
149,137 |
|
Selling,
general, and administrative
expense
|
|
|
104,559 |
|
|
|
117,117 |
|
Earnings
from
operations
|
|
|
13,701 |
|
|
|
32,020 |
|
Interest
expense
|
|
|
(4,358 |
) |
|
|
(4,883 |
) |
Other
income,
net
|
|
|
810 |
|
|
|
1,698 |
|
Earnings
before income
taxes
|
|
|
10,153 |
|
|
|
28,835 |
|
Provision
for income
taxes
|
|
|
3,422 |
|
|
|
10,208 |
|
Net
earnings
|
|
$ |
6,731 |
|
|
$ |
18,627 |
|
|
|
|
|
|
|
|
|
|
Basic
net earnings per share of common
stock
|
|
$ |
0.19 |
|
|
$ |
0.49 |
|
|
|
|
|
|
|
|
|
|
Diluted
net earnings per share of common
stock
|
|
$ |
0.18 |
|
|
$ |
0.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares of common
|
|
|
|
|
|
|
|
|
stock
outstanding –
Basic
|
|
|
36,366 |
|
|
|
38,386 |
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares of common
|
|
|
|
|
|
|
|
|
stock
outstanding –
Diluted
|
|
|
36,805 |
|
|
|
39,395 |
|
See
accompanying notes to condensed consolidated financial statements.
THE
TORO COMPANY AND SUBSIDIARIES
(Dollars
in thousands, except per share data)
|
|
January
30,
|
|
|
February
1,
|
|
|
October
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
35,597 |
|
|
$ |
29,762 |
|
|
$ |
99,359 |
|
Receivables,
net
|
|
|
297,962 |
|
|
|
344,682 |
|
|
|
256,259 |
|
Inventories,
net
|
|
|
238,704 |
|
|
|
295,923 |
|
|
|
207,084 |
|
Prepaid
expenses and other current assets
|
|
|
23,813 |
|
|
|
14,626 |
|
|
|
27,491 |
|
Deferred
income taxes
|
|
|
55,311 |
|
|
|
56,870 |
|
|
|
53,755 |
|
Total
current assets
|
|
|
651,387 |
|
|
|
741,863 |
|
|
|
643,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant, and equipment
|
|
|
526,938 |
|
|
|
587,423 |
|
|
|
518,536 |
|
Less
accumulated depreciation
|
|
|
359,211 |
|
|
|
416,854 |
|
|
|
349,669 |
|
|
|
|
167,727 |
|
|
|
170,569 |
|
|
|
168,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
6,454 |
|
|
|
6,665 |
|
|
|
6,476 |
|
Other
assets
|
|
|
7,686 |
|
|
|
9,304 |
|
|
|
7,949 |
|
Goodwill
|
|
|
86,385 |
|
|
|
86,064 |
|
|
|
86,192 |
|
Other
intangible assets, net
|
|
|
18,548 |
|
|
|
16,644 |
|
|
|
18,828 |
|
Total
assets
|
|
$ |
938,187 |
|
|
$ |
1,031,109 |
|
|
$ |
932,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$ |
3,377 |
|
|
$ |
2,241 |
|
|
$ |
3,276 |
|
Short-term
debt
|
|
|
25,000 |
|
|
|
85,800 |
|
|
|
2,326 |
|
Accounts
payable
|
|
|
89,561 |
|
|
|
101,866 |
|
|
|
92,997 |
|
Accrued
liabilities
|
|
|
214,403 |
|
|
|
241,737 |
|
|
|
225,852 |
|
Total
current liabilities
|
|
|
332,341 |
|
|
|
431,644 |
|
|
|
324,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
226,396 |
|
|
|
228,241 |
|
|
|
227,515 |
|
Deferred
revenue
|
|
|
8,785 |
|
|
|
10,193 |
|
|
|
9,363 |
|
Other
long-term liabilities
|
|
|
6,227 |
|
|
|
6,893 |
|
|
|
6,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, par value $1.00, authorized 1,000,000 voting
and
850,000 non-voting shares, none issued and outstanding
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Common
stock, par value $1.00, authorized 100,000,000 shares,
issued
and outstanding 35,804,195 shares as of January 30,
2009,
37,450,647 shares as of February 1, 2008, and
35,484,766
shares as of October 31, 2008
|
|
|
35,804 |
|
|
|
37,451 |
|
|
|
35,485 |
|
Retained
earnings
|
|
|
342,081 |
|
|
|
320,074 |
|
|
|
337,734 |
|
Accumulated
other comprehensive loss
|
|
|
(13,447 |
) |
|
|
(3,387 |
) |
|
|
(8,544 |
) |
Total
stockholders' equity
|
|
|
364,438 |
|
|
|
354,138 |
|
|
|
364,675 |
|
Total
liabilities and stockholders' equity
|
|
$ |
938,187 |
|
|
$ |
1,031,109 |
|
|
$ |
932,260 |
|
See
accompanying notes to condensed consolidated financial
statements.
THE
TORO COMPANY AND SUBSIDIARIES
(Dollars in
thousands)
|
|
Three
Months Ended
|
|
|
|
January
30,
|
|
|
February
1,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
6,731 |
|
|
$ |
18,627 |
|
Adjustments
to reconcile net earnings to net cash
|
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
|
Equity
losses from investments
|
|
|
32 |
|
|
|
41 |
|
Provision
for depreciation and amortization
|
|
|
10,389 |
|
|
|
10,986 |
|
Loss
(gain) on disposal of property, plant, and equipment
|
|
|
18 |
|
|
|
(39 |
) |
Gain
on sale of a business
|
|
|
- |
|
|
|
(123 |
) |
Stock-based
compensation expense
|
|
|
874 |
|
|
|
1,881 |
|
Decrease
(increase) in deferred income taxes
|
|
|
238 |
|
|
|
(1,568 |
) |
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Receivables,
net
|
|
|
(42,970 |
) |
|
|
(62,267 |
) |
Inventories,
net
|
|
|
(32,586 |
) |
|
|
(46,799 |
) |
Prepaid
expenses and other assets
|
|
|
(4,947 |
) |
|
|
(3,885 |
) |
Accounts
payable, accrued liabilities, deferred revenue, and other
long-term
liabilities
|
|
|
(10,306 |
) |
|
|
13,116 |
|
Net
cash used in operating activities
|
|
|
(72,527 |
) |
|
|
(70,030 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of property, plant, and equipment
|
|
|
(9,499 |
) |
|
|
(11,027 |
) |
Proceeds
from asset disposals
|
|
|
6 |
|
|
|
39 |
|
Increase
in investment in affiliates
|
|
|
- |
|
|
|
(250 |
) |
(Increase)
decrease in other assets
|
|
|
(567 |
) |
|
|
133 |
|
Proceeds
from sale of a business
|
|
|
- |
|
|
|
1,152 |
|
Acquisition,
net of cash acquired
|
|
|
- |
|
|
|
(1,000 |
) |
Net
cash used in investing activities
|
|
|
(10,060 |
) |
|
|
(10,953 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Increase
in short-term debt
|
|
|
22,675 |
|
|
|
85,428 |
|
Repayments
of long-term debt, net of costs
|
|
|
(1,005 |
) |
|
|
(374 |
) |
Excess
tax benefits from stock-based awards
|
|
|
2,023 |
|
|
|
243 |
|
Proceeds
from exercise of stock-based awards
|
|
|
2,073 |
|
|
|
1,010 |
|
Purchases
of Toro common stock
|
|
|
(1,579 |
) |
|
|
(31,835 |
) |
Dividends
paid on Toro common stock
|
|
|
(5,456 |
) |
|
|
(5,737 |
) |
Net
cash provided by financing activities
|
|
|
18,731 |
|
|
|
48,735 |
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rates on cash
|
|
|
94 |
|
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(63,762 |
) |
|
|
(32,285 |
) |
Cash
and cash equivalents as of the beginning of the fiscal
period
|
|
|
99,359 |
|
|
|
62,047 |
|
Cash
and cash equivalents as of the end of the fiscal period
|
|
$ |
35,597 |
|
|
$ |
29,762 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt issued in connection with an acquisition
|
|
$ |
- |
|
|
$ |
1,660 |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed consolidated financial
statements.
|
|
|
|
|
|
|
|
|
THE
TORO COMPANY AND SUBSIDIARIES
January
30, 2009
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 accounting principles generally accepted
in the United States of America for complete financial statements. Unless the
context indicates otherwise, the terms “company” and “Toro” refer to The Toro
Company and its 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 30, 2009 cannot be annualized to determine the
expected results for the fiscal year ending October 31, 2009. 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, 2008. 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.
generally accepted accounting principles, 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 reserves, allowance for doubtful
accounts, pension and postretirement 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. We adjust 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, 2008, which include, among others, the continued
recessionary economic conditions, tight credit markets, foreign currency, higher
commodity costs, and a decline in consumer spending and confidence, all of which
have combined to 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 continuing changes in the economic environment will be
reflected in the financial statements in future periods. Note 1 to the
consolidated financial statements in the company’s most recent Annual Report on
Form 10-K provides a summary of the significant accounting policies followed in
the preparation of the financial statements. Other notes to the consolidated
financial statements in the company’s Annual Report on Form 10-K describe
various elements of the financial statements and the assumptions made in
determining specific amounts.
Comprehensive
Income
Comprehensive
income and the components of other comprehensive income (loss) were as
follows:
|
|
Three
Months Ended
|
|
(Dollars
in thousands)
|
|
January
30,
|
|
|
February
1,
|
|
|
|
2009
|
|
|
2008
|
|
Net
earnings
|
|
$ |
6,731 |
|
|
$ |
18,627 |
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Cumulative
translation adjustments
|
|
|
(1,756 |
) |
|
|
(1,924 |
) |
Pension
liability adjustment, net of tax
|
|
|
- |
|
|
|
175 |
|
Unrealized
(loss) gain on derivative
instruments,
net of tax
|
|
|
(3,147 |
) |
|
|
1,259 |
|
Comprehensive
income
|
|
$ |
1,828 |
|
|
$ |
18,137 |
|
Stock-Based
Compensation
The
company accounts for stock-based compensation awards in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 123
(Revised 2004), “Share-Based Payment.” 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 directors, officers, and other key employees in the first quarter of
the company’s fiscal year. For all options granted during the first quarter of
fiscal 2009, the options 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 10 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 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. The company also issues performance share awards
to officers and other key employees. The company determines the fair value of
these performance share awards as of the date of grant and recognizes the
expense over the three-year vesting period. Total compensation expense for
option and performance share awards for the first quarter of fiscal 2009 and
2008 was $0.9 million and $1.9 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 2009
|
|
Fiscal 2008
|
Expected
life of option in years
|
6
|
|
3 –
6.5
|
Expected
volatility
|
30.57%
- 30.60%
|
|
24.84%
- 25.75%
|
Weighted-average
volatility
|
30.60%
|
|
25.26%
|
Risk-free
interest rate
|
2.26%
- 3.155%
|
|
3.10%
- 4.08%
|
Expected
dividend yield
|
1.53%-
1.81%
|
|
0.92%-
0.95%
|
Weighted-average
dividend yield
|
1.79%
|
|
0.94%
|
The
weighted-average fair value of options granted during the first quarter of
fiscal 2009 and 2008 was $7.93 per share and $13.90 per share, respectively. The
fair value of performance share awards granted during the first quarter of
fiscal 2009 and 2008 was $28.62 per share and $58.96 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
30,
|
|
|
February
1,
|
|
|
October
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
Raw
materials and work in process
|
|
$ |
66,039 |
|
|
$ |
70,676 |
|
|
$ |
63,268 |
|
Finished
goods and service parts
|
|
|
222,968 |
|
|
|
268,136 |
|
|
|
194,118 |
|
Total
FIFO value
|
|
|
289,007 |
|
|
|
338,812 |
|
|
|
257,386 |
|
Less:
adjustment to LIFO value
|
|
|
50,303 |
|
|
|
42,889 |
|
|
|
50,302 |
|
Total
|
|
$ |
238,704 |
|
|
$ |
295,923 |
|
|
$ |
207,084 |
|
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
30,
|
|
|
February
1,
|
|
Basic
|
|
2009
|
|
|
2008
|
|
Weighted-average
number of shares of common stock
|
|
|
36,350 |
|
|
|
38,362 |
|
Assumed
issuance of contingent shares
|
|
|
16 |
|
|
|
24 |
|
Weighted-average
number of shares of common stock and assumed issuance of contingent
shares
|
|
|
36,366 |
|
|
|
38,386 |
|
Diluted
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares of common stock and assumed issuance of contingent
shares
|
|
|
36,366 |
|
|
|
38,386 |
|
Effect
of dilutive securities
|
|
|
439 |
|
|
|
1,009 |
|
Weighted-average
number of shares of common stock, assumed issuance of contingent shares,
and effect of dilutive securities
|
|
|
36,805 |
|
|
|
39,395 |
|
Options
to purchase an aggregate of 1,521,421 and 179,930 shares of common stock
outstanding as of January 30, 2009 and February 1, 2008, 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.
|
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 two reportable business segments:
Professional and Residential. The Other segment consists of a company-owned
distributorship in the United States and corporate activities, including
corporate financing activities and elimination of intersegment revenues and
expenses.
The
following table shows the summarized financial information concerning the
company’s reportable segments:
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended February 1,
2008
|
|
Professional
|
|
|
Residential
|
|
|
Other
|
|
|
Total
|
|
Net
sales
|
|
$ |
295,047 |
|
|
$ |
106,325 |
|
|
$ |
4,427 |
|
|
$ |
405,799 |
|
Intersegment
gross sales
|
|
|
5,010 |
|
|
|
1,751 |
|
|
|
(6,761 |
) |
|
|
- |
|
Earnings
(loss) before income taxes
|
|
|
51,516 |
|
|
|
3,818 |
|
|
|
(26,499 |
) |
|
|
28,835 |
|
Total
assets
|
|
|
562,671 |
|
|
|
248,273 |
|
|
|
220,165 |
|
|
|
1,031,109 |
|
The
following table presents the details of the Other segment operating loss before
income taxes:
|
|
Three
Months Ended
|
|
(Dollars
in thousands)
|
|
January
30,
|
|
|
February
1,
|
|
|
|
2009
|
|
|
2008
|
|
Corporate
expenses
|
|
$ |
(22,378 |
) |
|
$ |
(24,493 |
) |
Finance
charge
revenue
|
|
|
178 |
|
|
|
367 |
|
Elimination
of corporate financing expense
|
|
|
1,515 |
|
|
|
2,202 |
|
Interest
expense
|
|
|
(4,358 |
) |
|
|
(4,883 |
) |
Other
|
|
|
227 |
|
|
|
308 |
|
Total
|
|
$ |
(24,816 |
) |
|
$ |
(26,499 |
) |
Goodwill
The
changes in the net carrying amount of goodwill for the first quarter of fiscal
2009 were as follows:
(Dollars
in thousands)
|
|
Professional
|
|
|
Residential
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Total
|
|
Balance
as of October 31, 2008
|
|
$ |
75,456 |
|
|
$ |
10,736 |
|
|
$ |
86,192 |
|
Translation
adjustment
|
|
|
72 |
|
|
|
121 |
|
|
|
193 |
|
Balance
as of January 30, 2009
|
|
$ |
75,528 |
|
|
$ |
10,857 |
|
|
$ |
86,385 |
|
Other
Intangible Assets
The
components of other amortizable intangible assets were as follows:
(Dollars
in thousands)
January 30, 2009
|
|
Estimated
Life
(Years)
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Patents
|
|
|
5-13 |
|
|
$ |
7,653 |
|
|
$ |
(6,435 |
) |
|
$ |
1,218 |
|
Non-compete
agreements
|
|
|
2-10 |
|
|
|
2,439 |
|
|
|
(1,266 |
) |
|
|
1,173 |
|
Customer
related
|
|
|
10-13 |
|
|
|
6,195 |
|
|
|
(1,005 |
) |
|
|
5,190 |
|
Developed
technology
|
|
|
2-10 |
|
|
|
7,845 |
|
|
|
(2,456 |
) |
|
|
5,389 |
|
Other
|
|
|
|
|
|
|
800 |
|
|
|
(800 |
) |
|
|
— |
|
Total
amortizable
|
|
|
|
|
|
|
24,932 |
|
|
|
(11,962 |
) |
|
|
12,970 |
|
Non-amortizable
- tradename
|
|
|
|
|
|
|
5,578 |
|
|
|
— |
|
|
|
5,578 |
|
Total
other intangible assets, net
|
|
|
|
|
|
$ |
30,510 |
|
|
$ |
(11,962 |
) |
|
$ |
18,548 |
|
(Dollars
in thousands)
October 31, 2008
|
|
Estimated
Life
(Years)
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Patents
|
|
|
5-13 |
|
|
$ |
7,653 |
|
|
$ |
(6,320 |
) |
|
$ |
1,333 |
|
Non-compete
agreements
|
|
|
2-10 |
|
|
|
2,439 |
|
|
|
(1,180 |
) |
|
|
1,259 |
|
Customer
related
|
|
|
10-13 |
|
|
|
6,327 |
|
|
|
(928 |
) |
|
|
5,399 |
|
Developed
technology
|
|
|
2-10 |
|
|
|
7,586 |
|
|
|
(2,327 |
) |
|
|
5,259 |
|
Other
|
|
|
|
|
|
|
800 |
|
|
|
(800 |
) |
|
|
— |
|
Total
amortizable
|
|
|
|
|
|
|
24,805 |
|
|
|
(11,555 |
) |
|
|
13,250 |
|
Non-amortizable
- tradename
|
|
|
|
|
|
|
5,578 |
|
|
|
— |
|
|
|
5,578 |
|
Total
other intangible assets, net
|
|
|
|
|
|
$ |
30,383 |
|
|
$ |
(11,555 |
) |
|
$ |
18,828 |
|
Amortization
expense for intangible assets during the first quarter of fiscal 2009 was $0.5
million. Estimated amortization expense for the remainder of fiscal 2009 and
succeeding fiscal years is as follows: fiscal 2009 (remainder), $1.4 million;
fiscal 2010, $1.7 million; fiscal 2011, $1.7 million; fiscal 2012, $1.6 million;
fiscal 2013, $1.4 million; fiscal 2014, $1.1 million; and after fiscal 2014,
$4.0 million.
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, dealers, and contractors 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 fiscal
2009 and 2008 were as follows:
(Dollars
in thousands)
|
|
Beginning
|
|
|
Warranty
|
|
|
Warranty
|
|
|
Changes
in
|
|
|
Ending
|
|
Three Months Ended
|
|
Balance
|
|
|
Provisions
|
|
|
Claims
|
|
|
Estimates
|
|
|
Balance
|
|
January
30, 2009
|
|
$ |
58,770 |
|
|
$ |
7,502 |
|
|
$ |
(8,131 |
) |
|
$ |
732 |
|
|
$ |
58,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
1, 2008
|
|
$ |
62,030 |
|
|
$ |
8,940 |
|
|
$ |
(9,144 |
) |
|
$ |
(122 |
) |
|
$ |
61,704 |
|
Postretirement
Benefit and Deferred Compensation Plans
The
following table presents the components of net periodic benefit costs of the
postretirement health-care benefit plan:
|
|
Three
Months Ended
|
|
(Dollars
in thousands)
|
|
January
30,
|
|
|
February
1,
|
|
|
|
2009
|
|
|
2008
|
|
Service
cost
|
|
$ |
54 |
|
|
$ |
89 |
|
Interest
cost
|
|
|
175 |
|
|
|
129 |
|
Prior
service cost
|
|
|
(48 |
) |
|
|
(48 |
) |
Amortization
of losses
|
|
|
48 |
|
|
|
53 |
|
Net
expense
|
|
$ |
229 |
|
|
$ |
223 |
|
As of
January 30, 2009, the company contributed approximately $0.1 million to its
postretirement health-care benefit plan in fiscal 2009. The company presently
expects to contribute a total of $0.4 million in fiscal 2009, including
contributions made through January 30, 2009.
The
company maintains The Toro Company Investment, Savings and Employee Stock
Ownership Plan for eligible employees. The company’s expenses under this plan
were $3.8 million for the first quarter of fiscal 2009 and $4.4 million for the
first quarter of fiscal 2008.
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 30, 2009 was $12.5 million, which reduced the company’s deferred
compensation liability reflected in accrued liabilities on the consolidated
balance sheet.
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 2005 and with
limited exceptions, state and foreign income tax examinations for fiscal years
before 2004. The Internal Revenue Service has just begun an examination of 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 30, 2009.
Although
the outcome of this examination cannot currently be determined, the company
believes adequate provisions have been made for any potential unfavorable
financial statement impact.
As
of January 30, 2009 and February 1, 2008, the company had $5.5 million and $5.8
million, respectively, of liabilities recorded related to unrecognized tax
benefits. Accrued interest and penalties on these unrecognized tax benefits were
$0.8 million and $1.0 million as of January 30, 2009 and February 1, 2008,
respectively. The company recognizes potential accrued interest and penalties
related to unrecognized tax benefits 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 balances
as of January 30, 2009 are approximately $3.0 million of unrecognized tax
benefits that, if recognized, will affect the company’s effective tax
rate.
The
company does not anticipate that total unrecognized tax benefits will change
significantly during the next 12 months.
Derivative
Instruments and Hedging Activities
In the
normal course of business, 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 derivative instruments only in an attempt to limit underlying
exposure from currency exchange rate fluctuations and to minimize earnings and
cash flow volatility associated with foreign exchange rate changes, and not for
trading purposes. 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. Because the company’s
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 results from operations, while a weaker dollar and peso generally has a
positive effect. The company’s 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.
SFAS
No. 133, “Accounting for Derivative Instruments and Hedging Activities” requires
companies to recognize all derivative instruments as either assets or
liabilities at fair value in the statement of financial position. In accordance
to SFAS No. 133, for derivative instruments that are designated and qualify as a
cash flow hedge, the effective portion of the gain or loss on the derivative is
reported as a component of other comprehensive income (OCI) and reclassified
into earnings in the same period or periods during which the hedged transaction
affects earnings. Gains and losses on the derivative representing either hedge
ineffectiveness or hedge components excluded from the assessment of
effectiveness are recognized in current earnings. In March 2008, the Financial
Accounting Standards Board (FASB) issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities, an amendment of FASB Statement
No. 133.” SFAS No. 161 amends and expands the disclosure requirements of SFAS
No. 133 with the intent to provide users of financial statements with an
enhanced understanding of: (i) how and why an entity uses derivative
instruments; (ii) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations; and (iii) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. The company adopted the
disclosure requirements of this statement for its first fiscal quarter ended
January 30, 2009.
The
company enters 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 the value 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. Management assesses, both at the hedge’s inception
and on an ongoing basis, whether the derivative instruments designated as
hedging instruments are effective in offsetting changes in cash flows of the
hedged item.
The
following table presents the fair value of the company’s derivatives and
consolidated balance sheet location.
|
Asset
Derivatives
|
|
Liability
Derivatives
|
|
January
30, 2009
|
February
1, 2008
|
|
January
30, 2009
|
February
1, 2008
|
|
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
|
$
6,020
|
Prepaid
expenses
|
$
-
|
|
Accrued
liabilities
|
$
-
|
Accrued
liabilities
|
$ 3,294
|
|
|
|
|
|
|
|
|
|
|
Derivatives
Not Designated
|
|
|
|
|
|
|
|
|
as
Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
Prepaid
expenses
|
4,009
|
Prepaid
expenses
|
-
|
|
Accrued
liabilities
|
-
|
Accrued
liabilities
|
567
|
|
|
|
|
|
|
|
|
|
|
Total
Derivatives
|
|
$
10,029
|
|
$ -
|
|
|
$
-
|
|
$
3,861
|
The
company enters into foreign currency exchange contracts to hedge the risk from
forecasted settlement in local currencies of trade sales and purchases. These
contracts are designated as cash flow hedges with the fair value recorded in
accumulated other comprehensive income (AOCI) and as a hedge asset or liability
in prepaid expenses or accrued liabilities, as applicable. Once the forecasted
transaction has been recognized as a sale or inventory purchase and a related
asset or liability recorded in the balance sheet, the related fair value of the
derivative hedge contract is reclassified from AOCI to net sales or cost of
sales. There were immaterial gains on contracts reclassified into earnings as a
result of the discontinuance of cash flow hedges. 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. As of January 30, 2009, the
notional amount of such contracts outstanding was $90.5 million.
The
following table presents the impact of derivative instruments on the
consolidated statement of earnings for the company’s derivatives in cash flow
hedging relationships for the three months ended January 30, 2009 and February
1, 2008, respectively.
|
|
|
|
|
|
|
|
Location
of Gain (Loss)
|
Amount
of Gain (Loss)
|
|
|
|
|
Location
of Gain
|
|
|
|
Recognized
in Income
|
Recognized
in Income
|
|
Amount
of Gain (Loss)
|
|
(Loss)
Reclassified
|
Amount
of Gain (Loss)
|
|
on
Derivatives
|
on
Derivatives
|
Derivatives
in Cash Flow
|
Recognized
in OCI on
|
|
from
AOCI
|
Reclassificed
from
|
|
(Ineffective
Portion and
|
(Ineffective
Portion and
|
Hedging
Relationships
|
Derivatives
|
|
into
Income
|
AOCI
into Income
|
|
Amount
Excluded from
|
Amount
Excluded from
|
(Dollars
in thousands)
|
(Effective
Portion)
|
|
(Effective
Portion)
|
(Effective
Portion)
|
|
Effectiveness
Testing)
|
Effectiveness
Testing)
|
|
2009
|
2008
|
|
|
2009
|
2008
|
|
|
2009
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
$
15,697
|
$
(6,020)
|
|
Net
sales
|
$
2,741
|
$
(1,940)
|
|
Other
income, net
|
$
(1,228)
|
$
332
|
Foreign
exchange contracts
|
(5,226)
|
154
|
|
Cost
of sales
|
(910)
|
50
|
|
|
|
|
Total
|
$
10,471
|
$
(5,866)
|
|
|
$
1,831
|
$
(1,890)
|
|
|
|
|
As
of January 30, 2009, the company anticipates to reclassify approximately $7.3
million of gains from AOCI to earnings during the next twelve
months.
The
company also enters into other foreign currency exchange contracts that are
considered derivatives not designated as hedging instruments; therefore, changes
in fair value of these instruments are recorded in other income, net. The
objective for holding these contracts relates to transaction exposure (an
economic exposure) related to currency risk. The company has various monetary
items, such as cash, receivables, payables, intercompany notes, and other
various contractual claims to pay or receive foreign currencies other than the
functional currency. From the time the transactions are recorded to the time the
transactions are settled, the company has a contractual risk affected by changes
in the foreign currency exchange rate. To mitigate this risk, the company enters
into foreign currency exchange contracts, primarily forward contracts, to offset
the change in the underlying transaction due to changes in the foreign currency
exchange rate.
The
following table presents the impact of derivative instruments on the
consolidated statement of earnings for the company’s derivatives not designated
as hedging instruments.
|
|
Amount
of Gain (Loss) Recognized
|
Derivatives
Not Designated
|
Location
of Gain (Loss)
|
in
Income on Derivatives
|
as
Hedging Instruments
|
Recognized
in Income on Derivatives
|
Three
Months Ended,
|
(Dollars
in thousands)
|
Income
(Effective Portion)
|
January 30, 2009
|
February
1, 2008
|
|
|
|
|
Foreign
exchange contracts
|
Other
income, net
|
$
3,729
|
$
(27)
|
Fair
Value Measurements
In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements.” SFAS No.
157 introduces a framework for measuring fair value and expands required
disclosures about fair value measurements of assets and liabilities. The company
adopted the standard for financial assets and liabilities and nonfinancial
assets and liabilities measured at fair value on a recurring basis as of
November 1, 2008, and there was no financial statement impact resulting from the
adoption. We will adopt the provisions of SFAS No. 157 for nonfinancial assets
and liabilities that are not required or permitted to be measured on a recurring
basis during the first quarter of fiscal 2010, as required.
SFAS
No. 157 defines fair value as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. SFAS No. 157 also establishes a
fair value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair
value:
Level
1 — 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; quoted prices 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 that are supported by little or no market activity and
that are significant to the fair value of the assets or
liabilities.
The
company utilizes the income approach to measure the fair value of its
foreign currency contracts. The income approach uses significant other
observable inputs to value derivative instruments that hedge foreign currency
transactions.
Assets
and liabilities measured at fair value on a recurring basis, as of January 30,
2009, are summarized below:
(Dollars
in thousands)
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Foreign
exchange contracts, net
|
|
|
- |
|
|
$ |
10,029 |
|
|
|
- |
|
|
$ |
10,029 |
|
Total
|
|
|
- |
|
|
$ |
10,029 |
|
|
|
- |
|
|
$ |
10,029 |
|
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 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 with prejudice; (ii) dismissed all non-Illinois state-law
claims without prejudice and with instructions that such claims must be 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. New
lawsuits, some of which include new plaintiffs, were filed in various federal
and state courts asserting essentially the same state law claims.
In
September 2008, the company and other defendants filed a new 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 assert 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 on January 27, 2009. At the initial hearing,
the Court (i) appointed lead plaintiffs’ counsel, and (ii) entered a stay of all
litigation for 120 days so that the parties may explore mediation. The
Court set May 28, 2009 as the next date on which the parties will
report on the status of the cases. To date, more than 60 lawsuits have been
filed in various federal and state courts, which collectively assert claims
under the laws of approximately 48 states.
Management
continues to evaluate these lawsuits and is unable to reasonably estimate the
likelihood of loss or the amount or range of potential loss that could result
from the litigation. Therefore, no accrual has been established for potential
loss in connection with these lawsuits. Management is also unable to assess at
this time whether these lawsuits will have a material adverse effect on the
company’s annual consolidated operating results or financial condition, although
an unfavorable resolution could be material to the company’s consolidated
operating results for a particular period.
Textron
Innovations Inc. v. The Toro Company; The Toro Company v. Textron Inc. and
Jacobsen. 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 alleges that the company
willfully infringed certain claims of three Textron patents by selling our
Groundsmaster® commercial mowers. Textron seeks 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 our motion to stay the litigation
and, in June 2007, denied Textron’s motion for reconsideration of the Court’s
order staying the proceedings.
Management
continues to evaluate these lawsuits and is unable to reasonably estimate the
likelihood of loss or the amount or range of potential loss that could result
from the litigation. Therefore, no accrual has been established for potential
loss in connection with these lawsuits. While management does not believe that
these lawsuits will have a material adverse effect on the company’s consolidated
financial condition, an unfavorable resolution could be material to the
company’s consolidated operating results.
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
irrigation products worldwide. 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 two reportable business
segments: professional and residential. A third segment called “other” consists
of a company-owned domestic distributorship and corporate activities, including
corporate financing 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 2009 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, 2008.
RESULTS
OF OPERATIONS
Overview
For the
first quarter of fiscal 2009, our net sales were down 16.2 percent, as compared
to the first quarter of fiscal 2008. Shipments of most professional segment
products were down due to decreased demand and customers’ reluctance to place
orders as a result of the global recessionary conditions. International sales
were also down 17.7 percent, as compared to the first quarter of fiscal 2008,
due also to the recessionary conditions affecting key international markets, as
well as a stronger U.S. dollar that negatively impacted net sales by
approximately $12 million. Partially offsetting the sales decline was a slight
increase in residential segment sales of 0.7 percent for the quarter comparison,
led by strong demand of snow thrower products and additional product placement
for a new line of walk power mowers. Our net earnings declined 63.9 percent for
the first quarter of fiscal 2009 to $6.7 million, compared to the first quarter
of fiscal 2008. This decrease was primarily the result of lower sales volumes
and lower gross margin due to production cuts, unfavorable product mix, and
higher commodity costs in the first quarter of fiscal 2009 compared to the same
period last fiscal year.
During
this tough economic environment, we have been reducing expenses and continuing
efforts to reduce working capital. As a result of these actions, our selling,
general, and administrative (SG&A) expenses were down 10.7 percent and our
inventory levels decreased 19.3 percent for the first quarter of fiscal 2009
compared to the first quarter of fiscal 2008, which also contributed to a
decline in short-term debt of $60.8 million as of the end of the first quarter
of fiscal 2009 compared to the end of the first quarter of fiscal 2008. We also
declared a cash dividend of $0.15 per share during the first quarter of fiscal
2009.
We
expect the global recession to continue for at least the remainder of our fiscal
year and, given the ongoing deteriorating economic conditions, our financial
results for the remainder of the fiscal year are particularly uncertain.
However, we believe we are well positioned to manage through this challenging
environment because of actions we have taken to improve operating efficiency and
asset utilization, as well as reducing expenses. On February 11, 2009, we
announced the reduction of our worldwide salaried and office workforce by
approximately 100 employees, suspension of regularly scheduled salary increases,
a reduction of officers’ salaries, changes in our vacation policy, and four
furlough days – all for the remainder of fiscal 2009.
Our
net sales and earnings for the first quarter of our fiscal year are typically
lower than other quarters; therefore, 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, and other factors identified below under the heading “Forward-Looking
Information,” which could cause our actual results to differ from our
outlook.
Net
Earnings
Net
earnings for the first quarter of fiscal 2009 were $6.7 million, or $0.18 per
diluted share, compared to $18.6 million, or $0.47 per diluted share, for the
first quarter of fiscal 2008, net earnings per diluted share decrease of 61.7
percent. The primary factors contributing to this decrease were lower sales
volumes and a decline in gross profit, somewhat offset by a decrease in SG&A
expense and a lower effective tax rate.
The
following table summarizes the major operating costs and other income as a
percentage of net sales:
|
|
Three
Months Ended
|
|
|
|
January
30,
|
|
|
February
1,
|
|
|
|
2009
|
|
|
2008
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost
of
sales
|
|
|
(65.2 |
) |
|
|
(63.2 |
) |
Gross
margin
|
|
|
34.8 |
|
|
|
36.8 |
|
Selling,
general, and administrative
expense
|
|
|
(30.7 |
) |
|
|
(28.9 |
) |
Interest
expense
|
|
|
(1.3 |
) |
|
|
(1.2 |
) |
Other
income,
net
|
|
|
0.2 |
|
|
|
0.4 |
|
Provision
for income
taxes
|
|
|
(1.0 |
) |
|
|
(2.5 |
) |
Net
earnings
|
|
|
2.0 |
% |
|
|
4.6 |
% |
Net
Sales
Worldwide
consolidated net sales for the first quarter of fiscal 2009 were $340.2 million
compared to $405.8 million in the first quarter of fiscal 2008, a decrease of
16.2 percent. Worldwide professional segment net sales were down 22.3 percent as
shipments for most product categories were hampered by decreased demand
resulting from the global economic recession. Worldwide sales of golf
maintenance equipment and irrigation systems were down significantly, as well as
sales of professionally installed residential/commercial irrigation products and
landscape contractor equipment. Residential segment net sales were slightly up
by 0.7 percent for the first quarter of fiscal 2009 compared to the first
quarter of fiscal 2008. This increase was led by strong demand for snow thrower
products in North America as a result of heavy snow falls during the winter
season of 2008/2009. In addition, improved product placement for a new and
broader line of walk power mowers benefited residential segment net sales, which
was offset by a decline in shipments of riding products due mainly to our
customers’ efforts to reduce field inventory levels by ordering product closer
to retail demand. International sales were down 17.7 percent, as compared to the
first quarter of fiscal 2008, due also to the recessionary conditions affecting
key international markets, as well as a stronger U.S. dollar compared to other
currencies in which we transact business that accounted for approximately $12
million of our sales decline for the quarter.
Gross
Profit
As a
percentage of net sales, gross profit for the first quarter of fiscal 2009
decreased to 34.8 percent compared to 36.8 percent in the first quarter of
fiscal 2008. This decline was due to the following factors: (i) higher
manufacturing costs from lower plant utilization as we cut production in an
effort to lower inventory levels, combined with a decline in sales volumes; (ii)
significantly lower sales of our higher-margin professional segment products;
(iii) higher average commodity costs in the first quarter of fiscal 2009
compared to the first quarter of fiscal 2008; and (iv) a stronger U.S. dollar
compared to other currencies in which we transact business. Somewhat offsetting
those negative factors were price increases introduced on most products and a
decrease in freight expense.
Selling,
General, and Administrative Expense
Selling,
general, and administrative expense for the first quarter of fiscal 2009
decreased $12.6 million, or 10.7 percent, compared to the same period last
fiscal year. However, SG&A expense as a percentage of net sales increased to
30.7 percent in the first quarter of fiscal 2009 compared to 28.9 percent in the
first quarter of fiscal 2008 due to fixed SG&A costs spread over lower sales
volumes. The decline in SG&A expense was primarily attributable to overall
reduced spending in response to the continuing worldwide recessionary economic
conditions and lower profit sharing and incentive compensation expense. Somewhat
offsetting those declines were increased costs incurred for workforce
adjustments and higher bad debt expense.
Interest
Expense
Interest
expense for the first quarter of fiscal 2009 decreased 10.8 percent compared to
the first quarter of fiscal 2008 due to lower average debt levels and a decline
in average interest rates.
Other
Income, Net
Other
income, net for the first quarter of fiscal 2009 was $0.8 million compared to
$1.7 million for the same period last fiscal year, a decrease of $0.9 million.
The decrease was due primarily to lower currency exchange rate gains, a decline
in financing revenue, and lower interest income in the first quarter of fiscal
2009 compared to the first quarter of fiscal 2008.
Provision
for Income Taxes
The
effective tax rate for the first quarter of fiscal 2009 was 33.7 percent
compared to 35.4 percent in the first quarter of fiscal 2008. The decrease in
the effective tax rate was primarily the result of the reinstatement of the
domestic research tax credit and the tax impact of foreign currency exchange
rate fluctuations.
BUSINESS
SEGMENTS
We
operate in two reportable business segments: professional and residential. A
third reportable segment called “other” consists of a company-owned
distributorship in the United States, corporate activities, and financing
functions. Segment earnings for each of our two business segments is defined as
earnings from operations plus other income, net. Operating loss for the “other”
segment includes earnings (loss) from a company-owned domestic distributorship,
corporate activities, including corporate financing activities, other income,
and interest expense.
The
following table summarizes net sales by segment:
|
|
Three
Months Ended
|
|
(Dollars
in thousands)
|
|
January
30,
|
|
|
February
1,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$
Change
|
|
|
%
Change
|
|
Professional
|
|
$ |
229,369 |
|
|
$ |
295,047 |
|
|
$ |
(65,678 |
) |
|
|
(22.3 |
)% |
Residential
|
|
|
107,024 |
|
|
|
106,325 |
|
|
|
699 |
|
|
|
0.7 |
|
Other
|
|
|
3,779 |
|
|
|
4,427 |
|
|
|
(648 |
) |
|
|
(14.6 |
) |
Total*
|
|
$ |
340,172 |
|
|
$ |
405,799 |
|
|
$ |
(65,627 |
) |
|
|
(16.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Includes international sales of:
|
|
$ |
130,391 |
|
|
$ |
158,457 |
|
|
$ |
(28,066 |
) |
|
|
(17.7 |
)% |
The
following table summarizes segment earnings (loss) before income
taxes:
|
|
Three
Months Ended
|
|
(Dollars
in thousands)
|
|
January
30,
|
|
|
February
1,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$
Change
|
|
|
%
Change
|
|
Professional
|
|
$ |
30,129 |
|
|
$ |
51,516 |
|
|
$ |
(21,387 |
) |
|
|
(41.5 |
)% |
Residential
|
|
|
4,840 |
|
|
|
3,818 |
|
|
|
1,022 |
|
|
|
26.8 |
|
Other
|
|
|
(24,816 |
) |
|
|
(26,499 |
) |
|
|
1,683 |
|
|
|
6.4 |
|
Total
|
|
$ |
10,153 |
|
|
$ |
28,835 |
|
|
$ |
(18,682 |
) |
|
|
(64.8 |
)% |
Professional
Net
Sales. Worldwide
net sales for the professional segment in the first quarter of fiscal 2009 were
down 22.3 percent compared to the first quarter of fiscal 2008. Shipments
declined for most domestic and international product categories due to decreased
demand and customers’ reluctance to place orders as a result of the continued
worldwide recessionary economic conditions, which has resulted in lower field
inventory levels for our domestic businesses. Worldwide sales of golf
maintenance equipment and irrigation systems were significantly down for the
first quarter comparison as customers delayed investments in new equipment at
existing golf courses and new golf course construction slowed. In addition,
sales of professionally installed residential/commercial irrigation systems were
down due to ongoing weakness in the housing and commercial construction markets.
Sales of landscape contractor equipment were also down for the first quarter
comparison due mainly to timing of production for new products.
Operating
Earnings. Operating earnings for the professional segment were $30.1
million in the first quarter of fiscal 2009 compared to $51.5 million in the
first quarter of fiscal 2008, a decrease of 41.5 percent. Expressed as a
percentage of net sales, professional segment operating margins decreased to
13.1 percent compared to 17.5 percent in the first quarter of fiscal 2008. These
profit declines were primarily attributable to lower gross margins due to the
same factors discussed previously in the Gross Profit section. Higher SG&A
expense as a percentage of net sales also adversely affected operating earnings,
which was due mainly to fixed SG&A costs spread over lower sales
volumes.
Residential
Net
Sales. Worldwide net sales for the residential segment in the first
quarter of fiscal 2009 were up slightly by 0.7 percent compared to the first
quarter of fiscal 2008. This increase was led by strong demand for snow throwers
in North America as a result of heavy snow falls during the winter season of
2008/2009. In addition, improved product placement for a new and broader line of
walk power mowers benefited residential segment net sales, which was offset by a
decline in shipments of riding products due mainly to our customers’ efforts to
reduce field inventory levels by ordering product closer to retail
demand.
Operating
Earnings. Operating earnings for the residential segment increased $1.0
million, or 26.8 percent, in the first quarter of fiscal 2009 compared to the
first quarter of fiscal 2008. Expressed as a percentage of net sales,
residential segment operating margins increased to 4.5 percent compared to 3.6
percent in the first quarter of fiscal 2008. This increase was due to lower
SG&A expense as a percent of net sales from a decline in spending for
marketing, warehousing, and engineering as a result of budget reductions, as
well as a slight increase in gross margins primarily from lower freight
expense.
Other
Net
Sales. Net sales
for the other segment include sales from our company-owned domestic
distributorship less sales from the professional and residential segments to
that distribution company. In addition, elimination of the professional and
residential segments’ floor plan interest costs from Toro Credit Company are
also included in this segment. The other segment net sales decreased $0.6
million, or 14.6 percent, in the first quarter of fiscal 2009 compared to the
first quarter of fiscal 2008, due mainly to a reduction in the elimination of
floor plan interest costs as a result of lower receivables with Toro Credit
Company and a reduction in rates.
Operating
Losses. Operating losses for the other segment were down $1.7 million or
6.4 percent for the first quarter of fiscal 2009 compared to the first quarter
of fiscal 2008. This loss decrease was primarily attributable to a decline in
profit sharing and incentive compensation expense, somewhat offset by costs
incurred for workforce adjustments and higher bad debt expense.
FINANCIAL
POSITION
Working
Capital
We have
taken proactive measures to help us manage through the tough economic
environment that continued to persist through the first quarter of fiscal 2009,
including adjusting production plans, controlling costs, and managing our
assets. As such, our financial condition remains strong. We are continuing to
place additional emphasis on asset management with our GrowLean initiative, with
a focus on: (i) ensuring strong profitability of our products and services all
the way through the supply chain; (ii) minimizing the amount of working capital
in the supply chain; and (iii) maintaining or improving order replenishment and
service levels to end users.
Receivables
as of the end of the first quarter of fiscal 2009 were down 13.6 percent
compared to the end of the first quarter of fiscal 2008. Our average days sales
outstanding for receivables improved to 68 days based on sales for the last
twelve months ended January 30, 2009, compared to 71 days for the twelve months
ended February 1, 2008. Inventory was also down as of the end of the first
quarter of fiscal 2009 by 19.3 percent compared to the end of the first quarter
of fiscal 2008, and average inventory turnover improved 5.9 percent for the
twelve months ended January 30, 2009 compared to the twelve months ended
February 1, 2008.
Liquidity
and Capital Resources
Our
businesses are seasonally working capital intensive and require funding for
purchases of raw materials used in production, replacement parts inventory,
capital expenditures, expansion and upgrading of existing facilities, as well as
for financing receivables from customers. We believe that 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. 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, debt repayments, quarterly cash dividend payments, and
stock repurchases for at least the next twelve months.
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 2009 was $2.5 million
higher than the first three months of fiscal 2008 due primarily to a decline in
accounts payable and accrued liabilities, as well as lower net earnings.
Somewhat offsetting those unfavorable factors was a lower increase in
receivables and inventory levels for the first three months of fiscal 2009
compared to the first three months of fiscal 2008. Cash used in investing
activities was lower by $0.9 million compared to the first quarter of fiscal
2008, due to a decrease in purchases of property, plant, and equipment in the
first quarter of fiscal 2009 compared to the first quarter of fiscal 2008. Cash
provided by financing activities was also lower by $30.0 million compared to the
first quarter of fiscal 2008, due to a substantial decline in short-term debt
for the first quarter of fiscal 2009 compared to the first quarter of fiscal
2008, somewhat offset by lower levels of repurchases of our common stock for the
first quarter comparison.
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. Our peak
borrowing usually occurs between January and April. Seasonal cash requirements
are financed from operations 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 defined in the credit agreement.
In addition, our non-U.S. operations maintain unsecured short-term lines of
credit of approximately $16 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. Average
short-term debt was $12.0 million in the first quarter of fiscal 2009 compared
to $55.2 million in the first quarter of fiscal 2008, a decrease of 78.2
percent. This decline was due mainly to a decrease in working capital needs in
the first quarter of fiscal 2009 compared to the first quarter of fiscal 2008 as
a result of lower levels of accounts receivable and inventory, as previously
discussed, as well as lower levels of repurchases of our common stock during the
first quarter of fiscal 2009 compared to the same period last fiscal year. As of
January 30, 2009, we had $215.8 million of unutilized availability under our
credit agreements.
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 30, 2009, and expect to be in compliance
with all covenants during the remainder of fiscal 2009.
Off-Balance
Sheet Arrangements and Contractual Obligations
Our
off-balance sheet arrangements generally relate to customer financing
activities, inventory purchase commitments, deferred compensation arrangements,
and operating lease commitments. Third party financing companies purchased $43.5
million of receivables from us during the first three months of fiscal 2009, and
$68.6 million was outstanding as of January 30, 2009. See our most recently
filed Annual Report on Form 10-K for further details regarding our off-balance
sheet arrangements and contractual obligations. No material change in this
information occurred during the first three months of fiscal
2009.
Inflation
We are
subject to the effects of inflation and changing prices. In the first quarter of
fiscal 2009, average prices paid for commodities we purchase, namely steel and
steel components, were higher compared to the first quarter of fiscal 2008,
which hampered our gross margin rate in the first quarter of fiscal 2009
compared to the first quarter of fiscal 2008. Somewhat offsetting those higher
costs was a decline in average prices paid for fuel and petroleum-based resins.
We will continue to closely follow the commodities that affect our product
lines, and we anticipate average prices paid for commodities in fiscal 2009 to
be equal to or slightly higher than the average prices paid in fiscal 2008, if
commodity costs continue to trend similar to the first quarter of fiscal 2009.
We plan to attempt to mitigate the impact of inflationary pressures by engaging
in proactive vendor negotiations, reviewing alternative sourcing options, and
internal cost reduction efforts.
Significant
Accounting Policies and Estimates
See our
most recent Annual Report on Form 10-K for the fiscal year ended
October 31, 2008 for a discussion of our critical accounting
policies.
New
Accounting Pronouncements to be Adopted
In April
2008, the Financial Accounting Standards Board (FASB) finalized Staff Position
No. 142-3, “Determination of the Useful Life of Intangible Assets” (FSP 142-3).
This position amends the factors that should be considered in developing renewal
or extension assumptions used to determine the useful life of a recognized
intangible asset under Statement of Financial Accounting Standards (SFAS) No.
142, “Goodwill and Other Intangible Assets.” FSP 142-3 applies to intangible
assets that are acquired individually or with a group of other assets and both
intangible assets acquired in business combinations and asset acquisitions. We
will adopt the provisions of FSP 142-3 on November 1, 2009, as
required.
In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
Combinations.” SFAS No. 141R applies to all business combinations and requires
most identifiable assets, liabilities, noncontrolling interests, and goodwill
acquired to be recorded at “full fair value.” This statement also establishes
disclosure requirements that will enable users to evaluate the nature and
financial effects of the business combination. We will adopt the provisions of
SFAS No. 141R to any business combination occurring on or after November 1,
2009, as required.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS
No. 157 defines fair value, establishes a framework for measuring fair value,
and expands disclosures concerning fair value. We adopted the provisions of SFAS
No. 157 for financial assets and liabilities and nonfinancial assets and
liabilities measured at fair value on a recurring basis during the first quarter
of fiscal 2009, as required. We will adopt the provisions of SFAS No. 157 for
nonfinancial assets and liabilities that are not required or permitted to be
measured on a recurring basis during the first quarter of fiscal 2010, as
required. We are currently evaluating the requirements of SFAS No. 157 and, we
do not expect the unadopted requirements of this new pronouncement will have a
material impact on our consolidated financial condition or results of
operations.
No
other new accounting pronouncement that has been issued but not yet effective
for us during the first quarter of fiscal 2009 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,” “optimistic,” “plan,” “anticipate,” “estimate,” “believe,”
“could,” “should,” ”would,” “may,” “possible,” “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. 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:
·
|
Changes
in economic conditions and outlook in the United States and around the
world, including but not limited to continuation or worsening of the
recessionary conditions in the U.S. and other regions around the world and
worldwide slow or negative economic growth rates; slow downs or reductions
in home ownership, construction, and home sales; reduced consumer spending
levels; reduced credit availability or unfavorable credit terms for our
distributors, dealers, and end-user customers; increased unemployment
rates; interest rates; inflation; reduced consumer confidence; and general
economic and political conditions and expectations in the United States
and the foreign countries in which we conduct
business.
|
·
|
Increases
in the cost and 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 growth in
the residential and commercial construction markets, the level of
homeowners who outsource 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 amount of government spending for
grounds maintenance equipment.
|
·
|
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, and usage 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 is 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, 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.
|
·
|
We
intend to grow our business in part through additional acquisitions and
alliances, stronger customer relations, and new partnerships, which are
risky and could harm our business, particularly if we are not able to
successfully integrate such acquisitions, alliances, 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.
|
·
|
A
significant portion of our net sales are financed by third parties. Some
Toro dealers and Exmark distributors and dealers finance their inventories
with third party financing sources. 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 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.
|
·
|
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
ratings of lawnmowers, of which we are currently unable to assess whether
such litigation would have a material adverse effect on our consolidated
operating results or financial condition, although an adverse result might
be material to our operating results in a particular
period.
|
·
|
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. In addition, 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 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; 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 recent filed
Annual Report on Form 10-K.
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 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 exchange rate 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 to third party customers, 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 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 the value 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. During the three months ended January 30, 2009, the
amount of gains reclassified to earnings for such cash flow hedges was $1.8
million. For the three months ended January 30, 2009, the gains treated as an
increase to net sales for contracts to hedge trade sales were $2.7 million and
the losses treated as an increase to cost of sales for contracts to hedge
inventory purchases were $0.9 million.
The
following foreign currency exchange rate contracts held by us have maturity
dates in fiscal 2009 and 2010. All items are non-trading and stated in U.S.
dollars. Some derivative instruments we enter into do not meet the hedging
criteria of SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities;” therefore, changes in their fair value are recorded in other
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 for the three months ended
January 30, 2009 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
|
|
|
0.7568 |
|
|
$ |
37,574.3 |
|
|
$ |
4,958.6 |
|
|
$ |
1,404.7 |
|
Buy
US dollar/Sell Canadian dollar
|
|
|
0.9696 |
|
|
|
6,302.6 |
|
|
|
889.7 |
|
|
|
270.7 |
|
Buy
US dollar/Sell Euro
|
|
|
1.4397 |
|
|
|
97,755.4 |
|
|
|
7,107.7 |
|
|
|
3,897.0 |
|
Buy
US dollar/Sell British pound
|
|
|
1.4194 |
|
|
|
11,355.2 |
|
|
|
- |
|
|
|
(10.8 |
) |
Buy
British pound/Sell US dollar
|
|
|
1.4446 |
|
|
|
2,528.1 |
|
|
|
- |
|
|
|
(41.8 |
) |
Buy
Mexican peso/Sell US dollar
|
|
|
12.3307 |
|
|
|
29,803.8 |
|
|
|
(4,316.2 |
) |
|
|
(906.8 |
) |
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 30, 2009
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
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 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 with prejudice; (ii) dismissed all non-Illinois state-law
claims without prejudice and with instructions that such claims must be 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. New
lawsuits, some of which include new plaintiffs, were filed in various federal
and state courts asserting essentially the same state law claims.
In
September 2008, the company and other defendants filed a new 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 assert 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 on
January 27, 2009.
At
the initial hearing, the Court (i) appointed lead plaintiffs’ counsel, and (ii)
entered a stay of all litigation for 120 days so that the parties
may explore mediation. The Court set May 28, 2009 as the
next date on which the parties will report on the status of the cases.
To date, more than 60 lawsuits have been filed in various federal and state
courts, which collectively assert claims under the laws of approximately 48
states.
Management
continues to evaluate these lawsuits and is unable to reasonably estimate the
likelihood of loss or the amount or range of potential loss that could result
from the litigation. Therefore, no accrual has been established for potential
loss in connection with these lawsuits. Management is also unable to assess at
this time whether these lawsuits will have a material adverse effect on the
company’s annual consolidated operating results or financial condition, although
an unfavorable resolution could be material to the company’s consolidated
operating results for a particular period.
Textron
Innovations Inc. v. The Toro Company; The Toro Company v. Textron Inc. and
Jacobsen. 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 alleges that the company
willfully infringed certain claims of three Textron patents by selling our
Groundsmaster® commercial mowers. Textron seeks 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 our motion to stay the litigation
and, in June 2007, denied Textron’s motion for reconsideration of the Court’s
order staying the proceedings.
Management
continues to evaluate these lawsuits and is unable to reasonably estimate the
likelihood of loss or the amount or range of potential loss that could result
from the litigation. Therefore, no accrual has been established for potential
loss in connection with these lawsuits. While management does not believe that
these lawsuits will have a material adverse effect on the company’s consolidated
financial condition, an unfavorable resolution could be material to the
company’s consolidated operating results.
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 2009 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,
2008 through
November
28, 2008
|
|
|
5,938 |
|
|
$ |
30.31 |
|
|
|
5,938 |
|
|
|
2,318,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
29, 2008 through
January
2, 2009
|
|
|
48,072 |
|
|
|
28.60 |
|
|
|
48,072 |
|
|
|
2,270,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
3, 2009 through
January
30, 2009
|
|
|
4,134 |
(2) |
|
|
35.57 |
|
|
|
686 |
|
|
|
2,269,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
58,144 |
|
|
$ |
29.27 |
|
|
|
54,696 |
|
|
|
|
|
(1)
|
On
May 21, 2008, the company’s Board of Directors authorized the repurchase
of 4,000,000 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
3,448 units (shares) of the company’s common stock purchased in
open-market transactions at an average price of $35.59 per share on behalf
of a rabbi trust formed to pay benefit obligations of the company to
participants in deferred compensation plans. These 3,448 shares were not
repurchased under the company’s repurchase program described in footnote
(1) above.
|
(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
|
The
Toro Company First Amendment to Employment Agreement (filed
herewith).
|
|
|
|
|
10.2
|
The
Toro Company 2000 Directors Stock Plan (As Amended January 20, 2009)
(filed herewith).
|
|
|
|
|
10.3
|
The
Toro Company 2000 Stock Option Plan (As Amended December 3, 2008)
(incorporated by reference to Exhibit 10.5 to Registrant’s Annual Report
on Form 10-K for the fiscal year ended October 31,
2008).
|
|
|
|
|
10.4
|
Form
of Nonqualified Stock Option Agreement between The Toro Company and its
Non-Employee Directors (incorporated by reference to Exhibit 10.20 to
Registrant’s Annual Report on Form 10-K for the fiscal year ended October
31, 2008).
|
|
|
|
|
10.5
|
Form
of Nonqualified Stock Option Agreement between The Toro Company and its
Officers and other employees (incorporated by reference to Exhibit 10.21
to Registrant’s Annual Report on Form 10-K for the fiscal year ended
October 31, 2008).
|
|
|
|
|
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).
|
|
|
|
|
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
thereunto duly authorized.
|
THE TORO
COMPANY
(Registrant)
Date: March
6, 2009
|
By
/s/ Stephen P.
Wolfe
|
|
Stephen
P. Wolfe
|
|
Vice
President, Finance
|
|
and
Chief Financial Officer
|
|
(duly
authorized officer and principal financial
officer)
|