TORO CO
10-K, 1994-10-28
LAWN & GARDEN TRACTORS & HOME LAWN & GARDENS EQUIP
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<PAGE>


                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, 1994
                                     ---------------

                                       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
                                                --------

                                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:

TITLE OF EACH CLASS                   NAME OF EACH EXCHANGE ON 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 30, 1994
as reported on the New York Stock Exchange, was approximately $314,586,300.

The number of shares of Common Stock outstanding as of September 30, 1994 was
12,583,452.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended July 31, 1994, are incorporated by reference into Parts I, II and IV.

Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held December 15, 1994, are incorporated by reference into
Part III.


<PAGE>


                                                                          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 and
inventory levels both within Toro and in the company's distribution channels.


                                      - 2 -

<PAGE>

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 new products 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 54%
of total sales in fiscal 1994, are highly seasonal with greater sales of yard
maintenance equipment occurring in the spring.  Sales of snow removal equipment
in the fall and winter months and contra 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 due.  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 48 domestic and 55 foreign distributors and mass merchandisers
worldwide.  Distributors resell consumer products to approximately 10,800 retail
dealers throughout the United States.  Riding products are sold primarily to
approximately 4,000 retail service dealers throughout the United States through
existing distributors acting as sales agents worldwide.  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 approximately
2,000 retail dealers outside the United States, principally in Canada, Western
Europe, Japan and Australia.  Additionally, some irrigation and consumer
products are sold directly to approximately 700 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.


                                      - 3 -

<PAGE>

BACKLOG OF ORDERS

The order backlog at July 31, 1994 and 1993 was as follows:

<TABLE>
<CAPTION>

                                                  July 31
                                     -------------------------------
                                        1994                1993
                                     -----------         -----------

         <S>                        <C>                 <C>
         Consumer. . . . . . . . .  $107,848,000        $43,190,000
         Commercial. . . . . . . .    40,279,000         33,037,000
         Irrigation. . . . . . . .    10,214,000          7,916,000
</TABLE>


The increase in consumer product backlog reflects the fiscal 1994 sell-out of
gas snow products and strong demand for snow products in anticipation of another
hard winter season.  The increase for commercial products reflects a strong
first quarter for fiscal 1995 core product sales.  Favorable weather conditions
and rebounding economies in Europe and the Far East is exhibited by the increase
in irrigation product backlog.  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 and dealers 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.

  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.


                                      - 4 -

<PAGE>

  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.  Management believes that its commitment to product innovation,
   its distribution systems and its focus on its target markets, position it
   well to compete in these various markets.

  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 face more competition because foreign
   competitors can 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 $30.9 million, or 3.9% of sales in 1994,
$25.3 million, or 3.7% of sales in 1993 and $26.9 million, or 4.2% of sales in
1992. 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
proposed regulations for small engine emissions in May 1994.  Toro has been
working with industry associations and the EPA on the proposed rules for more
than two years and is positioned to respond to whatever final rules are adopted.

EMPLOYEES

During 1994 the company employed an average of 3,434 employees.  The total
number of employees at July 31, 1994 was 2,800, reflecting the company's normal
seasonal fluctuation in employment.  Approximately one-quarter of the company's
employees are covered by three collective bargaining agreements expiring in
September 1994, November 1996 and May 1997, respectively.  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 $109,344,000, $111,263,000 and $109,076,000 in fiscal 1994,
1993 and 1992, respectively. The identifiable assets attributable to foreign
operations are not significant.


                                      - 5 -

<PAGE>

                               ITEM 2. PROPERTIES

The Toro Company utilizes owned manufacturing and office facilities which
totaled approximately 2,199,000 square feet of space.  The manufacturing
facilities operated at about 89% of total capacity in fiscal 1994.  The
following schedule outlines the owned facilities by location, plant size and
function:


<TABLE>

<CAPTION>


    Location         Square Feet        Products Manufactured/Use
- - - - ------------------   -----------   ---------------------------------------
<S>                  <C>           <C>

Plymouth, WI           463,000       Parts distribution center, office
Tomah, WI              274,000       Consumer and Commercial products
Bloomington, MN        244,000       Corporate headquarters
Riverside, CA          222,000       Irrigation products
Sardis, MS    (a)      244,000       Consumer products
Windom, MN             253,000       Consumer components and products
South Bend, IN(b)      226,000       Closed facility
Shakopee, MN           146,000       Components for consumer and commercial
                                     products
Oxford, MS              64,000       Components for consumer products
Oevel, Belgium          63,000       Consumer products
                     ---------
 Total Square Feet   2,199,000
                     ---------
                     ---------

<FN>

     (a) Facility closed in 1993 due to restructuring.  Will be reopened in
         1995.
     (b) Facility closed in 1993 due to restructuring.   Building held for sale.


</TABLE>


In 1994, 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 145,000 square feet in Mound, Minnesota and 176,000 square feet in Olathe,
Kansas.  Other leased office and warehouse space located in various cities in
the United States, Australia, Canada, France, Singapore and United Kingdom
totaled approximately 92,000 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 (other than for punitive damages).  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 -

<PAGE>                                                                   PART II



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,
1994 ("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, 1994 was 7,541.

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 1994, 1993, 1992, 1991 and 1990 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-

<PAGE>                                                                  PART III


           ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding the directors of The Toro Company contained in the Proxy
Statement for the Annual Meeting of Stockholders to be held December 15, 1994,
is incorporated herein by reference to such proxy statement which will be filed
within 120 days after the end of the fiscal year covered by this Form 10-K.

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, 1994.  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 17, 1994, and positions held by them during the last five
years.  Officers are elected or appointed annually.  Additional information
regarding certain of the executive officers is contained in the Proxy Statement
for the Annual Meeting of Stockholders to be held December 15, 1994.


Name, Age and Position
   with the Company       Business Experience During the Last Five Years
- - - - ----------------------    ----------------------------------------------

Calvin R. Hendrix         Appointed Vice President, Irrigation Division in
43, Vice President and    September 1993.  From 1988 to September 1993, held
General Manager           various management positions with Masco Corporation.
Irrigation Products

Randy B. James            Appointed Vice President, Controller in December 1988.
51, Vice President,       Previously held various management positions within
Controller                the company.

Gerald T. Knight          Elected Vice President-Finance in April 1992. From
47, Vice President-       December 1990 to April 1992, was Executive Director -
Finance, Chief            Finance and Corporate Controller of
Financial Officer         NeXT Computer, Inc. Prior to December 1990, held
                          various management positions with The Pillsbury
                          Company (a subsidiary of Grand Metropolitan).

Charles B. Lounsbury      Appointed Vice President, Distribution Parts and
51, Vice President,       Debris Management in November 1993.  From
Distribution, Parts       May 1991 to November 1993 was President and Chief
and Debris Management     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 Division in
51, Vice President        February 1992. Appointed Vice President and General
and General Manager,      Manager, Home Improvement Division in May 1986.
Consumer Products


J. Lawrence McIntyre      Elected Vice President in July 1993. Elected Secretary
52, Vice President,       and General Counsel in August 1993.  Prior to
Secretary and             July 1993, was a shareholder with
General Counsel           Doherty, Rumble & Butler Professional Association.


                                       -8-

<PAGE>


Name, Age and Position
   with the Company       Business Experience During the Last Five Years
- - - - ----------------------    ----------------------------------------------

Kendrick B. Melrose       Elected Chairman of the Board in December 1987.
54, Chairman of the       Elected Chief Executive Officer in December 1983.
Board and Chief
Executive Officer


Karen M. Meyer            Elected Vice President, Human Resources/Administrative
44, Vice President        Services in December 1991.  Appointed Vice President,
Human Resources/          Human Resources/Administrative Services in December,
Administrative Services   1988.  Previously held various management positions
                          within the company.

David H. Morris           Elected President in December 1988. Elected Chief
53, President and         Operating Officer in August 1988.
Chief Operating Officer

Richard R. Pollick        Appointed Vice President, International Division in
55, Vice President and    March 1990.  Previously held various management
General Manager           positions within the company.
International Equipment

John G. Szafranski        Appointed Vice President, Commercial Products in
59, Vice President        December 1984.
and General Manager,
Commercial Equipment


                         ITEM 11. EXECUTIVE COMPENSATION

Information contained under the heading "Compensation" in the Proxy Statement
for the Annual Meeting of the Stockholders to be held December 15, 1994, is
incorporated herein by reference to such proxy statement which will be filed
within 120 days after the end of the fiscal year covered by this Form 10-K.


     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 contained in the Proxy Statement for the Annual
Meeting of the Stockholders to be held December 15, 1994, is incorporated herein
by reference to such proxy statement which will be filed within 120 days after
the end of the fiscal year covered by this Form 10-K.

             ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

                                      - 9 -

<PAGE>

                                                                         PART IV



    ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K


(a)  1.  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Incorporated by reference into Part II, Item 8 of this report:

                                                            Pages in Fiscal 1994
                                                               Annual Report
                                                              to Stockholders

Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . 19

Consolidated Statements of Operations for the years ended
    July 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . 19

Consolidated Balance Sheets
    as of July 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . 20

Consolidated Statements of Cash Flows for the
    years ended July 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . 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 VIII - Valuation and Qualifying Accounts. . . . . . . . . . 14

    Schedule IX - Short-term Borrowing . . . . . . . . . . . . . . . . . 15

    Schedule X - Supplementary Income Statement Information. . . . . . . 16

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).


                                     - 10 -

<PAGE>

  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)

  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)             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(c)             The Toro Company Matching Stock Purchase Plan (incorporated
                    by reference to Exhibit 28 to the Registrant's Registration
                    Statement on Form S-8, Registration No. 33-22469).

  10(d)             1993 Stock Option Plan (incorporated by reference to Exhibit
                    A to Registrant's Proxy Statement dated October 29, 1993).

  10(e)             Continuous Performance Award Plan (incorporated by reference
                    to Exhibit A to Registrant's Proxy Statement dated
                    October 31, 1991).

  11                Computation of Earnings (Loss) per Share of Common Stock and
                    Common Stock Equivalent (page 17 of this report).

  13                Registrant's Fiscal 1994 Annual Report to Stockholders.

  21                Subsidiaries of Registrant (page 18 of this report).

  23                Independent Auditors' Consent (page 19 of this report).


(b)  REPORTS ON FORM 8-K

  None.


                                     - 11 -

<PAGE>                             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 18, 1994

   /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 18, 1994
- - - - -------------------------   Officer and Director
Kendrick B. Melrose

/s/ David H. Morris         President, Chief Operating         October 18, 1994
- - - - -------------------------   Officer and Director
David H. Morris

/s/ Gerald T. Knight        Vice President - Finance,          October 18, 1994
- - - - -------------------------   Chief Financial Officer
Gerald T. Knight            (principal financial officer)


/s/ Randy B. James          Vice President, Controller         October 18, 1994
- - - - -------------------------  (principal accounting officer)
Randy B. James

/s/ Janet K. Cooper         Director                           October 18, 1994
- - - - -------------------------
Janet K. Cooper

/s/ William W. George       Director                           October 18, 1994
- - - - -------------------------
William W. George

/s/ Alex A. Meyer           Director                           October 18, 1994
- - - - -------------------------
Alex A. Meyer

/s/ Robert H. Nassau        Director                           October 18, 1994
- - - - -------------------------
Robert H. Nassau

/s/ Dale R. Olseth          Director                           October 18, 1994
- - - - -------------------------
Dale R. Olseth

/s/ Dale W. Turnbull        Director                           October 18, 1994
- - - - -------------------------
Dale W. Turnbull

/s/ Edwin H. Wingate        Director                           October 18, 1994
- - - - -------------------------
Edwin H. Wingate

                                     - 12 -

<PAGE>

                       [KPMG Peat Marwick LLP Letterhead]



                          INDEPENDENT AUDITORS' REPORT





The Board of Directors
The Toro Company:


Under date of September 8, 1994, we reported on the consolidated balance sheets
of The Toro Company and subsidiaries as of July 31, 1994 and 1993, and the
related consolidated statements of operations and cash flows for each of the
years in the three-year period ended July 31, 1994, as contained in the 1994
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 1994.  In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related financial
statement schedules as listed in the accompanying index.  These financial
statement schedules are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.

In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.


                                        /s/ KPMG Peat Marwick LLP
                                        KPMG Peat Marwick LLP


Minneapolis, Minnesota
September 8, 1994

<PAGE>

                                                               Schedule VIII



                        THE TORO COMPANY AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS


<TABLE>
<CAPTION>

                          BALANCE AT    CHARGED TO
                        BEGINNING OF    COSTS AND                                   BALANCE AT
DESCRIPTION                 YEAR         EXPENSES      OTHER (a)    DEDUCTIONS (b)   END OF YEAR
- - - - ------------            -------------  -----------  ------------- ---------------   --------------

  Year Ended July 31, 1994
- - - - --------------------------
<S>                     <C>            <C>          <C>            <C>              <C>
 Allowance
 for doubtful
 accounts                $5,589,000     $3,032,000   $    765,000  $   1,684,000     $7,702,000
                        -------------  -----------  ------------- ---------------   --------------

<CAPTION>

 Year Ended July 31, 1993
- - - - -------------------------
<S>                     <C>            <C>          <C>            <C>              <C>
 Allowance
 for doubtful
 accounts                $6,358,000     $2,500,000   $      -      $   3,269,000     $5,589,000
                        -------------  -----------  ------------- ---------------   --------------

 Year Ended July 31, 1992
- - - - -------------------------
<S>                     <C>            <C>          <C>            <C>              <C>
 Allowance
 for doubtful
 accounts                $3,564,000     $4,083,000   $      -      $   1,289,000     $6,358,000
                        -------------  -----------  ------------- ---------------   --------------

<FN>


     (a)  Additions to allowance for doubtful accounts during 1995 due to
          reclassification and acquisitions.
     (b)  Uncollectible accounts charged off, net of recoveries.

</TABLE>

                                     - 14 -

<PAGE>

                                                                  Schedule IX

                        THE TORO COMPANY AND SUBSIDIARIES
                              Short-term Borrowing

<TABLE>
<CAPTION>


                                                  Year Ended July 31,
                                              ------------------------------


                                                1994               1993
                                              -----------        -----------

 <S>                                          <C>                <C>
 Balance at End of Period                     $         -        $         -
                                              -----------        -----------


 Weighted Average Interest Rate at End                N/A                N/A
  of Period
                                              -----------        -----------


 Maximum Amount Outstanding During the
  Period                                      $49,600,000        $45,500,000
                                              -----------        -----------


 Average Amount Outstanding During the
  Period (1)                                  $12,900,000        $10,600,000
                                              -----------        -----------


 Weighted Average Interest Rate During
  the Period (2)                                    6.45%              8.08%
                                              -----------        -----------

<FN>

     (1)  The average amount outstanding during the period represents total
          monthly borrowing divided by 12 months.

     (2)  The weighted average interest rate represents total annual short-term
          interest expense, including facility fees, divided by the average
          daily debt outstanding.

</TABLE>

     Short-term borrowing are unsecured borrowing under bank lines of credit.

                                     - 15 -


<PAGE>

                                                                      Schedule X

                        THE TORO COMPANY AND SUBSIDIARIES
                   Supplementary Income Statement Information

<TABLE>
<CAPTION>


 Charged to Costs and Expenses:
                                               Year Ended July 31,
                                     -------------------------------------------

                                          1994            1993           1992
                                     -----------     -------------  -----------

 <S>                                 <C>             <C>            <C>
 Maintenance and repairs             $10,650,000     $ 8,515,000    $ 7,074,000


 Depreciation and amortization of
   intangible assets                         *               *              *


 Taxes, other than payroll and
   income taxes                              *               *              *


 Royalties                                   *               *              *


 Advertising                         $26,282,000     $17,248,000    $22,058,000

<FN>

                * Less than 1% of net sales for applicable year.

</TABLE>


                                     - 16 -


<PAGE>

                                                                Exhibit 11

                        THE TORO COMPANY AND SUBSIDIARIES
          Computation of Earnings (Loss) per Share of Common Stock and
                             Common Stock Equivalent
                  (Not Covered by Independent Auditors' Report)

<TABLE>
<CAPTION>

                                                                           Year Ended July 31,
                                                              --------------------------------------------
                                                                  1994            1993            1992
                                                              -----------     -----------    ------------
 <S>                                                          <C>             <C>            <C>


 Net earnings (loss)                                          $22,230,000     $13,040,000    $(23,753,000)
                                                              -----------     -----------    ------------
                                                              -----------     -----------    ------------

 Primary:
    Shares of common stock and common
    stock equivalents:
        Weighted average number of
          common shares outstanding                            12,472,828      12,135,399      11,982,103
        Dilutive effect of outstanding
          stock options (1), (3)                                  509,538         248,672               -
                                                              -----------     -----------    ------------
                                                               12,982,366      12,384,071      11,982,103
                                                              -----------     -----------    ------------
                                                              -----------     -----------    ------------

     Net earnings (loss) per share of common
       stock and common stock equivalent                      $      1.71     $      1.05    $      (1.98)
                                                              -----------     -----------    ------------
                                                              -----------     -----------    ------------

 Fully Diluted:
    Shares of common stock and common
    stock equivalents:
      Weighted average number of
        common shares outstanding                              12,472,828      12,135,399      11,982,103
      Dilutive effect of outstanding
        stock options (2), (3)                                    509,538         395,274               -
                                                              -----------     -----------    ------------
                                                               12,982,366      12,530,673      11,982,103
                                                              -----------     -----------    ------------
                                                              -----------     -----------    ------------
     Net earnings (loss) per share of common
       stock and common stock equivalent                      $      1.71     $      1.04    $      (1.98)
                                                              -----------     -----------    ------------
                                                              -----------     -----------    ------------


<FN>

(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.

(3) Loss per share calculations for fiscal 1992 are based on the weighted
    average number of shares of common stock outstanding excluding common stock
    equivalents due to their anti-dilutive affect.



</TABLE>



<PAGE>

FINANCIAL HIGHLIGHTS
Strong Growth Continues at Toro

CONTENTS
Letter to Stockholders                 2
Review of Operations                   4
Eleven-Year Selected                  12
Financial Data
Management's Discussion               14
and Analysis
Financial Statements                  19
Notes to Consolidated                 22
Financial Statements
Directors, Officers and               29
Stockholder Information


TORO DELIVERED RECORD SALES AND A 71 PERCENT EARNINGS INCREASE DURING 1994 WHILE
ALSO INVESTING HEAVILY FOR THE FUTURE IN KEY ELEMENTS OF THE OPERATION. MOMENTUM
CONTINUES TO BUILD INDICATING ANOTHER GOOD YEAR IN 1995.

EXPANDED AND ENHANCED DISTRIBUTION CHANNELS BROUGHT TORO CLOSER TO ITS CUSTOMERS
AND IMPROVED THE COMPETITIVE POSITION OF ITS PRODUCT LINES.

AGGRESSIVE ADVERTISING AND MARKETING PROGRAMS REINFORCED TORO'S BRAND EQUITY.

AGGRESSIVE RESEARCH AND DEVELOPMENT INVESTMENTS CONTINUED TO TRANSLATE TRENDS
AND CUSTOMER NEEDS INTO MARKET-LEADING NEW PRODUCTS.

TORO'S BALANCE SHEET CONTINUED TO STRENGTHEN AS THE COMPANY REDUCED LONG-TERM
DEBT BY $37 MILLION DURING THE YEAR.


<TABLE>
<CAPTION>
- - - - ------------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
Years ended July 31                                     1994        1993    % Change
- - - - ------------------------------------------------------------------------------------
<S>                                                <C>         <C>         <C>
Net sales                                           $794,341    $684,324       16.1%
Net earnings                                          22,230      13,040       70.5
Percent of net sales                                     2.8%        1.9%
- - - - ------------------------------------------------------------------------------------
Net earnings per share of common stock and
  common stock equivalent                              $1.71       $1.05       62.9
Dividends per share of common stock outstanding         0.48        0.48
- - - - ------------------------------------------------------------------------------------
Return on:
  Beginning common stockholders' equity                 15.4%        9.8%
  Average common stockholders' equity                   14.2         9.4
  Average invested capital                              10.8         7.8
- - - - ------------------------------------------------------------------------------------
AT YEAR END
Working capital                                     $175,783    $193,870       (9.3)
Total assets                                         443,639     419,203        5.8
Total debt                                           101,325     137,970      (26.6)
Common stockholders' equity                          168,652     144,601       16.6
Book value per common share                            13.43       11.78       14.0
- - - - ------------------------------------------------------------------------------------
Number of common stockholders                          7,541       7,968       (5.4)
Average number of employees                            3,434       3,117       10.2
- - - - ------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.


                                   The Toro Company     1994 Annual Report     1
<PAGE>

THE TORO COMPANY
Eleven-Year Selected Financial Data


<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
Years ended July 31                                                 1994        1993        1992*       1991        1990**
- - - - --------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>         <C>         <C>         <C>         <C>
OPERATING DATA:
Net sales                                                       $794,341    $684,324    $643,748    $718,105    $750,931

EARNINGS:
Net earnings (loss)                                               22,230      13,040     (23,753)      9,700      16,558
Percent of sales                                                     2.8%        1.9%       (3.7)%       1.4%        2.2%
Per share of common stock and
  common stock equivalent                                       $   1.71    $   1.05    $  (1.98)   $   0.81    $   1.55

DIVIDENDS:
On common stock outstanding                                        5,993       5,824       5,753       5,700       4,797
Per share of common stock outstanding                               0.48        0.48        0.48        0.48        0.48

RETURN ON:
Beginning common stockholders' equity                               15.4%        9.8%      (14.8)%       6.4%       16.4%
Average common stockholders' equity                                 14.2%        9.4%      (16.2)%       6.4%       14.4%

SUMMARY OF FINANCIAL POSITION:
Current assets                                                  $364,495    $344,130    $332,517    $318,753    $320,204
Current liabilities                                              188,712     150,260     122,087     107,981     130,452
  Working capital                                                175,783     193,870     210,430     210,772     189,752
Non-current assets                                                79,144      75,073      88,793      96,551     103,347
  Total assets                                                   443,639     419,203     421,310     415,304     423,551
Non-current liabilities, excluding long-term debt                  5,250       1,372       2,509       1,469       6,112

CAPITALIZATION:
Long-term debt, less current portion                              81,025     122,970     164,100     145,295     134,400
Redeemable preferred stock                                            --          --          --          --          --
Common stockholders' equity                                      168,652     144,601     132,614     160,559     152,587
Total capitalization                                             249,677     267,571     296,714     305,854     286,987
Book value per common share                                        13.43       11.78       11.01       13.48       12.92

STOCK DATA:
Number of shares of common stock
  outstanding (in thousands)                                      12,561      12,270      12,042      11,913      11,814
Number of common stockholders                                      7,541       7,968       8,386       8,503       7,706
Low price                                                       $ 19 3/4    $ 11 3/8    $ 12 1/8    $ 11        $ 20 1/2
High price                                                        30 1/2      21 7/8      17 1/2      24 1/4      30
Close price                                                       22 5/8      19 3/4      13          15 3/4      24 1/4
- - - - --------------------------------------------------------------------------------------------------------------------------
<FN>
  *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.
</TABLE>


12   The Toro Company     1994 Annual Report
<PAGE>


<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
Years ended July 31                                     1989        1988        1987***     1986        1985        1984
- - - - --------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>         <C>         <C>         <C>         <C>         <C>
OPERATING DATA:
Net sales                                           $643,566    $609,205    $521,123    $406,664    $336,813    $280,249

EARNINGS:
Net earnings (loss)                                   22,096      20,048      17,032      15,491      13,224       8,306
Percent of sales                                         3.4%        3.3%        3.3%        3.8%        3.9%        3.0%
Per share of common stock and
  common stock equivalent                           $   2.10    $   1.84    $   1.52    $   1.34    $   1.11    $   0.65

DIVIDENDS:
On common stock outstanding                            4,793       4,410       3,599       2,942       2,034         334
Per share of common stock outstanding                   0.48        0.43        0.35        0.28        0.20        0.03

RETURN ON:
Beginning common stockholders' equity                   25.8%       26.3%       25.1%       20.4%       19.3%       12.4%
Average common stockholders' equity                     23.8%       24.4%       24.0%       23.1%       17.4%       11.8%

SUMMARY OF FINANCIAL POSITION:
Current assets                                      $266,176    $262,638    $245,574    $195,635    $186,678    $183,446
Current liabilities                                  123,377     126,796     102,913      89,382      69,713      52,658
  Working capital                                    142,799     135,842     142,661     106,253     116,965     130,788
Non-current assets                                    59,807      57,430      53,970      32,930      29,452      29,365
  Total assets                                       325,983     320,068     299,544     228,565     216,130     212,811
Non-current liabilities, excluding long-term debt      2,329       2,887       3,273       2,432       3,922       3,849

CAPITALIZATION:
Long-term debt, less current portion                  96,730      99,347     110,903      63,198      61,935      81,526
Redeemable preferred stock                             6,000       9,000      10,500      10,500      10,500      14,829
Common stockholders' equity                           97,547      82,038      71,957      63,053      70,060      59,949
Total capitalization                                 200,277     190,385     193,360     136,751     142,495     156,304
Book value per common share                             9.85        8.16        7.01        6.06        6.84        5.97

STOCK DATA:
Number of shares of common stock
  outstanding (in thousands)                           9,902      10,049      10,272      10,401      10,245      10,041
Number of common stockholders                          7,527       6,802       5,587       3,821       4,288       4,136
Low price                                           $ 17        $ 11 1/8    $ 14        $ 10 3/8   $  6  5/8    $  6
High price                                            22 7/8      24 7/8      22 1/4      19 1/2     11  3/8       8 1/8
Close price                                           21 1/2      19 1/4      19 5/8      18 3/4     10  1/2       6 2/3
- - - - --------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                   The Toro Company      1994 Annual Report   13
<PAGE>

THE TORO COMPANY
Management's Discussion and Analysis of Financial Condition and Results of
Operations


Results of Operations

The company's product, distribution and operational strategies continued to
drive the sales and earnings growth in 1994. Worldwide net sales rose to $794.3
million, a 16.1% increase from the $684.3 million in 1993. Net earnings for 1994
were $22.2 million compared to $13.0 million in 1993.

     The table below summarizes operating results included in the Consolidated
Statements of Operations for 1994, 1993 and 1992. A discussion of the changes
follows the table.

SUMMARY
<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
(Dollars in millions except per share data)
Years ended July 31               1994  % Change      1993  % Change      1992
- - - - --------------------------------------------------------------------------------
<S>                            <C>      <C>        <C>      <C>        <C>
Net sales                       $794.3      16.1%   $684.3       6.3%   $643.7
Cost of sales                    506.8      13.8     445.5       6.3     419.1
- - - - --------------------------------------------------------------------------------
Gross profit                     287.5      20.4     238.8       6.3     224.6
Selling, general and
  administrative expense         244.9      20.4     203.4      (8.9)    223.2
Restructuring expense               --        --        --        --      24.9
- - - - --------------------------------------------------------------------------------
Earnings (loss) from
  operations                      42.6      20.3      35.4        --     (23.5)
Interest expense                  13.6     (20.9)     17.2      (8.0)     18.7
Other income, net                 (8.0)    158.1      (3.1)    (57.5)     (7.3)
- - - - --------------------------------------------------------------------------------
Earnings (loss) before
  income taxes                    37.0      73.7      21.3        --     (34.9)
Provision (benefit) for
  income taxes                    14.8      78.3       8.3        --     (11.1)
- - - - --------------------------------------------------------------------------------
Net earnings (loss)             $ 22.2      70.8%   $ 13.0        --%   $(23.8)
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Net earnings (loss)
  per common and common
  share equivalent*              $1.71      62.9%    $1.05        --%   $(1.98)
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
<FN>
*Loss per share calculations for fiscal 1992 are based on weighted average
 common shares outstanding, excluding common stock equivalents due to their
 anti-dilutive effect.
</TABLE>

SALES
<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
Net Sales (Dollars in millions)
Years ended July 31               1994  % Change      1993  % Change      1992
- - - - --------------------------------------------------------------------------------
<S>                            <C>      <C>        <C>      <C>        <C>
Consumer                        $425.8      26.0%   $338.0       2.6%   $329.3
Commercial                       253.2       8.0     234.5       9.2     214.7
Irrigation                       115.3       3.1     111.8      12.1      99.7
- - - - --------------------------------------------------------------------------------
  Total*                        $794.3      16.1%   $684.3       6.3%   $643.7
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
*Includes International
  sales of                      $130.1       0.5%   $129.4      (2.1)%  $132.2
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
<FN>
Certain prior year sales amounts have been reclassified to reflect the current
year presentation.
</TABLE>


FISCAL 1994 COMPARED TO FISCAL 1993

Worldwide sales increased $110.0 million to $794.3 million with increases in all
product lines.

CONSUMER PRODUCTS
Worldwide consumer 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-R- 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 PRODUCTS
Worldwide commercial sales increased $18.7 million over the prior year. Domestic
sales rose 11.8%, while international sales declined 1.5%. The domestic increase
is 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-R- sales
strengthened compared to 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 PRODUCTS
Worldwide irrigation 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.


14   The Toro Company     1994 Annual Report
<PAGE>

INTERNATIONAL MARKETS
International sales are included in the preceding net sales table. International
sales have 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 continuing weak economy.


FISCAL 1993 COMPARED TO FISCAL 1992

Worldwide net sales increased $40.6 million to $684.3 million with increases in
all product lines.

CONSUMER PRODUCTS
Worldwide consumer sales increased $8.7 million to $338.0 million in 1993.
Consumer sales represented 49.4% and 51.2% of consolidated sales for 1993 and
1992, respectively. Domestic sales increased 4.2%, while international sales
decreased 7.6%. International sales included in consumer sales were down $3.4
million from the previous year.

     The largest sales growth occurred in Lawn-Boy-R- walk power mowers. This
growth was the result of expanded distribution in the mass merchant channel and
reduced pricing levels on new product introductions.

COMMERCIAL PRODUCTS
Worldwide commercial sales increased $19.8 million to $234.5 million in 1993.
Domestic sales rose 10.0%, while international sales rose 7.4%. The increase is
attributed to new product introductions, especially the Workman-R- vehicle line,
which was well received and sold out early in the year. Also, overall sales
increased over the prior year because of an improving economy which had a
positive impact on municipalities and other tax-supported customers as these
entities purchased more efficient, labor-saving equipment.

     ProLine-R- sales increased because of the introduction of new and improved
products, and continued growth in the professional lawn service industry.

     Golf sales were strong as courses updated their maintenance equipment.

IRRIGATION PRODUCTS
Worldwide irrigation sales increased $12.1 million to $111.8 million in 1993.
Domestic sales increased $16.1 million over 1992 while international sales
declined $4.0 million. The domestic sales increase was the result of unusually
low distributor and dealer inventory levels at the beginning of the year, new
product introductions, expanded distribution in the mass merchant channel and
favorable economic conditions in several key markets.

INTERNATIONAL MARKETS
International sales are included in the preceding net sales table. International
sales decreased 2.1% to $129.4 million in 1993 primarily because of a
strengthened U.S. dollar in the Canadian and European markets. Irrigation sales
suffered the greatest decline because of weak economies in the company's key
markets which had a negative impact on new golf course construction. Consumer
sales were down because of the weak economies in key markets and competitive
pressures from locally manufactured brands. Commercial sales were ahead of the
prior year by $4.8 million principally because of new product introductions.

COST TRENDS AND PROFIT MARGINS
<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
Margins (Percent of net sales)
Years ended July 31                                   1994      1993      1992
- - - - --------------------------------------------------------------------------------
<S>                                                  <C>       <C>       <C>
Gross profit                                          36.2%     34.9%     34.9%
Operating profit (loss)                                5.4       5.2      (3.7)
Pretax earnings (loss)                                 4.7       3.1      (5.4)
Net earnings (loss)                                    2.8       1.9      (3.7)
- - - - --------------------------------------------------------------------------------
</TABLE>


FISCAL 1994 COMPARED TO 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.


FISCAL 1993 COMPARED TO FISCAL 1992

Gross profit for 1993 increased 6.3% to $238.8 million over the 1992 amount of
$224.6 million principally because of increased sales and improved manufacturing
efficiencies. 1993 gross profit as a percent of sales did not change from the
prior year. However, excluding the prior year's LIFO benefit, gross profit as a
percent of sales for 1992 would have been 34.0%.

     1993 gross profit improved as a result of the restructuring initiatives
implemented in 1992. Specifically, consolidation of certain manufacturing
functions and lower spending levels resulted in increased plant utilization
which lowered the break-even point.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE (SG&A)
<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
SG&A Expense (Dollars in millions)
                                          % of            % of            % of
                                          Net             Net             Net
Years ended July 31               1994   Sales    1993   Sales    1992   Sales
- - - - --------------------------------------------------------------------------------
<S>                             <C>      <C>    <C>      <C>    <C>      <C>
Administrative                  $ 80.3    10.0% $ 73.0    10.7% $ 64.8    10.1%
Sales and marketing               96.1    12.1    71.2    10.4    90.0    14.0
Warranty                          29.0     3.7    26.3     3.8    28.0     4.3
Distributor/dealer
  financing
  (floor plan)                     8.6     1.1     7.6     1.1    13.5     2.1
Research and
  development                     30.9     3.9    25.3     3.7    26.9     4.2
- - - - --------------------------------------------------------------------------------
Total                           $244.9    30.8% $203.4    29.7% $223.2    34.7%
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
</TABLE>


                                   The Toro Company      1994 Annual Report   15
<PAGE>

FISCAL 1994 COMPARED TO 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 division (debris), 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 reflects 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 to 3.8% in 1993. The $2.7 million increase relates 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 (floor plan) 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.


FISCAL 1993 COMPARED TO FISCAL 1992

SG&A expense was down $19.8 million from 1992. As a percent of sales, SG&A
expense was 29.7% for 1993 compared to 34.7% for 1992. The decrease in SG&A
expense was attributable to cost control and restructuring initiatives
implemented in 1992.

     The increase in administrative expense of $8.2 million was primarily the
result of increased employee incentives which were based on the company's
performance, costs incurred to enhance the company's distribution channels and
the resumption of contributions to the company's Employee Stock Ownership Plan
(ESOP). These expenses were not incurred in 1992.

     Sales and marketing expense was down $18.8 million from the prior year. As
a percent of net sales, sales and marketing expense was 10.4%, down from the
14.0% for 1992. This decline reflected the results of actions implemented by the
company to lower costs through the realignment of the consumer and irrigation
divisions and changes in marketing and distribution strategies.

     Warranty expense was down slightly from the amounts incurred in 1992 and as
a percent of net sales was 3.8% in 1993, down from 4.3% in 1992. The change was
the result of ongoing quality improvements and prior year quality issues on
specific consumer and irrigation products corrected in 1992.

     Distributor/dealer financing (floor plan) expense was down $5.9 million in
1993 because of the following: the company was shipping closer to the selling
season resulting in a reduced financing period; lower field inventory levels
held by dealers and distributors throughout the year; and a decline in interest
rates.

    Research and development expense was down $1.6 million from 1992. This
decrease was because the majority of the costs to develop the Workman-R- vehicle
line were incurred in 1992 and also because of the efficiencies gained through
cost control measures implemented with the realignment of the consumer division.

RESTRUCTURING EXPENSE IN FISCAL 1992

In the second quarter of 1992, the company recorded restructuring expenses of
$15.0 million ($10.2 million after-tax) related to consolidation of consumer
product manufacturing, marketing and administrative operations. The charge
covered costs for plant closings, workforce reductions, discontinued products
and other related costs.

     In addition, the company incurred restructuring expenses in the fourth
quarter of 1992 of $9.9 million ($6.7 million after-tax) related to the
facility closing of a consumer riding products manufacturing plant, an
irrigation controller assembly operation and a satellite distribution center.
This restructuring was part of the company's plan to increase its
competitiveness and profitability by consolidating manufacturing and
warehousing activities.


INTEREST EXPENSE
FISCAL 1994 COMPARED TO 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.


FISCAL 1993 COMPARED TO FISCAL 1992

Interest expense for 1993 was down $1.5 million from the $18.7 million reported
for 1992. This decline was primarily the result of decreased short-term
borrowing levels and lower short-term interest rates during the year. Short-term
borrowing was down from 1992 because of the company's focus on asset management
and improving working capital.


16   The Toro Company     1994 Annual Report
<PAGE>


OTHER INCOME, NET
FISCAL 1994 COMPARED TO 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,-R- 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).


FISCAL 1993 COMPARED TO FISCAL 1992

Other income, net was $4.2 million less than the $7.3 million reported in 1992.
The decrease was principally because of losses incurred in the start-up of a
fertilizer joint venture investment, foreign currency exchange losses and
reduced royalty fees related to a one-time settlement of a paid-up license
received in 1992 related to a patent lawsuit. The majority of the other income,
net was finance revenue from dealers and distributors of $4.4 million which was
earned by the Toro Credit Company (TCC), a consolidated finance subsidiary of
The Toro Company (see footnote 13 regarding TCC).


PROVISION (BENEFIT) FOR TAXES
FISCAL 1994 COMPARED TO 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 is $26.0 million which
is 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. The
total future tax deductions related to the net deferred tax asset total $90.0
million, and management believes these will be realized during periods in which
the company will generate sufficient taxable income. Including the available tax
carry back history of the company, the company will be required to generate book
and taxable income of $7.0 million to support the net deferred tax asset
reflected on the balance sheet. The company anticipates the effective tax rate
in 1995 to continue at 40%.


FISCAL 1993 COMPARED TO FISCAL 1992

The effective tax rate increased to 38.9% of pretax earnings in 1993 from 31.9%
of pretax losses in 1992. The profitable environment normalized the tax rate of
38.9% for federal and state income taxes. Effective August 1, 1992, the company
adopted Financial Accounting Standards No. 109 "Accounting for Income Taxes"
(FAS 109). The net deferred tax asset resulted primarily from warranty reserves
and restructuring charges for which a tax deduction was not yet available.


NET EARNINGS (LOSS)
FISCAL 1994 COMPARED TO FISCAL 1993

Net earnings for 1994 was $22.2 million or $1.71 per share, as compared to 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 distribution
enhancements.


FISCAL 1993 COMPARED TO FISCAL 1992

Net earnings for 1993 was $13.0 million or $1.05 per share, a significant
increase over the net loss of $23.8 million or $1.98 loss per share in 1992. The
earnings improvement was principally the result of increased sales, the
company's restructuring efforts initiated during 1992 and lower interest costs.


LIQUIDITY AND CAPITAL RESOURCES

The company continues to improve its balance sheet by focusing on debt reduction
and closely aligning working capital needs with the best available financing
alternatives. This was demonstrated by the continued reduction of long-term debt
by $36.7 million in 1994.

FUNDS FROM OPERATIONS

Cash flows from operations decreased $44.3 million from 1993. The majority of
this decrease was the result of increased inventories in anticipation of strong
fall demand and increased accounts receivable because of the sales growth. These
increases were offset by the increase in accounts payable and accrued expenses
and the increase in cash flows from operating earnings.

CASH FLOW FROM OPERATIONS
<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
                          89        90        91        92        93        94
- - - - --------------------------------------------------------------------------------
<S>                   <C>       <C>       <C>       <C>       <C>       <C>
(Millions)             $17.8     $(0.4)    $43.9     $40.9     $72.1     $27.8
- - - - --------------------------------------------------------------------------------
</TABLE>


                                    The Toro Company     1994 Annual Report   17
<PAGE>

ASSETS
Total assets as of July 31, 1994, were $443.6 million, up $24.4 million from
1993. The largest increase occurred in inventory which was up $40.0 million from
the prior year. This increase was principally the result of ending 1994 with
higher inventories in anticipation of strong fall demand for most products. In
addition, deferred income taxes and other assets increased over the prior year.
These increases were offset by a decrease in cash and cash equivalents which
declined $25.6 million to $36.2 million as a result of improved cash management
combined with the repayment of $40.6 million in long-term debt.

WORKING CAPITAL
Working capital at July 31, 1994, was $175.8 million, a decrease of $18.1
million from the $193.9 million reported in 1993. The current ratio for 1994 was
1.9 versus 2.3 in 1993. Working capital as a percent of sales was 22.1% in 1994
compared to 28.3% in 1993.

     The changes listed above result from current assets increasing $20.4
million while current liabilities increased $38.5 million. The majority of the
increase in current liabilities was the result of an increase in accounts
payable, accrued marketing programs and an accrual for the costs necessary to
implement the company's distribution strategies.

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:

- - - - - $4.0 million variable rate industrial revenue bond, due annually June 1995
through June 2004:

- - - - - $45.0 million of subordinated and senior notes, due September 1994 through
August 1996 bearing interest rates of 7.38% to 9.57%.

TOTAL DEBT
<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
                          89        90        91        92        93        94
- - - - --------------------------------------------------------------------------------
<S>                   <C>       <C>       <C>       <C>       <C>       <C>
(Millions)            $114.4    $154.5    $155.3    $164.1    $138.0    $101.3
- - - - --------------------------------------------------------------------------------
</TABLE>

CAPITALIZATION
<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
                          89        90        91        92        93        94
- - - - --------------------------------------------------------------------------------
<S>                   <C>       <C>       <C>       <C>       <C>       <C>
(Millions)            $200.3    $287.0    $305.9    $296.7    $267.6    $249.7
- - - - --------------------------------------------------------------------------------
</TABLE>

     Total debt at July 31, 1994, was $101.3 million, down $36.7 million from
$138.0 million at July 31, 1993. Of this balance $20.3 million is current. The
amount of total long-term debt attributable to Toro Credit Company, the
company's consolidated finance subsidiary, was $45.0 million at July 31, 1994,
compared to $60.0 million at July 31, 1993.

     During 1994 the company made scheduled payments on maturing debt of $40.6
million. The total debt to total capital ratio decreased from 48.8% in 1993 to
37.5% in 1994. This decrease was the result of lower debt levels and an
increased equity position as a result of current year earnings and the annual
payment of the company's Employee Stock Ownership Plan (ESOP) receivable.

     Total capitalization at July 31, 1994, consisted of $81.0 million of long-
term debt and $168.7 million in stockholders' equity.

CREDIT LINES AND OTHER CAPITAL RESOURCES
The company's seasonal working capital requirements are funded with $100.0
million of unsecured bank credit lines. Average borrowings under these lines
were $12.9 million in 1994. There were no aggregate outstanding borrowings on
these lines at July 31, 1994. In 1993, the company had $120.0 million of
unsecured bank credit lines. Average borrowings under these lines were $10.6
million in 1993. There were no aggregate outstanding borrowings on these lines
at July 31, 1993. The increase in average borrowing was the result of the
reduction in long-term debt.

     Additionally, the company's resources included two bankers' acceptance
financing agreements totaling $40.0 million in 1994 and one bankers' acceptance
financing agreement of $20.0 million in 1993. The company had no amounts
outstanding under these agreements at July 31, 1994, and July 31, 1993.

SUMMARY
The Toro Company's long-term initiatives contributed to the financial growth in
1994. In addition, significant investments in key areas strengthened the
company's competitiveness. Sales increased as a result of product improvements,
the improved economy, pricing strategies and an increased focus on brand
advertising. The company's balance sheet was strengthened through the reduction
of long-term debt and solid asset management.

     The company anticipates that 1995's results will continue the trends
established in 1994 and position the company to deliver sustainable future
growth.

18   The Toro Company     1994 Annual Report
<PAGE>

THE TORO COMPANY
Independent Auditors' Report


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, 1994 and 1993, and the related consolidated
statements of operations and cash flows for each of the years in the three-year
period ended July 31, 1994. 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, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three-year period
ended July 31, 1994 in conformity with generally accepted accounting principles.


                                        KPMG Peat Marwick LLP

Minneapolis, Minnesota
September 8, 1994


THE TORO COMPANY
Consolidated Statements of Operations


<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
Years ended July 31                               1994        1993        1992
- - - - --------------------------------------------------------------------------------
<S>                                          <C>         <C>         <C>
Net sales                                     $794,341    $684,324    $643,748
Cost of sales                                  506,816     445,495     419,138
- - - - --------------------------------------------------------------------------------
  Gross profit                                 287,525     238,829     224,610
Selling, general and administrative expense    244,943     203,377     223,166
Restructuring expense                               --          --      24,900
- - - - --------------------------------------------------------------------------------
  Earnings (loss) from operations               42,582      35,452     (23,456)
Interest expense                                13,562      17,150      18,726
Other income, net                               (8,030)     (3,053)     (7,279)
- - - - --------------------------------------------------------------------------------
  Earnings (loss) before income taxes           37,050      21,355     (34,903)
Provision (benefit) for income taxes            14,820       8,315     (11,150)
- - - - --------------------------------------------------------------------------------
  Net earnings (loss)                         $ 22,230    $ 13,040    $(23,753)
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Net earnings (loss) per share of common
  stock and common stock equivalent           $   1.71    $   1.05    $  (1.98)
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
</TABLE>

The financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements.


                                    The Toro Company     1994 Annual Report   19
<PAGE>

THE TORO COMPANY
Consolidated Balance Sheets


<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
(Dollars in thousands, except per-share data) July 31         1994        1993
- - - - --------------------------------------------------------------------------------
<S>                                                      <C>         <C>
ASSETS
Current assets:
  Cash and cash equivalents                               $ 36,231    $ 61,793
  Receivables:
    Customers                                              185,620     180,927
    Other                                                    5,765      5,025
- - - - --------------------------------------------------------------------------------
      Subtotal                                             191,385     185,952
      Less allowance for doubtful accounts                   7,702       5,589
- - - - --------------------------------------------------------------------------------
      Total receivables                                    183,683     180,363
- - - - --------------------------------------------------------------------------------
  Inventories                                              118,764      78,708
  Prepaid expenses                                           1,111       4,476
  Deferred income tax benefits                              24,706      18,790
- - - - --------------------------------------------------------------------------------
      Total current assets                                 364,495     344,130
- - - - --------------------------------------------------------------------------------
Property, plant and equipment:
  Land and land improvements                                 5,516       4,478
  Buildings and leasehold improvements                      42,359      41,548
  Equipment                                                137,603     127,371
- - - - --------------------------------------------------------------------------------
      Subtotal                                             185,478     173,397
      Less accumulated depreciation and amortization       126,635     113,428
- - - - --------------------------------------------------------------------------------
      Total property, plant and equipment                   58,843      59,969
  Deferred income taxes                                      1,296          --
  Other assets                                              19,005      15,104
- - - - --------------------------------------------------------------------------------
      Total assets                                        $443,639    $419,203
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt                       $ 20,300    $ 15,000
  Accounts payable                                          37,035      28,786
  Accrued warranty                                          32,476      26,995
  Accrued marketing programs                                29,290      20,552
  Accrued restructuring                                      5,083       9,637
  Accrued payroll                                            5,542       4,994
  Other accrued liabilities                                 55,482      42,472
  Accrued income taxes                                       3,504       1,824
- - - - --------------------------------------------------------------------------------
      Total current liabilities                            188,712     150,260
- - - - --------------------------------------------------------------------------------
Deferred income taxes                                           --       1,372
Long-term debt, less current portion                        81,025     122,970
Deferred income                                              5,250          --
Common stockholder's equity:
  Common stock, par value $1.00, authorized
    35,000,000 shares; issued and outstanding
    12,561,204 shares in 1994 (net of 76,153
    treasury shares) and 12,270,404 shares in
    1993 (net of 307,469 treasury shares)                   12,561      12,270
  Additional paid-in capital                                49,420      44,898
  Retained earnings                                        109,688      93,451
  Foreign currency translation adjustment                     (405)       (795)
- - - - --------------------------------------------------------------------------------
      Subtotal                                             171,264     149,824
  Receivable from ESOP                                      (2,612)     (5,223)
- - - - --------------------------------------------------------------------------------
      Total common stockholders' equity                    168,652     144,601
- - - - --------------------------------------------------------------------------------
      Total liabilities and common stockholders' equity   $443,639    $419,203
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------

</TABLE>

The financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements.


20   The Toro Company     1994 Annual Report
<PAGE>

THE TORO COMPANY
Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
(Dollars in thousands) Years ended July 31        1994        1993        1992
- - - - --------------------------------------------------------------------------------
<S>                                          <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings (loss)                         $ 22,230    $ 13,040    $(23,753)
  Adjustments to reconcile net earnings
    (loss) to net cash provided by
    operating activities:
  Provision for depreciation and amortization   18,839      19,245      21,971
  Loss on disposal of property, plant
    and equipment                                1,265       1,230       1,037
  Deferred income taxes                         (2,668)     (1,547)    (13,263)
  Tax benefits related to employee
   stock option transactions                       953          --          --
  Changes in operating assets and
    liabilities:
    Net receivables                             (3,320)     28,199      21,376
    Inventories                                (40,056)     (4,583)      9,174
    Prepaid expenses and deferred
      income tax benefits                       (2,551)      3,396      (4,057)
    Accounts payable and accrued expenses       31,472      11,438      28,025
    Accrued income taxes                         1,680       1,714         413
- - - - --------------------------------------------------------------------------------
      Net cash provided by operating
        activities                              27,844      72,132      40,923
- - - - --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property, plant and equipment   (18,173)    (11,397)    (13,687)
  Proceeds from asset disposals                    267       2,323         220
  (Increase) decrease in other assets           (4,973)      2,319      (1,603)
- - - - --------------------------------------------------------------------------------
      Net cash used in investing activities    (22,879)     (6,755)    (15,250)
- - - - --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Decrease in sale of receivables                   --      (1,892)    (21,809)
  Proceeds from issuance of long-term debt       4,000          --      20,000
  Repayments of long-term debt                 (40,645)    (26,130)    (11,195)
  Proceeds from deferred income                  5,250          --          --
  Proceeds from exercise of stock options        6,144       3,771       2,355
  Purchases of common stock                     (2,284)       (816)       (794)
  Dividends on common stock                     (5,993)     (5,824)     (5,753)
  Repayments from ESOP                           2,611       2,611          --
- - - - --------------------------------------------------------------------------------
      Net cash used in financing activities    (30,917)    (28,280)    (17,196)
- - - - --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT            390        (795)          _

Net increase (decrease) in cash                (25,562)     36,302       8,477
Cash and cash equivalents at
  beginning of year                             61,793      25,491      17,014
- - - - --------------------------------------------------------------------------------
Cash and cash equivalents at end of year      $ 36,231    $ 61,793    $ 25,491
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Supplemental disclosures of
  cash flow information:
  Cash paid during the year for:
    Interest                                  $ 14,092    $ 17,138    $ 22,245
    Income taxes                                19,498       8,148       1,548
- - - - --------------------------------------------------------------------------------
</TABLE>

The financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements.


                                    The Toro Company     1994 Annual Report   21
<PAGE>

THE TORO COMPANY
Notes to Consolidated Financial Statements


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 of its 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
converted 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 $3,032,000 in 1994, $2,500,000 in 1993 and $4,083,000
in 1992.

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 $19,204,000 and $17,221,000 higher than reported at
July 31, 1994 and 1993, respectively. Using the FIFO method, inventories were
$63,473,000 and $51,252,000 of work-in-process and $74,495,000 and $44,677,000
of finished goods at July 31, 1994 and 1993, respectively. During 1992 the
company liquidated certain LIFO inventory quantities carried at lower costs
prevailing in prior years. The effect was to reduce the 1992 net loss by
$4,120,000 or $0.34 per common share.

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
basis. 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. 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 direct accounts.

COST OF FINANCING DISTRIBUTOR/DEALER INVENTORY (FLOOR PLAN)
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 $8,587,000 in 1994, $7,606,000 in 1993
and $13,483,000 in 1992 are charged against operations as incurred.

RESEARCH AND DEVELOPMENT
Expenditures for research and development, including engineering, of $30,864,000
in 1994, $25,293,000 in 1993 and $26,932,000 in 1992 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 $4,300,000
in 1994 and $4,500,000 in 1993. Costs for distribution changes were not
separately identified in 1992. 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     1994 Annual Report
<PAGE>

INCOME TAXES
Effective August 1, 1992, the company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," (FAS 109) which requires a
change from the deferred method of accounting for income taxes of APB Opinion 11
to the asset and liability method of accounting for income taxes. Under the new
method, 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. Under Statement 109, 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. Adoption
of Statement 109 had an immaterial effect on the company's 1992 consolidated
statement of operations. 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.

EARNINGS (LOSS) PER SHARE OF COMMON STOCK AND COMMON STOCK EQUIVALENT
Earnings (loss) per share of common stock and common stock equivalent are
computed by dividing net earnings (loss) 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 shares is immaterial. Loss
per share calculations for 1992 are based on weighted average common shares
outstanding excluding common stock equivalents due to their anti-dilutive
affect.

RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the current
year presentation.


2  Short-term Capital Resources

At July 31, 1994, the company had available unsecured lines of credit with five
banks in the aggregate of $100,000,000. The terms 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
no amounts outstanding under these lines at July 31, 1994, and 1993.

     In addition, the company's capital resources include two $20,000,000
bankers' acceptance financing agreements in 1994 and one $20,000,000 bankers'
acceptance financing agreement in 1993. The company had no amounts outstanding
under these agreements at July 31, 1994, and 1993.


3  Long-term Debt

A summary of long-term debt is as follows:

<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
(Dollars in thousands) July 31                                1994        1993
- - - - --------------------------------------------------------------------------------
<S>                                                      <C>         <C>
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       2,970
Industrial Revenue Bond due annually
  June 1995-2004 with various interest rates                 4,000          --
10.0% senior note due September 1993                            --      15,000
9.0% senior notes due August 1994,
  paid July 1994                                                --      25,000
9.4% senior notes due September 1994                        10,000      10,000
9.45% senior note due February 1995                         10,000      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
- - - - --------------------------------------------------------------------------------
                                                           101,325     137,970
Less current portion                                        20,300      15,000
- - - - --------------------------------------------------------------------------------
Long-term debt, less current portion                      $ 81,025    $122,970
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
</TABLE>

     The weighted average interest rate on long-term debt for 1994 was 9.8
percent (9.8 percent in 1993 and 9.9 percent in 1992) based upon actual interest
expense of $12,236,000 in 1994 ($16,118,000 in 1993 and $16,248,000 in 1992),
including commitment and facility fees and weighted average long-term debt
outstanding of $125,388,000 in 1994 ($164,107,000 in 1993 and $164,876,000 in
1992).

     During the year 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 notes due August 1, 1998-2017, and to
realize the benefit of 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. 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.


                                    The Toro Company     1994 Annual Report   23
<PAGE>

     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,
1994, the company was in compliance with all such covenants.

     The terms of certain agreements of the Toro Credit Company restrict the
payment of dividends and loans or advances to the parent company. Toro Credit
retained earnings of approximately $22,192,000 were available for dividends to
its parent at July 31, 1994.

     Principal payments required on long-term debt in each of the next five
years ending July 31 are as follows: 1995, $20,300,000; 1996, $16,090,000; 1997,
$10,460,000; 1998, $485,000; 1999, $515,000; and after 1999, $53,475,000.


4  Income Taxes

A reconciliation of the statutory federal income tax rate to the company's
effective tax rate is summarized as follows:

<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
Years ended July 31                               1994        1993        1992
- - - - --------------------------------------------------------------------------------
<S>                                              <C>         <C>        <C>
Statutory federal income tax rate                 35.0%       34.0%      (34.0)%
Increase (reduction) in income taxes
  resulting from:
    Benefits from foreign sales
    corporation                                   (1.6)       (1.7)       (0.3)
State and local income taxes, net
  of federal income tax benefit                    2.4         1.9         1.7
Effect of foreign source income                    1.3         0.5         0.2
Other, net                                         2.9         4.2         0.5
- - - - --------------------------------------------------------------------------------
Consolidated effective tax rate                   40.0%       38.9%      (31.9)%
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
</TABLE>

     Components of the provision (benefit) for income taxes are as follows:

<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
(Dollars in thousands)
Years ended July 31                               1994        1993        1992
- - - - --------------------------------------------------------------------------------
<S>                                           <C>         <C>        <C>
Current:
  Federal                                      $18,487     $ 8,986    $  1,233
  State                                          2,610         876         880
- - - - --------------------------------------------------------------------------------
                                                21,097       9,862       2,113
- - - - --------------------------------------------------------------------------------
Deferred:
  Federal                                       (5,059)     (1,288)    (13,263)
  State                                         (1,218)       (259)         --
- - - - --------------------------------------------------------------------------------
                                                (6,277)     (1,547)    (13,263)
- - - - --------------------------------------------------------------------------------
Provision (benefit) for income taxes           $14,820     $ 8,315    $(11,150)
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
</TABLE>


     The tax effects of temporary differences that give rise to the deferred
assets and deferred liabilities at July 31, 1994, and 1993 are presented below.

<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
(Dollars in thousands)
Years ended July 31                                           1994        1993
- - - - --------------------------------------------------------------------------------
<S>                                                       <C>         <C>
Inventory reserves                                         $  (902)    $(1,649)
Depreciation expense                                         1,296      (1,372)
Warranty reserves                                           12,688       9,859
Provision for doubtful accounts                              3,256       3,265
Distributor reserves                                         2,858       2,148
Uniform capitalization                                       2,310       1,213
Restructuring expense                                        1,965       3,691
Accrued retirement                                           1,820       1,600
Other                                                          711      (1,337)
- - - - --------------------------------------------------------------------------------
Consolidated deferred income tax assets and (liabilities)  $26,002     $17,418
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
</TABLE>

     The significant components of deferred income tax expense for the year
ended July 31, 1992, resulting from timing differences in the recognition of
income and expense for income tax and financial reporting purposes are as
follows:

<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
(Dollars in thousands)
Year ended July 31                                                        1992
- - - - --------------------------------------------------------------------------------
<S>                                                                  <C>
Accrued warranty costs                                                $ (1,962)
Addition to allowance for doubtful accounts                             (1,430)
Accrued expenses                                                          (836)
Depreciation                                                            (2,261)
Restructuring accruals                                                  (6,290)
Other                                                                     (484)
- - - - --------------------------------------------------------------------------------
Provision for deferred income taxes                                   $(13,263)
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
</TABLE>

     During the year ended July 31, 1994, $953,000 was 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     1994 Annual Report
<PAGE>

5  Stockholders' Equity

Changes in common stock, additional paid-in capital, retained earnings,
receivable from ESOP and foreign currency translation adjustment during fiscal
years ended July 31, 1994, 1993 and 1992 were as follows:

<TABLE>
<CAPTION>
- - - - ----------------------------------------------------------------------------------------------------------------
                                                                                                       Foreign
                                                       Additional                    Receivable       Currency
                                            Common        Paid-in       Retained           from    Translation
(Dollars in thousands)                       Stock        Capital       Earnings           ESOP     Adjustment
- - - - ----------------------------------------------------------------------------------------------------------------
<S>                                       <C>         <C>              <C>          <C>           <C>
Balance at July 31, 1991                   $11,913        $40,739       $115,741        $(7,834)         $  --
Common dividends paid ($0.48 per share)         --             --         (5,753)            --             --
Issuance of 178,848 shares under stock
  option plans                                 179          2,176             --             --             --
Purchase of 50,269 common shares               (50)          (744)            --             --             --
Net loss                                        --             --        (23,753)            --             --
- - - - ----------------------------------------------------------------------------------------------------------------
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)
- - - - ----------------------------------------------------------------------------------------------------------------
- - - - ----------------------------------------------------------------------------------------------------------------
</TABLE>

     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.


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:

<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
Years ended July 31                         1994           1993           1992
- - - - --------------------------------------------------------------------------------
<S>                                <C>            <C>            <C>
Outstanding at beginning of year       1,421,923      1,329,069        922,590
  Granted                                264,217        418,200        822,414
  Excercised or cancelled               (426,631)      (325,346)      (415,935)
- - - - --------------------------------------------------------------------------------
Outstanding at end of year             1,259,509      1,421,923      1,329,069
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Price range of granted options     $18.75--25.50  $10.90--19.75  $11.70--16.39
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Shares reserved for granting
  future stock options:
    Beginning of year                    136,642        497,060        595,447
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
    End of year                          923,240        136,642        497,060
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Options exercisable at end
  of year                                765,510        941,090        874,642
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
Price range of exercisable
  options                         $10.70--25.875  $10.70--22.50  $10.10--22.50
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
</TABLE>

     The options outstanding at July 31, 1994, were granted in 1990, (77,013
shares); 1991, (154,754 shares); 1992, (502,077 shares); 1993, (271,563 shares);
and 1994, (254,102 shares).


                                    The Toro Company     1994 Annual Report   25
<PAGE>

7  Employee Benefit Programs

The company has an Employee Stock Ownership Plan (ESOP) which covers
substantially all employees. The ESOP currently owns 1,260,000 common shares
which represents 10.03% of Toro's outstanding common stock. The Plan is a
leveraged ESOP which means funds were borrowed to purchase the shares. The
company's contributions to the Plan, net of dividends, were $2,929,000 in 1994,
$3,085,000 in 1993 and $467,000 in 1992. Principal payments of ESOP debt were
$2,611,000 in 1994, $2,611,000 in 1993 and $0 in 1992. Interest incurred on ESOP
debt and interest received by the company was $512,000 in 1994, $774,000 in 1993
and $786,000 in 1992. Dividends on the ESOP shares used for debt service by the
ESOP were $195,000 in 1994, $300,000 in 1993 and $319,000 in 1992. The expenses
recognized related to the ESOP were $2,416,000 in 1994, $2,311,000 in 1993 and
$0 in 1992. At July 31, 1994, the ESOP indebtedness to the company, which bears
an interest rate of 10% and is due in 1995, was $2,612,000 and has been shown as
a reduction of common stockholders' equity in the consolidated balance sheets.

     Contributions to employees' profit sharing plans which cover substantially
all employees of the company and its subsidiaries were $4,150,000 in 1994,
$4,254,000 in 1993 and $3,277,000 in 1992. Such amounts are based upon annual
earnings before income taxes and minimum contributions required under the plans.

     Under the company's matching stock plan, a total of 1,000,000 shares of
common stock may be acquired by employees through payroll deductions and
employer matching contributions pursuant to the plan. Contributions were
$485,000 in 1994, $510,000 in 1993 and $224,000 in 1992.

     In addition, the company and its subsidiaries have supplemental and other
retirement plans covering certain employees. Pension expense under these plans
in 1994, 1993 and 1992 was not significant.


8  Segment Data

The company classifies its operations into one industry segment,
yard maintenance equipment. International sales were $130,053,000,
$129,422,000 and $132,154,000 for 1994, 1993 and 1992, respectively. Of these
amounts, export sales were $109,344,000, $111,263,000 and $109,076,000 for 1994,
1993 and 1992, respectively. Export sales by geographic area are as follows:

<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
(Dollars in thousands)
Years ended July 31                               1994        1993        1992
- - - - --------------------------------------------------------------------------------
<S>                                          <C>         <C>         <C>
Europe                                        $ 48,976    $ 53,992    $ 52,867
Canada                                          28,039      26,573      25,326
Pacific Rim                                     27,535      26,208      26,343
Other                                            4,794       4,490       4,540
- - - - --------------------------------------------------------------------------------
Total export sales                            $109,344    $111,263    $109,076
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
</TABLE>

     Sales to any particular customer were not significant.


9  Lease Commitments

Minimum lease commitments in future years under noncancelable operating leases
are as follows: 1995, $3,211,000; 1996, $1,908,000; 1997, $1,196,000; 1998,
$481,000; 1999, $450,000 and after 1999, $1,430,000.


     Total lease expense was as follows:

<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
(Dollars in thousands)
Years ended July 31                               1994        1993        1992
- - - - --------------------------------------------------------------------------------
<S>                                            <C>         <C>         <C>
Warehouse and office space                      $2,198      $1,800      $2,199
Trucks and autos                                 2,039       1,024       1,240
Equipment                                        3,044       3,154       4,142
- - - - --------------------------------------------------------------------------------
     Total                                      $7,281      $5,978      $7,581
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
</TABLE>


10 Commitments and Contingent Liabilities

Certain receivables have been sold to financial institutions. Under these
arrangements, the company acts as agent for collections and/or was contingently
liable for $659,000 at July 31, 1994, and $644,000 at July 31, 1993. The company
was also contingently liable to repurchase $5,222,000 at July 31, 1994 and
$8,535,000 at July 31, 1993, of inventory relating to receivables under dealer
financing (floor plan) arrangements. Additionally, debts incurred by
distributors, aggregating $1,486,000 at July 31, 1994, and $3,278,000 at July
31, 1993, have been guaranteed by the company.

     At July 31, 1994, the company had contracts maturing at various dates to
purchase $8,372,000 in foreign currency (845,000,000 yen) and to sell
$10,153,000 in foreign currency (13,000,000 Deutschemarks and 2,825,000 Canadian
Dollars) at the spot rate on the maturity dates.


26   The Toro Company     1994 Annual Report
<PAGE>

     In the ordinary course of business, the company may become liable with
respect to pending and threatened litigation, taxes and 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, 1994, and 1993, the company had $16,872,000 and $11,876,000,
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 lawn and turf care business sector. The credit risk associated with this
sector is limited because of the large number of customers in the company's
customer base and their geographic dispersion. Generally, the company does not
require collateral or other security to support customer receivables.

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, 1994, are as follows:

<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
                                                          Carrying   Estimated
(Dollars in millions)                                        Value  Fair Value
- - - - --------------------------------------------------------------------------------
<S>                                                     <C>         <C>
Long-term debt                                            $101,325    $105,107
Deferred income (interest rate exchange agreement)           5,250       3,928
- - - - --------------------------------------------------------------------------------
</TABLE>

     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 gain of approximately $1,300,000.


12 Restructuring Expense


In 1992, the company recognized $24,900,000 of restructuring charges (after-tax
effect of $16,900,000 or $1.41 per share) related to the consolidations of its
consumer products manufacturing, marketing and administrative operations, its
irrigation manufacturing operations and its distribution facilities. The charges
included costs for plant and office closings, workforce reductions, inventory
obsolescence and other related costs.


13 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 (floor plan)
arrangements and other programs.

<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
(Dollars in thousands)
Years ended July 31                               1994        1993        1992
- - - - --------------------------------------------------------------------------------
<S>                                           <C>         <C>         <C>
SUMMARY OF EARNINGS
Finance revenues                               $17,436     $17,060     $17,702
Expenses:
  Operating                                      2,068       1,841       1,659
  Interest                                       4,737       5,879       6,279
  Foreign currency exchange
    net losses                                      96          31          37
- - - - --------------------------------------------------------------------------------
  Total expenses                                 6,901       7,751       7,975
  Earnings before income taxes                  10,535       9,309       9,727
Provision for income taxes                       3,669       3,310       3,049
- - - - --------------------------------------------------------------------------------
  Net earnings                                 $ 6,866     $ 5,999     $ 6,678
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
(Dollars in thousands)
Years ended July 31                                           1994        1993
- - - - --------------------------------------------------------------------------------
<S>                                                      <C>         <C>
Summary Balance Sheets
ASSETS
Cash and cash equivalents                                 $  4,394    $ 18,602
Receivables-net                                             99,932      94,628
Other receivables and assets                                 1,377       1,510
- - - - --------------------------------------------------------------------------------
     Total assets                                         $105,703    $114,740
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of long-term debt                         $ 20,000    $ 15,000
Other liabilities                                            7,994       8,897
Long-term debt, less current portion                        25,000      45,000
Shareholders' equity                                        52,709      45,843
- - - - --------------------------------------------------------------------------------
    Total liabilities and shareholders' equity            $105,703    $114,740
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
</TABLE>



                                    The Toro Company     1994 Annual Report   27
<PAGE>

     Of the finance revenues presented previously, $13,272,000 in 1994,
$12,659,000 in 1993 and $13,314,000 in 1992 represent transactions with TCC's
parent company, The Toro Company, which are eliminated in consolidation. The
remaining finance revenues of $4,164,000 in 1994, $4,401,000 in 1993 and
$4,388,000 in 1992 are included in other income, net in The Toro Company's
Consolidated Statements of Operations. The expenses and balance sheet items (net
of eliminations) are included in the Consolidated Statements of Operations and
Consolidated Balance Sheets under the corresponding classifications.


14 Quarterly Financial Data (unaudited)

Summarized quarterly financial data for 1994 and 1993 is as follows:

<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
(Dollars in thousands except per-share data)
Quarter                              First      Second       Third      Fourth
- - - - --------------------------------------------------------------------------------
<S>                              <C>         <C>         <C>         <C>
1994
Net sales                         $135,761    $189,413    $276,476    $192,691
Gross profit                        49,035      66,587      97,689      74,214
Net earnings (loss)                 (1,895)      4,477      15,637       4,011
Net earnings (loss) 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
- - - - --------------------------------------------------------------------------------
1993
Net sales                         $113,443    $153,172    $241,347    $176,362
Gross profit                        38,889      53,709      83,794      62,437
Net earnings (loss)                 (4,135)      1,816      12,742       2,617
Net earnings (loss) per
  share of common stock and
  common stock equivalent            (0.34)       0.15        1.01        0.21
Dividends per common share            0.12        0.12        0.12        0.12
Market price of common stock
  High bid                          15 1/4      19 3/8      21 7/8      20 1/4
  Low bid                           11 3/8      14 1/8      18          16 3/4
- - - - --------------------------------------------------------------------------------
</TABLE>


28   The Toro Company     1994 Annual Report


<PAGE>

                                                               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, 1994.

<TABLE>
<CAPTION>

                                                             STATE OR OTHER                PERCENTAGE OF VOTING
                                                              JURISDICTION                    SECURITIES OWNED
                   NAME                                     OF INCORPORATION                 BY IMMEDIATE PARENT
    ------------------------------------------              -----------------              ----------------------
    <S>                                                     <C>                            <C>
    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%

</TABLE>


<PAGE>

                                                                      EXHIBIT 23

                       [KPMG 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.
33-22469, 33-31586, 33-26268, 33-38308, 33-44668, 33-51563, 33-55550, 33-67748)
on Form S-8 of The Toro Company of our reports dated September 8, 1994, relating
to the consolidated balance sheets of The Toro Company and subsidiaries as of
July 31, 1994 and 1993, and the related consolidated statements of operations
and cash flows and related financial statement schedules for each of the years
in the three-year period ended July 31, 1994, which reports are included in or
incorporated by reference in the July 31, 1994 annual report on Form 10-K of The
Toro Company.


                                        /s/ KPMG Peat Marwick LLP
                                        KPMG Peat Marwick LLP


Minneapolis, Minnesota
October 28, 1994



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