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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended July 31, 1995
-------------
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ______________ to ____________
Commission File Number 1-8649
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THE TORO COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 41-0580470
(State of incorporation) (I.R.S. Employer Identification Number)
8111 LYNDALE AVENUE SOUTH
BLOOMINGTON, MINNESOTA 55420
TELEPHONE NUMBER: (612) 888-8801
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-----------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- - ------------------- -------------------------
Common Stock New York Stock Exchange
par value $1.00 per share
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant, based upon the close price of the Common Stock on September 29,
1995 as reported on the New York Stock Exchange, was approximately
$329,859,590.
The number of shares of Common Stock outstanding as of September 29, 1995
was 12,160,654.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended July 31, 1995, are incorporated by reference into Parts I, II
and IV.
Portions of the Registrant's Proxy Statement for the next meeting of
stockholders which involve the election of directors to be filed pursuant
to Regulation 14A are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
The company designs, manufactures and markets consumer and commercial lawn
and turf maintenance equipment, snow removal products and turf irrigation
systems, including products for maintenance of golf courses, parks and
other large turf areas. The company produced its first lawn mower for golf
course fairways in 1922 and its first lawn mower for home use in 1939 and
has continued to enhance its product lines and expand its market ever
since.
The company was incorporated in Minnesota in 1935 as a successor to a
business founded in 1914. It was reincorporated in Delaware in 1983. The
company's executive offices are located at 8111 Lyndale Avenue South,
Bloomington, Minnesota 55420-1196, telephone number (612) 888-8801.
Unless the context indicates otherwise, the terms "company" and "Toro"
refer to The Toro Company and its subsidiaries. The company finances a
significant portion of its receivables through Toro Credit Company ("Toro
Credit"), its wholly-owned finance subsidiary.
YARD MAINTENANCE EQUIPMENT
The company classifies its operations into one industry segment, yard
maintenance equipment. The company has been a leader in transforming
advanced technologies into products and services that provide solutions to
lawn and turf care maintenance and beautification demands.
MANUFACTURING
The company's consumer spring and summer products are generally
manufactured in the winter and spring months and its consumer fall and
winter products are generally manufactured in the summer and fall months.
The company's irrigation and commercial products are manufactured
throughout the year.
In some areas of its business the company is primarily an assembler while
in others it is a fully integrated manufacturer. Most of the components
for the company's products are commercially available from a number of
sources and the company is generally not dependent on any one supplier.
The largest component costs are generally engines, transmissions and
electric motors. The company purchases most of its engines and motors for
consumer and commercial products from several suppliers. In addition, the
company manufactures three types of two-cycle engines for its consumer
products.
Management continues to seek greater efficiencies and improve work
processes throughout the company. Toro's total quality process is focused
upon improving product quality, customer response time and reducing overall
product cost.
TRADEMARKS AND PATENTS
Products manufactured by the company are nationally advertised and sold at
the retail level under the trademarks "Toro", "Wheel Horse" and "Lawn-Boy",
all of which are registered in the United States and in the principal
foreign countries in which the company markets its products. The company
holds patents for many of its products in the United States and foreign
countries and applies for patents on new products as they are developed.
Although management believes patents have value to the company, patent
protection sometimes does not deter competitors from attempting to develop
similar products. Management believes that factors such as innovation,
quality and its distribution systems are significant in protecting its
competitive position. Although patent protection is considered to be very
beneficial, the company is not dependent on any one or more of its patents.
SEASONALITY
Sales of the company's consumer products, which accounted for approximately
52% of total sales in fiscal 1995, are seasonal with greater sales of yard
maintenance equipment occurring in the spring and snow removal equipment in
the fall and winter months. Opposite seasons in some global markets
somewhat moderate this seasonality in consumer product sales. Seasonality
in irrigation and commercial product sales also exists, but is tempered
because the selling season in west coast and southern states continues for
a longer portion of the year than in northern states. Overall, worldwide
sales levels are highest in the third quarter. Historically, accounts
receivable balances increase throughout the winter months as a result of
extended payment terms made available to the company's customers. Accounts
receivable balances decrease in the late spring when payments are made.
The seasonal requirements of the business are financed from operations and
with short-term bank lines of credit and off-balance sheet financing.
DISTRIBUTION AND MARKETING
The company markets the majority of its products principally through
approximately 44 domestic and 51 foreign distributors and mass
merchandisers worldwide. Distributors resell consumer products such as
walk power mowers and riders to retail and service dealers throughout the
United States. Home appliance and Lawn-Boy products are sold directly to
mass merchandisers and "do-it-yourself" home improvement retailers.
Distributors sell commercial and irrigation products directly to end users,
including irrigation contractors. Irrigation products are also sold
through distributors to irrigation dealers and direct to general line
distributors, mass merchandisers and "do-it-yourself" home improvement
retailers for resale to contractors and end-users. Consumer products are
sold to international distributors who resell to retail dealers outside the
United States, principally in Canada, Western Europe, and Australia.
Additionally, some irrigation and consumer products are sold directly to
retail dealers in Canada, Australia and Western Europe.
The company's current marketing strategy is to maintain distinct and
separate brands and brand identification for Toro, Toro/Wheel Horse and
Lawn-Boy products.
The company's distribution systems for the sale of its products are
intended to assure quality of sales and market presence as well as
effective after-market service. The company considers its distribution
network to be a significant competitive asset in marketing Toro, Toro/Wheel
Horse and Lawn-Boy products.
The company advertises its products during appropriate seasons throughout
the year on television, radio and in print. Most of the company's
advertising emphasizes its brand names. Advertising is directly paid by
Toro as well as through cooperative programs with distributors and dealers.
BACKLOG OF ORDERS
The order backlog at July 31, 1995 and 1994 was as follows:
July 31
-----------------------------
1995 1994
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Consumer................................. $79,502,000 $107,848,000
Commercial............................... 45,427,000 40,279,000
Irrigation............................... 9,803,000 10,214,000
The decrease in consumer product backlog reflects the sell-out of gas snow
products in 1994. This resulted in increased orders of gas snow products
at the end of 1994 in anticipation of another hard winter season. This
increase did not occur at the end of 1995. The increase for commercial
products reflects continued sales growth in most product lines. The
existing backlog is expected to be filled in the succeeding fiscal year.
COMPETITION
The principal competitive factors in the company's markets are product
innovation, quality, service and pricing. Management believes the company
offers high quality products with the latest technology and design
innovations. Also, by selling Toro, Toro/Wheel Horse and Lawn-Boy brand
products through a network of distributors, dealers and mass merchants who
provide service, the company offers competitive service during and after
the relevant warranty period.
The company competes in all product lines with numerous manufacturers, many
of which have substantially greater financial resources than the company.
Management believes that its commitment to product innovation, its
distribution systems and its focus on target markets, position it well to
compete in these various markets.
CONSUMER
The principal competitors for walk-behind mowers are American Yard
Products, Inc. (a subsidiary of Electrolux AB), Deere & Company, Honda
Motor Co., Ltd., MTD Products, Inc., Murray Ohio Manufacturing Co.,
Inc. (a subsidiary of Tompkins Corp.), Sears, Roebuck and Co. and
Snapper Power Equipment (a division of ACT). The principal competitors
in riding mowers and lawn and garden tractors are Ariens Company,
Bolens Corporation (a division of Garden Way, Incorporated), Deere &
Company, Honda Motor Co., Ltd., Murray Ohio Manufacturing Co., Inc.,
MTD Products, Inc., Noma Outdoor Products, Sears, Roebuck and Co.,
Simplicity Manufacturing Company and Snapper Power Equipment. The
principal competitors for snow throwers are Ariens Company, Bolens
Corporation, Honda Motor Co., Ltd., Noma Outdoor Products, Sears,
Roebuck and Co., Simplicity Manufacturing Company, Snapper Power
Equipment and Yamaha Motor Corporation, USA. The principal competitors
in home improvement products are Black and Decker Corporation, K & S
Industries, Inc., Malibu Lighting (a registered trademark of
Intermatic, Inc.) and Poulan/Weed Eater (a division of Electrolux AB).
COMMERCIAL
The company's commercial products compete with products from numerous
manufacturers, but the principal competitors across most of the
company's commercial product lines are Deere & Company, Jacobsen and
Ransomes Sims & Jefferies PLC, based in the United Kingdom.
IRRIGATION
The principal competitors in irrigation products are James Hardie
Irrigation, Inc. (a subsidiary of James Hardie Industries Limited,
based in Australia), Hunter Industries and Rain Bird Sprinkler
Manufacturing Corporation.
INTERNATIONAL
The international market is generally fragmented so that the degree of
competition varies among the different countries in which the company
markets its consumer, commercial and irrigation products. Most
competitors in the irrigation and commercial product lines are based in
the United States. Consumer product lines can face more competition
where foreign competitors manufacture and market competing products in
their countries at a lower cost. In addition, fluctuations in the
value of the U.S. dollar may affect the price of the company's products
in such markets, thereby affecting their competitiveness.
RESEARCH AND DEVELOPMENT
The company conducts research and development activities in an effort to
improve existing products and to develop new products. Amounts expended on
such activities aggregated approximately $33.0 million, or 3.6% of sales in
1995, $30.9 million, or 3.9% of sales in 1994 and $25.3 million, or 3.7%
of sales in 1993. Management believes that the company's research and
development efforts are important to the quality, mix and growth of its
businesses and plans to continue its strong commitment to such activities.
GOVERNMENTAL REGULATION
The company's products are subject to various federal statutes designed to
protect consumers and are subject to the administrative jurisdiction of the
Federal Consumer Product Safety Commission. The company is also subject to
certain federal and state environmental, occupational safety and other
regulations, none of which has had a material adverse affect on its
operations or business. Management believes the company is in substantial
compliance with all such regulations. The Environmental Protection Agency
(EPA) released Phase I regulations for all gas engines under 25 horsepower
in June of 1995. Toro's four-cycle engine suppliers are required to comply
with the EPA regulations. Toro has been working with the EPA on the ruling
and as a result will be able to continue producing its two-cycle engines at
its Oxford, Mississippi plant under the current standard through the year
2001. However, Toro expects its own engines to be able to comply with
Phase I regulations beginning in September of 1997.
EMPLOYEES
During 1995 the company employed an average of 3,626 employees. The total
number of employees at July 31, 1995 was 2,867, reflecting the company's
normal seasonal fluctuation in employment. Approximately one-quarter of
the company's employees are covered by four collective bargaining
agreements expiring in November 1996, May 1997 and two expiring in
September 1997. Management considers its overall relations with its
employees to be good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
All of Toro's production facilities are located within the United States
and Belgium. Except for the sales of the company's foreign subsidiaries
which are not significant when compared to total company sales,
substantially all financial transactions are made in U.S. dollars.
Consequently, the company did not realize any significant impact to
earnings due to fluctuations in foreign currencies.
Export sales were $126,560,000, $109,344,000 and $111,263,000 in fiscal 1995,
1994 and 1993, respectively. The identifiable assets attributable to foreign
operations are not significant.
ITEM 2. PROPERTIES
The Toro Company utilizes owned manufacturing and office facilities which
totaled approximately 2,263,000 square feet of space. The manufacturing
facilities operated at about 81% of total capacity in fiscal 1995. The
following schedule outlines the owned facilities by location, plant size
and function:
Location Square Feet Products Manufactured/Use
-------- ----------- ------------------------
Plymouth, WI 420,000 Parts distribution center, office
Tomah, WI 274,000 Consumer and Commercial products
Bloomington, MN 300,000 Corporate headquarters
Riverside, CA 217,000 Irrigation products
Sardis, MS (a) 245,000 Consumer products
Windom, MN 305,000 Consumer components and products
South Bend, IN (b) 226,000 Closed facility
Shakopee, MN 146,000 Components for consumer and commercial
products
Oxford, MS 67,000 Components for consumer products
Oevel, Belgium 63,000 Consumer products
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Total Square Feet 2,263,000
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---------
(a) Reopened in 1995. Facility closed in 1993 due to restructuring.
(b) Facility closed in 1993 due to restructuring. Building held for
sale.
In 1995, the company leased the following warehouse space for its finished
good distribution centers: 304,000 square feet in Lakeville, Minnesota, and
228,000 square feet in Baraboo, Wisconsin. The company also leased
manufacturing space of 162,000 square feet in Mound, Minnesota, 176,000
square feet in Olathe, Kansas, and 178,000 square feet in Evansville,
Indiana. Other leased office and warehouse space located in various cities
in the United States, Australia, Canada, France, Singapore and United Kingdom
totaled approximately 287,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
The company is routinely a party to various litigation in the ordinary course
of its business. This ongoing litigation primarily involves claims for
damages arising out of the use of the company's products, some of which
include claims for punitive as well as compensatory damages. The company is
also subject to administrative proceedings in respect of certain claims
involving the discharge of hazardous substances into the environment. Certain
of these claims assert damages and liability for remedial investigations and
clean up costs. Management is of the opinion that the amounts which may be
awarded or assessed in connection with these matters will not have a material
effect on the company's financial position. Further, the company maintains
insurance against product liability losses. Such insurance presently covers
claims in excess of $1,000,000 per claim or $2,000,000 in the aggregate
during any fiscal year. The company regularly reviews these dollar limits.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
None.
-6-
PART II
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All information incorporated herein by reference in this Part II is from the
Registrant's Annual Report to Stockholders for the fiscal year ended July 31,
1995 ("Annual Report").
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Toro common stock (including related Preferred Share Purchase Rights) is
listed for trading on the New York Stock Exchange. The number of common
stockholders of record as of July 31, 1995 was 7,347.
See "Quarterly Financial Data" on page 28 of the Annual Report for
dividends paid and range of high and low quotations, which are incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
See financial data for fiscal years 1995, 1994, 1993, 1992 and 1991 included
in "Eleven-Year Selected Financial Data" on pages 12 and 13 of the Annual
Report which information for this five-year period is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" on pages 14 through 18 of the Annual Report which is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements described in Item 14(a)1 of this report are
incorporated herein by reference.
See "Quarterly Financial Data" appearing on page 28 of the Annual Report
which is incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-7-
PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of The Toro Company and additional
information regarding certain executive officers is incorporated by reference
to the information to be contained in the Proxy Statement to be filed with
respect to the next meeting of stockholders which involves the election of
directors or, if such Proxy Statement is not filed within 120 days after the
end of the fiscal year covered by this Form 10-K, such information will be
filed as part of an amendment to this Form 10-K not later than the end of the
120-day period.
Executive Officers - A complete list of all officers of the company is found
on the inside back cover of the Registrant's Annual Report for the year ended
July 31, 1995. Those persons deemed "executive officers" are listed below
in alphabetical order. The list below includes their age and position with
the company as of October 16, 1995, and positions held by them during the
last five years. Officers are elected or appointed annually.
Name, Age and Position Business Experience During
with the Company the Last Five Years
- - ---------------------- --------------------------
Calvin R. Hendrix Appointed Vice President, Irrigation
44, Vice President and General Manager Division in September 1993. From 1988
Irrigation Products to September 1993, held various
management positions with Masco
Corporation.
Randy B. James Appointed Vice President, Controller
52, Vice President, Controller in December 1988. Previously held
various management positions within the
company.
Gerald T. Knight Elected Vice President-Finance in
48, Vice President-Finance, April 1992. From December 1990 to April
Chief Financial Officer 1992, was Executive Director -
Finance and Corporate Controller of
NeXT Computer, Inc. Prior to December
1990, held various management positions
with The Pillsbury Company (a subsidiary
of Grand Metropolitan) and General
Electric Company.
Charles B. Lounsbury Appointed Vice President, Distribution
52, Vice President, Distribution, Parts and Debris Management in November
Parts and Debris Management 1993. From May 1991 to November 1993
was President and Chief Operating
Officer of Leaseway Transportation
Corporation. While Mr. Lounsbury
served as President and a director of
Leaseway, it filed for protection under
Chapter 11 and was, during that period,
discharged. From August 1987 to May
1991 was Senior Vice President of
Leaseway Transportation Corporation.
J. David McIntosh Appointed Vice President, Consumer
52, Vice President and General Manager, Division in February 1992. Appointed
Consumer Products Vice President and General Manager,
Home Improvement Division in May 1986.
J. Lawrence McIntyre Elected Vice President in July 1993.
53, Vice President, Secretary and Elected Secretary and General Counsel in
General Counsel August 1993. Prior to July 1993, was a
shareholder with Doherty, Rumble &
Butler Professional Association.
-8-
Name, Age and Position Business Experience During
with the Company the Last Five Years
- - ---------------------- --------------------------
Kendrick B. Melrose Elected Chairman of the Board in
55, Chairman of the Board and December 1987. Elected Chief
Chief Executive Officer Executive Officer in December 1983.
Karen M. Meyer Elected Vice President, Human
45, Vice President Resources/Administrative Services in
Human Resources/Administrative Services December 1991. Appointed Vice
President, Human Resources/
Administrative Services in December
1988. Previously held various
management positions within the
company.
David H. Morris Elected President in December 1988.
54, President and Elected Chief Operating Officer in
Chief Operating Officer August 1988.
Richard R. Pollick Appointed Vice President,
56, Vice President and General Manager International Division in March 1990.
International Equipment Previously held various management
positions within the company.
John G. Szafranski Appointed Vice President, Commercial
60, Vice President and General Manager, Products in December 1984.
Commercial Equipment
Stephen P. Wolfe Appointed Vice President in August
47, Vice President, The Toro Company 1994. Elected President, Toro Credit
and President, Toro Credit Company Company in July 1990.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated by reference to
the information to be contained in the Proxy Statement to be filed with
respect to the next meeting of stockholders which involves the election of
directors or, if such Proxy Statement is not filed within 120 days after the
end of the fiscal year covered by this Form 10-K, such information will be
filed as part of an amendment to this Form 10-K not later than the end of the
120-day period.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the security ownership of certain beneficial owners and
management of The Toro Company is incorporated by reference to the
information to be contained in the Proxy Statement to be filed with respect
to the next meeting of stockholders which involves the election of directors
or, if such Proxy Statement is not filed within 120 days after the end of the
fiscal year covered by this Form 10-K, such information will be filed as part
of an amendment to this Form 10-K not later than the end of the 120-day
period.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
-9-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Index to Consolidated Financial Statements
- - ---------------------------------------------------
Incorporated by reference into Part II, Pages in Fiscal 1995
Item 8 of this report: Annual Report
to Stockholders
---------------
Independent Auditors' Report........................... 19
Consolidated Statements of Earnings for the years ended
July 31, 1995, 1994 and 1993......................... 19
Consolidated Balance Sheets
as of July 31, 1995 and 1994......................... 20
Consolidated Statements of Cash Flows for the
years ended July 31, 1995, 1994 and 1993............. 21
Notes to Consolidated Financial Statements............. 22-28
(a) 2. Index to Consolidated Financial Statement Schedules
- - ------------------------------------------------------------
Included in Part IV of this report:
Independent Auditors' Report......................... 13
Schedule II - Valuation and Qualifying Accounts...... 14
All other schedules are omitted as the required information is inapplicable
or the information is presented in the consolidated financial statements or
related notes.
(a) 3. Exhibits
- - -----------------
3(i)(a) and 4(a) Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-3,
Registration No. 33-16125).
3(i)(b) and 4(b) Certificate of Amendment to Certificate of
Incorporation of the Registrant dated December 9, 1986
(incorporated by reference to Exhibit 3 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended
January 30, 1987, Commission file No. 1-8649).
3(i)(c) and 4(c) Certificate of Amendment to Certificate of Incorporation
of the Registrant dated December 8, 1987 (incorporated
by reference to Exhibit 3 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended January 29,
1988, Commission File No. 1-8649).
3(ii) and 4(d) Bylaws of the Registrant (incorporated by reference to
Exhibit 3.3 to the Registrant's Annual Report on Form 10-K
for the year ended July 31, 1991, Commission file
No. 1-8649)
-10-
4(e) Specimen form of Common Stock certificate (incorporated by
reference to Exhibit 4(c) to the Registrant's Registration
Statement on Form S-8, Registration No. 2-94417).
4(f) Rights Agreement dated as of June 14, 1988, between the
Registrant and Norwest Bank Minnesota, National Association
relating to rights to purchase Series B Junior
Participating Voting Preferred Stock, as amended
(incorporated by reference to Exhibit 1 to Registrant's
Registration Statement on Form 8-A dated June 17, 1988,
Commission File No. 1-8649, as amended).
4(g) Indenture dated as of July 15, 1987, between the
Registrant and Manufacturers Hanover Trust Company,
Trustee, relating to the Registrant's 11% Sinking Fund
Debentures Due August 1, 2017 (incorporated by reference
to Exhibit 4 to the Registrant's Registration Statement
on Form S-3, Registration No. 44-16175).
10(a) Form of Employment Agreement in effect for certain
officers of the Registrant (incorporated by reference
to Exhibit 10(a) to the Registrant's Annual Report
on Form 10-K for the year ended July 31, 1993).
10(b) Form of Supplemental Employment Agreement in effect
for certain officers of the Registrant.
10(c) 1985 Incentive Stock Option Plan and 1989 Stock Option
Plan, both as amended (incorporated by reference
Exhibit 10(b) to the Registrant's Annual Report on
Form 10-K for the year ended July 31, 1993).
10(d) The Toro Company Investment and Savings Plan.
10(e) 1993 Stock Option Plan (incorporated by reference to
Exhibit A to Registrant's Proxy Statement dated
October 29, 1993).
10(f) Continuous Performance Award Plan (incorporated by
reference to Exhibit A to Registrant's Proxy Statement
dated October 31, 1991).
11 Computation of Earnings per Share of Common Stock and
Common Stock Equivalent (page 15 of this report).
13 Registrant's Fiscal 1995 Annual Report to Stockholders.
21 Subsidiaries of Registrant (page 16 of this report).
23 Independent Auditors' Consent (page 17 of this report).
27 Supplemental Data Schedule; electronic filing only.
(b) Reports on Form 8-K
- - ------------------------
None.
-11-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE TORO COMPANY
---------------------------------
(Registrant)
Dated: October 17, 1995
/s/ Gerald T. Knight
---------------------------------
Gerald T. Knight
Vice President - Finance
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Kendrick B. Melrose Chairman, Chief Executive October 17, 1995
- - ------------------------------ Officer and Director
Kendrick B. Melrose
/s/ David H. Morris President, Chief Operating October 17, 1995
- - ------------------------------ Officer and Director
David H. Morris
/s/ Gerald T. Knight Vice President - Finance, October 17, 1995
- - ------------------------------ Chief Financial Officer
Gerald T. Knight (principal financial officer)
/s/ Randy B. James Vice President, Controller October 17, 1995
- - ------------------------------ (principal accounting officer)
Randy B. James
/s/ Janet K. Cooper Director October 17, 1995
- - ------------------------------
Janet K. Cooper
/s/ William W. George Director October 17, 1995
- - ------------------------------
William W. George
/s/ Alex A. Meyer Director October 17, 1995
- - ------------------------------
Alex A. Meyer
/s/ Robert H. Nassau Director October 17, 1995
- - ------------------------------
Robert H. Nassau
/s/ Dale R. Olseth Director October 17, 1995
- - ------------------------------
Dale R. Olseth
/s/ Edwin H. Wingate Director October 17, 1995
- - ------------------------------
Edwin H. Wingate
12
[KPMG Peat Marwick Letterhead]
Independent Auditors' Report
The Board Of Directors
The Toro Company:
Under date of September 7, 1995, we reported on the consolidated balance
sheets of The Toro Company and subsidiaries as of July 31, 1995 and 1994, and
the related consolidated statements of earning and cash flows for each of the
years in the three-year period ended July 31, 1995, as contained in the 1995
annual report to stockholders. These consolidated financial statements and
our report thereon are incorporated by reference in the annual report on Form
10-K for the fiscal year 1995. In connection with our audits of the
aforementioned consolidated financial statements, we also have audited the
related consolidated financial statement schedule listed in the accompanying
index. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 7, 1995
13
Schedule II
THE TORO COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
Balance at Charged to
beginning of costs and Balance at
Description year expenses Other (a) Deductions (b) end of year
- - -------------------- ------------ ---------- --------- -------------- -----------
Year Ended July 31, 1995
Allowance for
doubtful accounts $7,702,000 $1,543,000 $ 20,000 $1,922,000 $7,343,000
---------- ---------- -------- ---------- ----------
Year Ended July 31, 1994
Allowance for
doubtful accounts $5,589,000 $3,032,000 $765,000 $1,684,000 $7,702,000
---------- ---------- -------- ---------- ----------
Year Ended July 31, 1993
Allowance for
doubtful accounts $6,358,000 $2,500,000 $ - $3,269,000 $5,589,000
---------- ---------- -------- ---------- ----------
(a) Additions to allowance for doubtful accounts during 1995
and 1994 due to reclassification and acquisitions.
(b) Uncollectible accounts charged off, net of recoveries.
14
THE TORO COMPANY
EMPLOYMENT AGREEMENT
AGREEMENT by and between The Toro Company, a Delaware Company (the
"Company"), and 1- (the "Executive"), dated as of the 18th day of April, 1995.
The Board of Directors of the Company (the "Board"), has determined that
it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the
personal uncertainties and risks created by a pending or threatened Change of
Control and to encourage the Executive's full attention and dedication to the
Company currently and in the event of any threatened or pending Change of
Control, and to provide the Executive with compensation and benefits
arrangements upon a Change of Control which ensure that the compensation and
benefits expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS. (a) The "Effective Date" shall mean the first
date during the Change of Control Period (as defined in Section 1(b)) on
which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the Contrary notwithstanding, if a Change of Control occurs and
if the Executive's employment with the Company is terminated prior to the
date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was at
the request of a third party who has taken steps reasonably calculated to
effect a Change of Control or (ii) otherwise arose in connection with or
anticipation of a Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the date of
such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date hereof, and on each
annual anniversary of such date (such date and each annual anniversary
thereof shall be hereinafter referred to as the "Renewal Date"), unless
previously terminated, the Change of Control Period shall be automatically
extended so as to terminate three years from such Renewal Date, unless at
least 60 days prior to the Renewal Date the Company shall give notice to the
Executive that the Change of Control Period shall not be so extended.
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a"Person") of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i)
the then-outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a),
the following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company, or (iv) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or indirectly,
more than 50% of, respectively, the then-outstanding shares of common stock
and the combined voting power of the then-outstanding voting securities
entitled to vote generally in the election of directors, as the case may be,
of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting from
such Business Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then-outstanding shares of common stock of the
corporation resulting from such Business Combination, or the combined
voting power of the then-outstanding voting securities of such corporation
except to the extent that such ownership existed prior to the Business
Combination and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent
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Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this
Agreement, for the period commencing on the Effective Date and ending on the
third anniversary of such date (the "Employment Period").
4. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities
shall be at least commensurate in all material respects with the most
significant of those held, exercised and assigned at any time during the
120-day period immediately preceding the Effective Date and (B) the
Executive's services shall be performed at the location where the Executive
was employed immediately preceding the Effective Date or any office or
location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours
to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use
the Executive's reasonable best efforts to perform faithfully and efficiently
such responsibilities. During the Employment Period it shall not be a
violation of this Agreement for the Executive to (A) serve on corporate,
civic or charitable boards or committees, (B) deliver lectures, fulfill
speaking engagements or teach at educational institutions, and (C) manage
personal investments, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued conduct
of such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive's responsibilities to the
Company.
(b) COMPENSATION. (i) BASE SALARY. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has
been earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the
month in which the Effective Date occurs. During the Employment Period, the
Annual Base Salary shall be reviewed no more than twelve months after the
last salary increase awarded to the Executive prior to the Effective Date and
thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement.
-3-
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under
common control with the Company.
(ii) ANNUAL BONUS. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Employment Period,
an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's highest bonus under the Company's [Annual Incentive Plans], or
any comparable bonus under any predecessor or successor plan, for the last
three full fiscal years prior to the Effective Date (annualized in the event
that the Executive was not employed by the Company for the whole of such
fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be
paid no later than the end of the third month of the fiscal year next
following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment
Period, the Executive shall be entitled to participate in all incentive,
savings and retirement plans, practices, policies and programs applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for
the Executive under such plans, practices, policies and programs as in effect
at any time during the 120-day period immediately preceding the Effective
Date or if more favorable to the Executive, those provided generally at any
time after the Effective Date to other peer executives of the Company and its
affiliated companies.
(iv) WELFARE BENEFIT PLANS. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death
and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(v) EXPENSES. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in accordance with the most favorable policies, practices
and procedures of the Company and its affiliated
-4-
companies in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(vi) FRINGE BENEFITS. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if
applicable, use of an automobile and payment of related expenses, in
accordance with the most favorable plans, practices, programs and
policies of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(vii) OFFICE AND SUPPORT STAFF. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the
foregoing provided to the Executive by the Company and its affiliated
companies at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as provided
generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies.
(viii) VACATION. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable
plans, policies, programs and practices of the Company and its affiliated
companies as in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The
Executive's employment shall terminate automatically upon the Executive's
death during the Employment Period. If the Company determines in good faith
that the Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below), it may
give to the Executive written notice in accordance with Section 12(b) of this
Agreement of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective
on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the 30 days after such
receipt, the Executive shall not have returned to full-time performance of
the Executive's duties. For purposes of this Agreement, "Disability" shall
mean the absence of the Executive from the Executive's duties with the
Company on a full-time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) CAUSE. The Company may terminate the Executive's employment during the
-5-
Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from the incapacity
due to physical or mental illness), after a written demand for
substantial performance is delivered to the Executive by the Board or
the Chief Executive Officer of the Company which specifically identifies
the manner in which the Board or Chief Executive Officer believes that
the Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief that
the Executive's action or omission was in the best interests of the Company.
Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of the
Chief Executive Officer or a senior officer of the Company or based upon
the advice of counsel for the Company shall be conclusively presumed to be
done, or omitted to be done, by the Executive in good faith and in the
best interests of the Company. The cessation of employment of the
Executive shall not be deemed to be for Cause unless and until there shall
have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and
the Executive is given an opportunity, together with counsel, to be heard
before the Board), finding that, in the good faith opinion of the Board, the
Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) GOOD REASON. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or
any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
-6-
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a)(i)(B) hereof
or the Company's requiring the Executive to travel on Company business
to a substantially greater extent than required immediately prior to the
Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this Agreement
to the contrary notwithstanding, a termination by the Executive for any
reason during the 30-day period immediately following the first anniversary
of the Effective Date shall be deemed to be a termination for Good Reason for
all purposes of this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice
of Termination to the other party hereto given in accordance with Section
12(b) of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of
Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than
thirty days after the giving of such notice). The failure by the Executive
or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall
not waive any right of the Executive or the Company, respectively,
hereunder or preclude the Executive or the Company, respectively, from
asserting such fact or circumstance in enforcing the Executive's or
the Company's rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability,
the Date of Termination shall be the date of death of the Executive or the
Disability Effective Date, as the case may be.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON;
OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment Period,
the Company shall terminate the Executive's employment other than for Cause
or Disability or the Executive shall terminate
-7-
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid, (2) the
product of (x) the higher of (I) the Recent Annual Bonus and
(II) the Annual Bonus paid or payable, including any bonus or
portion thereof which has ben earned but deferred (and annualized
for any fiscal year consisting of less than twelve full months or
during which the Executive was employed for less than twelve full
months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as
the "Highest Annual Bonus") and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365 and (3) any
compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay,
in each case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) three and (2) the
sum of (x) the Executive's Annual Base Salary and (y) the Highest
Annual Bonus; and
C. an amount equal to the excess of (1) the actuarial
equivalent of the benefit under the Company's qualified defined
benefit retirement plan (the "Retirement Plan") (utilizing
actuarial assumptions no less favorable to the Executive than those
in effect under the Company's Retirement Plan immediately prior to
the Effective Date), and any excess or supplemental retirement plan
in which the Executive participates (together, the "SERP") which
the Executive would receive if the Executive's employment continued
for three years after the Date of Termination assuming for this
purpose that all accrued benefits are fully vested, and, assuming
that the Executive's compensation in each of the three years is
that required by Section 4(b)(i) and Section 4(b)(ii), over (2) the
actuarial equivalent of the Executive's actual benefit (paid or
payable), if any, under the Retirement Plan and the SERP as of the
Date of Termination;
(ii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the appropriate
plan, program, practice or policy, the Company shall continue benefits
to the Executive and/or the Executive's family at least equal to those
which would have been provided to them in accordance with the plans,
programs, practices and policies described in Section 4(b)(iv) of this
Agreement if the Executive's employment had not been terminated or, if
more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided,
-8-
however, that if the Executive becomes reemployed with another employer
and is eligible to receive medical or other welfare benefits under
another employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other
plan during such applicable period of eligibility. For purposes of
determining eligibility (but not the time of commencement of benefits)
of the Executive for retiree benefits pursuant to such plans, practices,
programs and policies, the Executive shall be considered to have
remained employed until three years after the Date of Termination and to
have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide
the Executive with outplacement services the scope and provider of which
shall be selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies (such
other amounts and benefits shall be hereinafter referred to as the
"Other Benefits").
(b) DEATH. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive,
benefits at least equal to the most favorable benefits provided by the
Company and affiliated companies to the estates and beneficiaries of peer
executives of the Company and such affiliated companies under such plans,
programs, practices and policies relating to death benefits, if any, as in
effect with respect to other peer executives and their beneficiaries at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive's estate and/or the Executive's
beneficiaries, as in effect on the date of the Executive's death with respect
to other peer executives of the Company and its affiliated companies and
their beneficiaries.
(c) DISABILITY. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement
shall terminate without further obligations to the Executive, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term "Other Benefits" as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to
the most favorable of those generally provided by the Company and its
affiliated companies to disabled executives and/or their families in
accordance with such plans,
-9-
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive and/or the Executive's family, as in
effect at any time thereafter generally with respect to other peer executives
of the Company and its affiliated companies and their families.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive other than the
obligation to pay to the Executive (x) his Annual Base Salary through the
Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent
theretofore unpaid. If the Executive voluntarily terminates employment during
the Employment Period, excluding a termination for Good Reason, this
Agreement shall terminate without further obligations to the Executive, other
than for Accrued Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination.
7. NONEXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice
or program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract
or agreement except as explicitly modified by this Agreement.
8. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
the Executive or others. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and
such amounts shall not be reduced whether or not the Executive obtains other
employment. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome
thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus
in each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986,
as amended (the "Code").
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this
Agreement
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to the contrary notwithstanding and except as set forth below, in the event
it shall be determined that any payment or distribution by the Company to or
for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 9) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 9(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
Executive, after taking into account the Payments and the Gross-Up Payment,
would not receive a net after-tax benefit of at least $10,000 (taking into
account both income taxes and any Excise Tax) as compared to the net
after-tax proceeds to the Executive resulting from an elimination of the
Gross-Up Payment and a reduction of the Payments, in the aggregate, to an
amount (the "Reduced Amount") such that the receipt of Payments would not
give rise to any Excise Tax, then no Gross-Up Payment shall be made to the
Executive and the Payments, in the aggregate, shall be reduced to the Reduced
Amount.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by KPMG Peat Marwick LLP or such other certified public accounting firm as
may be designated by the Executive (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control,
the Executive shall appoint another nationally recognized accounting firm to
make the determinations required hereunder (which accounting firm shall then
be referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up
Payment, as determined pursuant to this Section 9, shall be paid by the
Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts it remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by
-11-
the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is required to
be paid. The Executive shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company
notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 9(c), the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax claimed and sue
for a refund or to contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect
to such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due
-12-
is limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Company pursuant to Section 9(c),
a determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have
been obtained by the Executive during the Executive's employment by the
Company or any of its affiliated companies and which shall not be or
become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement).
After termination of the Executive's employment with the Company, the
Executive shall not, without the prior written consent of the Company or
as may otherwise be required by law or legal process, communicate or divulge
any such information, knowledge or data to anyone other than the Company and
those designated by it. In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under this
Agreement.
11. SUCCESSORS. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable
by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees
-13-
to perform this Agreement by operation of law, or otherwise.
12. MISCELLANEOUS. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
IF TO THE EXECUTIVE: 2-
IF TO THE COMPANY: The Toro Company
8111 Lyndale Avenue South
Bloomington, Minnesota 55420
Attention Mr. J. Lawrence McIntyre, General Counsel
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communication shall be
effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good
Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed
to be a waiver of such provision or right or any other provision or right of
this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which
case the Executive shall have no further rights under this Agreement. From
and after the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof.
-14-
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
------------------------------------------------
1-
THE TORO COMPANY
By----------------------------------------------
Kendrick B. Melrose
Its Chief Executive Officer
-15-
PROSPECTUS
500,000 Shares
THE TORO COMPANY
Common Stock
(Par value $1.00 per share)
_____________________
Offered pursuant to
THE TORO COMPANY
Investment and Savings Plan
_____________________
This Prospectus covers offers and sales from time to time of employee
participation interests in The Toro Company Common Stock Fund of The Toro
Company Investment and Savings Plan (the "Plan") and offers and sales of up
to 500,000 shares of the Common Stock, par value $1.00 per share (and
Preferred Share Purchase Rights attached thereto) (the "Common Stock"), of
The Toro Company ("Toro") through payroll deductions and employer
contributions pursuant to the Plan.
The date of this Prospectus is August 25, 1995.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Securities and Exchange
Commission by Toro are incorporated by reference into this Prospectus:
1. Its Annual Report on Form 10-K for the fiscal year ended
July 31, 1994.
2. Its Quarterly Reports on Form 10-Q for the quarters ended
October 28, 1994, February 3, 1995 and April 28, 1995.
3. The description of its Common Stock and Preferred Share Purchase
Rights contained in its Registration Statements filed under Section 12 of
the Securities Exchange Act of 1934, including any amendment or report
filed for the purpose of updating such description.
4. The Annual Report on Form 11-K for the fiscal year ended
July 31, 1994 of The Toro Company Matching Stock Plan.
All reports and other documents subsequently filed by Toro and the Plan
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934 after the date of this Prospectus and prior to the filing of a
post-effective amendment which indicates all securities offered have been
sold or which deregisters all securities remaining unsold, shall be deemed to
be incorporated herein by reference and to be a part hereof from the date of
the filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or replaced for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference in the
Registration Statement modifies or replaces such statement. Any such
statement so modified or replaced shall not be deemed, except as so modified
or replaced, to constitute a part of this Prospectus.
Toro will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the written or oral request of such person, a
copy of any and all of the foregoing documents (other than exhibits to such
documents). Written or telephone requests should be directed to The Toro
Company, 8111 Lyndale Avenue South, Bloomington, Minnesota 55420, telephone
(612) 888-8801, Attention: Investor Relations.
HIGHLIGHTS
The purpose of the Plan is to provide certain eligible employees of Toro
and its participating subsidiaries (referred to together as the "Company")
with an opportunity to save part of their income on a pre-tax basis (and, if
an employee so elects, on an after-tax basis) and to have those savings
accumulate in a tax-deferred investment account which may be invested, at the
direction of the participant, in one or more investment alternatives offered
under the Plan, including the Common Stock of Toro, to be distributed after
termination of active employment.
The Plan was authorized by the Board of Directors of Toro on February
21, 1995, to become effective as of August 1, 1995 as the successor plan to
and restatement of The Toro Company Profit-Sharing Plan and Trust Agreement
for Office Employees, The Toro Company Profit-Sharing Plan
2
and Trust Agreement for Hourly Employees, The Toro Company Profit-Sharing
Plan and Trust Agreement for Windom Factory Employees, The Toro Company
Profit-Sharing Plan and Trust Agreement for Minneapolis Factory Employees,
The Toro Company Profit-Sharing Plan and Trust Agreement for Plymouth Union
Employees and The Toro Company Matching Stock Plan and Trust Agreement.
These plans are referred to in this Prospectus as "Predecessor Plans". The
Plan removes language regarding the trust agreement elements of the
Predecessor Plans, and a separate trust agreement for those plans became
effective as of August 1, 1995.
The Plan is intended to qualify as a profit sharing plan pursuant to the
provisions of Section 401(a) of the Internal Revenue Code of 1986, as amended
from time to time (the "Code"). See "Federal Income Tax Information" for
information on the tax effects which may accrue to participants in the Plan.
The Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA") which relate to defined contribution plans.
As such, it is generally subject to Titles I and II of ERISA, including
reporting, disclosure, participation and vesting, fiduciary responsibility,
adminis-tration and enforcement provisions. As an "individual account plan"
under ERISA, the Plan is not subject to the funding requirements of Title I
nor are the Plan benefits guaranteed by the Federal Government Pension
Benefit Guaranty Corporation under Title IV of ERISA. A participant's
interest in the Plan is measured by the balance in the participant's
individual account and not by a definitely determinable retirement benefit.
Participating employees will receive reports reflecting the status of
their individual account, including information as to contributions, interest
and other earnings, withdrawals and transfers, in accordance with the
requirements of ERISA. They will also receive a Summary Plan Description as
required by ERISA. In addition, participants will be furnished with a
Summary Annual Report containing additional financial information regarding
the Plan as required by ERISA.
The Plan is administered by Toro unless the Chief Executive Officer of
Toro designated another person or persons to be the administrator (the "Plan
Administrator"). See "Administration of the Plan".
This Prospectus should be read in conjunction with the current Appendix
and certain other information relating to the Plan. The current Appendix
should be considered a part of this Prospectus.
The description of the Plan contained in this Prospectus is intended to
give only a general summary of the principal provisions of the Plan. It does
not purport to be complete and is qualified in its entirety by reference to
the full text of the Plan itself. Copies of the Plan are available upon
request from the Plan Administrator identified in the current Appendix.
Toro is a Delaware corporation with its principal place of business in
Minnesota. Its mailing address is 8111 Lyndale Avenue South, Bloomington,
Minnesota 55420. The telephone number is (612) 888-8801.
3
THE PLAN
ELIGIBLE EMPLOYEES
Participation in the Plan is optional, except that certain contributions
made by the Company ("Toro Investment Fund Contributions") are automatic with
respect to employees who meet the requirements of the Plan ("Qualified
Employees"). See "Contributions - Toro Investment Fund Contributions" below.
In general, any employee of the Company, including any officer or director
who is an employee, is eligible to participate in the Plan as of the first
day of the calendar quarter following the completion of twelve consecutive
months of service (provided the employee completes at least 1,000 hours of
service during that twelve month period), except that an employee does not
become a Qualified Employee eligible to receive a Toro Investment Fund
Contribution until the completion of two years of service. Any employee who
is covered by a collective bargaining agreement which does not provide that
employees in the bargaining unit will be covered by the Plan will not be
eligible to participate in the Plan if there is evidence that retirement
benefits were the subject of good faith bargaining between the
representatives of such unit and the Company. Certain employees of Toro's
foreign subsidiaries may not be eligible to participate in the Plan. In
general, any employee of the Company who was a participant in a Predecessor
Plan immediately before August 1, 1995 will also be a participant in the Plan.
An employee who incurs a termination of employment with the Company will
cease to be eligible to participate in the Plan, unless the employee is
reemployed by the Company and otherwise meets the requirements for
participation.
An eligible employee may enroll in the Plan. See "Participation" below.
Once an employee meets the eligibility requirements, that employee will
continue to be eligible to participate in the Plan for as long as he or she
continues to be employed by the Company.
Subsidiaries of Toro which have adopted the Plan are listed in the
Appendix.
PARTICIPATION
An eligible employee may become a participant in the Plan by signing and
filing with the Plan Administrator such application forms and furnishing such
information as the Plan Administrator may require to authorize payroll
deductions. An employee becomes a contributing participant as of the
beginning of the first payroll period which is at least 30 days after the
date of such application, or a lesser number of days after the application,
as provided in the application form. Payroll deductions continue until the
participant ceases to meet the eligibility requirements, terminates
employment, dies or withdraws from making contributions. See "Pre-Tax
Contributions" and "After-Tax Contributions" below. A participant may
withdraw from making contributions for a payroll period by meeting certain
requirements established by the Administrator.
The Plan year will be a calendar year, but there will be a short Plan
year beginning on August 1, 1995 and ending on December 31, 1995.
CONTRIBUTIONS
GENERAL. There are four ways in which contributions may be made for a
participant's benefit under the Plan. "Pre-Tax Contributions" are
contributions to the Plan made out of a contributing
4
participant's compensation, which is reduced by the designated amount of the
contributions. For federal income tax purposes, the contribution is treated
as being made by the participant's participating employer. "After-Tax
Contributions" are contributions made by the Company on behalf of
participants who have agreed to have a percentage of their net compensation
after payment of taxes paid into the Plan. Such contributions do not reduce
compensation subject to tax withholding. "Company Matching Contributions"
are contributions made by the Company (either Toro or its participating
subsidiary) on behalf of participants who make either Pre-Tax or After-Tax
Contributions to the Plan. Toro Investment Fund Contributions are
contributions made by the Company, whether or not the employee makes Pre-Tax
or After-Tax Contributions.
The amounts that can be contributed for a participant's benefit under
the Plan are based on a percentage of the participant's compensation. For
purposes of the Plan, a participant's "compensation" means all remuneration
of an employee from an employer which is subject to federal income tax
withholding, subject to certain adjustments and limitations as set forth in
the Plan and relating to benefits such as stock options and cafeteria plan
benefits.
Each election by a participant to contribute under the Plan or to
terminate contributions must be in writing on a form furnished by the Plan
Administrator and filed with the Plan Administrator in accordance with rules
established by the Plan Administrator.
PRE-TAX CONTRIBUTIONS. A participant may agree to have his or her
salary reduced by any whole percentage from 1% to 10%, through an automatic
payroll deduction each payroll period, provided that such reductions may not
exceed 10% of the participant's compensation for any payroll period and may
not exceed annual dollar limits set by the Secretary of the Treasury ($9,240
for 1995). The Company will contribute to the Plan the amount by which the
participant's salary has been reduced. The amount of the salary reduction
contributed to the Plan on a participant's behalf is not subject to federal
income tax until the participant receives it from the Plan as a withdrawal or
distribution. These Pre-Tax Contributions are, however, subject to social
security taxes each payroll period.
Pre-Tax Contributions may not be distributed to a participant until his
or her employment with the Company terminates, except that distribution of
contributions must commence, whether or not the participant is employed by
the Company, by the April 1 following the date the participant reaches age
701/2. See "Payment Upon Termination of Employment" below.
Salary reductions made to fund Pre-Tax Contributions to the Plan will
not affect other benefits available to participants, such as life insurance,
disability income, retirement and similar benefit programs. Any benefits
payable under these programs will continue to be calculated without regard to
reductions for Pre-Tax Contributions to the Plan.
A contribution agreement will apply to each payroll period during which
the agreement is on file with the Company.
CHANGING OR SUSPENDING PRE-TAX CONTRIBUTIONS. A participant's Pre-Tax
Contributions may be modified as of dates permitted by the Plan
Administrator. Initially and until the Plan Administrator determines
otherwise, a contributing participant may make three modifications of the
rate (not including withdrawal from participation as a contributing
participant) during a calendar quarter and a change will be effective as of
the first payday in the subsequent calendar quarter. A modification in the
rate of Pre-Tax Contributions is to be made by providing the Plan
Administrator
5
a new Pre-Tax Contribution agreement, in accordance with the Plan
Administrator's requirements, at least 30 days (or a shorter period permitted
by the Plan Administrator) before the payday as to which it is to be
effective.
AFTER-TAX CONTRIBUTIONS. A participant may also elect to make After-Tax
Contributions in addition to or in lieu of Pre-Tax Contributions. After-Tax
Contributions may be withdrawn from the Plan prior to termination of
employment. See "Withdrawals During Employment" below. A participant may
agree to contribute to the Plan an amount equal to any whole percentage of
his or her compensation per payroll period not to exceed 4% of such
compensation, and not to exceed the maximum amount which may be contributed
under the Code. See "Additional Limitations on Participant Contributions".
Contributions under the Plan may be made in a combination of Pre-Tax
Contributions and After-Tax Contributions so long as the total contribution
does not exceed an amount equal to 10% of compensation described above.
CHANGING OR SUSPENDING AFTER-TAX CONTRIBUTIONS. A participant may
cease, resume or modify the amount or the rate of his or her After-Tax
Contribution at the same time and in accordance with the same rules provided
for Pre-Tax Contributions. A participant who elects to withdraw all or any
part of such After-Tax Contributions may not again make After-Tax
Contributions except in accordance with the Plan (see "Withdrawals During
Employment" below).
ADDITIONAL LIMITATIONS ON PARTICIPANT CONTRIBUTIONS. Current law and
Internal Revenue Service ("IRS") regulations limit the total amount that an
employee may contribute before taxes to all employer-sponsored savings or
retirement plans in any calendar year. This limit will be adjusted
periodically for increases in the cost of living in accordance with federal
regulations. For 1995 the limit is $9,240. This limit may apply to a
participant who (i) makes pre-tax contributions to this Plan and also to
other qualified Company plans or (ii) makes pre-tax contributions during a
single calendar year to Company plans and also to any savings or retirement
plan sponsored by another employer. A participant for whom this limit may be
applicable should contact the Plan Administrator for additional information.
Under IRS rules applicable to the Plan, the average amount that can be
contributed in the form of Pre-Tax Contributions and After-Tax Contributions
by participants who are "highly compensated employees" (as defined in the
Plan and in Section 414(q) of the Code) cannot exceed certain limits relating
to amounts contributed by other participants. If the amounts that highly
compensated employees have contributed or have indicated they wish to
contribute as Pre-Tax or After-Tax Contributions would cause the Plan to
violate this standard, the Company and the Plan Administrator would take one
or more of the following actions to restore the required balance: the level
of Pre-Tax Contributions permitted highly compensated employees could be
reduced below the Plan maximum or the Company could return to highly
compensated employees a portion of the Pre-Tax or After-Tax Contributions
made by such employees. If Pre-Tax or After-Tax Contributions are returned,
any Company Matching Contributions made with respect to such returned Pre-Tax
or After-Tax Contributions would be forfeited by the participant. Such
forfeited amounts would be applied by the Company to reduce subsequent
matching contributions.
Neither the Company nor the Plan is able to predict whether any of the
adjustments described above will be necessary. It is possible that the
maximum contribution level for highly compensated employees may be decreased
or that other actions may be taken to maintain the appropriate balance of
contributions required by the IRS. If additional actions must be taken to
maintain the required balance of contributions, affected participants will be
notified.
6
COMPANY MATCHING CONTRIBUTIONS. Each participating employer will make
contributions to the Plan on behalf of each of its participants who makes
Pre-Tax or After-Tax Contributions to the Plan. The matching contribution
will be equal to 50% of the sum of the amounts contributed by a participant
to the Plan as Pre-Tax and After-Tax Contributions for the Plan year
(excluding contributions which have been withdrawn during the Plan year), up
to a maximum of 2% of the participant's compensation. Matching contributions
may be made in cash or in Common Stock.
TORO INVESTMENT FUND CONTRIBUTIONS. Each participating employer will
make Toro Investment Fund Contributions to the Plan on behalf of its
Qualified Employees in amounts equal to 5.5% of compensation plus 5.5% of
compensation above the Social Security taxable wage base. A Qualified
Employee must meet the eligibility requirements described in "Eligible
Employees" above, and must be actively employed on the last working day of
the applicable Plan year to be eligible for a Toro Investment Fund
Contribution. Compensation is measured from the first of the month following
completion of the service requirement.
ROLLOVER CONTRIBUTIONS. If a participant received a lump sum
distribution from an account under a qualified retirement plan with his or
her previous employer, or if a participant previously received such a
distribution and placed it in an individual retirement account, the Plan
Administrator may permit a participant to roll the distribution over to an
account under this Plan, subject to such terms and conditions as may be
established by the Administrator and subject to the Code and regulations
thereunder. There are detailed rules that must be followed for such Rollover
Contributions and any questions should be directed to the Plan Administrator.
There will be no Company Matching Contributions for a transfer to a rollover
account.
PARTICIPANT ACCOUNTS AND VESTING
An individual account will be established for each participant. Each
account will have subaccounts as follows:
TORO INVESTMENT FUND CONTRIBUTIONS ACCOUNT, which shows the amount of the
participant's interest derived from Toro Investment Fund Contributions
under the Plan, and attributable to similar contributions made under any
Predecessor Plan prior to August 1, 1995.
PRE-TAX CONTRIBUTIONS ACCOUNT, which shows the amount of the participant's
interest derived from Pre-Tax Contributions made by the participant from
August 1, 1995, and attributable to similar contributions made under any
Predecessor Plan prior to that date.
AFTER-TAX CONTRIBUTIONS ACCOUNT, which shows the amount of the
participant's interest derived from After-Tax Contributions made by the
participant form August 1, 1995, and attributable to similar contributions
made under any Predecessor Plan prior to that date.
MATCHING CONTRIBUTIONS ACCOUNT, which shows the amount of the participant's
interest derived from Matching Contributions made by the participant from
August 1, 1995, and attributable to similar contributions made under The
Toro Company Matching Stock Plan prior to that date.
ROLLOVER CONTRIBUTIONS ACCOUNT, which shows the amount of the participant's
interest derived from Rollover Contributions.
7
In addition, a small number of participants may also have a VOLUNTARY
CONTRIBUTIONS ACCOUNT, which shows the amount of the participant's interest
derived from voluntary after tax contributions made by the participant prior
to 1986, before changes in tax laws motivated Toro to eliminate the
opportunity to make such contributions.
Participants' accounts will be valued daily.
Amounts contributed to the Toro Investment Fund Account, the Pre-Tax and
After-Tax Accounts and any Rollover Account, together with income
attributable thereto, will be 100% vested and nonforfeitable at all times.
The vested portion of a participant's account is the portion of the assets
which the participant is entitled to receive as a distribution if employment
with the Company terminates.
Amounts credited to the Matching Contributions Account together with
income attributable thereto and amounts contributed under The Toro Company
Matching Stock Plan as it existed prior to August 1, 1995 together with
income attributable thereto will vest in accordance with the following
schedule:
On completion of one year of vesting service: 20%
On completion of two years of vesting service: 40%
On completion of three years of vesting service: 60%
On completion of four years of vesting service: 80%
On completion of five years of vesting service: 100%
"Vesting service" means an employee's period of service with the Company
measured in full years, subject to certain adjustments set forth in the Plan
to accommodate the transition to the Plan and change in the Plan year. A
participant's account will be 100% vested when the participant reaches age
65, dies prior to termination of employment with the Company or incurs a
termination of employment with the Company on account of disability.
If a participant terminates employment, any portion of the account which
has not vested and to which the participant is not entitled will be held in a
suspense account until his or her return as an employee of a participating
employer or the occurrence of five consecutive one year breaks in service or
the distribution of the entire Vested Share (as defined in the Plan) of the
participant (a "forfeiture event"). If the participant returns as an
employee of a participating employer before a forfeiture event, there will be
no forfeiture and the suspense account will be restored. If the participant
experiences a forfeiture before being rehired by a participating employer,
all amounts held in the suspense account will be forfeited and will be
applied towards future Matching Contributions of Toro or a participating
employer or account restorations. If the participant has not received a
distribution of his or her entire vested account, the suspense account will
not be forfeited until the occurrence of five consecutive one year breaks in
service. A participant's forfeited amounts may be restored if he or she is
reemployed before incurring a total of five consecutive one year breaks in
service. Restoration occurs if the participant had received a distribution
which resulted in a forfeiture, but makes repayment of the full amount
distributed within certain time periods.
8
INVESTMENT OF CONTRIBUTIONS
INVESTMENT OPTIONS. All contributions under the Plan and all of its
assets will be held in trust by a trustee (the "Trustee") until disbursed in
accordance with the terms of the Plan. Assets held under the Plan may be
invested by a participant at the participant's direction in any one or more
investment funds, except that all Company Matching Contributions and assets
attributable to similar contributions under The Toro Company Matching Stock
Plan, as it existed immediately prior to August 1, 1995, will be invested
only in Toro Common Stock, subject to the right to diversify upon reaching
the age of 55. See "Diversification Upon Reaching 55" below. The Chief
Executive Officer of Toro may specify that Rollover Contributions or Pre-Tax
Contributions may not be invested in the Common Stock.
PUTNAM MUTUAL FUNDS. Investment options available to participants
through Putnam Fiduciary Trust Company are listed from time to time in an
Appendix to this Prospectus, and are described in prospectuses prepared by
managers of each investment company and made available to participants in the
Plan by the Trustee. A table set forth in the Appendix presents financial
data for the past three years showing materials trends in the performance of
the alternative investment options, including The Toro Company Common Stock
Fund described below.
THE TORO COMPANY COMMON STOCK FUND. Except as described below, the
assets of The Toro Company Common Stock Fund will be invested exclusively in
the Common Stock of Toro. The Trustee will purchase the Common Stock on the
open market at market prices, or may acquire Common Stock by contribution or
acquisition from Toro.
The Trustee may temporarily invest cash received under the Plan prior to
acquiring the Common Stock. The Trustee may also maintain sufficient cash to
distribute cash in lieu of fractional shares.
DIVERSIFICATION UPON REACHING 55. A participant who has attained the
age of 55 and has completed ten years of vesting service with the Company may
elect to segregate a portion of the vested portion of his or her Matching
Contribution Account in The Toro Company Common Stock Fund and direct the
investment of such amount. Investment of the following amounts of a
participant's vested account may be directed, beginning with the first Plan
quarter in which a participant meets the necessary age and service
requirements:
Attained Age Percentage
55 25
56 50
57 75
58 100
A participant who has attained the age of 62, but has not yet completed 10
years of vesting service, will nonetheless be permitted to direct the
investment of 100% of the value of the vested portion of the participant's
Matching Contribution Account.
9
METHOD OF ELECTION TO DIVERSIFY. Each election to diversify investments
in the Plan must be made in writing on a form provided by the Plan
Administrator, signed by the participant and delivered to the Plan
Administrator in time to permit transmittal to the Trustee within 15 days
before the first day of the Plan quarter with respect to which it is to
become effective. Any change in such election must be effected in the same
manner as an original election. Once an election to diversify has been made,
a participant may not transfer that account share back into shares of the
Common Stock.
VOTING AND OTHER RIGHTS
VOTING RIGHTS. A participant is entitled to direct the exercise of
voting or other rights with respect to shares of Common Stock allocated to
the participant's account, including those not yet vested. Toro will provide
each participant with information pertaining to exercise of voting and tender
offer rights distributed to stockholders at the time of such distribution.
The Trustee will vote shares for which voting directions have not been
received and shares not yet allocated to participants' accounts in the same
ratio for the election of directors and for and against each other issue as
the applicable vote directed by participants with respect to shares of stock
allocated to their accounts to the extent permitted by ERISA.
TENDER OR EXCHANGE OFFER. In the event that a tender offer or exchange
offer is made for the Common Stock, a participant will have the right to
direct the Trustee whether or not to tender or exchange any shares of the
Common Stock allocated to the participant's Plan account. The Trustee will
provide the participant with necessary information to make a decision.
Information regarding a participant's decision will be kept confidential
within the meaning of Section 203 of the Delaware General Corporation Law.
The Trustee will tender or exchange shares for which direction is not
received and for shares not yet allocated to participants' accounts in the
same ratio as the positive and negative responses to those offers actually
received from participants who give directions, in a manner consistent with
the Plan and ERISA.
Under the Plan, the completion of a tender offer or other acquisition of
the Company will not necessarily lead to a distribution of a participant's
account. See "Payment Upon Termination of Employment" below. Cash or an
asset other than the Common Stock could remain in a participant's account for
the full term otherwise required under the Plan.
DIVIDENDS. Dividends on shares of Common Stock will be allocated to a
participant's account.
INVESTMENT RISK
Participation in the Plan involves investment risk because the amount a
participant will receive when his or her account is distributed under the
terms of the Plan will depend upon the investment results of Toro Common
Stock. The Common Stock is purchased at market value and the value may
increase or decrease as a result of various factors. In addition, the
investment options the participant may choose upon reaching age 55 will
affect the amount distributed.
10
A participant's contributions may not be withdrawn during a
participant's employment except under very limited circumstances (described
below under "Withdrawals During Employment"). As a result, employees
contemplating participation in the Plan should view the Plan as a long-term
retirement savings program.
Participants should be aware of Section 10 of the Securities Exchange
Act of 1934, and Rule 10b-5 thereunder, which prohibit trading in Company
securities on the basis of material, non-public information. For information
on certain restrictions on affiliate resales of the Common Stock, see
"Restrictions on Resale" below.
WITHDRAWALS DURING EMPLOYMENT
Pre-Tax Contributions made by a participant may not be withdrawn or
distributed under any circumstances until the participant's employment
terminates or until the participant reaches age 701/2. See "Payment Upon
Termination of Employment" below.
A participant who has completed five years of vesting service may
withdraw After-Tax Contributions, but will not again be able to make such
contributions for a period of at least six months subsequent to the effective
date of the withdrawal and may not make additional such withdrawals for a
period of three years.
A participant who has not terminated service may make withdrawals from
the participant's Voluntary Contributions Account, if there is one, subject
to certain rules. Only one such withdrawal may be made during each Plan year.
PAYMENT UPON TERMINATION OF EMPLOYMENT
The full value of a participant's vested account (the "Vested Share")
will be paid if the participant's employment with the Company ends, as
defined in the Plan. Payment may be in a lump sum; by a series of
installments; by purchase and distribution of an annuity contract providing
an income for a certain term; or by a purchase and distribution of an annuity
contract payable in a qualified joint and survivor annuity form. Certain
eligible rollover distributions may be directly rolled over into another
qualified plan or an individual retirement account (IRA). Distribution
methods and requirements are complicated and may require spousal consent.
The Plan Administrator should be contacted for further information. Any
contributions invested in the Company's Common Stock will be paid in whole
shares of the Common Stock. Cash will be paid for fractional shares. If the
amount to which the participant is entitled does not exceed $3,500, the
entire amount will be distributed in a lump sum payment, subject to certain
conditions.
For Plan purposes, employment is considered to end only if the
participant actually stops working and ceases to be employed by the Company.
The Vested Share does not become payable if a participant goes on short-term
disability, medical or other leave (except for total disability) or is
employed by the purchaser of all or part of the business of the participant's
employer (subject to certain exceptions). If a participant is laid off, that
person's Vested Share will not be paid until he or she has been on that
status for two years or until employment actually ends.
11
Distribution will normally be made in the Plan year quarter following
termination of employment with the Company. Plan year quarters will begin on
January 1, April 1, July 1 and October 1 in each year. A participant may
defer receipt of the lump sum payment. The Plan Administrator may be
contacted to obtain information on deferrals and distributions. A
distribution from the Plan must be made no later than April 1 of the year
following the calendar year in which the participant reaches age 701/2, even
if the participant remains employed.
If a participant dies, the participant's designated beneficiary or
beneficiaries (see "Death Benefit and Designation of a Beneficiary" below)
become entitled to receive the participant's Vested Share in the same manner
as described above, with special requirements relating to pre-retirement
survivor annuity contracts. Distribution methods and requirements are
complicated and may require spousal consent. The Plan Administrator should
be contacted for further information. If the value of the death benefit
payable does not exceed $3,500, the entire value of the participant's
accounts will generally be distributed in a lump sum payment.
DEATH BENEFIT AND DESIGNATION OF A BENEFICIARY
If a participant dies during employment, the participant's beneficiary
will become entitled to the participant's Vested Share. Each participant is
to designate a beneficiary or beneficiaries to receive a designated portion
of the Vested Share upon the participant's death. A participant may change
the beneficiary designation at any time by filing a new form with the Plan
Administrator.
If a participant is married, the participant's spouse will be the
beneficiary unless the participant designates a different beneficiary and the
spouse consents to such election. A new election may be required after the
first day of the calendar year in which the participant reaches age 35, if
the beneficiary named in an earlier election is a person other than the
participant's spouse.
If a participant fails to name a beneficiary or if all the named
beneficiaries die before the participant, the balance of the participant's
Plan account will be distributed in the following order:
1. To the participant's spouse;
2. To the participant's children or their descendants;
3. To the participant's parents;
4. To the participant's brothers and sisters;
5. To the participant's estate.
RESTRICTIONS ON RESALE
Employees other than "affiliates" of Toro who receive shares of the
Common Stock under the Plan during the effectiveness of the Registration
Statement of which this Prospectus is a part will not be subject to state or
federal securities law restrictions on the resale of such shares. Such
shares
12
generally may be resold by nonaffiliate employees through a
stockbroker in the customary manner or to third persons without the use of a
stockbroker.
Employees who are "affiliates" within the meaning of the rules and
regulations under the Securities Act of 1933 will be subject to certain
restrictions on resale of shares of the Common Stock. For these purposes, an
"affiliate" of Toro is any person who directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, Toro. Although the determination as to which persons will be
"affiliates" is ultimately an issue of fact depending upon all the applicable
facts and circumstances, in most cases, an employee will not be an affiliate
of Toro if he or she (i) is neither an executive officer nor a director of
the Company, (ii) does not own or exercise voting control over 10% or more of
the Common Stock, (iii) is not a relative of any person holding such a
position or meeting such ownership test or (iv) is not closely associated or
strongly influenced either by employment, business or personal relationships
with any person or entity which is an affiliate.
Employees who are affiliates may effect resales of the Common Stock in
accordance with the requirements of Rule 144 under the Securities Act of
1933, except that the two year ownership requirement under such rule is not
applicable. Such employees may also effect resales of the Common Stock
pursuant to another available exemption from the registration requirements of
such act or pursuant to an effective registration statement under the
Securities Act of 1933.
EXECUTIVE OFFICERS SUBJECT TO SECTION 16
Section 16(b) of the Securities Exchange Act of 1934 provides that any
gain on a sale and purchase or on a purchase and sale of the Common Stock by
an executive officer of the Company within any period of less than six months
may be claimed by Toro. The rules under Section 16 exempt certain
transactions in the Common Stock engaged in under the Plan from Section
16(b). The receipt of a distribution in Common Stock from the Plan by an
executive officer may be a transaction which is a "purchase" within the
meaning of Section 16(b). Executive officers of the Company should consider
the applicability of Section 16(b) before electing to receive a Common Stock
distribution from the Plan.
AMENDMENT AND TERMINATION
The Plan may be amended, altered or wholly revised, prospectively or
retrospectively, or terminated at any time by action of the Board of
Directors of Toro, and execution by an authorized officer of Toro. Any
participating subsidiary of Toro may discontinue its participation in the
Plan at the end of any Plan year. If the Plan terminates, no further
contributions will be made by or on behalf of any participant, and the
Trustee will proceed to liquidate the trust fund, distributing benefits to
participants or their beneficiaries, unless benefits are transferred to a
successor Plan.
ASSIGNMENT OF BENEFITS
Except in limited circumstances involving divorce or separation
proceedings, the value of a participant's account may not be transferred,
encumbered, assigned or sold to anyone else. A partici-
13
pant's account cannot be used as collateral for loans or pledged in payment
of debts, contracts or any other liabilities.
PLAN ADMINISTRATION
General responsibility for Plan administration rests with Toro, unless a
different person or persons are appointed as Plan Administrator by the Chief
Executive Officer of Toro. An individual Plan Administrator, who may be a
participant in the Plan, receives no compensation for his or her services in
such capacity and may be removed by the Chief Executive Officer at any time.
The name of the present Plan Administrator is set forth in the current
Appendix. To obtain additional information about the Plan and its
administrators, a participant may contact the Plan Administrator.
The Plan Administrator has the duty and power to interpret the
provisions of the Plan, maintain records, determine eligibility to
participate in the Plan and rights to receive benefits and to handle other
matters that may arise under the Plan. Decisions of the Plan Administrator
in matters such as eligibility and payment of benefits are final. If a
participant or beneficiary believes that an amount of benefits is in error,
an appeal procedure is available under the Plan.
Subject to direction by the Plan Administrator, the Chief Executive
Officer of Toro or an investment manager, the Trustee has the exclusive
authority to manage and control assets held by the Plan. The Plan's Trustee
is identified in the Appendix. The Trustee, which is not affiliated with the
Plan or the Company, is appointed by and serves at the pleasure of the Chief
Executive Officer of Toro. The Trustee holds and administers the Plan's
trust fund and makes benefit payments from the fund at the Plan
Administrator's direction.
FEDERAL INCOME TAX INFORMATION
The Plan is designated as a "qualified plan" under Section 401(a) of the
Code. Toro has applied for and expects to receive a determination from the
IRS and an opinion of counsel that the Plan meets the requirements of that
section of the Code. The Plan is also subject to special tax deferral
treatment under Section 401(k) of the Code. This section summarizes some of
the more significant federal income tax consequences under the Plan. The tax
consequences described are based on statutes and regulations in effect as of
the date of this Prospectus and are subject to change if those statutes and
regulations are changed. This summary should not be regarded as tax advice
and participants are urged to consult with their tax advisors regarding
participation in the Plan. The following summary does not describe any
federal estate tax or state or local tax consequences.
CONTRIBUTIONS
Pre-Tax Contributions made to the Plan through payroll deductions are
not included in the participant's taxable compensation and are not subject to
federal income tax when made. In most states, the same is true for purposes
of state income tax. Pre-Tax Contributions are, however, subject to social
security taxes when made. Employer Matching Contributions and Toro
Investment Fund Contributions are not taxable for federal income tax purposes
to a participant when made or when credited to a participant's account.
Earnings and gains from the investments made with any contributions to the
Plan are not taxable when credited to a participant's account.
14
For federal tax purposes, the Company is entitled to deduct, as
contributions to the Plan, all Pre-Tax Contributions, Company Matching
Contributions and Toro Investment Fund Contributions.
DISTRIBUTIONS FROM THE PLAN
In general, a participant or his or her beneficiary is subject to income
tax on all amounts received as distributions from the Plan. Federal income
tax treatment of a distribution from the Plan may vary for a number of
reasons, including the reason for the distribution and whether or not it is
made in shares of Common Stock. The most significant rules are described
here, but recipients should consult their own tax advisors with respect to
the particular circumstances of their distributions.
Distributions made in a single calendar year consisting of a
participant's entire interest in the Plan and made on account of the
participant's total disability, death or other termination of employment or
made after reaching age 591/2, are referred to as "lump sum distributions".
To the extent that a lump sum distribution is made in the form of shares of
Common Stock, the recipient is taxed only on that portion of the value of the
shares which represents the actual cost of the shares when originally
acquired by the Plan. The value of all assets other than Common Stock
distributed as part of a lump sum distribution is also currently taxable to
the recipient. However, the recipient may elect to take advantage of special
tax averaging rules applicable to lump sum distributions.
If a participant is over age 591/2 and has participated in the Plan for
at least five years prior to the calendar year in which a lump sum
distribution is made, the distribution is eligible for a special five-year
forward income-averaging treatment. If this income-averaging treatment is
elected, the tax is determined, in general, as if the reported income were
received evenly over five years and without regard to the taxpayer's other
income. The tax is computed at the single taxpayer's rate and the full
amount of the tax is payable as a single sum in the taxable year of receipt.
In addition, a participant who attained age 50 before January 1, 1986 may
make a one-time election to use either ten-year or five-year forward income
averaging without having to attain age 591/2. If ten-year forward income
averaging is elected, however, the tax will be determined by using tax rates
in effect for 1986.
Generally, a distribution to or withdrawal by a participant who has not
attained age 591/2 will be subject to a special early distribution tax in
addition to the regular income tax. This special tax will be 10% of the
amount of the distribution or withdrawal that is includable in a
participant's income. The special 10% tax will not be imposed if the
distribution is made on account of a participant becoming totally disabled,
if the amount distributed is not more than the amount of the medical expense
deduction allowable to the participant for federal income tax purposes for
the year of distribution or in certain other specified circumstances. In
addition, the special tax will not be imposed on distributions made on
account of termination of employment of a participant age 55 or over.
Deductions or withdrawals that are rolled over will not be subject to the
special tax since they are not includable in the participant's income.
When a partial distribution is made because of a withdrawal during
employment, the entire amount so distributed is taxable as ordinary income to
the recipient. Tax treatment of shares of Common Stock received in such a
distribution should be reviewed with a participant's tax advisor.
15
Distributions from the Plan which are "eligible rollover distributions"
are subject to withholding of federal income tax (at a rate of 20% of the
distribution amount). Generally, eligible rollover distributions include any
distribution of all or any portion of the balance to the credit of the Plan
participant in the Plan except certain distributions paid over the
participant's life expectancy (or joint life expectancy of the participant
and a beneficiary) or over a period of ten years or more and certain required
minimum distributions.
A Plan participant who is entitled to an eligible rollover distribution
may avoid the 20% withholding and current income tax by electing to make a
direct rollover to another qualified plan or individual retirement
arrangement (IRA).
SALE OF DISTRIBUTED COMMON STOCK
When a participant sells shares of Common Stock received as part of a
distribution from the Plan, the participant's "basis" for determining capital
gain or loss is the amount which was subject to current tax upon distribution
of the shares from the Plan. On a subsequent sale of Common Stock received
in a lump sum distribution, the portion of the gain represented by the
appreciation in value which was nontaxable at the time of the distribution
will be taxed as long-term capital gain, regardless of when the sale was
made. Any appreciation in the value of the Common Stock subsequent to
withdrawal or distribution will be taxable as additional long-term or
short-term capital gain when the stock is sold, depending upon the holding
period of the stock in the hands of the recipient. Capital gains may be
offset by capital losses or capital loss carryover if any are available to
the participant.
EXPERTS
The financial statements and schedules incorporated herein and in the
registration statement by reference to the 1994 Annual Report on Form 10-K of
Toro have been audited by KPMG Peat Marwick LLP, independent certified public
accountants, and have been so incorporated in reliance on the reports of KPMG
Peat Marwick LLP and upon the authority of said firm as experts in accounting
and auditing. To the extent that KPMG Peat Marwick LLP audits and reports on
future financial statements and schedules of Toro and consents to the use of
their reports thereon, such financial statements and schedules will also be
incorporated by reference in the registration statement in reliance upon
their reports and said authority.
16
APPENDIX
Dated August 25, 1995
to
PROSPECTUS
Dated August 25, 1995
_________________
500,000 Shares
THE TORO COMPANY
COMMON STOCK
(Par value $1.00 per share)
_________________
Offered pursuant to
THE TORO COMPANY
Investment and Savings Plan
_________________
Subsidiaries participating Toro Credit Company
in The Toro Company Toro Sales Company
Investment and Savings Plan:
Plan Administrator: The Toro Company
8111 Lyndale Avenue South
Bloomington, Minnesota 55420
(612) 887-8969
Trustee under The Toro Putnam Fiduciary Trust Company
Company Investment One Post Office Square
and Savings Plan: Boston, Massachusetts 02109
(617) 292-1000
A-1
INVESTMENT ALTERNATIVES OFFERED UNDER THE PLAN
The following list of investment alternatives is only a list and does
not provide full disclosure on the investments listed. An investment decision
should be made only after obtaining and reading a copy of the current
prospectus for the fund. The prospectus to which this Appendix relates
constitutes the prospectus for The Toro Company Common Stock Fund.
GROWTH FUNDS
Growth funds entail higher risk and may experience greater volatility than
other investment alternatives.
The Toro Company Invests solely in the Common Stock of Toro. An investment in a single
Common Stock Fund stock fund creates an additional degree of risk due to the lack of
diversification.
Putnam Overseas Invests primarily in equity securities of companies located outside
Growth Fund North America. Aggressively seeks capital appreciation. Foreign
investments are subject to additional risks such as currency fluctuations,
political and economic instability and different standards of financial
reporting and taxation that are not present with domestic investments.
Putnam Voyager Fund Invests in a combination of smaller companies expected to grow over time, as
well as in larger, more established companies. Aggressively seeks capital
appreciation.
GROWTH AND INCOME FUNDS
Growth and income funds seek earnings growth and current income.
They are intended to entail less risk than growth funds but to
offer the opportunity for more modest growth.
The Putnam Fund for Invests mainly in stocks of companies that offer long-term growth
Growth and Income potential and also provide current income.
PUTNAM LIFESTAGESM FUNDS
Putnam LifestageSM Funds are asset allocation funds. Asset allocation funds
are portfolios of other Putnam funds. Those other funds invest principally
in either equity securities or bonds, and may also invest in money market
instruments. The allocation of those other funds in a particular portfolio
varies based on the overall degree of risk associated with the portfolio.
Investment in an asset allocation fund is intended to offer an investor a mix
of investments in equity securities and bonds for the investor's preferred
level of risk, age or career stage and financial goals. The Putnam Lifestage
Funds are designed to offer three such levels of risk and are intended to
minimize the necessity for the investor to determine investment allocations.
A Plan participant should consult his or her financial advisor to determine
whether one of the Lifestage Fund asset allocation portfolios is an
appropriate investment to accommodate investment objectives and tolerance for
risk. The three portfolio choices offered are:
A-2
Putnam Asset Allocation: Invests aggressively in different types of stocks, with some investment in
Growth Portfolio bonds and money market investments. For more aggressive investors
who will accept more risk in exchange for a potential of higher growth.
Putnam Asset Allocation: Invests in stocks and bonds. Risk is intended to be reduced because of
Balanced Portfolio the balance between the relative stability of bonds and the fluctuation of
stocks. For investors who want moderate risk and a potential for
moderate growth.
Putnam Asset Allocation: Invests principally in investment-grade bonds, with a portion of the
Conservative Portfolio portfolio in stocks. For investors who want less risk and are willing to
assume a reduced potential for growth.
CAPITAL PRESERVATION FUNDS
Toro Stable Value Fund Invests in a diversified portfolio of primarily high-quality investment
contracts and seeks a stable rate of return with greater safety of principal
and liquidity. The fund is not insured or guaranteed by the U.S.
government and there can be no assurance that the fund will be able to
maintain a stable net asset value of $1.00 per share.
A-3
Financial Data on Investment Funds
The following table shows trends in performance of investment alternatives
offered under the Plan for each of the past three years and the other
applicable periods.
TOTAL RETURN PERFORMANCE BASED ON NET ASSET VALUE
(IN PERCENT, NET OF ALL FEES AND EXPENSES,
WITH ALL DISTRIBUTIONS REINVESTED)
(FOR THE PERIOD ENDING JUNE 30, 1995)
2nd Qtr. Year to 1 YEAR 3 YEARS 5 YEARS 10 YEARS/LIFE
FUND Date Total Return Cumulative Annualized Cumulative Annualized Cumulative Annualized
Toro Stable Value Fund* +1.36 +3.69 +5.43 +19.27 +6.05 +39.73 +6.92
Putnam Asset Allocation Fund:
Conservative Portfolio
(2/7/94)* +6.31 +10.91 +12.70 - - - - +7.92 +5.60
Putnam Asset Allocation Fund:
Balanced Portfolio (2/7/94)** +6.84 +11.59 +14.99 - - - - +9.57 +6.75
Putnam Asset Allocation Fund:
Growth Portfolio (2/7/94)** +7.13 +12.02 +16.71 - - - - +10.67 +7.51
The Putnam Fund For Growth
and Income +8.24 +18.65 +21.13 +43.22 +12.73 +78.46 +12.28 +282.20 +14.35
Putnam Voyager Fund +8.27 +17.10 +29.86 +64.56 +18.08 +117.27 +16.79
Putnam Overseas Growth Fund +5.13 + 2.98 + 3.76 +41.79 +12.35 - - +400.65 +17.48
+47.19 + 9.33
The Toro Common Stock Fund
(dividends reinvested)*** -1.81 -1.84 +19.81 +116.26 +29.32 +28.08 + 5.07 +256.37 +13.55
* Amounts presented in the table for the Toro Stable Value Fund are not
actual performance figures, but are estimates of performance based on the
Ryan Labs 3 year GIC (guaranteed Investment contract) GIC Master Index,
less 25 basis points on an annual basis. The actual performance for
the fund for the one year eriod ended March 31, 1995 is 6.76%. The
performance of the Ryan Labs 5 year GIC Master Index for the same
periods ended June 30, 1995, as shown in the table, respectively, are
1.71% (2nd Q.), 4.67% (YTD), 7.12% (1 YEAR), 24.68% and 7.63% (3 YEARS,
cumulative and annualized) and 47.21% and 8.04% (5 YEARS, cumulative and
annualized).
** Date of inception
*** Data provided is for performance of Common Stock as traded on the New York
Stock Exchange. No fund existed prior to August 1, 1995.
A-4
TABLE OF CONTENTS
Page
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE. . . . . . . . . . . . 2
HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Eligible Employees. . . . . . . . . . . . . . . . . . . . . . . . . 4
Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Participant Accounts and Vesting. . . . . . . . . . . . . . . . . . 7
Investment of Contributions . . . . . . . . . . . . . . . . . . . . 9
Voting and Other Rights . . . . . . . . . . . . . . . . . . . . . . 10
Investment Risk . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Withdrawals During Employment . . . . . . . . . . . . . . . . . . . 11
Payment Upon Termination of Employment. . . . . . . . . . . . . . . 11
Death Benefit and Designation of a Beneficiary. . . . . . . . . . . 12
Restrictions on Resale. . . . . . . . . . . . . . . . . . . . . . . 12
Executive Officers Subject to Section 16. . . . . . . . . . . . . . 13
Amendment and Termination . . . . . . . . . . . . . . . . . . . . . 13
Assignment of Benefits. . . . . . . . . . . . . . . . . . . . . . . 13
Plan Administration . . . . . . . . . . . . . . . . . . . . . . . . 14
FEDERAL INCOME TAX INFORMATION . . . . . . . . . . . . . . . . . . . . . 14
Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Distributions From the Plan . . . . . . . . . . . . . . . . . . . . 15
Sale of Distributed Common Stock. . . . . . . . . . . . . . . . . . 16
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
APPENDIX
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE TORO COMPANY. THIS PROSPECTUS IS NOT AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY STATE IN WHICH IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
TORO COMPANY SINCE THE DATE HEREOF.
Exhibit 11
THE TORO COMPANY AND SUBSIDIARIES
Computation of Earnings per Share of Common Stock and Common Stock Equivalent
(Not Covered by Independent Auditors' Report)
Year Ended July 31,
-----------------------------------------------
1995 1994 1993
----------- ----------- -----------
Net earnings $36,667,000 $22,230,000 $13,040,000
----------- ----------- -----------
----------- ----------- -----------
Primary:
Shares of common stock and
common stock equivalents:
Weighted average number of
common shares outstanding 12,566,039 12,472,828 12,135,399
Dilutive effect of outstanding
stock options (1) 476,374 509,538 248,672
----------- ----------- -----------
13,032,413 12,982,366 12,384,071
----------- ----------- -----------
----------- ----------- -----------
Net earnings per share of common
stock and common stock equivalent $ 2.81 $ 1.71 $ 1.05
----------- ----------- -----------
----------- ----------- -----------
Fully Diluted:
Shares of common stock and common
stock equivalents:
Weighted average number of
common shares outstanding 12,556,039 12,472,828 12,135,399
Dilutive effect of outstanding
stock options (2) 511,133 509,538 395,274
----------- ----------- -----------
13,067,172 12,982,366 12,530,673
----------- ----------- -----------
----------- ----------- -----------
Net earnings per share of common
stock and common stock equivalent $ 2.81 $ 1.71 $ 1.04
----------- ----------- -----------
----------- ----------- -----------
(1) Outstanding stock options and options exercised in the current period
are converted to common stock equivalents by the treasury stock method
using the average market price of the company's stock during each
period.
(2) Outstanding stock options and options exercised in the current period
are converted to common stock equivalents by the treasury stock method
using the greater of the average market price or the year-end market
price of the company's shares during each period.
15
EXHIBIT 13
FINANCIAL HIGHLIGHTS
- - -----------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Years ended July 31 1995 1994 % Change
- - -----------------------------------------------------------------------------------
Net sales $932,853 $794,341 17.4%
Net earnings 36,667 22,230 64.9
Percent of net sales 3.9% 2.8%
- - -----------------------------------------------------------------------------------
Net earnings per share of common stock and
common stock equivalent $2.81 $1.71 64.3
Dividends paid per share of
common stock outstanding 0.48 0.48
- - -----------------------------------------------------------------------------------
Return on:
Beginning common stockholders' equity 21.7% 15.4%
Average common stockholders' equity 20.7 14.2
Average invested capital 15.4 10.8
- - -----------------------------------------------------------------------------------
AT YEAR END
Working capital $168,951 $175,783 (3.9)
Total assets 468,315 443,639 5.6
Total debt 103,560 101,325 2.2
Common stockholders' equity 185,471 168,652 10.0
Book value per common share 15.40 13.43 14.7
- - -----------------------------------------------------------------------------------
Number of common stockholders 7,347 7,541 (2.6)
Average number of employees 3,626 3,434 5.6
- - -----------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
EDGAR REPRESENTATION OF NET SALES GRAPH
- - ------------------------------
In Millions
- - ------------------------------
95 $932.9
94 794.3
93 684.3
- - ------------------------------
EDGAR REPRESENTATION OF NET EARNINGS GRAPH
- - ------------------------------
In Millions
- - ------------------------------
95 $36.7
94 22.2
93 13.0
- - ------------------------------
EDGAR REPRESENTATION OF BOOK VALUE PER SHARE GRAPH
- - ------------------------------
In Dollars
- - ------------------------------
95 $15.40
94 13.43
93 11.78
- - ------------------------------
The Toro Company 1995 Annual Report 1
ELEVEN-YEAR SELECTED FINANCIAL DATA * THE TORO COMPANY
- - -------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Years ended July 31 1995 1994 1993 1992*
- - -------------------------------------------------------------------------------------
OPERATING DATA:
Net sales $932,853 $794,341 $684,324 $643,748
EARNINGS:
Net earnings (loss) 36,667 22,230 13,040 (23,753)
Percent of sales 3.9% 2.8% 1.9% (3.7)%
Per share of common stock and
common stock equivalent $ 2.81 $ 1.71 $ 1.05 $ (1.98)
DIVIDENDS:
On common stock outstanding 6,002 5,993 5,824 5,753
Per share of common stock
outstanding 0.48 0.48 0.48 0.48
RETURN ON:
Beginning common stockholders'
equity 21.7% 15.4% 9.8% (14.8)%
Average common stockholders'
equity 20.7% 14.2% 9.4% (16.2)%
SUMMARY OF FINANCIAL POSITION:
Current assets $381,610 $364,495 $344,130 $332,517
Current liabilities 212,659 188,712 150,260 122,087
Working capital 168,951 175,783 193,870 210,430
Non-current assets 86,705 79,144 75,073 88,793
Total assets 468,315 443,639 419,203 421,310
Non-current liabilities, excluding
long-term debt 5,250 5,250 1,372 2,509
CAPITALIZATION:
Long-term debt, less current
portion 64,935 81,025 122,970 164,100
Redeemable preferred stock -- -- -- --
Common stockholders' equity 185,471 168,652 144,601 132,614
Total capitalization 250,406 249,677 267,571 296,714
Book value per common share 15.40 13.43 11.78 11.01
STOCK DATA:
Number of shares of common stock
outstanding (in thousands) 12,040 12,561 12,270 12,042
Number of common stockholders 7,347 7,541 7,968 8,386
Low price $ 21 5/8 $ 19 3/4 $ 11 3/8 $ 12 1/8
High price 30 3/8 30 1/2 21 7/8 17 1/2
Close price 28 5/8 22 5/8 19 3/4 13
- - --------------------------------------------------------------------------------------
*Includes restructuring costs of $24.9 million, or $1.41 per share.
**The company's consolidated financial statements include results of
operations of Lawn-Boy Inc. from November 7, 1989, the date of acquisition.
***The company's consolidated financial statements include results of
operations of Wheel Horse Products, Inc. from December 19, 1986, the date of
acquisition.
12 The Toro Company 1995 Annual Report
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Years ended July 31 1991 1990 1989 1988 1987*** 1986 1985
- - ------------------------------------------------------------------------------------------------------------------------
OPERATING DATA:
Net sales $718,105 $750,931 $643,566 $609,205 $521,123 $406,664 $336,813
EARNINGS:
Net earnings (loss) 9,700 16,558 22,096 20,048 17,032 15,491 13,224
Percent of sales 1.4% 2.2% 3.4% 3.3% 3.3% 3.8% 3.9%
Per share of common stock and
common stock equivalent $ 0.81 $ 1.55 $ 2.10 $ 1.84 $ 1.52 $ 1.34 $ 1.11
DIVIDENDS:
On common stock outstanding 5,700 4,797 4,793 4,410 3,599 2,942 2,034
Per share of common stock
outstanding 0.48 0.48 0.48 0.43 0.35 0.28 0.20
RETURN ON:
Beginning common stockholders'
equity 6.4% 16.4% 25.8% 26.3% 25.1% 20.4% 19.3%
Average common stockholders'
equity 6.4% 14.4% 23.8% 24.4% 24.0% 23.1% 17.4%
SUMMARY OF FINANCIAL POSITION:
Current assets $318,753 $320,204 $266,176 262,638 $245,574 $195,635 $186,678
Current liabilities 107,981 130,452 123,377 126,796 102,913 89,382 69,713
Working capital 210,772 189,752 142,799 135,842 142,661 106,253 116,965
Non-current assets 96,551 103,347 59,807 57,430 53,970 32,930 29,452
Total assets 415,304 423,551 325,983 320,068 299,544 228,565 216,130
Non-current liabilities, excluding
long-term debt 1,469 6,112 2,329 2,887 3,273 2,432 3,922
CAPITALIZATION:
Long-term debt, less current
portion 145,295 134,400 96,730 99,347 110,903 63,198 61,935
Redeemable preferred stock -- -- 6,000 9,000 10,500 10,500 10,500
Common stockholders' equity 160,559 152,587 97,547 82,038 71,957 63,053 70,060
Total capitalization 305,854 286,987 200,277 190,385 193,360 136,751 142,495
Book value per common share 13.48 12.92 9.85 8.16 7.01 6.06 6.84
STOCK DATA:
Number of shares of common stock
outstanding (in thousands) 11,913 11,814 9,902 10,049 10,272 10,401 10,245
Number of common stockholders 8,503 7,706 7,527 6,802 5,587 3,821 4,288
Low price $ 11 $ 20 1/2 $ 17 $ 11 1/8 $ 14 $ 10 3/8 $ 6 5/8
High price 24 1/4 30 22 7/8 24 7/8 22 1/4 19 1/2 11 3/8
Close price 15 3/4 24 1/4 21 1/2 19 1/4 19 5/8 18 3/4 10 1/2
- - -------------------------------------------------------------------------------------------------------------------------
The Toro Company 1995 Annual Report 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS * THE TORO COMPANY
RESULTS OF OPERATIONS
The company continued to execute operational strategies in 1995 resulting in
increased net sales and earnings. Worldwide net sales rose to $932.9 million, a
17.4% increase from $794.3 million in 1994. Net earnings for 1995 were $36.7
million compared with $22.2 million in 1994.
The table below summarizes operating results included in the Consolidated
Statements of Earnings for 1995, 1994, and 1993.
SUMMARY
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
(Dollars in millions
except per share data)
Years ended July 31 1995 % CHANGE 1994 % Change 1993
- - ------------------------------------------------------------------------------
Net sales $932.9 17.4% $794.3 16.1% $684.3
Cost of sales 598.3 18.1 506.8 13.8 445.5
- - ------------------------------------------------------------------------------
Gross profit 334.6 16.4 287.5 20.4 238.8
Selling, general and
administrative expense 269.8 10.2 244.9 20.4 203.4
- - ------------------------------------------------------------------------------
Earnings from operations 64.8 52.1 42.6 20.3 35.4
Interest expense 11.9 (12.5) 13.6 (20.9) 17.2
Other income, net (8.2) 2.5 (8.0) 158.1 (3.1)
- - ------------------------------------------------------------------------------
Earnings before income
taxes 61.1 65.1 37.0 73.7 21.3
Provision for income taxes 24.4 64.9 14.8 78.3 8.3
- - ------------------------------------------------------------------------------
Net earnings $36.7 64.9% $22.2 70.8% $13.0
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
Net earnings per share
of common stock and
common stock equivalent $2.81 64.3% $1.71 62.9% $1.05
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
SALES
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
Net Sales
(Dollars in millions
Years ended July 31 1995 % CHANGE 1994 % Change 1993
- - ------------------------------------------------------------------------------
Consumer $488.1 14.6% $425.8 26.0% $338.0
Commercial 305.3 20.6 253.2 8.0 234.5
Irrigation 139.5 21.0 115.3 3.1 111.8
- - ------------------------------------------------------------------------------
Total* $932.9 17.4% $794.3 16.1% $684.3
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
*Includes international
sales of $152.4 17.1% $130.1 0.5% $129.4
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
FISCAL 1995 COMPARED WITH FISCAL 1994
Worldwide sales increased $138.6 million to $932.9 million with increases in all
product lines.
- - - CONSUMER
Worldwide consumer product sales rose 14.6% to $488.1 million in 1995.
Consumer product sales represented 52.3% and 53.6% of consolidated net sales
for 1995 and 1994, respectively. International sales included in consumer
product sales increased $5.6 million from the prior year.
Exceptional sales of snow removal equipment as well as increased sales of
riding products and Toro brand walk power mowers contributed to the increase
over the prior year. This increase was offset partially by a decline in
Lawn-Boy-Registration Mark walk power mower sales as a result of reduced
shipments in response to a delayed spring season as well as actions to reduce
excess retail inventory.
- - - COMMERCIAL
Worldwide commercial product sales increased $52.1 million over the prior
year. International sales included in commercial product sales increased $9.0
million from the prior year.
Sales were strong in both the golf and municipal markets because of new
golf course openings and increased spending in the municipal market. Sales of
equipment to landscape contractors as well as increased sales of recycling
equipment products in 1995 also contributed to the increase.
- - - IRRIGATION
Worldwide irrigation product sales increased 21.0% to $139.5 million in 1995.
International sales included in irrigation product sales increased $6.0
million.
Increased sales of irrigation products in the golf industry as well as an
improved market share for do-it-yourself products contributed to the sales
increase. The company's change to direct distribution to irrigation product
wholesale dealers in the California and Texas markets, made in 1994 to better
respond to customer needs, has been favorably received in the marketplace.
Improved international economies and weather conditions have also resulted in
increased sales.
14 The Toro Company 1995 Annual Report
- - - INTERNATIONAL MARKETS
International sales are included in the preceding net sales table.
International sales increased 17.1% to $152.4 million in 1995. Sales in
Canada have improved over the prior year because of the strengthened economy.
The drought in Australia has curtailed sales slightly, but was offset by
increased sales in Europe because of the weak U.S. Dollar.
FISCAL 1994 COMPARED WITH FISCAL 1993
Worldwide sales increased $110.0 million to $794.3 million with increases in
all product lines.
- - - CONSUMER
Worldwide consumer product sales rose 26.0% to $425.8 million in 1994.
Consumer product sales represented 53.6% and 49.4% of consolidated sales for
1994 and 1993, respectively. International sales included in consumer product
sales increased $4.4 million from the previous year.
There were strong performances in all consumer products. The new lawn and
garden tractor lines were well accepted and all snow products sold out.
Lawn-Boy-Registration Mark walk power mowers were successful because of new
product offerings and lower retail price points. Increased sales of electric
appliance products including blowers, trimmers, and low-voltage lighting were
primarily the result of product improvements and retail pricing strategies.
- - - COMMERCIAL
Worldwide commercial product sales increased $18.7 million over the prior
year. Domestic sales rose 11.8%, while international sales declined 1.5%. The
domestic increase was attributed to strong golf and commercial turf markets.
The improved economy had a positive impact on municipalities and other
tax-supported customers as these entities continued to purchase more
efficient, labor-saving equipment. Golf sales continued to be strong because
of new course openings as well as existing courses updating their maintenance
equipment. ProLine sales strengthened compared with the prior year as a
result of the improved economy combined with increased market share. Sluggish
economies in Europe and Japan had a slightly negative impact on international
sales.
- - - IRRIGATION
Worldwide irrigation product sales rose 3.1% to $115.3 million in 1994.
Domestic irrigation sales increased $3.6 million over 1993 while
international irrigation sales decreased $0.1 million. During 1994, the
company reorganized irrigation distribution to better respond to customer
needs.
- - - INTERNATIONAL MARKETS
International sales are included in the preceding net sales table.
International sales increased 0.5% to $130.1 million in 1994. The majority of
the international sales increase was because of the change from a two-step
distribution system to a direct distribution system in Canada which resulted
in volume increases. Increases in the Pacific Rim were related to the
expansion of the golf market. These increases were offset by a decline in
European sales because of the weak economy.
COST TRENDS AND PROFIT MARGINS
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
Margins (Percent of net sales)
Years ended July 31 1995 1994 1993
- - ------------------------------------------------------------------------------
Gross profit 35.9% 36.2% 34.9%
Operating profit 6.9 5.4 5.2
Pretax earnings 6.5 4.7 3.1
Net earnings 3.9 2.8 1.9
- - ------------------------------------------------------------------------------
FISCAL 1995 COMPARED WITH FISCAL 1994
Gross profit of $334.6 million increased 16.4% over the $287.5 million in
1994. As a percent of net sales, gross profit decreased slightly to 35.9% for
1995 compared with 36.2% in 1994. The percentage decrease resulted from the
mix of product sales and increased costs of raw materials. Gross profit
increased $47.1 million to $334.6 million. This was the result of the
increased sales volume which was offset by the items mentioned above.
Operating profit has improved from the prior year by $22.2 million because
of improved operating leverage as a result of increased sales.
FISCAL 1994 COMPARED WITH FISCAL 1993
Gross profit for 1994 increased 20.4% to $287.5 million over the 1993 amount
of $238.8 million because of a combination of increased sales, improved plant
utilization, and improved inventory controls.
The Toro Company 1995 Annual Report 15
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE (SG&A)
- - --------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------
SG&A Expense % OF % of % of
(Dollars in millions) NET Net Net
Years ended July 31 1995 SALES 1994 Sales 1993 Sales
- - --------------------------------------------------------------------------------------
Administrative $ 89.5 9.6% $ 80.3 10.0% $ 73.0 10.7%
Sales and marketing 106.6 11.4 96.1 12.1 71.2 10.4
Warranty 31.0 3.3 29.0 3.7 26.3 3.8
Distributor/dealer financing 9.7 1.0 8.6 1.1 7.6 1.1
Research and development 33.0 3.6 30.9 3.9 25.3 3.7
- - --------------------------------------------------------------------------------------
Total $269.8 28.9% $244.9 30.8% $203.4 29.7%
- - --------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------
FISCAL 1995 COMPARED WITH FISCAL 1994
SG&A expense was up $24.9 million from 1994 and was 28.9% of net sales in
1995 compared with 30.8% in 1994. The decline as a percent of sales was the
result of improved leverage and solid expense control.
The increase in administrative expense of $9.2 million occurred
principally as a result of a company-wide initiative to replace existing
information systems, increased payouts in various employee incentive and
profit sharing plans, the addition of a joint venture with a distributor, the
addition of dealer direct financing through Toro Credit Company, and
distribution support.
Sales and marketing expense was up $10.5 million from the prior year. As a
percent of net sales, sales and marketing was 11.4%, a decrease from 12.1% in
1994. The dollar increase reflected the company's increased sales volume as
well as an increase in brand advertising.
Warranty expense increased by $2.0 million and as a percent of net sales
was 3.3% in 1995 compared with 3.7% in 1994. The $2.0 million increase was
primarily the result of increased sales volume, and new product introductions.
Distributor/dealer financing expense represents the cost incurred by the
company to contract with a third party financing source to finance dealer
inventory purchases. The $9.7 million charge reflected in SG&A represents
credit facility origination costs and interest charges for a pre-established
length of time. Interest is charged at market rates based on prime plus a
negotiated mark-up. These financing arrangements are used by the company as a
marketing tool to enable customers to buy inventory. This expense increased
$1.1 million in 1995 because of the increased sales volume and was offset
partially by the reduction of third party financing expense which was taken
on through the addition of dealer direct financing through Toro Credit Company.
Research and development expense was up $2.1 million primarily as the
result of continued investment in product innovation.
FISCAL 1994 COMPARED WITH FISCAL 1993
SG&A expense was up $41.5 million from 1993 and as a percent of sales, SG&A
expense was 30.8% for 1994 compared with 29.7% for 1993.
The increase in administrative expense of $7.3 million consisted of the
start up cost of the company's recycling equipment product area, increased
investment in information systems technology, the cost associated with the
realignment of the irrigation manufacturing operations in Riverside,
California, and distributor marketing support for the company's product
lines. These increases were offset by a reduction in employee performance
based incentives, product liability, and group health insurance costs.
Sales and marketing expense was up $24.9 million from the prior year. As a
percent of net sales, sales and marketing expense was 12.1%, up from 10.4% in
1993. This increase reflected the company's increased sales volume,
additional marketing personnel, and an increase in brand advertising and
market research.
Warranty expense increased by $2.7 million and as a percent of sales was
3.7% as compared with 3.8% in 1993. The $2.7 million increase related to
increased sales volume and charges for a lawn tractor component modification,
a walk power mower gas tank issue, and a walk power mower brake issue.
Distributor/dealer financing expense represents the cost incurred by the
company to share the costs of financing dealer and distributor inventory.
This expense was up $1.0 million in 1994 because of the sales increase, which
was offset partially by lower field inventory levels held by dealers.
Research and development expense was up $5.6 million from 1993 primarily
because of the addition of personnel to support new product development and
enhancements to existing products.
INTEREST EXPENSE
FISCAL 1995 COMPARED WITH FISCAL 1994
Interest expense for 1995 decreased to $11.9 million from the $13.6 million
reported in 1994 as the result of the company's continued reduction in
long-term debt and utilization of short-term borrowing at lower interest rates.
FISCAL 1994 COMPARED WITH FISCAL 1993
Interest expense for 1994 was down $3.6 million from the $17.2 million
reported for 1993. This decline was primarily the result of calling $24.9
million of outstanding debt in July 1993 and a lower interest rate on
short-term borrowing.
16 The Toro Company 1995 Annual Report
OTHER INCOME, NET
FISCAL 1995 COMPARED WITH FISCAL 1994
Other income, net was $0.2 million greater than the $8.0 million reported in
1994. Excluding the effect of two lawsuit settlements and the sale of the
portable heater business in the prior year, other income increased because of
gains on fixed asset disposals versus losses in the prior year, favorable
foreign currency activity, and income resulting from joint venture activity.
FISCAL 1994 COMPARED WITH FISCAL 1993
Other income, net was $4.9 million greater than the $3.1 million reported in
1993. This increase was principally the result of the settlement of a patent
infringement lawsuit and a lawsuit relating to the purchase of Lawn-Boy, Inc.
The majority of the other income, net was finance revenue from dealers and
distributors of $4.2 million which was earned by the Toro Credit Company
(TCC), a consolidated finance subsidiary of The Toro Company (see footnote 13
regarding TCC).
PROVISION FOR TAXES
FISCAL 1995 COMPARED WITH FISCAL 1994
The effective tax rate remained at 40% of pretax earnings in 1995. In
accordance with Financial Accounting Standards No. 109, the company has
determined that it is not necessary to establish a valuation reserve for the
deferred income tax benefit because it is more likely than not that the net
deferred income tax benefit of $30.9 million will be principally realized
through carry back to taxable income in prior years, and future reversals of
existing taxable temporary differences, and, to a lesser extent, future
taxable income.
FISCAL 1994 COMPARED WITH FISCAL 1993
The effective tax rate increased to 40.0% of pretax earnings in 1994 from
38.9% of pretax earnings in 1993. The increase was the result of an increase
in the effective tax rate on reversing timing differences and the effect of
state income taxes. Effective August 1, 1992, the company adopted Financial
Accounting Standards No.109 and has reflected a deferred tax asset/liability
on the accompanying balance sheets. The net deferred tax asset was $26.0
million which was principally the result of timing differences on warranty
reserves, the provision for bad debts and distributor reserves (see footnote
4) accrued for financial statement purposes which are not deductible for tax
purposes.
NET EARNINGS
FISCAL 1995 COMPARED WITH FISCAL 1994
Net earnings for 1995 was $36.7 million or $2.81 per share, as compared with
net earnings of $22.2 million or $1.71 per share in 1994. The increase in
earnings was primarily the result of increased sales, improved operating
leverage, and cost control measures such as lower borrowing costs.
FISCAL 1994 COMPARED WITH FISCAL 1993
Net earnings for 1994 was $22.2 million or $1.71 per share, as compared with
net earnings of $13.0 million or $1.05 per share in 1993. The improved
earnings was principally the result of increased sales and improved gross
margin which were partially offset by investments in new products,
manufacturing, and distri-bution enhancements.
LIQUIDITY AND CAPITAL RESOURCES
The company continued to strengthen its balance sheet in 1995 by focusing on
cash management strategies such as the continued reduction of long-term debt
and the utilization of short-term borrowing instruments that offer lower
interest rates.
CASH FLOW
CASH PROVIDED BY OPERATING ACTIVITIES:
The majority of cash provided by operating activities was the result of
changes in accounts payable and accrued expenses and increased accounts
receivable attributed to sales growth and the initiation of dealer direct
financing through Toro Credit Company. This was partially offset by a slower
rate of inventory growth and the increase in earnings.
CASH USED IN INVESTING ACTIVITIES:
Purchases of property plant and equipment reflect the initial purchase of
tooling components used to manufacture new products, an addition to the
Windom, Minnesota manufacturing plant, costs to re-open the Sardis,
Mississippi manufacturing plant, the acquisition of a majority-owned
subsidiary, and a variety of expenditures to improve and modernize the
manufacturing plants.
CASH USED IN FINANCING ACTIVITIES:
The majority of the cash used in financing activities was used for the
purchase of the company's stock and repayment of long-term debt. The company
purchased the stock to take advantage of market conditions and will utilize
the shares in the future for employee incentive and option plans. The
significant cash source was the increase in short-term borrowing which was
used for the items described above.
ASSETS
Total assets as of July 31, 1995, were $468.3 million, up $24.7 million from
1994. The majority of the increase was from accounts receivable because of
the increase in sales and the addition of dealer direct financing as well as
an increase in property, plant and equipment. These increases were offset by
a decrease in cash and cash equivalents because of the repayment of $20.3
million in long-term debt and continued effective cash management.
The Toro Company 1995 Annual Report 17
WORKING CAPITAL
Working capital at July 31, 1995 was $169.0 million, a decrease of $6.8
million from the $175.8 million reported in 1994. The current ratio for 1995
was 1.8 compared with 1.9 in 1994. Working capital as a percent of net sales
was 18.1% in 1995 versus 22.1% in 1994.
The changes listed above result from current assets increasing $17.1
million while current liabilities increased $23.9 million. The majority of
the increase in current liabilities was short-term borrowing of $22.5 million
as the result of the company's acquisition of its common stock.
The Company acquired $26.2 million in Toro stock in 1995 to take advantage
of market conditions. The stock acquired will be used for a variety of
company purposes.
CAPITAL STRUCTURE
Long-term debt includes:
- - - $50.0 million of 11% sinking fund debentures, due August 2017 with sinking
fund payments after 1998:
- - - $2.3 million of variable rate industrial revenue bonds, due annually August
1995 through August 2009:
- - - $3.7 million variable rate industrial revenue bond, due annually June 1996
through June 2004:
- - - $25.0 million of subordinated and senior notes, due August 1995 through August
1996 bearing interest rates of 7.38% to 9.57%.
Total long-term debt at July 31, 1995, was $81.0 million, down $20.3
million from $101.3 million at July 31, 1994. Of this balance $16.1 million
is current. The amount of total long-term debt attributable to Toro Credit
Company, the company's consolidated finance subsidiary, was $25.0 million at
July 31, 1995, compared to $45.0 million at July 31, 1994.
EDGAR REPRESENTATION OF TOTAL DEBT GRAPH
- - ------------------------------
In Millions
- - ------------------------------
95 $103.6
94 101.3
93 138.0
92 164.1
91 155.3
90 154.5
- - ------------------------------
Total debt at July 31, 1995, was $103.6 million, up $2.3 million from
$101.3 million at July 31, 1994. The total debt to total capital ratio
decreased from 37.5% in 1994 to 35.8% in 1995 as the result of increased
short-term borrowing offset by an increase in current year earnings and the
payment of the company's Employee Stock Ownership Plan (ESOP) receivable.
Total capitalization at July 31, 1995, consisted of $64.9 million of
long-term debt and $185.5 million of stockholders' equity.
CREDIT LINES AND OTHER CAPITAL RESOURCES
The company's seasonal working capital requirements are funded with $103.5
million of unsecured bank credit lines. Average borrowings under these lines
were $31.5 million in 1995 and $12.9 million in 1994. The company had $22.5
million outstanding at July 31, 1995, and no outstanding borrowings under
these lines at July 31, 1994. The increase in average borrowing was the
result of the reduction in long-term debt, the addition of dealer direct
financing through Toro Credit Company, and the investment in the company's
stock.
Additionally, the company's resources included two bankers' acceptance
financing agreements totaling $40.0 million. The company had $2.3 million and
no amount outstanding under these agreements at July 31, 1995, and 1994,
respectively.
SUMMARY
Continued growth in sales and successful cash management strategies
contributed to the increase in net earnings in 1995. Sales increased as the
result of product introductions and modifications, improved economies and
weather conditions, continued product line expansion, and market growth. Net
earnings increased because of the growth in sales and effective cost controls
by management. Strategic cash management and the continued reduction of
long-term debt strengthened the balance sheet in 1995.
EDGAR REPRESENTATION OF CAPITALIZATION GRAPH
- - ------------------------------
In Millions
- - ------------------------------
95 $250.4
94 249.7
93 267.6
92 296.7
91 305.9
90 287.0
- - ------------------------------
18 The Toro Company 1995 Annual Report
INDEPENDENT AUDITORS' REPORT * THE TORO COMPANY
The Stockholders and Board of Directors
The Toro Company:
We have audited the accompanying consolidated balance sheets of The Toro
Company and subsidiaries as of July 31, 1995 and 1994, and the related
consolidated statements of earnings and cash flows for each of the years in
the three-year period ended July 31, 1995. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Toro
Company and subsidiaries as of July 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended July 31, 1995 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 7, 1995
CONSOLIDATED STATEMENTS OF EARNINGS * THE TORO COMPANY
- - ---------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Years ended July 31 1995 1994 1993
- - ---------------------------------------------------------------------------------------
Net sales $932,853 $794,341 $684,324
Cost of sales 598,275 506,816 445,495
- - ---------------------------------------------------------------------------------------
Gross profit 334,578 287,525 238,829
Selling, general and administrative expense 269,757 244,943 203,377
- - ---------------------------------------------------------------------------------------
Earnings from operations 64,821 42,582 35,452
Interest expense 11,902 13,562 17,150
Other income, net (8,193) (8,030) (3,053)
- - ---------------------------------------------------------------------------------------
Earnings before income taxes 61,112 37,050 21,355
Provision for income taxes 24,445 14,820 8,315
- - ---------------------------------------------------------------------------------------
Net earnings $ 36,667 $ 22,230 $ 13,040
- - ---------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------
Net earnings per share of common stock
and common stock equivalent $ 2.81 $ 1.71 $ 1.05
- - ---------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------
The financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements.
The Toro Company 1995 Annual Report 19
CONSOLIDATED BALANCE SHEETS * THE TORO COMPANY
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
(Dollars in thousands, except per share data)
July 31 1995 1994
- - -----------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 11,924 $36,231
Receivables:
Customers 210,090 185,620
Other 7,378 5,765
- - -----------------------------------------------------------------------------
Subtotal 217,468 191,385
Less allowance for doubtful accounts 7,343 7,702
- - -----------------------------------------------------------------------------
Total receivables 210,125 183,683
- - -----------------------------------------------------------------------------
Inventories 123,720 118,764
Prepaid expenses 7,527 1,111
Deferred income tax benefits 28,314 24,706
- - -----------------------------------------------------------------------------
Total current assets 381,610 364,495
- - -----------------------------------------------------------------------------
Property, plant and equipment:
Land and land improvements 6,143 5,516
Buildings and leasehold improvements 45,447 42,359
Equipment 157,031 137,603
- - -----------------------------------------------------------------------------
Subtotal 208,621 185,478
Less accumulated depreciation and
amortization 138,550 126,635
- - -----------------------------------------------------------------------------
Total property, plant and equipment 70,071 58,843
- - -----------------------------------------------------------------------------
Deferred income taxes 2,578 1,296
Other assets 14,056 19,005
- - -----------------------------------------------------------------------------
Total assets $468,315 $443,639
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 16,090 $ 20,300
Short-term borrowing 22,535 --
Accounts payable 41,072 37,035
Accrued warranty 37,493 32,476
Accrued marketing programs 26,145 29,290
Other accrued liabilities 69,324 69,611
- - -----------------------------------------------------------------------------
Total current liabilities 212,659 188,712
- - -----------------------------------------------------------------------------
Long-term debt, less current portion 64,935 81,025
Deferred income 5,250 5,250
Common stockholders' equity:
Common stock, par value $1.00, authorized
35,000,000 shares; issued and outstanding
12,039,776 shares in 1995 (net of 802,549
treasury shares) and 12,561,204 shares in
1994 (net of 76,153 treasury shares) 12,040 12,561
Additional paid-in capital 33,145 49,420
Retained earnings 140,353 109,688
Foreign currency translation adjustment (67) (405)
- - -----------------------------------------------------------------------------
Subtotal 185,471 171,264
Receivable from ESOP -- (2,612)
- - -----------------------------------------------------------------------------
Total common stockholders' equity 185,471 168,652
- - -----------------------------------------------------------------------------
Total liabilities and common
stockholders' equity $468,315 $443,639
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
The financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements.
20 The Toro Company 1995 Annual Report
CONSOLIDATED STATEMENTS OF CASH FLOWS * THE TORO COMPANY
- - ----------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------
(Dollars in thousands) Years ended July 31 1995 1994 1993
- - ----------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $36,667 $22,230 $ 13,040
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Provision for depreciation and amortization 17,240 18,839 19,245
(Gain) loss on disposal of property, plant
and equipment (135) 1,265 1,230
Deferred income taxes (1,282) (2,668) (1,547)
Tax benefits related to employee stock option
transactions 1,178 953 --
Changes in operating assets and liabilities:
Net receivables (28,773) (3,320) 28,199
Inventories (4,956) (40,056) (4,583)
Prepaid expenses and deferred income tax
benefits (10,024) (2,551) 3,396
Accounts payable and accrued expenses 5,622 33,152 13,152
- - ----------------------------------------------------------------------------------------
Net cash provided by operating activities 15,537 27,844 72,132
- - ----------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (28,162) (18,173) (11,397)
Proceeds from asset disposals 843 267 2,323
(Increase) decrease in other assets 3,935 (4,973) 2,319
- - ----------------------------------------------------------------------------------------
Net cash used in investing activities (23,384) (22,879) (6,755)
- - ----------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in sale of receivables 2,331 -- (1,892)
Increase in short-term borrowing 22,535 -- --
Proceeds from issuance of long-term debt -- 4,000 --
Repayments of long-term debt (20,300) (40,645) (26,130)
Proceeds from deferred income -- 5,250 --
Proceeds from exercise of stock options 8,251 6,144 3,771
Purchases of common stock (26,225) (2,284) (816)
Dividends on common stock (6,002) (5,993) (5,824)
Repayments from ESOP 2,612 2,611 2,611
- - ----------------------------------------------------------------------------------------
Net cash used in financing activities (16,798) (30,917) (28,280)
- - ----------------------------------------------------------------------------------------
Foreign currency translation adjustment 338 390 (795)
Net increase (decrease) in cash and cash equivalents (24,307) (25,562) 36,302
Cash and cash equivalents at beginning of year 36,231 61,793 25,491
- - ----------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 11,924 $ 36,231 $ 61,793
- - ----------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 9,567 $ 14,092 $ 17,138
Income taxes 34,936 19,498 8,148
- - ----------------------------------------------------------------------------------------
The financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements.
The Toro Company 1995 Annual Report 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS * THE TORO COMPANY
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AND RELATED DATA
- - - BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
The Toro Company and all wholly-owned and majority-owned domestic and foreign
subsidiaries (the company). Investments in 50% or less owned companies are
accounted for by the equity method. The accounts of foreign subsidiaries,
which are not material, have been adjusted to conform to U.S. accounting
principles and practices and have been translated to appropriate U.S. dollar
equivalents. All material intercompany accounts and transactions have been
eliminated from the consolidated financial statements.
- - - CASH AND CASH EQUIVALENTS
The company considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents.
- - - ALLOWANCE FOR DOUBTFUL ACCOUNTS
The provision for doubtful accounts included in selling, general and
administrative expense was $1,543,000 in 1995, $3,032,000 in 1994, and
$2,500,000 in 1993.
- - - INVENTORIES
The majority of all inventories are valued at the lower of cost or net
realizable value with cost determined by the last-in, first-out (LIFO)
method. Had the first-in, first-out (FIFO) method of cost determination been
used, inventories would have been $24,730,000 and $19,204,000 higher than
reported at July 31, 1995, and 1994, respectively. Under the FIFO method,
work-in-process inventories were $68,683,000 and $63,473,000 and finished
goods inventories were $79,767,000 and $74,495,000 at July 31, 1995, and
1994, respectively.
- - - PROPERTY AND DEPRECIATION
Property, plant and equipment are carried at cost. The company provides for
depreciation of plant and equipment utilizing the straight-line method over
the estimated useful lives of the assets. Buildings, including leasehold
improvements, are generally depreciated over 10 to 45 years, and equipment
over 3 to 7 years. Tooling costs are generally amortized using the units of
production method. Expenditures for major renewals and betterments which
substantially increase the useful lives of existing assets are capitalized,
and maintenance and repairs are charged to operating expenses as incurred.
Software is expensed at the time of purchase. The cost and related
accumulated depreciation of all plant and equipment disposed of are removed
from the accounts, and any gain or loss from such disposal is included in
current period earnings.
- - - ACCRUED WARRANTY
The company provides an accrual for estimated future warranty costs based
upon the historical relationship of warranty costs to sales.
- - - DEFERRED INCOME
An interest rate exchange agreement was entered into primarily as a hedge
against interest costs on long-term debt. The net interest differential to be
received or paid and the $5,250,000 deferred income will be recognized,
commencing August 1, 1997, over the term of the agreement as an adjustment to
interest expense.
- - - FOREIGN CURRENCY TRANSLATION
The functional currency of the company's foreign operations is the applicable
local currency. The functional currency is translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation" which is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue
and expense accounts using a weighted average exchange rate during the
period. The gains or losses resulting from such translations are included in
stockholders' equity. Gains or losses resulting from foreign currency
transactions are included in other income, net.
- - - ACCOUNTING FOR REVENUES
Revenue is recognized at the time products are shipped to distributors, dealers
or mass merchandisers.
- - - COST OF FINANCING DISTRIBUTOR/DEALER INVENTORY
Included in selling, general and administrative expense are costs associated
with various programs in which the company shares costs of financing
distributor and dealer inventories. These costs of $9,675,000 in 1995,
$8,587,000 in 1994, and $7,606,000 in 1993 are charged against operations as
incurred.
- - - RESEARCH AND DEVELOPMENT
Expenditures for research and development, including engineering, of
$33,022,000 in 1995, $30,864,000 in 1994, and $25,293,000 in 1993 are charged
against operations as incurred.
- - - DISTRIBUTION
Included in selling, general and administrative expense are costs associated
with changes to the company's distribution channels. These costs were
$3,400,000 in 1995, $4,300,000 in 1994, and $4,500,000 in 1993. Those costs
associated with business changes are accrued on the basis of historical
experience, while costs related to specific changes to the company's
distribution system are recorded when authorized.
22 The Toro Company 1995 Annual Report
- - - INCOME TAXES
In compliance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," (FAS 109), deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The company has reflected the necessary deferred tax
asset/liability in the accompanying balance sheets. Management believes the
future tax deductions will be realized in periods in which the company will
generate sufficient taxable income to realize the benefit of the tax
deductions.
- - - NET EARNINGS PER SHARE OF COMMON STOCK AND
COMMON STOCK EQUIVALENT
Net earnings per share of common stock and common stock equiv-alent are
computed by dividing net earnings by the weighted average number of common
shares and common stock equivalents outstanding during the respective
periods. Common stock equivalents include potentially dilutive stock options.
These shares are included under the treasury stock method using the average
market price of the company's stock during each period. The effect of full
dilution using the year-end price of the company's stock is immaterial.
- - - RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the current
year presentation.
2 SHORT-TERM CAPITAL RESOURCES
At July 31, 1995, the company had available unsecured lines of credit with
six banks in the aggregate of $103,500,000. Most of these agreements require
the company to pay a fee of 1/4 percent per year on the available lines of
credit. This fee is recorded by the company as interest expense. The company
had $22,535,000 outstanding at July 31, 1995, and no amount outstanding at
July 31, 1994. The weighted average interest rate on short-term borrowing for
1995 was 7.7% (6.5% in 1994 and 8.1% in 1993). Interest expense was
$2,498,000 in 1995 ($822,000 in 1994 and $920,000 in 1993), including
facility fees. The weighted average short-term borrowing was $32,335,000 in
1995 ($12,755,000 in 1994 and $11,384,000 in 1993).
In addition, the company's capital resources include two $20,000,000
bankers' acceptance financing agreements in 1995 and 1994. The company had
$2,331,000 outstanding under these agreements at July 31, 1995, and no amount
outstanding at July 31, 1994.
3 LONG-TERM DEBT
A summary of long-term debt is as follows:
- - --------------------------------------------------------------------------
- - --------------------------------------------------------------------------
(Dollars in thousands) July 31 1995 1994
- - --------------------------------------------------------------------------
11% Sinking Fund Debentures due annually
August 1998-2017 $50,000 $ 50,000
Industrial Revenue Bonds due annually
August 1995-2009 with various interest rates 2,325 2,325
Industrial Revenue Bond due annually
June 1996-2004 with various interest rates 3,700 4,000
9.4% senior notes due September 1994 -- 10,000
9.45% senior note due February 1995 -- 10,000
7.38% senior note due August 1995 10,000 10,000
9.57% senior note due January 1996 5,000 5,000
9.53% senior note due August 1996 10,000 10,000
- - --------------------------------------------------------------------------
81,025 101,325
Less current portion 16,090 20,300
- - --------------------------------------------------------------------------
Long-term debt, less current portion $64,935 $ 81,025
- - --------------------------------------------------------------------------
- - --------------------------------------------------------------------------
The weighted average interest rate on long-term debt for 1995 was 9.9
percent (9.8 percent in 1994 and 1993). Interest expense was $8,673,000 in
1995 ($12,236,000 in 1994 and $16,118,000 in 1993), including commitment and
facility fees. The weighted average long-term debt outstanding was
$87,330,000 in 1995 ($125,388,000 in 1994 and $164,107,000 in 1993).
During 1994 the company entered into an interest rate exchange agreement
with a bank to preserve the value of the call option included in the
$50,000,000, 11%, long-term sinking fund debentures due August 1, 1998-2017,
and to benefit from favorable current interest rates. As a result of this
agreement the company received $5,250,000 which is recorded as deferred
income on the consolidated balance sheets and will be amortized to interest
expense over the term of the interest rate exchange agreement. In return, the
company is obligated to pay 10.25% on a notational amount of $50,000,000 from
August 1, 1997 through July 31, 2002 and the company will receive payments
based on a floating rate equal to the London Interbank Offered Rate (LIBOR)
on the notational amount of $50,000,000 for the same period.
Under the terms of the long-term debt agreements and the interest rate
exchange agreement, the company is subject to certain covenants. At July 31,
1995, the company was in compliance with all such covenants.
The terms of certain agreements of Toro Credit Company restrict the
payment of dividends and loans or advances to the parent company. Of the Toro
Credit Company retained earnings of $52,932,000, $28,769,000 were available
for distribution to its parent at July 31, 1995.
Principal payments required on long-term debt in each of the next five
years ending July 31 are as follows: 1996, $16,090,000; 1997, $10,460,000;
1998, $485,000; 1999, $515,000; 2000, $545,000; and after 2000, $52,930,000.
The Toro Company 1995 Annual Report 23
4 INCOME TAXES
A reconciliation of the statutory federal income tax rate to the company's
consolidated effective tax rate is summarized as follows:
- - ----------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------
Years ended July 31 1995 1994 1993
- - ----------------------------------------------------------------------------------
Statutory federal income tax rate 35.0% 35.0% 34.0%
Increase (reduction) in income taxes
resulting from:
Benefits from foreign sales corporation (0.8) (1.6) (1.7)
State and local income taxes, net of
federal income tax benefit 2.4 2.4 1.9
Effect of foreign source income 0.5 1.3 0.5
Other, net 2.9 2.9 4.2
- - ----------------------------------------------------------------------------------
Consolidated effective tax rate 40.0% 40.0% 38.9%
- - ----------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------
Components of the provision for income taxes are as follows:
- - ----------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------
(Dollars in thousands)
Years ended July 31 1995 1994 1993
- - ----------------------------------------------------------------------------------
Current:
Federal $24,878 $18,487 $8,986
State 2,942 2,610 876
- - ----------------------------------------------------------------------------------
Current provision 27,820 21,097 9,862
- - ----------------------------------------------------------------------------------
Deferred:
Federal (2,689) (5,059) (1,288)
State (686) (1,218) (259)
- - ----------------------------------------------------------------------------------
Deferred provision (3,375) (6,277) (1,547)
- - ----------------------------------------------------------------------------------
Total provision for income taxes $24,445 $14,820 $8,315
- - ----------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to the net
deferred tax assets at July 31, 1995, and 1994 are presented below.
- - --------------------------------------------------------------------
- - --------------------------------------------------------------------
(Dollars in thousands)
Years ended July 31 1995 1994
- - --------------------------------------------------------------------
Allowance for doubtful accounts $ 3,971 $ 3,256
Inventory reserves 103 (902)
Uniform capitalization 2,251 2,310
Depreciation 2,578 1,296
Warranty reserves 13,694 12,688
Marketing programs 2,486 1,249
Distributor reserves 2,275 2,858
Restructuring reserves 1,430 1,965
Accrued retirement 1,961 1,820
Other 143 (538)
- - --------------------------------------------------------------------
Consolidated deferred income tax assets $30,892 $26,002
- - --------------------------------------------------------------------
- - --------------------------------------------------------------------
During the year ended July 31, 1995, and 1994, respectively, $1,178,000
and $953,000 were added to additional paid-in capital in accordance with
"Accounting Principal Board" opinion 25 reflecting the permanent book to tax
difference in accounting for tax benefits related to employee stock option
transactions.
24 The Toro Company 1995 Annual Report
5 COMMON STOCKHOLDERS' EQUITY
Changes in the components of common stockholders' equity during fiscal years
ended July 31, 1995, 1994, and 1993 were as follows:
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
Foreign
Additional Receivable Currency
Common Paid-in Retained from Translation
(Dollars in thousands) Stock Capital Earnings ESOP Adjustment
- - --------------------------------------------------------------------------------------------------------
Balance at July 31, 1992 $12,042 $42,171 $86,235 $(7,834) $ --
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
Common dividends paid ($0.48 per share) -- -- (5,824) -- --
Issuance of 272,149 shares under stock
option plans 272 3,499 -- -- --
Purchase of 43,242 common shares (44) (772) -- -- --
Payment received from ESOP -- -- -- 2,611 --
Foreign currency translation adjustment -- -- -- -- (795)
Net earnings -- -- 13,040 -- --
- - --------------------------------------------------------------------------------------------------------
Balance at July 31, 1993 12,270 44,898 93,451 (5,223) (795)
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
Common dividends paid ($0.48 per share) -- -- (5,993) -- --
Issuance of 388,558 shares under stock
option plans 388 5,756 -- -- --
Purchase of 97,758 common shares (97) (2,187) -- -- --
Payment received from ESOP -- -- -- 2,611 --
Foreign currency translation adjustment -- -- -- -- 390
Tax benefits related to employee stock option
transactions -- 953 -- -- --
Net earnings -- -- 22,230 -- --
- - --------------------------------------------------------------------------------------------------------
Balance at July 31, 1994 12,561 49,420 109,688 (2,612) (405)
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
Common dividends paid ($0.48 per share) -- -- (6,002) -- --
Issuance of 444,783 shares under stock
option plans 445 7,806 -- -- --
Purchase of 965,757 common shares (966) (25,259) -- -- --
Payment received from ESOP -- -- -- 2,612 --
Foreign currency translation adjustment -- -- -- -- 338
Tax benefits related to employee stock option
transactions -- 1,178 -- -- --
Net earnings -- -- 36,667 -- --
- - --------------------------------------------------------------------------------------------------------
Balance at July 31, 1995 $12,040 $ 33,145 $140,353 $ 0 $ (67)
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
Under the terms of a Preferred Stock Rights Agreement established June 14,
1988, each share of the company's common stock entitles its holder to one
preferred share purchase right. Each right entitles the registered holder to
purchase from the company one one-hundredth of a share of Series B Junior
Participating Voting Preferred Stock, $1.00 par value at a price of $85 per
one one-hundredth of a Preferred Share. The rights become exercisable and
tradable 10 days after a person or a group acquires 20% or more, or makes an
offer to acquire 20% or more, of the company's outstanding common stock. At
no time do the rights have any voting power. The rights may be redeemed by
the company for $0.01 per right at any time prior to the time that a person
or group has acquired beneficial ownership of 20% or more of the common
shares.
The Toro Company 1995 Annual Report 25
6 STOCK OPTION PLANS
Incentive stock options and non-qualified options may be granted under the
terms of the 1985 Incentive Stock Option Plan, the 1989 Stock Option Plan and
the 1993 Stock Option Plan (the "Plans"). Each incentive stock option is
granted at an exercise price equal to 100% of the fair market value of the
common stock on the date of the grant. The exercise price of a non-qualified
stock option may be determined by the Compensation Committee of the Board of
Directors, but may not be less than 50% of the fair market value of the
common stock on the date of grant. Stock options granted under the Plans may
be exercised in whole or in part from time to time, not later than 10 years
from the date of grant or other period, as specified in the option agreement.
Most stock options are subject to cancellation upon termination of the
optionee's employment. However, some non-qualified options granted under the
Plans can be exercised for up to four years after retirement, at or after age
60, but not beyond the date the option originally expires. During 1992, the
stockholders voted to increase the shares reserved for future stock option
grants under the 1989 plan by 500,000 shares. During 1994, the stockholders
approved the 1993 Stock Option Plan authorizing a reserve of 1,000,000 shares
for future stock option grants. Stock option transactions are summarized as
follows:
- - -----------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------
Years ended July 31 1995 1994 1993
- - -----------------------------------------------------------------------------------
Outstanding at beginning of year 1,259,509 1,421,923 1,329,069
Granted 323,474 264,217 418,200
Exercised or cancelled (416,404) (426,631) (325,346)
- - -----------------------------------------------------------------------------------
Outstanding at end of year 1,166,579 1,259,509 1,421,923
- - -----------------------------------------------------------------------------------
Price range of granted options $23.625-29.50 $18.75-25.50 $10.90-19.75
- - -----------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------
Shares reserved for granting future
stock options:
July 31, 621,738 923,240 136,642
- - -----------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------
Options exercisable at end of year 780,169 765,510 941,090
- - -----------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------
Price range of exercisable options $10.70-29.50 $10.70-25.875 $10.70-22.50
- - -----------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------
The options outstanding at July 31, 1995, were granted in 1991, (31,502
shares); 1992, (413,920 shares); 1993, (166,668 shares); 1994, (275,351
shares); and 1995, (279,138 shares).
7 EMPLOYEE BENEFIT PROGRAMS
The company has an Employee Stock Ownership Plan (ESOP) which covers
substantially all employees. Funding of the ESOP was completed on July 31,
1995. The Plan was a leveraged ESOP which means funds were borrowed to
purchase the shares. The company's contributions to the Plan, net of
dividends, were $2,762,000 in 1995, $2,929,000 in 1994, and $3,085,000 in
1993. Principal payments of ESOP debt were $2,612,000 in 1995, $2,611,000 in
1994, and $2,611,000 in 1993. Interest incurred on ESOP debt and interest
received by the company was $258,000 in 1995, $512,000 in 1994, and $774,000
in 1993. Dividends on the ESOP shares used for debt service by the ESOP were
$107,000 in 1995, $195,000 in 1994, and $300,000 in 1993. The expenses
recognized related to the ESOP were $2,504,000 in 1995, $2,417,000 in 1994,
and $2,311,000 in 1993. At July 31, 1995, the ESOP indebtedness to the
company was paid in full.
Contributions to employees' profit sharing plans which cover substantially
all employees of the company and its subsidiaries were $4,100,000 in 1995,
$4,150,000 in 1994, and $4,254,000 in 1993. Such amounts are based upon
annual earnings before income taxes and minimum contributions required under
the plans.
Under the company's matching stock plan, shares of common stock may be
acquired by employees through payroll deductions and employer matching
contributions pursuant to the plan. Contributions were $660,000 in 1995,
$485,000 in 1994, and $510,000 in 1993.
In addition, the company and its subsidiaries have supplemental and other
retirement plans covering certain employees. Pension expense under these
plans in 1995, 1994, and 1993 was not significant.
Effective August 1, 1995, the company has adopted a new employee benefit
program which replaces the ESOP, profit sharing, and matching stock plans.
The program includes: The Employee Stock Ownership Plan and The Toro
Investment Fund under which eligible employees receive a pre-established
percentage of salary in either stock or cash. In addition, the company has
established the Toro 401(k) Employee Savings and Toro Matching Plan which
provides eligible employees the opportunity to contribute to various mutual
funds with a pre-determined company match up to a maximum of two percent of
annual salary.
8 SEGMENT DATA
The company classifies its operations into one industry segment, yard
maintenance equipment. International sales were $152,409,000, $130,053,000,
and $129,422,000 for 1995, 1994, and 1993, respectively. Of these amounts,
export sales were $126,560,000, $109,344,000, and $111,263,000 for 1995,
1994, and 1993, respectively. Export sales by geographic area are as follows:
- - ---------------------------------------------------------------------
- - ---------------------------------------------------------------------
(Dollars in thousands)
Years ended July 31 1995 1994 1993
- - ---------------------------------------------------------------------
Europe $ 60,239 $ 48,976 $ 53,992
Canada 31,921 28,039 26,573
Pacific Rim 28,979 27,535 26,208
Other 5,421 4,794 4,490
- - ---------------------------------------------------------------------
Total export sales $126,560 $109,344 $111,263
- - ---------------------------------------------------------------------
- - ---------------------------------------------------------------------
Sales to any particular customer were not significant.
26 The Toro Company 1995 Annual Report
9 LEASE COMMITMENTS
Minimum lease commitments in future years under noncancelable operating
leases are as follows: 1996, $5,423,000; 1997, $4,262,000; 1998, $2,624,000;
1999, $1,910,000; 2000, $1,117,000; and after 2000, $2,621,000.
Total lease expense was as follows:
- - ---------------------------------------------------------------------
- - ---------------------------------------------------------------------
(Dollars in thousands)
Years ended July 31 1995 1994 1993
- - ---------------------------------------------------------------------
Warehouse and office space $3,360 $2,198 $1,800
Trucks and autos 1,890 2,039 1,024
Equipment 3,721 3,044 3,154
- - ---------------------------------------------------------------------
Total $8,971 $7,281 $5,978
- - ---------------------------------------------------------------------
- - ---------------------------------------------------------------------
10 COMMITMENTS AND CONTINGENT LIABILITIES
Certain receivables are sold to financial institutions. Under these
arrangements, the company acts as agent for collections and was contingently
liable to repurchase receivables of $1,429,000 at July 31, 1995, and $659,000
at July 31, 1994. The company was also contingently liable to repurchase
$5,220,000 at July 31, 1995 and $5,222,000 at July 31, 1994, of inventory
relating to receivables under dealer financing arrangements. Additionally,
debts incurred by certain distributors, aggregating $1,268,000 at July 31,
1995, and $1,486,000 at July 31, 1994, have been guaranteed by the company.
In the ordinary course of business, the company may become liable with
respect to pending and threatened litigation, taxes, environmental, and other
matters. While the ultimate results of investigations, lawsuits, and claims
involving the company cannot be determined, management does not expect that
these matters will have a material adverse effect on the consolidated
financial position of the company.
11 FINANCIAL INSTRUMENTS
- - - OFF-BALANCE SHEET RISK
Letters of credit are issued by the company during the ordinary course of
business, as required by certain vendor contracts, through major domestic
banks. As of July 31, 1995, and 1994, the company had $24,212,000 and
$16,872,000, respectively, in outstanding letters of credit.
- - - CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the company to concentrations
of credit risk consist principally of accounts receivable which are
concentrated in the company's business segment, yard maintenance equipment.
The credit risk associated with this segment is limited because of the large
number of customers in the company's customer base and their geographic
dispersion.
- - - FOREIGN CURRENCY INVESTMENTS
A portion of the company's cash flow is derived from sales and purchases
denominated in foreign currencies. To reduce the uncertainty of foreign
currency exchange rate movements on these sales and purchase commitments, the
company enters into forward exchange and range forward option contracts.
These contracts are designed to hedge firm anticipated foreign currency
transactions.
At July 31, 1995, the company had contracts maturing at various dates to
purchase $11,209,000 in foreign currencies and to sell $20,817,000 in foreign
currencies at the spot rate. In addition, the company had range forward
options of $3,246,000 at July 31, 1995.
Changes in the market value of the foreign currency instruments are
recognized in the financial statements upon settlement of the hedged
transaction.
- - - FAIR VALUE
The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of FAS Statement 107 "Disclosures
about Fair Value of Financial Instruments." Estimated fair value amounts have
been determined using available information and appropriate valuation
methodologies. Because considerable judgement is required in developing the
estimates of fair value, these estimates are not necessarily indicative of
the amounts that could be realized in a current market exchange.
The carrying and estimated fair values of the company's financial
instruments at July 31, 1995, are as follows:
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
Carrying Estimated
(Dollars in millions) Value Fair Value
- - ------------------------------------------------------------------------------
Long-term debt $81,025 $90,295
Deferred income (interest rate exchange agreement) 5,250 6,543
- - ------------------------------------------------------------------------------
For cash and cash equivalents, receivables, and accounts payable, carrying
value is a reasonable estimate of fair value.
For long-term debt with fixed interest rates, fair value is estimated by
discounting the projected cash flows using the rate at which similar amounts
could currently be borrowed.
The fair value of the 11% sinking fund debentures represents the amount
the company would pay to redeem the notes based on the terms of the debenture.
The estimated fair value of the deferred income represents the cost to
terminate the interest rate exchange agreement, had management elected to do
so, which would have resulted in a loss of approximately $1,300,000.
The Toro Company 1995 Annual Report 27
12 CONSOLIDATED FINANCE SUBSIDIARY --
TORO CREDIT COMPANY
Toro Credit Company is a consolidated finance subsidiary of the company and
operates primarily in the finance industry with wholesale financing of
distributor and dealer inventories under various financing arrangements and
other programs.
- - ---------------------------------------------------------------------
- - ---------------------------------------------------------------------
(Dollars in thousands)
Years ended July 31 1995 1994 1993
- - ---------------------------------------------------------------------
SUMMARY OF EARNINGS
Finance revenues $21,259 $17,436 $17,060
Expenses:
Operating 3,428 2,068 1,841
Interest 4,902 4,737 5,879
Foreign currency exchange net
(gains) losses (37) 96 31
- - ---------------------------------------------------------------------
Total expenses 8,293 6,901 7,751
Earnings before income taxes 12,966 10,535 9,309
Provision for income taxes 4,744 3,669 3,310
- - ---------------------------------------------------------------------
Net earnings $ 8,222 $ 6,866 $ 5,999
- - ---------------------------------------------------------------------
- - ---------------------------------------------------------------------
- - ---------------------------------------------------------------------
- - ---------------------------------------------------------------------
(Dollars in thousands)
Years ended July 31 1994 1993
- - ---------------------------------------------------------------------
SUMMARY BALANCE SHEETS
ASSETS
Cash and cash equivalents $ 3,048 $ 4,394
Receivables-net 119,204 99,932
Other receivables and assets 1,915 1,377
- - ---------------------------------------------------------------------
Total assets $124,167 $105,703
- - ---------------------------------------------------------------------
- - ---------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of long-term debt $ 15,000 $ 20,000
Other liabilities 38,235 7,994
Long-term debt, less current portion 10,000 25,000
Shareholders' equity 60,932 52,709
- - ---------------------------------------------------------------------
Total liabilities and shareholders' equity $124,167 $105,703
- - ---------------------------------------------------------------------
- - ---------------------------------------------------------------------
Of the finance revenues presented previously, $17,114,000 in 1995,
$13,272,000 in 1994, and $12,659,000 in 1993 represent transactions with Toro
Credit Company's parent company, The Toro Company, which are eliminated in
consolidation. The remaining finance revenues of $4,145,000 in 1995,
$4,164,000 in 1994, and $4,401,000 in 1993 are included in other income, in
The Toro Company's Consolidated Statements of Earnings. The expenses and
balance sheet items (net of eliminations) are included in the Consolidated
Statements of Earnings and Consolidated Balance Sheets under the
corresponding classifications.
13 QUARTERLY FINANCIAL DATA (unaudited)
Summarized quarterly financial data for 1995 and 1994 is as follows:
- - -------------------------------------------------------------------------------------------
(Dollars in thousands except per share data)
Quarter First Second Third Fourth
- - -------------------------------------------------------------------------------------------
1995
Net sales $205,704 $213,950 $310,613 $202,586
Gross profit 76,065 76,068 107,342 75,103
Net earnings 8,302 6,799 17,539 4,027
Net earnings per share of
common stock and common
stock equivalent 0.64 0.51 1.32 0.32
Dividends per common share 0.12 0.12 0.12 0.12
Market price of common stock
High bid 29 7/8 29 3/8 30 3/8 29 7/8
Low bid 21 5/8 26 27 1/2 25 5/8
- - -------------------------------------------------------------------------------------------
1994
Net sales $135,761 $189,413 $276,476 $192,691
Gross profit 49,035 66,587 97,689 74,214
Net earnings (1,895) 4,477 15,637 4,011
Net earnings per share of
common stock and common
stock equivalent (0.15) 0.35 1.19 0.31
Dividends per common
share 0.12 0.12 0.12 0.12
Market price of common stock
High bid 26 3/4 28 30 1/2 26 3/4
Low bid 19 3/4 23 5/8 25 20 7/8
- - --------------------------------------------------------------------------------------
28 The Toro Company 1995 Annual Report
Exhibit 21
THE TORO COMPANY
SUBSIDIARIES OF REGISTRANT
All the following subsidiaries are included in the consolidated financial
statements of The Toro Company as of July 31, 1995.
State or Other Percentage of Voting
Jurisdiction Securities Owned
Name of Incorporation by Immediate Parent
- - ------------------------------ ---------------- --------------------
Toro Australia Pty. Limited Australia 100%
Toro Credit Company Minnesota 100%
Toro Europe Belgium 100%
Toro Foreign Sales Corporation Barbados 100%
Lawn-Boy Inc. Delaware 100%
Toro Probiotic Products, Inc. Minnesota 100%
Toro Sales Company Minnesota 100%
Toro Southwest, Inc. California 100%
Toro International Company Minnesota 100%
Hahn Equipment Co. Minnesota 100%
16
[Peat Marwick LLP Letterhead]
Independent Auditors' Consent
The Board of Directors
The Toro Company:
We consent to incorporation by reference in the Registration Statements (Nos.
33-26268, 33-31586, 33-38308, 33-44668, 33-51563, 33-55550, 33-67748,
33-59563, and 33-62748) on Forms S-3 and S-8 of The Toro Company of our
reports dated September 7, 1995, relating to the consolidated balance
sheets of The Toro Company and subsidiaries as of July 31, 1995 and 1994,
and the related consolidated statements of earnings and cash flows and
related financial statement schedules for each of the years in the
three-year period ended July 31, 1995, which reports are included in
or incorporated by reference in the annual report on Form 10-K of The Toro
Company.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 27, 1995
-17-
5
1,000
YEAR
JUL-31-1995
AUG-01-1994
JUL-31-1995
11,924
0
210,090
7,343
123,720
381,610
208,621
138,550
468,315
212,659
81,025
12,040
0
0
173,431
468,315
932,853
932,853
598,275
269,757
(8,193)
1,543
11,902
61,112
24,445
36,667
0
0
0
36,667
2.81
2.81
Total Long-Term Debt
Does not include Additional Paid in Capital
Other income-net
