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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended April 30, 1999
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)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ------
The number of shares of Common Stock outstanding as of May 28, 1999 was
12,933,253.
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THE TORO COMPANY
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Consolidated Statements of Earnings (Unaudited) -
Three and Six Months Ended April 30, 1999 and May 1, 1998.........................................3
Condensed Consolidated Balance Sheets (Unaudited) -
April 30, 1999, May 1, 1998 and October 31, 1998..................................................4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended April 30, 1999 and May 1, 1998...................................................5
Notes to Condensed Consolidated Financial Statements (Unaudited).....................................6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................................................9-16
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders..................................................17
Item 6. Exhibits and Reports on Form 8-K....................................................................17-18
Signatures...........................................................................................19
</TABLE>
2
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PART I. ITEM 1. FINANCIAL INFORMATION
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
April 30, May 1, April 30, May 1,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales..................................................$ 433,108 $ 379,686 $ 683,869 $ 589,745
Cost of sales.............................................. 280,255 246,737 443,072 383,744
-------------- -------------- -------------- --------------
Gross profit........................................ 152,853 132,949 240,797 206,001
Selling, general, and administrative expenses.............. 106,775 95,034 189,136 166,898
-------------- -------------- -------------- --------------
Earnings from operations............................ 46,078 37,915 51,661 39,103
Interest expense........................................... (6,697) (6,911) (11,727) (12,716)
Other income, net.......................................... 78 2,141 863 5,004
-------------- -------------- -------------- --------------
Earnings before income taxes........................ 39,459 33,145 40,797 31,391
Provision for income taxes................................. 15,369 13,092 15,911 12,399
-------------- -------------- -------------- --------------
Net earnings........................................$ 24,090 $ 20,053 $ 24,886 $ 18,992
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Basic net earnings per share of common stock...............$ 1.86 $ 1.56 $ 1.91 $ 1.49
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Diluted net earnings per share of common stock.............$ 1.83 $ 1.53 $ 1.88 $ 1.45
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Weighted average number of shares of common stock
outstanding and assumed issuance of
contingent shares................................... 12,922 12,836 13,030 12,736
Weighted average number of shares of common stock
outstanding, assumed issuance of contingent
shares, and assumed conversion of options
outstanding......................................... 13,163 13,149 13,241 13,082
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
April 30, May 1, October 31,
1999 1998 1998
---------------- ----------------- -----------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.............................................$ 3,341 $ 640 $ 90
Receivables, net...................................................... 439,423 440,435 241,426
Inventories, net...................................................... 185,699 212,425 184,306
Prepaid expenses and other current assets............................. 8,869 8,275 14,618
Deferred income taxes................................................. 38,526 45,243 38,997
---------------- ----------------- -----------------
Total current assets.......................................... 675,858 707,018 479,437
---------------- ----------------- -----------------
Property, plant, and equipment........................................ 336,990 318,977 330,539
Less accumulated depreciation................................. 214,916 188,226 203,402
---------------- ----------------- -----------------
122,074 130,751 127,137
Deferred income taxes................................................. 3,786 1,182 3,763
Goodwill and other assets............................................. 129,506 113,227 113,654
---------------- ----------------- -----------------
Total assets..................................................$ 931,224 $ 952,178 $ 723,991
---------------- ----------------- -----------------
---------------- ----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt.....................................$ 624 $ 1,839 $ 580
Short-term debt....................................................... 183,909 236,632 31,000
Accounts payable...................................................... 57,965 69,408 65,273
Accrued liabilities................................................... 197,908 155,825 161,357
---------------- ----------------- -----------------
Total current liabilities..................................... 440,406 463,704 258,210
---------------- ----------------- -----------------
Long-term debt, less current portion.................................. 196,758 198,251 196,844
Other long-term liabilities........................................... 5,938 6,610 5,538
Stockholders' equity:
Common stock, par value $1.00, authorized 35,000,000 shares;
issued and outstanding 12,916,010 shares at April 30,
1999 (net of 592,045 treasury shares), 12,841,273
shares at May 1, 1998 (net of 666,782 treasury shares),
and 12,769,560 shares at October 31, 1998 (net of
738,495 treasury shares)...................................... 12,916 12,841 12,770
Additional paid-in capital........................................... 58,904 58,958 56,546
Retained earnings.................................................... 222,425 218,597 200,609
Foreign currency translation adjustment.............................. (6,123) (6,783) (6,526)
---------------- ----------------- -----------------
Total stockholders' equity.................................... 288,122 283,613 263,399
---------------- ----------------- -----------------
Total liabilities and stockholders' equity....................$ 931,224 $ 952,178 $ 723,991
---------------- ----------------- -----------------
---------------- ----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------------------
April 30, May 1,
1999 1998
------------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings...................................................................$ 24,886 $ 18,992
Adjustments to reconcile net earnings to net cash
used in operating activities:
Provision for depreciation and amortization................................. 17,838 16,054
Loss on disposal of property, plant, and equipment.......................... 207 295
Deferred income taxes....................................................... 910 (2,632)
Tax benefits related to employee stock option transactions.................. 198 1,815
Changes in operating assets and liabilities:
Receivables, net....................................................... (197,997) (172,618)
Inventories, net....................................................... (1,393) (40,874)
Prepaid expenses and other current assets.............................. 5,311 2,977
Accounts payable and accrued expenses.................................. 30,346 15,047
------------------- ------------------
Net cash used in operating activities.............................. (119,694) (160,944)
------------------- ------------------
Cash flows from investing activities:
Purchases of property, plant, and equipment................................. (10,286) (17,783)
Proceeds from asset disposals............................................... 240 1,325
(Increase) decrease in investment in affiliates............................. (4,908) 117
(Increase) decrease in other assets......................................... (1,814) 2,770
Acquisitions, net of cash acquired.......................................... - (17,173)
------------------- ------------------
Net cash used in investing activities.............................. (16,768) (30,744)
------------------- ------------------
Cash flows from financing activities:
Increase in short-term debt................................................. 152,909 195,632
Repayments of long-term debt................................................ (156) (1,142)
Increase in other long-term liabilities..................................... 376 956
Proceeds from exercise of stock options..................................... 1,272 1,655
Purchases of common stock................................................... (12,021) -
Dividends on common stock................................................... (3,070) (3,076)
------------------- ------------------
Net cash provided by financing activities.......................... 139,310 194,025
------------------- ------------------
Foreign currency translation adjustment........................................ 403 (1,705)
------------------- ------------------
Net increase in cash and cash equivalents...................................... 3,251 632
Cash and cash equivalents at beginning of period............................... 90 8
------------------- ------------------
Cash and cash equivalents at end of period.....................................$ 3,341 $ 640
------------------- ------------------
------------------- ------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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THE TORO COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1999
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all the information and notes required by generally accepted accounting
principles for complete financial statements. Unless the context indicates
otherwise, the terms "company" and "Toro" refer to The Toro Company and its
subsidiaries. In the opinion of management, the unaudited condensed consolidated
financial statements include all adjustments, consisting primarily of recurring
accruals, considered necessary for a fair presentation of the financial position
and the results of operations. Since the company's business is seasonal,
operating results for the six months ended April 30, 1999 are not necessarily
indicative of the results that may be expected for the fiscal year ending
October 31, 1999. Certain amounts from prior period's financial statements have
been reclassified to conform to this period's presentation.
For further information, refer to the consolidated financial statements and
notes included in the company's Annual Report on Form 10-K for the year ended
October 31, 1998. The policies described in that report are used for
preparing quarterly reports.
INVENTORIES
The majority of inventories are valued at the lower of cost or net
realizable value with cost determined by the last-in, first-out (LIFO) method.
Inventories were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) April 30, May 1,
1999 1998
------------- -------------
<S> <C> <C>
Raw materials and work in process....................$ 76,045 $ 83,564
Finished goods....................................... 155,762 170,035
------------- -------------
231,807 253,599
Less LIFO and other reserves......................... 46,108 41,174
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Total $ 185,699 $ 212,425
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</TABLE>
RESTRUCTURING AND OTHER UNUSUAL EXPENSE
At April 30, 1999, the company had $3.9 million of restructuring and other
unusual expense remaining in accrued liabilities. The company has utilized
$6.8 million of these reserves since October 31, 1998. The company expects
the majority of these reserves to be utilized by the end of fiscal 1999.
6
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COMPREHENSIVE INCOME
Comprehensive income is comprised of two components: net earnings and other
comprehensive income (loss). Other comprehensive income (loss) refers to
revenues, expenses, gains, and losses that under generally accepted
accounting principles are recorded as an element of stockholders' equity and
are excluded from net earnings. Toro's other comprehensive income (loss) is
comprised of foreign currency translation adjustments from certain foreign
subsidiaries.
The components of comprehensive income (loss) were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------------- -------------------------------
(Dollars in thousands) April 30, May 1, April 30, May 1,
1999 1998 1999 1998
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net earnings..........................................$ 24,090 $ 20,053 $ 24,886 $ 18,992
Other comprehensive income (loss)..................... 563 (695) 403 (1,705)
--------------- -------------- -------------- -------------
Comprehensive income..................................$ 24,653 $ 19,358 $ 25,289 $ 17,287
--------------- -------------- -------------- -------------
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</TABLE>
NET EARNINGS PER SHARE
Reconciliation of basic and dilutive weighted average shares of common stock
outstanding is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------- -------------------------------
April 30, May 1, April 30, May 1,
1999 1998 1999 1998
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
BASIC
(Shares in thousands)
Weighted average number of shares of common
stock outstanding.................................... 12,922 12,836 12,775 12,736
Assumed issuance of contingent shares ...................... - - 255 -
--------------- -------------- -------------- -------------
Weighted average number of shares of common stock
and assumed issuance of contingent shares............ 12,922 12,836 13,030 12,736
--------------- -------------- -------------- -------------
--------------- -------------- -------------- -------------
DILUTIVE
(Shares in thousands)
Weighted average number of shares of common stock
and assumed issuance of contingent shares............ 12,922 12,836 13,030 12,736
Assumed conversion of stock options......................... 241 313 211 346
--------------- -------------- -------------- -------------
Weighted average number of shares of common stock,
assumed issuance of contingent shares, and
assumed conversion of options outstanding............ 13,163 13,149 13,241 13,082
--------------- -------------- -------------- -------------
--------------- -------------- -------------- -------------
</TABLE>
BUSINESS ACQUISITIONS
On May 20, 1999, the company completed the purchase of its Minnesota
distributor. This company distributes Toro consumer, commercial, landscape
contractor, and irrigation products in several Midwestern states.
During the second quarter of fiscal 1999, Toro completed the purchase of the
assets of Multi-Core Aerators Limited, a distributor of large turf aeration
equipment. The purchase of Multi-Core Aerators augments Toro's full-line of turf
aeration equipment and is expected to have an immediate appeal to the company's
customer base.
During the second quarter of fiscal 1999, Toro completed the sale of all the
components of its professional fertilizer businesses.
7
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NEW ACCOUNTING PRONOUNCEMENTS
During fiscal 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," and the Accounting Standards
Executive Committee issued Statement of Position (SOP) 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use."
SFAS 133 establishes new standards for recognizing all derivatives as either
assets or liabilities, and measuring those instruments at fair value. The
company plans to adopt the new standard beginning with the first quarter of
fiscal year 2001, as required. The company is in the process of evaluating SFAS
133 and the impact on the company.
SOP 98-1 provides guidance on accounting for the costs of computer software
developed or obtained for internal use and does not require additional
disclosures. The company plans to adopt the SOP in the first quarter of fiscal
year 2000, as required. Costs incurred prior to the initial application of the
SOP will not be adjusted to conform to SOP 98-1. The adoption of SOP 98-1 is not
expected to have a material impact on the company's consolidated financial
statements.
During fiscal 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS 131 requires disclosure of
selected information about operating segments including segment income,
revenues, and asset data, as well as descriptive information about how operating
segments are determined and the products and services provided by the segments.
The company will be required to adopt SFAS 131 beginning with its 1999 fiscal
year-end annual report. The company is in the process of evaluating SFAS 131 and
the impact on the company's current disclosures.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. In addition, forward-looking statements may be made orally
or in press releases, conferences, reports, or otherwise, in the future by or on
behalf of the company.
Statements that are not historical are forward looking. When used by or on
behalf of the company, the words "expect", "anticipate", "believe", "intend",
and similar expressions generally identify forward-looking statements.
Forward-looking statements involve risks and uncertainties. These
uncertainties include factors that affect all businesses operating in a
global market, as well as matters specific to the company and the markets it
serves. Particular risks and uncertainties facing the company at the present
include continued political and economic uncertainty throughout the world;
inflationary pressures; whether the profit improvement plan will continue to
be successful; increased competition in the company's businesses from
competitors that have greater financial resources; soft markets in certain
international markets, including Asia, Latin America, and Europe; the
continuing strong dollar which increases the cost of the company's products
in foreign markets, including Europe, resulting in cancellation of planned
projects and limiting the company's ability to increase prices; competitive
implications and price transparencies related to the euro conversion;
changing buying patterns affecting the company's consumer business, including
but not limited to a trend away from purchases at dealer outlets to price and
value conscious purchases at hardware, home center, and mass retailers;
changes in distributor ownership; the company's expansion into selected home
center markets; the company's ability to integrate business acquisitions and
to manage alliances successfully; successful implementation of strategies to
use outside providers for warehousing and transportation services; the
company's ability to develop and manufacture new and existing products
profitably; market acceptance of existing and new products; changes in
distributors, dealers, home center, or mass retailers' purchasing practices;
the company's ability to manage costs at its manufacturing facilities; the
company's ability to obtain resources, including engines, from its suppliers
on a timely basis in order to meet consumer demands; the company's ability to
maintain good relations with its union employees; and the ability to retain
and hire quality employees.
In addition, the company is subject to risks and uncertainties facing its
industry in general, including changes in business and political conditions, and
the economy in general in both foreign and domestic markets; weather conditions
affecting demand, including warm winters and wet spring and summer weather;
slower growth in the company's markets; financial market changes including
increases in interest rates and fluctuations in foreign exchange rates;
unanticipated problems or costs associated with the transition of European
currencies to the common euro currency; a slowing in housing starts or new golf
course starts; inability to raise prices of products due to market conditions;
threatened or real inflationary pressures; changes in market demographics;
actions of competitors; unanticipated problems or costs associated with
accommodation of the year 2000 in computer applications or products; the
inability of the company's suppliers, customers, creditors, government agencies,
public utility providers, and financial service organizations to implement
computer applications accommodating the year 2000; seasonal factors in the
company's industry; unforeseen litigation; government action, including budget
levels, regulation, and legislation, primarily legislation relating to the
environment, commerce, infrastructure spending, health, and safety; and
availability of raw materials.
The company wishes to caution readers not to place undo reliance on any
forward-looking statement and to recognize that the statements are not
predictions of actual future results. Actual results could differ materially
from those anticipated in the forward-looking statements and from historical
results, due to the risks and uncertainties described above, as well as others
not now anticipated. The foregoing statements are not exclusive and further
information concerning the company and its businesses, including factors that
potentially could materially affect the company's financial results, may emerge
from time to time. It is not possible for management to predict all risk factors
or to assess the impact of such risk factors on the company's business.
9
<PAGE>
RESULTS OF OPERATIONS
Second quarter net sales were $433.1 million compared to $379.7 million for
the second quarter of fiscal 1998, an increase of 14.1 percent. Net earnings
were $24.1 million compared to $20.1 million for the same quarter in the
previous year, and diluted earnings per share for the quarter were $1.83
compared to $1.53 for the last comparable quarter. Sales were strong for
consumer products due to a positive reaction to the introduction of the new
Toro Personal Pace-Registered Tradmark- walk power mower and initial
distribution of Toro-Registered Tradmark- brand lawn mowers through certain
home centers. Sales to professional markets also did well due to the
continued North American and European growth of the golf business, strong
demand in the landscape contractor market, and a positive reaction to new
commercial product introductions. International sales were up due to good
sales to the European and Canadian markets for golf equipment and irrigation
products, offset somewhat by soft irrigation sales in Australia. The company
is currently in the process of reevaluating its business structure in
Australia. The increase in net earnings and dilutive earnings per share was
due mainly to the significant increase in sales and controlling expenses.
Year-to-date net sales were $683.9 million compared to $589.7 million last
year, an increase of 16.0 percent. Net earnings were $24.9 million compared
to $19.0 million last year, an increase of 31.0 percent, and dilutive
earnings per share for the year were $1.88 compared to $1.45 last year. Sales
were strong for consumer products due to a positive reaction to the
introduction of new products, distribution of Toro-Registered Tradmark- brand
lawn mowers through home centers, and timing of snowthrower shipments. Sales
to the professional markets also did well due to the continued worldwide
growth of the golf business, strong demand in the landscape contractor
market, and the addition of Drip In products beginning in the second quarter
of fiscal 1998. International sales also increased over the prior year due to
the reasons noted above for the quarter plus the addition of Drip In in the
agricultural irrigation market. The increase in net earnings and dilutive
earnings per share was due mainly to the significant increase in net sales as
described and controlling expenses.
The following table sets forth net sales by product line.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------
(Dollars in thousands) April 30, May 1,
1999 1998 $ Change % Change
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Consumer products...........................................$ 164,432 $ 143,071 $ 21,361 14.9%
Commercial products......................................... 185,862 158,424 27,438 17.3
Irrigation products......................................... 82,814 78,191 4,623 5.9
------------- ------------- -----------
Total *.................................................$ 433,108 $ 379,686 $ 53,422 14.1%
------------- ------------- -----------
------------- ------------- -----------
* Includes international sales of...........................$ 85,416 $ 79,205 $ 6,211 7.8%
<CAPTION>
Six Months Ended
-----------------------------------------------------------------------
(Dollars in thousands) April 30, May 1,
1999 1998 $ Change % Change
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Consumer products...........................................$ 257,725 $ 208,317 $ 49,408 23.7%
Commercial products......................................... 294,169 256,591 37,578 14.6
Irrigation products......................................... 131,975 124,837 7,138 5.7
------------- ------------- -----------
Total *.................................................$ 683,869 $ 589,745 $ 94,124 16.0%
------------- ------------- -----------
------------- ------------- -----------
* Includes international sales of...........................$ 143,886 $ 134,377 $ 9,509 7.1%
</TABLE>
10
<PAGE>
CONSUMER PRODUCT SALES
Second quarter net sales of worldwide consumer products were $164.4 million
compared to $143.1 million in the second quarter of fiscal 1998, an increase
of 14.9 percent. Sales of Toro-Registered Tradmark- brand walk power mowers
were up significantly from last comparable quarter due to the positive
reception of the new Toro Personal Pace-Registered Tradmark- lawn mower and
the addition of sales through 1,500 home center outlets, a new distribution
channel for the Toro-Registered Tradmark- brand walk power mowers. Offsetting
this increase were lower sales for Lawn-Boy-Registered Tradmark- walk power
mowers because shipments in the second quarter of fiscal 1998 were heavier
than normal due to late production in fiscal 1998. Shipments of riding
products increased for the quarter due to new marketing programs for garden
tractors and a shift of shipping patterns that more closely reflects retail
demand. Do-it-yourself irrigation product sales were also up from the last
comparable quarter due to dry weather in key Sun Belt markets, better
availability of product, and more shelf space at select home centers.
International sales were down compared to the second quarter of fiscal 1998
because of a decline in Australian irrigation sales due to wet weather.
Year-to-date net sales of worldwide consumer products were $257.7 million
compared to $208.3 million last year, an increase of 23.7 percent. Sales to
home centers, a new distribution channel for the Toro-Registered Tradmark-
brand walk power mowers, contributed to the sales increase, as did strong
sales to Toro's traditional dealers. Shipments for riding products, primarily
lawn tractors, increased slightly for the period due to a shift of shipping
patterns that more closely reflects retail demand. Year-to-date sales of
snowthrowers were also higher than last year due to the timing of shipments
from the fourth quarter of fiscal 1998 to the first quarter of fiscal 1999.
Do-it-yourself irrigation product sales were also up due to dry weather in
key Sun Belt markets, better availability of product, and more shelf space at
select home centers. Sales of electric appliance products, including trimmers
and blower vacuums, also did well for the year due to the warm fall weather
that extended the selling season into the first quarter of fiscal 1999 as
well as sales to new mass retail outlets for electric trimmers and blowers.
Offsetting these positive factors were lower international sales as noted
above in the quarter comparison.
Field inventory levels were down for domestic consumer products at Toro's
distributors and dealers. This reduction was a result of heavy snowfall in
certain key markets during the winter of 1998-1999 and Toro's special one-time
marketing programs introduced in the fall of 1998 designed to reduce field
inventory levels for riding and walk power mower products. Management believes
that the reduction of snowthrower domestic field inventories positions Toro for
higher snowthrower sales in the fourth quarter of fiscal 1999 and the first
quarter of fiscal 2000 as compared to the fourth quarter of fiscal 1998 and the
first quarter of fiscal 1999.
COMMERCIAL PRODUCT SALES
Second quarter net sales of worldwide commercial products were $185.9 million
compared to $158.4 million in the second quarter of fiscal 1998, an increase
of 17.3 percent. The sales increase was largely a result of growth in the
landscape contractor market as well as acceptance of new products introduced
last year. Sales for the Toro-Registered Tradmark- Sitework-TM- Systems were
up significantly from the second quarter of fiscal 1998 due to the greater
market acceptance of this product. Worldwide sales of golf course equipment
did well for both new and replacement equipment. Commercial product sales
also did well for the quarter due to the introduction of new products. In
addition, international commercial sales were up for the quarter due to
strong demand for golf equipment in Europe and Canada as well as market
acceptance of new products. Offsetting these increases were weak
international sales for landscape contractor products.
Year-to-date net sales of worldwide commercial products were $294.2 million
compared to $256.6 million last year, an increase of 14.6 percent. The six-month
increase in sales reflects the same factors contributing to the second quarter
increase. In addition, retail sales have also been strong for the year for
commercial and landscape contractor products.
11
<PAGE>
IRRIGATION PRODUCT SALES
Second quarter net sales of worldwide irrigation products were $82.8 million
compared to $78.2 million in the second quarter of fiscal 1998, an increase
of 5.9 percent. Worldwide golf revenues and Irritrol-Registered Tradmark-
Systems sales contributed most of this increase. Irritrol-Registered
Tradmark- Systems sales were significantly above the last comparable quarter
for fiscal 1998 due to better, drier weather this year. Toro
residential/commercial irrigation sales were slightly below fiscal 1998
levels due to product availability caused by delays in manufacturing.
International sales were up from the same quarter in fiscal 1998 due to
strong golf irrigation sales and strong sales of Irritrol-Registered
Tradmark- residential/commercial product.
Year-to-date net sales of worldwide irrigation products were $132.0 million
compared to $124.8 million last year, an increase of 5.7 percent. As
mentioned above in the quarter comparison, strong golf irrigation revenues
and Irritrol-Registered Tradmark- residential/commercial product sales
contributed to the increase as did the addition of sales from Drip In, which
was acquired in the second quarter of fiscal 1998. Offsetting those increases
were lower sales for Toro residential/commercial irrigation products due to
the same reasons as noted above.
GROSS PROFIT
Second quarter gross profit was $152.9 million compared to $132.9 million
last year, an increase of 15.0 percent. As a percent of net sales, gross
profit for the second quarter was 35.3 percent compared to 35.0 percent last
year. The increase in gross profit resulted primarily from higher margins
for the consumer product line due to price increases for certain products and
improved manufacturing efficiencies due to plant closures. This increase was
partially offset by the gross margin reversal resulting from the purchase of
Toro's Minnesota based distributor.
Year-to-date gross profit was $240.8 million compared to $206.0 million last
year, an increase of 16.9 percent. As a percent of net sales, year-to-date
gross profit was 35.2 percent compared to 34.9 percent last year. The
increase in gross margins was due to the same contributing factors as in the
quarter comparison.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Second quarter selling, general, and administrative expenses (SG&A) were
$106.8 million compared to $95.0 million last year, an increase of 12.4
percent. However, as a percent of net sales, SG&A decreased slightly to 24.7
percent from 25.0 percent for the same quarter in fiscal 1998. The dollar
increase is mainly due to increases for direct marketing expenses,
warehousing costs, and warranty expenses due to higher sales levels.
Incentive compensation expenses were also higher due to improved financial
performance of the company in the second quarter of fiscal 1999.
Year-to-date SG&A expenses were $189.1 million compared to $166.9 million
last year, an increase of 13.3 percent. However, as a percent of net sales,
SG&A decreased slightly to 27.7 percent from 28.3 percent last year. The
dollar increase is mainly due to increases for direct marketing expenses,
warehousing costs, and warranty expenses due to higher sales levels.
Incentive compensation expenses were also higher due to improved financial
performance of the company. Information systems costs were higher due to the
continued implementation of an enterprise-wide software system.
INTEREST EXPENSE
Second quarter interest expense was $6.7 million compared to $6.9 million
last year, a slight decrease of $.2 million.
Year-to-date interest expense was $11.7 million compared to $12.7 million
last year, a decrease of $1.0 million. This decline is due to lower
borrowing levels compared to last year as a result of improved asset
management, primarily inventory and accounts receivable.
12
<PAGE>
OTHER INCOME, NET
Second quarter other income, net, was $.1 million compared to $2.1 million last
year, a decrease of $2.0 million. The decrease was due to higher amounts of
currency losses in fiscal 1999, and recoveries of previously written off notes
receivables in the second quarter of fiscal 1998.
Year-to-date other income, net, was $.9 million compared to $5.0 million last
year, a decrease of $4.1 million. In addition to the reasons mentioned in the
quarter comparison, the decrease was due to a favorable settlement of a trade
secret lawsuit in fiscal 1998.
PROVISION FOR INCOME TAXES
The effective tax rate for the quarter was 38.9 percent and the year-to-date was
39.0 percent compared to 39.5 percent last quarter and year. The decline in the
tax rate is due to an increase in benefits received from the company's foreign
sales corporation.
FINANCIAL POSITION AS OF APRIL 30, 1999
APRIL 30, 1999 COMPARED TO MAY 1, 1998
Total assets at April 30, 1999 were $931.2 million compared to $952.2
million on May 1, 1998, a decrease of $21.0 million. Net accounts receivable
decreased slightly by $1.0 million. However, net receivables increased for most
product lines due to increased sales volumes, which was offset by the collection
of a receivable from James Hardie Irrigation Limited (Hardie) in May 1998.
Inventory decreased $26.7 million due to the closing of two manufacturing
facilities that reduced work-in-process inventory and lower levels of consumer
inventory due to strong sales for the year and improved efforts at inventory
management. Net property, plant, and equipment declined $8.7 million due to
higher amounts of depreciation expense in comparison to capital additions.
Goodwill and other assets increased $16.3 million mainly as a result of a
contingent payment made in the first quarter of fiscal 1999, in connection with
the company's acquisition of Exmark in fiscal 1998.
Total current liabilities at April 30, 1999 were $440.4 million compared to
$463.7 million on May 1, 1998, a decrease of $23.3 million. Short-term debt
decreased by $52.7 million as a result of better asset management. Accounts
payable decreased by $11.4 million due to timing of inventory purchases and
payments. Offsetting those decreases was an increase in accrued liabilities of
$42.1 million as a result of higher warranty and marketing accruals due to
higher sales levels.
APRIL 30, 1999 COMPARED TO OCTOBER 31, 1998
Total assets at April 30, 1999 were $931.2 million compared to $724.0 million at
October 31, 1998, an increase of $207.2 million. Net accounts receivable
increased $198.0 million from October 31, 1998 due to the seasonal increase in
accounts receivable, which historically occurs between January and April.
Goodwill and other assets increased $15.9 million mainly as a result of the
Exmark contingent payment.
Total current liabilities at April 30, 1999 were $440.4 million compared to
$258.2 million at October 31, 1998, an increase of $182.2 million. The majority
of this increase was the result of additional short-term debt of $152.9 million,
reflecting the company's strategy of utilizing short-term borrowing to fund the
company's seasonal working capital needs. These requirements are historically
greatest in the winter and spring months. Accounts payable increased $7.3
million due to the timing of inventory purchases and payments. Accrued
liabilities increased $36.6 million as a result of higher warranty accruals and
accruals for various seasonal sales and marketing programs, which are at their
peak during the spring selling season.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities for the first six months of fiscal 1999 was
primarily for the seasonal increase in accounts receivable, partially offset by
increases in accrued liabilities and net earnings. On December 30, 1998, the
company entered into an agreement for an additional credit line with its
domestic banks, which increased its committed bank credit line to $260 million
from $160 million and eliminated its $70 million uncommitted bank credit line.
The company's domestic and international working capital needs are funded with
approximately $290 million of committed unsecured bank credit lines. The company
also has banker's acceptance financing agreements under which an additional $40
million is available. The company's business is seasonal, with peak borrowing
under the working capital lines described above generally occurring between
February and May each year.
Management believes that the combination of funds available through its existing
financing arrangements, coupled with forecasted cash flows, will provide the
necessary capital resources for its anticipated working capital, capital
additions, acquisitions, and stock repurchases.
INFLATION
The company is subject to the effects of changing prices. However, the company
is not currently experiencing any material effects of rising costs. The company
attempts to deal with inflationary pressures through a combination of internal
cost reduction efforts and selected increases in selling prices of certain
products.
YEAR 2000 COMPLIANCE
During the second quarter of fiscal 1999, Toro continued its company-wide
program to prepare the company's computer systems for year 2000 compliance. The
year 2000 issue relates to computer systems that use the last two digits rather
than all four to define a year and whether such systems will properly and
accurately process information when the year changes to 2000. Incomplete or
untimely resolution of year 2000 issues by the company, by its important
suppliers and customers, by public utility providers, or by governmental
entities could have a material adverse impact on the company's business,
operations, or financial condition.
STATE OF READINESS - The company is nearing completion of its project to replace
core-business information systems with an Enterprise Resource Planning (ERP)
software package provided by a vendor that has certified it is year 2000
compliant. The final stage of the conversion to the ERP package is expected to
be in place by the fourth quarter of fiscal 1999 (before October 31, 1999). The
package includes software to support the company's facilities and business units
with the exception of five domestic subsidiaries and business units and the
company's European subsidiaries, which are believed to be year 2000 compliant.
The company is in the process of testing these non-ERP systems and updating any
non-compliant systems.
Toro has assessed its products and believes them to be year 2000 compliant with
the exception of six irrigation control systems. Testing of these systems has
been completed and software remediations are expected to be available by the end
of June 1999.
Toro's year 2000 issues list has over three hundred software and hardware items,
the majority of which are single-user, departmental or plant systems. The
company is in the testing phase for the following business-critical systems:
ERP, payroll, product data management, all non-ERP core-business information
systems, and associated infrastructure and support technologies. After delays
experienced in the first quarter of fiscal 1999, the company has received vendor
claimed compliant versions of their products. The company has also increased its
resources for internal programming, and is currently back on schedule in the
testing phase, which is expected to be completed by mid-1999. The current plan
is to complete the de-installation from the non-compliant year 2000 mainframe
computer by the fourth quarter of fiscal 1999.
14
<PAGE>
YEAR 2000 COMPLIANCE (CONTINUED)
Communications have been sent to all of Toro's customers informing them of the
company's efforts and asking them to ensure that their business operations will
not be adversely impacted by year 2000 issues. Surveys have also been sent to
all of the company's production suppliers requesting information on their year
2000 efforts. Based on the surveys returned, the company's customers and key
suppliers are either year 2000 compliant or are working on the issue with plans
to be year 2000 compliant before the turn of the century.
COSTS - Year 2000 costs through April 30, 1999 were approximately $2.0 million
and have been expensed as incurred. These costs include contractor support and
ERP implementation for the company's recently acquired businesses. Costs
remaining that have been identified are estimated to be less than $1.5 million,
which include expenses for contractor support, telephone system upgrades,
software modifications for irrigation systems, and business unit system
upgrades. The estimated cost of year 2000 adaptation is less than 15 percent of
the company's information systems budget. No significant information systems
project has been deferred to accommodate the year 2000 issues.
RISKS - The company is continuing to test its core-business operating and
financial systems and remains uncertain of the risks the year 2000 will have on
its business operations. In addition, the company remains uncertain about
whether the company's business partners, including dealers, distributors, home
centers, mass retailers, banks, and suppliers will be year 2000 compliant. The
company is particularly concerned about international customers and suppliers
due to their late testing target dates. The scope of Toro's year 2000 project
does not include ensuring public utility and governmental agency's readiness for
the year 2000. Toro has little to no control over these institutions, thereby
introducing some level of risk in the company's ability to continue normal
operations at and for the weeks immediately after the turn of the century.
Testing is under way to validate assumptions, which is planned to be completed
by the third quarter of fiscal 1999. The company believes this timetable should
allow enough time to fix or replace any internal business-critical problems
discovered during the testing phase.
The most reasonably likely worst-case scenarios revolve around failures
experienced by entities outside the control of the company such as local
electric utilities, telecommunication vendors, customers, suppliers, and
governmental services. The effects of these scenarios vary with the severity and
duration of any failure.
CONTINGENCY PLANS - The company's contingency plans will continue to evolve as
the testing phase of the business-critical systems and technologies is
completed. The company is in the stage of defining a Business Resumption Plan,
which will include documented manual processes for critical business functions
that could be invoked for any type of business interruption, including any year
2000 issues. The current timetable is to have a draft of procedures completed by
the third quarter of fiscal 1999 for most corporate critical business functions.
The company is also planning on performing complete, system-wide backups on
December 30 and 31, 1999 and is also discussing the possibility of shutting down
all systems so they are not actually running at the turn of the century. Key
information system personnel will also be on-site and on-call for the month of
January 2000 to deal with any problems that may occur.
With respect to non-compliant irrigation systems that have been identified, the
company is developing software modifications to correct the year 2000 problem,
which are expected to be available to customers by the end of June 1999. In most
cases, the company believes that simple software modifications should make the
units year 2000 compliant. In some cases, the company is recommending that
customers replace their older non-compliant systems with newer, functionally
enhanced compliant systems.
15
<PAGE>
EURO CURRENCY
Beginning in January 1999, the European Monetary Union (EMU) entered into a
three-year transition phase during which a common currency called the euro will
be introduced in participating countries. Initially, this new currency will be
used for financial transactions, and progressively, it will replace the old
national currencies that will be withdrawn by July 2002. The transition to the
euro currency will involve changing budgetary, accounting, contracts, and fiscal
systems in companies and public administrations, as well as simultaneous
handling of parallel currencies and conversion of legacy data. Uncertainty
exists as to the effects the conversion to euro currency will have on the
marketplace. One of the primary unknowns for the company is the potential
equalization of prices to customers among countries and the resulting
competitive impact on Toro distributor sales and Toro direct sales, and
financial support given to distributors in those countries. The euro will make
price differences on goods in the various countries transparent to the customer
and make comparisons much easier. The company recently formed a group to review
this issue and develop a strategy by late-1999. The company does not have
sufficient experience with the new currency to predict whether price
transparency will affect its operations, cash flows, or financial condition in
future periods.
The company continued its program to evaluate whether the company's computer
systems and programs will experience operational problems when the euro is fully
implemented. The company's European subsidiaries' financial systems have
completed initial testing and no problems were discovered in their ability to
function using the euro. These subsidiaries began disclosing the euro value on
each customer's invoice in January 1999. The company plans to continue testing
its computer systems in fiscal 1999 for additional euro functionality. The
company believes the risk to be minimal, as billing and banking functions are
already being performed in multiple currencies within these entities.
Based on its evaluation to date, management currently believes that, while the
company will incur internal and external costs to adjust to the euro, such costs
are not expected to have a material impact on operations, cash flows, or the
financial condition of the company and its subsidiaries, taken as a whole, in
future periods.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY
The following forward exchange contracts held by the company have maturity dates
in fiscal year 1999. All items are non-trading and stated in U.S. dollars. The
average contracted rate, notional amount, and fair value impact at April 30,
1999 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------- ---------------- ----------------- ----------------
AVERAGE FAIR VALUE
DOLLARS IN THOUSANDS CONTRACTED NOTIONAL IMPACT
(EXCEPT AVERAGE CONTRACTED RATE) RATE AMOUNT GAIN (LOSS)
- ----------------------------------------------- ---------------- ----------------- ----------------
<S> <C> <C> <C>
Buy Australian dollar/Sell US dollar .6422 $ 6,084.2 $ 139.1
- ----------------------------------------------- ---------------- ----------------- ----------------
Buy US dollar/Sell Australian dollar .6092 4,906.1 (423.1)
- ----------------------------------------------- ---------------- ----------------- ----------------
Buy Belgium franc/Sell US dollar 38.0030 1,846.7 (5.9)
- ----------------------------------------------- ---------------- ----------------- ----------------
Buy US dollar/Sell Canadian dollar 1.5121 4,530.1 (164.5)
- ----------------------------------------------- ---------------- ----------------- ----------------
Buy German mark/Sell US dollar 1.7773 1,941.1 (69.4)
- ----------------------------------------------- ---------------- ----------------- ----------------
Buy US dollar/Sell German mark 1.7424 1,262.6 70.5
- ----------------------------------------------- ---------------- ----------------- ----------------
</TABLE>
DEBT FINANCING
The company is exposed to interest rate risk arising from transactions that are
entered into during the normal course of business. The company's short-term debt
borrowing rates are dependent upon the LIBOR rate plus an additional percentage
based on the company's current borrowing level. See the company's Annual Report
filed on Form 10-K for the fiscal year ended October 31, 1998 (Item 7A) for
additional information. There has been no material change in the information
contained in that report.
16
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was held on March 24, 1999.
(b) The results of the stockholder votes were as follows:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C> <C>
1. Election of Directors
Ronald O. Baukol 10,575,465 248,207 0 0
Alex A. Meyer 10,540,258 283,414 0 0
Dale R. Olseth 10,550,709 272,963 0 0
2. Approval of Amendment of Annual
Management Incentive Plan II. 9,486,417 990,625 277,011 69,618
3. Approval of Adoption of The Toro Company
Performance Share Plan. 9,813,559 789,688 220,425 0
4. Approval of Selection of
Independent Auditors. 10,580,442 132,109 111,120 0
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<S> <C>
3(i)(a) and 4(a) Certificate of Incorporation of Registrant
(incorporated by reference to Exhibit 4.2 to
Registrant's Registration Statement on Form S-3,
Registration No. 33-16125).
3(i)(b) and 4(b) Certificate of Amendment to Certificate of
Incorporation of Registrant dated December 9, 1986
(incorporated by reference to Exhibit 3 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended January 30, 1987, Commission File No.
1-8649).
3(i)(c) and 4(c) Certificate of Designation to Certificate of
Incorporation of Registrant dated May 28, 1998
(incorporated by reference to Exhibit (1)(A) to
Registrants' Current Report on Form 8-K dated May 27,
1998).
3(ii) and 4(d) Bylaws of Registrant, as amended.
4(e) Specimen form of Common Stock certificate
(incorporated by reference to Exhibit 4(c) to
Registrant's Registration Statement on Form S-8,
Registration No. 2-94417).
4(f) Rights Agreement dated as of May 20, 1998, between
Registrant and Norwest Bank Minnesota, National
Association relating to rights to purchase Series B
Junior Participating Voting Preferred Stock, as
amended (incorporated by reference to Registrant's
Current Report on Form 8-K dated May 27, 1998,
Commission File No. 1-8649).
4(g) Indenture as dated as of January 31, 1997, between
Registrant and First National Trust Association, as
Trustee, relating to the Registrant's 7.125% Notes due
June 15, 2007 and its 7.80% Debentures due June 15,
2027 (incorporated by reference to Exhibit 4(a) to
Registrant's Current Report on Form 8-K for June 24,
1997, Commission File No. 1-8649).
</TABLE>
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K (continued)
<TABLE>
<S> <C>
10(a) Form of Employment Agreement in effect for certain
officers of Registrant (incorporated by reference
Exhibit 10(iii)(a) to Registrant's Quarterly Report
on Form 10-Q for the quarter ended May 1, 1998).*
10(b) Directors Stock Plan, as amended (incorporated by
reference to Exhibit 10(b) to Registrant's Annual
Report on Form 10-K for the fiscal year ended October
31, 1998).*
10(c) Annual Management Incentive Plan II for officers of
Registrant, as amended (incorporated by reference to
Exhibits 10(c) to Registrant's Annual Report on Form
10-K for the fiscal year ended October 31, 1998).*
10(d) 1985 Incentive Stock Option Plan (incorporated by
reference to Exhibit 10(b) to Registrant's Annual
Report on Form 10-K for the fiscal year ended July 31,
1993).*
10(e) 1989 Stock Option Plan, as amended (incorporated by
reference to Exhibit 10(e) to Registrant's Annual
Report on Form 10-K for the fiscal year ended October
31, 1998).*
10(f) 1993 Stock Option Plan, as amended (incorporated by
reference to Exhibit 10(f) to Registrant's Annual
Report on Form 10-K for the fiscal year ended October
31, 1998).*
10(g) The Toro Company Performance Share Plan (incorporated
by reference to Exhibit B to Registrant's Proxy
Statement dated February 5, 1999).*
10(h) The Toro Company Supplemental Management Retirement
Plan, as amended.*
10(i) The Toro Company Supplement Retirement Plan.*
10(j) Chief Executive Officer Succession Incentive Agreement
dated as of July 31, 1995 (incorporated by reference
to Exhibit 10(iii)(i) to Registrant's Quarterly Report
on Form 10-Q for the quarter ended July 31, 1998).*
10(k) The Toro Company Deferred Compensation Plan for
Officers (incorporated by reference to Exhibit 10(j)
to Registrant's Quarterly Report on Form 10-Q for the
quarter ended January 29, 1999).*
10(l) The Toro Company Deferred Compensation Plan for
Non-Employee Directors (incorporated by reference to
Exhibits 10(k) to Registrant's Quarterly Report on
Form 10-Q for the quarter ended January 29, 1999).*
27 Supplemental Data Schedule; electronic filing only.
</TABLE>
*Management contract or compensatory plan or arrangement required to be filed as
an exhibit to this Quarterly Report on Form 10-Q pursuant to Item 14(c).
(b) Reports on Form 8-K
None.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TORO COMPANY
(Registrant)
By /s/ Stephen P. Wolfe
--------------------------------
Stephen P. Wolfe
Vice President, Finance
Chief Financial Officer
(principal financial officer)
Date: June 14, 1999
19
<PAGE>
BYLAWS
OF
THE TORO COMPANY
(A Delaware Corporation)
ARTICLE I
Offices, Corporate Seal, and Records
SECTION 1.1 The registered office of the Corporation shall be established and
maintained at the office of National Registered Agents, Inc., in the City of
Dover, in the County of Kent, in the State of Delaware, and said corporation
shall be the registered agent of the Corporation in charge thereof, and the
Corporation may have other offices, either within or without the State of
Delaware, at such place or places as the Board of Directors may from time to
time determine. Unless otherwise determined by the Board of Directors, the
principal executive office of the Corporation shall be at 8111 Lyndale Avenue
South, in the City of Bloomington, County of Hennepin, State of Minnesota.
SECTION 1.2 The Corporation may have a corporate seal in such form as
determined by the Board of Directors, which may be altered at pleasure, and the
seal may be used by causing it or a facsimile thereof to be impressed or affixed
or in any other manner reproduced.
SECTION 1.3 The Corporation shall at all times keep at its principal executive
office, or at such other place or places as the Board of Directors may
determine, a share register giving the names and addresses of the stockholders,
the number and classes of shares held by each, and the dates on which the
certificates therefor were issued.
SECTION 1.4 The Corporation shall at all times keep at its principal executive
office the following records:
(a) The original or copies of records of all proceedings of
stockholders and directors, of its Bylaws and all amendments
thereto, and of reports made to stockholders or any of them
within the next preceding three years;
(b) A statement of names and usual business addresses of its
directors and principal officers;
(c) Appropriate financial statements.
SECTION 1.5 Subject to law and any order of the Court of Chancery, any
stockholder of record shall have the right to inspect and make copies or
extracts therefrom, upon proper written demand under oath stating the purpose
thereof, in person or by attorney or other agent, at any reasonable time or
times, for any proper purpose, and at the principal executive offices of the
corporation, the stock ledger, a list of stockholders, and other books and
records, required financial statements, and the records of the proceedings of
the stockholders and directors.
<PAGE>
ARTICLE II
Meeting of Stockholders
SECTION 2.1 All meetings of the stockholders shall be held at such other place
within or without the State of Delaware as may be designated by the Board of
Directors in the notice of the meeting.
SECTION 2.2 The Regular Meetings of the stockholders, if any, shall be held on
the day or date and at the time and place as the Board of Directors may fix from
time to time in its discretion, for the election of directors and the
transaction of such other business as may come before the meeting; provided,
however, that any previously scheduled regular meeting of the stockholders may
be postponed by resolution of the Board of Directors upon public notice given
prior to the date previously scheduled for such regular meeting of the
stockholders; and provided, further, that no business with respect to which
special notice is required by law shall be transacted at a regular meeting
unless such notice shall have been given.
SECTION 2.3 Special meetings of the stockholders for any purpose or purposes
may be called only by the Board of Directors, pursuant to a resolution approved
by a majority of the entire Board of Directors; provided, however, that any
previously scheduled special meeting of the stockholders may be postponed by
resolution of the Board of Directors upon public notice given prior to the date
previously scheduled for such special meeting of the stockholders. Business
transacted at a special meeting shall be confined to the purposes stated in the
call and notice thereof.
SECTION 2.4 Notice of each regular and special meeting of stockholders stating
the date, time and place thereof, and the general nature of the business to be
considered thereat, shall be given at least ten (10) days and not more than
sixty (60) days before the date of the meeting to each stockholder entitled to
vote thereat. Such notice shall be deemed delivered when deposited in the
United States mail with postage thereon prepaid, addressed to the stockholder at
his address as it appears on the stock transfer books of the Corporation.
SECTION 2.5 Each stockholder who is entitled to vote pursuant to the terms of
the Certificate of Incorporation and these Bylaws, or who is entitled to vote
pursuant to the laws of the State of Delaware, shall be entitled to vote in
person or by proxy, but no proxy shall be voted after three years from its date
unless such proxy provides for a longer period. All elections for directors
shall be determined by a plurality of the votes of the shares present in person
or represented by proxy at the meeting and entitled to vote on the election of
directors. All other questions shall be decided by the affirmative vote of a
majority of the shares present in person or represented by proxy at the meeting
and entitled to vote on such question.
A complete list of the stockholders entitled to vote at any meeting of
stockholders at which directors are to be elected, arranged in alphabetical
order, with the address of each, and the
2
<PAGE>
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
The Board of Directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including without limitation as officers, employees, agents of
representatives of the Corporation, to act at the meeting and make a written
report thereof. One or more persons may be designated as alternate inspectors
to replace any inspector who fails to act. If no inspector or alternate
inspector has been appointed to act or is able to act at a meeting of
stockholders, the Chairman of the meeting shall appoint one or more inspectors
to act at the meeting. Each inspector, before discharging his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The
inspectors shall have the duties prescribed by law.
The Chairman of the meeting shall fix and announce at the meeting the date and
time of the opening and the closing of the polls for each matter upon which the
stockholders will vote at the meeting.
SECTION 2.6 Except as otherwise required by law, by the certificate of
Incorporation or by these Bylaws, the presence, in person or by proxy, of
stockholders holding a majority of the voting power of the outstanding stock of
the Corporation shall constitute a quorum at all meetings of the stockholders.
The Chairman of any regular or special meeting of the stockholders or a majority
in interest of the stockholders entitled to vote thereat shall have the power to
adjourn such meeting from time to time, without notice other than announcement
at the meeting, whether or not there is such a quorum. No notice of the time
and place of adjourned meetings need be given except as required by law;
provided, however, that if such adjournment is for more than thirty (30) days,
or if after such adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at such adjourned meeting. At any such adjourned
meeting at which the requisite amount of stock entitled to vote shall be
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed; but only those stockholders entitled to vote
at the meeting as originally noticed shall be entitled to vote at any
adjournment or adjournments thereof unless the Board of Directors shall have
fixed a new record date for such adjournment or adjournments pursuant to Section
2.7 of these Bylaws.
The stockholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
3
<PAGE>
SECTION 2.7 In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect to any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be less than ten nor more than sixty days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment or adjournments of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 2.8 Section 2.8 (A) (1) Nominations of persons for election to the
Board of Directors of the Corporation and the proposal of business to be
considered by the stockholders may be made at a regular meeting of stockholders
(a) pursuant to the Corporation's notice of meeting, (b) by or at the direction
of the Board of Directors or (c) by any stockholder of the Corporation who was
a stockholder of record at the time of giving of notice provided for in this
Bylaw, who is entitled to vote at the meeting and who complied with the notice
procedures set forth in this Bylaw.
(2) For nominations or other business to be properly brought before a regular
meeting by a stockholder pursuant to clause (c) of paragraph (A) (1) of this
Bylaw, the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the Corporation
not less than forty-five (45) days nor more than ninety (90) days prior to the
first anniversary of the date on which the Corporation first mailed its proxy
materials for the preceding year's regular meeting; provided, however, that in
the event that the date of the regular meeting is advanced by more than thirty
(30) days or delayed by more than sixty (60) days from the anniversary date of
the preceding year's regular meeting, notice by the stockholder to be timely
must be so delivered not earlier than the 90th day prior to such rescheduled
regular meeting and not later than the close of business on the later of the
60th day prior to such rescheduled regular meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address of such stockholder,
as they appear on the Corporation's books, and of such beneficial owner and (ii)
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the class and number of shares of the Corporation that are owned beneficially
and of record by such stockholder and suh beneficial owner.
(3) Notwithstanding anything in paragraph (A) (2) of this Bylaw, in the event
that the number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement naming all of the
nominees for Director or specifying the size of the increased Board of Directors
made by the Corporation at least seventy (70) days prior to the first
anniversary of the preceding year's regular meeting, a stockholder's notice
required by this Bylaw shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the 10th day following the day on which
such public announcement is first made by the Corporation.
(B) Nominations of persons for election to the Board of Directors may be made
at a special meeting of stockholders at which directors are to be elected
pursuant to the Corporation's notice of meeting (a) by or at the direction of
the Board of Directors or (b) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by any stockholder
of the Corporation who is a stockholder of record at the time of giving of
notice provided for in this Bylaw, who shall be entitled to vote at the meeting
and who complies with the notice procedures set forth in this Bylaw. In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be) for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (A) (2) at the principal executive
offices of the Corporation not earlier than the 90th day prior to such special
meeting and not later than the close of business on the later of the 60th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by; the Board of Directors to be elected at such meeting.
(C) (1) Only such persons who are nominated in accordance with the procedures
set forth in this Bylaw shall be eligible to serve as directors and only such
business shall be conducted at a regular meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this Bylaw and, if any proposed nomination or business is not in compliance with
this Bylaw, to declare that such defective proposal shall be disregarded. The
Chairman of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was made in
accordance with the procedures set forth in this Bylaw and, if any proposed
nomination or business is not in compliance with this Bylaw, to declare that
such defective proposal shall be disregarded.
(2) Notwithstanding the foregoing provisions of this Bylaw, a stockholder shall
also comply with all applicable requirements of the Exchange Act and the rules
and regulations thereunder with respect to the matters set forth in this Bylaw.
Nothing in this Bylaw shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act.
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(3) For purposes of this Bylaw, "public announcement" shall mean disclosure in
a press release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Sections 13,
14 or 15(d) of the Exchange Act.
ARTICLE III
Directors
SECTION 3.1 The business and affairs of the Corporation shall be managed under
the direction of a Board of Directors which, subject to any right of the holders
of any series of Preferred Stock then outstanding to elect additional directors
under specified circumstances, shall consist of not less than eight (8) nor more
than eleven (11) persons. The exact number of directors within the minimum and
maximum limitations specified in the preceding sentence shall be fixed from time
to time by the Board pursuant to a resolution adopted by a majority of its
members. The directors shall be divided into three classes, as nearly equal in
number as possible, with the term of office of Class A to expire at the 1984
Annual Meeting of Stockholders, the term of office of Class B to expire at the
1985 Annual Meeting of Stockholders and the term of office of Class C to expire
at the 1986 Annual Meeting of Stockholders. At each Annual Meeting of
Stockholders following such initial classification and election, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding Annual Meeting of Stockholders
after their election.
SECTION 3.2 Subject to the rights of the holders of any series of Preferred
Stock then outstanding, newly created directorships resulting from any increase
in the authorized number of directors or any vacancies in the Board resulting
from death, resignation, retirement, disqualification, removal from office or
other cause shall be filled only by majority vote of the directors then in
office, and directors so chosen shall hold office for a term expiring at the
Annual Meeting of Stockholders at which the term of the Class to which they have
been elected expires. No decrease in the number of directors constituting the
Board shall shorten the term of any incumbent director. Subject to the rights
of the holders of any series of Preferred Stock then outstanding, any director,
or the entire Board, may be removed from office at any time, but only for cause
and only by the affirmative vote of the holders of at least 80% of the voting
power of the then outstanding Common Stock of the Company.
SECTION 3.3 Regular meetings of the Board shall be held at bi-monthly intervals
during each fiscal year, or on such alternate intervals or dates as the Board
may fix from time to time in its discretion, and at such time and place as the
Chairman of the Board of Directors or, in his absence, the President shall
determine, preferably at the principal executive office of the Corporation
during the third week of the month. At least three (3) days' notice thereof
shall be given by the Secretary to each director, either personally or by
telephone, mail, telegram or facsimile transmission.
SECTION 3.4 Special meetings of the Board may be called by the Chief Executive
Officer or by any two directors, and not less than twenty-four (24) hours'
notice thereof shall be given by the
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Secretary to any director, either personally or by telephone, mail, telegram
or facsimile transmission.
SECTION 3.5 Any action taken by the Board or any committee thereof at any
meeting where all members are present shall be valid whether or not notice of
such meeting was in fact given, except as provided by law. Any action which
might be taken at a meeting of the Board, or at a meeting of any committee
thereof as the case may be, may be taken without meeting as provided by law.
SECTION 3.6 At all meetings of the Board a majority of the directors shall be
necessary and sufficient to constitute a quorum for the transaction of business,
but if less than a quorum are present, those present may adjourn the meeting
from time to time until a quorum shall be present.
SECTION 3.7 The Board may unanimously elect from among the directors an
Executive Committee, a Compensation Committee, an Audit Committee, and a
Nominating Committee, and such other committees as the Board may from time to
time determine, to serve at the pleasure of the Board. The members of the Board
of Directors and of said Committees shall have the role of monitoring the
conduct of the business and affairs of the corporation on behalf of all of the
constituencies of the Corporation, including in particular, those who invest in
the stock of the Corporation, in an environment of loyal but independent
oversight. Each Committee shall maintain independent minutes of action, and
with the exception of the Audit Committee, and resolutions of the Compensation
Committee relating to matters governed by or within the scope of Section 16 of
the Securities and Exchange Act of 1934 or Section 162(m) of the Internal
Revenue Code of 1986, or its successor provision, such minutes shall be subject
to approval by the Board.
SECTION 3.8 The Executive Committee shall consist of two or more of the
directors of the Corporation, including the Chairman of the Board of Directors,
and one of the members shall be designated by the Board of Directors as its
Chairman. The Chairman of the Executive Committee shall preside at all meetings
of the Executive Committee and shall perform such other duties as may be
prescribed by the Board of Directors. The underlying purpose of the Executive
Committee is to exercise all of the powers and authority of the Board during
intervals between meetings of the Board, including the power to declare
dividends on the Corporation's common stock. The Committee shall have
discretionary authority to undertake additional activities within the scope of
its primary functions.
SECTION 3.9 The Audit Committee shall consist of two or more of the directors
of the Corporation, none of whom shall be officers or employees of the
Corporation, and one of the members shall be designated by the Board of
Directors as its Chairman. The Chairman of the Audit Committee shall preside at
all meetings of the Audit Committee and shall perform such other duties as may
be prescribed by the Board of Directors. The purpose of the Audit Committee is
to assist the Board of Directors in fulfilling the Board's responsibility to
oversee the Corporation's accounting controls and policies, and reporting
practices, including making recommendations regarding the selection, retention
and termination of the Corporation's
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independent auditors, review of professional services, proposed fees and
independence of such auditors, scope of the audit, authorization of special
reviews or audits, review of internal auditing procedures and the adequacy of
internal controls, and review of policies and practices respecting conflict
of interest and compliance with applicable laws. The manager of the
Corporation's internal auditing function, when operative, shall have an
indirect reporting relationship to the Chairman of the Audit Committee, and
shall perform such duties as may be prescribed by the Board of Directors or
by the Chairman of the Audit Committee. The Committee shall have
discretionary authority to undertake additional activities within the scope
of its primary functions.
SECTION 3.10 The Compensation Committee shall consist of two or more directors
of the Corporation, none of whom shall be officers or employees of the
Corporation, and one of the members shall be designated by the Board of
Directors as its Chairman. The Chairman of the Compensation Committee shall
preside at all meetings of the Compensation Committee and shall perform such
other duties as may be prescribed by the Board of Directors. The purposes of
the Compensation Committee include: to administer all employee benefit plans
heretofore or hereafter established including the granting of stock options and
incentive awards authorized under employee benefit plans governed by or within
the scope of Section 16 of the Securities and Exchange Act of 1934 or Section
162(m) of the Internal Revenue Code of 1986, or its successor provision; to
study and analyze specific and general matters of management compensation; to
periodically review management compensation policies and practices; to make
recommendations to the Board respecting incentive compensation awards; and to
consider and approve officer salary adjustments of elected officers of the
Corporation at the level of Vice President and above.
SECTION 3.11 The Nominating Committee shall consist of two or more directors of
the Corporation who do not have any direct or indirect economic or personal
association with the Corporation, or with any of its affiliates or the employees
thereof. The Chief Executive Officer of the Corporation shall serve as an ex
officio non-voting member. One of the members of the Committee shall be
designated as its Chairman by the Board of Directors. The Chairman of the
Nominating Committee shall preside at all meetings of the Nominating Committee
and shall perform such other duties as may be prescribed by the Board of
Directors. The primary functions of the Nominating Committee are to review with
the Chief Executive Officer of the Corporation an appropriate size and makeup
for the Board of Directors, including individuals having such background and
business experience as are consistent with and compatible to the long-range
interests and future direction of the Corporation; to consider the
qualifications of persons identified as prospective Directors to either fill
vacancies on the Board or enlarge its membership; to conduct research to
identify and recommend nomination of suitable candidates who are willing to
serve as members of the Board of Directors and who will make a substantial
contribution to the Corporation based upon a careful review of their experience,
background, interests, ability and availability to meet time commitments for
board and committee responsibilities; and to determine whether any prospective
or seated member of the Board has any economic or familial relationship with the
Corporation which may negate his/her suitability for such service. The
Committee shall also monitor current members of the Board in light of the same
guidelines used to select candidates, shall direct the activities of the Board
and
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management in matters of corporate governance, and shall have general
discretionary authority to undertake additional activities within the scope
of its primary functions.
SECTION 3.12 Meetings of each committee shall be held from time to time as the
chairman of such committee, the Chairman of the Board of Directors, or any two
members of such committee shall determine, preferably at the principal executive
office of the Corporation. All members of each committee shall be given written
notice of any meeting by the Secretary, such notice to be mailed to each member
at least three (3) days prior to the date thereof; provided, however, such
written notice shall not be required as to any member who shall receive notice
in person at least twenty-four (24) hours prior to the time of the meeting. Any
member may in writing, before or after any meeting, waive notice thereof, and
any member by his attendance at, and participation in, the action taken at any
meeting shall be deemed to have waived notice thereof. A majority of the
members of a committee shall constitute a quorum. Any action which might be
taken at a meeting of a committee may be taken without meeting if evidenced by a
resolution signed by all members. The Chairman of each Board committee shall
preside at all meetings of such committee and shall perform such other duties as
may be prescribed by the Board of Directors or the Chairman thereof.
SECTION 3.13 All action taken by the Board committees shall be reported to the
Board of Directors at its meeting next succeeding such action and shall be
subject to revision by the Board of Directors provided that no acts or rights of
third parties shall be prejudiced thereby. All such action shall also be
recorded in the minute books of the Corporation in the same manner in which
action taken by the Board of Directors is recorded. The affirmative vote of the
majority of all members of each committee shall be necessary to its adoption of
any resolution.
ARTICLE IV
Officers
SECTION 4.1 The officers of this Corporation shall be elected by the Board from
time to time as it deems appropriate, and shall include a Chairman of the Board
of Directors, who shall serve as Chief Executive Officer, to be elected by the
Board of Directors from among its members, a president, and one or more vice
presidents one of whom shall perform the duties of the Chief Financial Officer,
a secretary, a treasurer, and such other officers and agents as may from time to
time be elected by the Board of Directors. Any two offices except those of the
President and Vice President may be held by the same person. All officers shall
hold office at the pleasure of the Board of Directors and be subject to
dismissal by it, with or without cause.
SECTION 4.2 The salary and other compensation of the Chairman of the Board, the
President and all elected Vice Presidents shall be fixed by the Board of
Directors. If any vacancy shall occur among the elected officers, it shall be
filled by the Board.
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SECTION 4.3 The Chairman of the Board of Directors, or in his absence the
Chairman of the Organization and Compensation Committee, shall preside at all
meetings of the Board of Directors. The Chairman of the Board has authority to
appoint certain officers of the Company, including vice presidents and certain
assistant officers whose responsibilities do not warrant election by the Board
of Directors, and shall also perform such other duties as may be prescribed by
the Board of Directors.
SECTION 4.4 The President shall be Chief Operating Officer of the Corporation
and, as such, shall carry out the plans for the Corporation as approved by the
Chairman of the Board and the Board of Directors. In the absence of the
Chairman of the Board of Directors, he shall preside at all meetings of the
stockholders and otherwise perform the Chief Executive Officer's duties as
prescribed by the Board of Directors.
SECTION 4.5 Each Vice President shall perform such duties as may be prescribed
by the Board of Directors. The Vice President of Finance shall be the Chief
Financial Officer. In the absence or disability of the Chairman of the Board,
the President shall succeed to his powers and duties, and in the absence of the
President, the Chief Financial Officer shall succeed to his powers and duties,
and in the event all are unable to serve for any reason, the Vice Presidents
shall succeed to their power and duties in the order in which elected.
SECTION 4.6 The Secretary shall attend all meetings of the Board of Directors,
Executive Committee, and of the stockholders, and record all votes and keep
minutes of all proceedings. He shall give, or cause to be given, required
notices of meetings of the Board of Directors, Executive Committee and of the
stockholders. He shall keep in safe custody the seal of the Corporation and,
when authorized by the Board, affix the same to any instrument requiring it, and
shall perform such other duties as may be prescribed by the Board of Directors.
SECTION 4.7 The Treasurer shall maintain necessary relationships with banks and
other financial institutions and provide for adequate lines of credit; shall
plan for and maintain adequate funds in appropriate working and depository
accounts to meeting outstanding and planned commitments; and shall be
responsible for safe custody and control of all funds and securities of the
Corporation. He shall establish policies and procedures in relation to, and
supervise management of, the extension of credit, and the collection of
receivables. He shall maintain appropriate bond and dividend records, provide
for proper signature or endorsement on all financial documents of the
Corporation, and shall perform such other duties as may be prescribed by the
President.
SECTION 4.8 The assistant to any officer shall, in the absence or disability of
that officer, perform his duties and shall perform such other duties as may be
prescribed by the Board of Directors.
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THE TORO COMPANY
SUPPLEMENTAL MANAGEMENT RETIREMENT PLAN
JULY 27, 1998 RESTATEMENT
<PAGE>
CONTENTS
<TABLE>
<S> <C>
I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . .1
II. ELIGIBILITY AND PARTICIPATION . . . . . . . . . . . . . . . .4
III. SUPPLEMENTAL ACCOUNT. . . . . . . . . . . . . . . . . . . . .4
3.1 Establishment of Account. . . . . . . . . . . .4
3.2 Credits to Article III Account. . . . . . . . .4
3.3 Earnings on Amounts Credited. . . . . . . . . .5
3.4 Optional Earnings Credits . . . . . . . . . . .5
IV. SUPPLEMENTAL RETIREMENT BENEFIT . . . . . . . . . . . . . . .6
4.1 Benefit Eligibility . . . . . . . . . . . . . .6
4.2 Calculation of the Benefit. . . . . . . . . . .6
4.3 Effect of Plan Termination. . . . . . . . . . .7
V. SUPPLEMENTAL SURVIVING SPOUSE BENEFIT . . . . . . . . . . . .7
5.1 Eligibility for Surviving Spouse Benefit. . . .7
5.2 Calculation of the Benefit. . . . . . . . . . .8
5.3 Effect of Plan Termination. . . . . . . . . . .8
VI. DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . .8
6.1 Distribution of Article III Accounts. . . . . .8
6.2 Election of Distribution Method -
Article III Accounts. . . . . . . . . . . . . .8
6.3 Death Prior to Completion of Distributions. . .9
6.4 Distribution of Article IV Accounts . . . . . .9
6.5 Election of Distribution Method -
Article IV Benefits . . . . . . . . . . . . . 10
6.6 Death Before Termination of Employment. . . . 10
6.7 Distributions in Common Stock of the Company. 10
6.8 Distributions for Certain Tax Purposes. . . . 10
VII. ADMINISTRATION OF THE PLAN. . . . . . . . . . . . . . . . . 11
7.1 Company Authority . . . . . . . . . . . . . . 11
7.2 Reliance. . . . . . . . . . . . . . . . . . . 11
7.3 Benefit Statements. . . . . . . . . . . . . . 11
7.4 Claims. . . . . . . . . . . . . . . . . . . . 11
VIII. AMENDMENT OR TERMINATION. . . . . . . . . . . . . . . . . . 13
IX. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . 14
9.1 The Trust . . . . . . . . . . . . . . . . . . 14
9.2 No Alienation . . . . . . . . . . . . . . . . 14
9.3 Unfunded Plan . . . . . . . . . . . . . . . . 14
9.4 No Guaranty . . . . . . . . . . . . . . . . . 15
9.5 No Right of Employment. . . . . . . . . . . . 15
</TABLE>
<PAGE>
<TABLE>
<S> <C>
9.6 Smaller Accounts. . . . . . . . . . . . . . . 15
9.7 Incompetency. . . . . . . . . . . . . . . . . 15
9.8 Corporate Changes . . . . . . . . . . . . . . 15
9.9 Addresses . . . . . . . . . . . . . . . . . . 16
9.10 Limitations on Liability. . . . . . . . . . . 16
9.11 Unforseeable Emergencies. . . . . . . . . . . 16
9.12 Disability. . . . . . . . . . . . . . . . . . 16
9.13 Transfers to the Trust. . . . . . . . . . . . 17
9.14 Inspection. . . . . . . . . . . . . . . . . . 17
9.15 Governing Law . . . . . . . . . . . . . . . . 17
</TABLE>
-ii-
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THE TORO COMPANY
SUPPLEMENTAL MANAGEMENT RETIREMENT PLAN
JULY 27, 1998 RESTATEMENT
The Toro Company hereby amends and restates its Supplemental Management
Retirement Plan originally effective as of August 1, 1989, as subsequently
amended and restated. This amendment and restatement is effective as of July
27, 1998. This Plan is maintained by Company for the purpose of providing
benefits for a select group of highly-compensated employees, in excess of the
limitations on benefits and contributions imposed by Sections 401(a)(17) and 415
of the Internal Revenue Code of 1986. This Plan is unfunded for purposes of
Title I of ERISA.
I. DEFINITIONS
When used in this Plan, the following terms have the meanings indicated
unless a different meaning is plainly required by the context.
"BENEFICIARY" means the person or persons selected by the Participant to
receive benefits under this Plan in the event of the Participant's death.
"CHANGE OF CONTROL" means the earliest to occur of (i) a public
announcement that a Person shall have acquired or obtained the right to acquire
Beneficial Ownership (within the meaning of Rule 13d-3 under the Exchange Act)
of 15% or more of the outstanding shares of Common Stock of the Company,
(ii) the commencement of, or announcement of intention to make, a tender offer
or exchange offer, the consummation of which would result in the Beneficial
Ownership by a Person of 15% or more of the outstanding shares of Common Stock
of the Company, or (iii) the occurrence of a tender offer, exchange offer,
merger, consolidation, sale of assets or earning power, or contested election,
or any combination thereof, that causes or would cause the persons who were
directors of the Company immediately before such Change of Control to cease to
constitute a majority of the Board of Directors of the Company or any parent of
or successor to the Company.
For purposes of this definition, "Person" means any individual,
corporation, partnership, trust, other entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act)(excluding the Company, a
subsidiary of the Company, any employee benefit plan of the Company or any
Subsidiary or any entity holding shares of Common Stock for or pursuant to the
terms of any such plan). For purposes
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of this definition, Beneficial Ownership includes securities beneficially
owned, directly or indirectly, by a Person and such Person's affiliates and
associates, as defined under Rule 12b-2 under the Exchange Act, and
securities which such Person and its affiliates and associates have the right
to acquire or the right to vote, or by any other Person with which such
Person or any of such Person's affiliates or associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of shares of Common Stock, as more fully described in The Toro
Company Preferred Share Purchase Rights Plan dated as of May 20, 1998.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board of Directors of
the Company, or any successor committee.
"COMMON STOCK" means the Company's common stock, par value $1.00 per share,
and related preferred share purchase rights.
"COMPANY" means The Toro Company, a Delaware corporation.
"COMPENSATION" means all amounts received by a Participant from the Company
that are subject to federal income tax withholding: provided, that
(i) Compensation shall not include any amount received by an employee on account
of the grant or exercise of an option to purchase Common Stock of the Company,
and (ii) Compensation shall include an amount equal to any reductions in a
Participant's gross income as a result of salary reductions under Sections 125
or 401(k) or 402(a)(8) of the Code.
"DISTRIBUTION ELECTION FORM" means a form provided by the Company through
which a Participant makes the distribution elections provided for in Article VI.
"ELIGIBILITY SERVICE" means eligibility service as defined in the Profit
Sharing Plan.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESOP" means The Toro Company Employee Stock Ownership Plan, as amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"PARTICIPANT" means any employee of the Company or a participating
Subsidiary who meets the conditions described in Article II of this Plan.
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"PARTICIPATING SUBSIDIARY" means a Subsidiary of the Company to which this
Plan has been extended by action of the Board of Directors of the Company or by
action of the Committee, if the Board of Directors has authorized the Committee
to so act.
"PENSION PLAN" means The Toro Company Retirement Plan for Office and Hourly
Employees (the successor of The Toro Company Retirement Plan for Office
Employees), as amended, or any successor or replacement plan.
"PLAN" means this Supplemental Management Retirement Plan, as amended.
"PLAN YEAR" means the calendar year.
"PROFIT SHARING PLAN" means The Toro Company Investment and Savings Plan
(prior to August 1, 1995, The Toro Company Profit Sharing Plan for Office
Employees), as amended, or any successor or replacement plan.
"SECTION 16 INSIDER" means any Participant who is, with respect to the
Company, subject to Section 16 of the Exchange Act.
"SUBSIDIARY" means any corporation which is a component member of the
controlled group of corporations of which the Company is the common parent.
Controlled group shall be determined by reference to Section 1563 of the Code
but including any corporation described in Section 1563(b) (2) thereof.
"SURVIVING SPOUSE" means a person who is married to a Participant at the
date of the Participant's death and for at least one year prior thereto.
"TRUST" means the trust established or maintained by the Company which is
used in connection with this Plan to assist the Company in meeting its
obligations under the Plan.
"TRUSTEE" means the corporation or individual selected by the Company to
serve as trustee for the Trust.
The singular form of any word shall include the plural and the masculine
gender shall include the feminine where necessary for the proper interpretation
of this Plan.
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II. ELIGIBILITY AND PARTICIPATION
An employee who satisfies the conditions of Section 2.2 and whose benefits
under the ESOP, the Pension Plan or the Profit Sharing Plan are or will be
reduced because of the limitations on contributions and benefits imposed by
Sections 401(a) (17) or 415 of the Code shall be a Participant in the Plan.
Prior to August 1, 1994, a Participant in the Plan was required to be an
executive of the Company at the level of Vice President or above or an employee
receiving annual Compensation equal to or greater than $200,000. On and after
August 1, 1994, a Participant in the Plan must be an employee of the Company or
of a Participating Subsidiary receiving annual Compensation at a rate equal to
or greater than $150,000, as such amount may be adjusted from time to time by
the Secretary of the Treasury pursuant to Section 401(a)(17) of the Code.
Once an employee becomes a Participant, his or her account under the Plan
will remain in effect until distributed as provided herein, even if for any
subsequent Plan Year or portion thereof the employee is ineligible to be a
Participant, or ceases to be a Participant for any other reason.
III. SUPPLEMENTAL ACCOUNT
3.1 ESTABLISHMENT OF ACCOUNT
The Company shall establish and maintain an Article III account for each
Participant, and shall credit such account for each Plan Year with an amount
equal to the amount described in Section 3.2.
3.2 CREDITS TO ARTICLE III ACCOUNT
The amount credited to a Participant's Article III account for each Plan
Year or portion thereof during which the employee is a Participant shall equal
the difference between:
(a) the aggregate amount of contributions and forfeitures which would
have been allocated or reallocated to the Participant under the Profit Sharing
Plan, the ESOP and any other defined contribution plan (as defined in Section
414(i) of the Code) maintained by the Company, based on the Participant's
Compensation, and without regard to the limitations imposed by Sections
401(a)(l7) or 415 of the Code, and
(b) the aggregate amount of contributions and forfeitures actually
allocated or reallocated to the Participant under such qualified plans plus any
credits
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made under any nonqualified deferred compensation plan maintained by the
Company (other than this Plan) to replace amounts that would have been
credited under the qualified plans had the Participant not deferred
compensation under such nonqualified plans.
Amounts credited to a Participant's Article III account for any Plan Year
shall be credited as of the end of such Plan Year.
3.3 EARNINGS ON AMOUNTS CREDITED
Amounts credited to a Participant's Article III account shall be credited
with interest at a rate and in a manner determined by the Company to be
consistent with the average prime rate of interest charged by U. S. Bank,
National Association to its individual borrowers. Prior to a Change of Control
the method for determining the interest crediting rate may be changed at any
time, at the discretion of the Company. After a Change of Control, the Trustee
shall have authority to change the method for determining the interest crediting
rate. Interest shall be credited as of the end of each quarter.
3.4 OPTIONAL EARNINGS CREDITS
If a Participant's age and years of Eligibility Service with the Company
equals or exceeds sixty (60), the Participant may request the Trustee in
writing, on a form approved by the Committee, to invest a specified percentage
of his or her Article III account in one or more of the investment vehicles made
available by the Company under the Trust. A Participant may change his or her
election as of the first day of January and as of the first day of July, and
more frequently if permitted by the Company, by delivering an election form to
the Chief Financial Officer of the Company at least thirty days prior to the
effective date of the election. Prior to a Change of Control, the investment
vehicles made available to the Participants shall be selected by the Chief
Executive Officer of the Company or by such Officer's designee. After a Change
of Control, investment vehicles shall be selected by the Trustee. Any expense
incurred in connection with an investment option shall be charged on a pro rata
basis against the Participants' accounts. The investment vehicles made
available under the Trust shall include at least one vehicle that provides a
fixed rate of interest through investment in fixed income mutual funds or common
trust funds, U.S. Treasury bonds and notes, certificates of deposit, annuity
contracts, or other similar investments.
If the investment vehicles include a fund that invests exclusively or
primarily in the Company's Common Stock, Participants who are Section 16
Insiders may allocate amounts to or from such fund only in accordance with
Company policies on insider
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trading and in compliance with the rules for "Discretionary Trading" as
defined in Rule 16b-3 (or any successor provision) under the Exchange Act.
Distributions from a fund that invests exclusively or primarily in the
Company's Common Stock shall be made in Common Stock.
If the Committee approves an election made as provided in this Section, the
Participant's account will thereafter be credited with earnings or losses based
upon the earnings or losses attributable to the investments so elected; and the
Company shall not credit any portion of the account subject to such election
with interest, as described in Section 3.3.
IV. SUPPLEMENTAL RETIREMENT BENEFIT
4.1 BENEFIT ELIGIBILITY
A supplemental retirement benefit shall be payable to a Participant under
this Article IV commencing on the Participant's normal retirement date, as
defined in the Pension Plan. The amount of that benefit, which shall not be
less than zero, shall equal the difference between:
(a) the amount that the Participant would have been entitled to
receive under the Pension Plan and any other defined benefit plans (as defined
in Section 414(j) of the Code) maintained by the Company if such amount was
determined (for each Plan Year or portion thereof in which the individual was a
Participant) without regard to the limitations on benefits imposed by Sections
401(a)(17) or 415 of the Code on such plan or plans, reduced by the Defined
Contribution Plan Offset, as defined in the Pension Plan, but including as an
additional part of such Defined Contribution Plan Offset the sum of (i) amounts
credited to the Participant under Article III of this Plan (including interest
and other credits thereto) and (ii) amounts credited to the Participant under
any other nonqualified deferred compensation plan maintained by the Company to
replace amounts that would have been credited under such qualified plans had the
Participant not deferred compensation under such a nonqualified deferred
compensation plan, and
(b) the amount of the benefit actually payable to the Participant
under the Pension Plan and such other qualified defined benefit plans.
4.2 CALCULATION OF THE BENEFIT
(a) The amount described in Section 4.1 will be computed as of the date of
the Participant's retirement or termination of employment with the Company, in
the form of a straight life annuity payable monthly over the lifetime of the
Participant
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commencing on the Participant's normal retirement date, as defined under the
Pension Plan.
(b) If the benefit under Article IV is payable in any form other than
a straight life annuity over the lifetime of the Participant, or if it commences
at any time other than the Participant's normal retirement date as defined in
the Pension Plan, the amount of the benefit shall be the actuarial equivalent of
the benefit described in clause (a) of this Section.
(c) For purposes of clauses (a) and (b) of this Section, the benefit
calculation shall be made using the same actuarial methods and assumptions as
are used at the time to determine benefits under the Pension Plan.
4.3 EFFECT OF PLAN TERMINATION
If the Pension Plan is terminated by the Company, the benefit payable to a
Participant under this Article IV, if any, shall be determined as of the
termination date of the Pension Plan and no other benefit shall be provided
under this Article IV.
V. SUPPLEMENTAL SURVIVING SPOUSE BENEFIT
5.1 ELIGIBILITY FOR SURVIVING SPOUSE BENEFIT
If a Participant dies prior to commencement of payment of his or her
benefit under the Pension Plan under circumstances in which a benefit is
payable to the Participant's Surviving Spouse under such plan, then a
supplemental benefit shall be payable to the Surviving Spouse under this Plan.
The benefit shall be an amount, not less than zero, equal to the difference
between:
(a) the monthly amount of the benefit under the Pension Plan and any
other qualified defined benefit plans maintained by the Company to which the
Surviving Spouse would have been entitled under such plan or plans if such
benefit were computed without regard to the limitations on benefits imposed by
Sections 401(a)(17) or 415 of the Code, reduced by the Defined Contribution Plan
Offset, as defined in the Pension Plan, but including as an additional part of
such Defined Contribution Plan Offset the sum of (i) amounts credited to the
Participant under Article III of this Plan (including interest and other credits
thereto) and (ii) amounts credited to the Participant under any other
nonqualified deferred compensation plan maintained by the Company to replace
amounts that would have been credited under such qualified plans had the
Participant not deferred compensation under such a nonqualified deferred
compensation plan, and
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(b) the monthly amount of the benefit actually payable to the
Surviving Spouse under the Pension Plan and such other plan or plans.
5.2 CALCULATION OF THE BENEFIT
Subject to Section 9.6, a benefit payable under this Article V shall be
payable over the lifetime of the Surviving Spouse in monthly installments
commencing on the date for commencement of payment of the benefit payable to the
Surviving Spouse under the Pension Plan and terminating on the date of the last
payment of the benefit payable to the Surviving Spouse under the Pension Plan.
A Participant may elect on a Distribution Election Form to have the actuarial
equivalent of the benefit described herein paid in a lump sum. If the lump sum
option is elected, it shall be paid on the first day of the month following the
month in which the Participant dies, or as soon thereafter as is
administratively feasible. A Participant may change the form of payment in the
manner described in Section 6.2. The actuarial equivalent of the benefit
described in this Section 5.2 shall be determined using the actuarial methods
specified in the Pension Plan.
5.3 EFFECT OF PLAN TERMINATION
If the Pension Plan is terminated by the Company, the benefit payable to a
Surviving Spouse under this Article V, if any, shall be determined as of the
termination date of the Pension Plan and no other benefit shall be provided
under this Article V.
VI. DISTRIBUTIONS
6.1 DISTRIBUTION OF ARTICLE III ACCOUNTS
All amounts credited to a Participant's account in accordance with Article
III of this Plan, including gains or losses, shall be distributed to or with
respect to a Participant only upon termination of the Participant's employment
with the Company for any reason including death.
6.2 ELECTION OF DISTRIBUTION METHOD - ARTICLE III ACCOUNTS
Each Participant shall elect on a Distribution Election Form the method of
distribution of his or her Article III account. The election shall become
effective upon its receipt by the Company. A Participant may change his or her
election at any time up to two years before the date of the Participant's
retirement from the Company. Any change shall become effective on January 1 of
the calendar year following the calendar year in which the change was received
by the Company. No change in election will be effective if made after the
Participant's employment with the
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Company is terminated for any reason. The Committee may, in its sole
discretion, reduce the payment period over which payments would have been
made pursuant to a Participant's election. If no election has been made, the
Company shall pay the amounts credited to a Participant's Article III account
in accordance with the election made by the Participant under The Toro
Company Supplemental Retirement Plan, or if no such elections have been made
or are in effect, then in a lump sum payment or, at the discretion of the
Company, through a single life annuity on the life of the Participant.
6.3 DEATH PRIOR TO COMPLETION OF DISTRIBUTIONS
If a Participant dies before the full amount of his or her Article III
account has been distributed, any remaining amounts shall be distributed to the
Participant's Beneficiary by a method designated by the Participant in his or
her Distribution Election Form. If a Participant has not designated a
Beneficiary or method of distribution, or if no designated Beneficiary is living
on the date of distribution, such amounts shall be distributed to the
Participant's beneficiary under the Profit Sharing Plan in a lump sum
distribution as soon as administratively feasible following the Participant's
death.
6.4 DISTRIBUTION OF ARTICLE IV ACCOUNTS
All amounts credited to a Participant's account in accordance with Article
IV of the Plan, including gains and losses, shall be distributed to or with
respect to a Participant in accordance with this Section and the other
provisions of this Article.
Each Participant shall elect on a Distribution Election Form the method of
distribution of his or her Article IV benefit. The election shall become
effective upon its receipt by the Company. A Participant may change his or her
election at any time up to two years before the date of the Participant's
retirement from the Company. Any change shall become effective on January 1 of
the calendar year following the calendar year in which the change was received
by the Company. No change in election will be effective if elected after the
Participant's employment with the Company is terminated for any reason. The
Committee may, in its sole discretion, reduce the payment period over which
payments would have been made pursuant to a Participant's election. If no
election has been made, the Company shall pay the benefit described in Article
IV in the form of a life annuity over the life of the Participant.
If a Participant dies before termination of employment or retirement, no
benefit is payable under Article IV but a benefit may be payable under Article V
if and to the extent that the conditions of that Article are satisfied.
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6.5 ELECTION OF DISTRIBUTION METHOD - ARTICLE IV BENEFITS
Each Participant shall elect on a Distribution Election Form the method of
distribution of his or her Article IV benefit. The election shall become
effective upon its receipt by the Company. A Participant may change his or her
election at any time up to two years before the date of the Participant's
retirement from the Company. Any change shall become effective on January 1 of
the calendar year following the calendar year in which the change was received
by the Company. No change in election will be effective if made after the
Participant's employment with the Company is terminated for any reason. The
Committee may, in its sole discretion, reduce the payment period over which
payments would have been made pursuant to a Participant's election. If no
election has been made, the Company shall pay the benefit described in Article
IV in the form of a life annuity over the life of the Participant.
6.6 DEATH BEFORE TERMINATION OF EMPLOYMENT
If a Participant dies before termination of employment or retirement from
the Company, no benefit is payable under Article IV but a benefit may be payable
under Article V if and to the extent that the conditions of that Article are
satisfied.
6.7 DISTRIBUTIONS IN COMMON STOCK OF THE COMPANY
Any distribution under the Plan in the form of Company Stock shall be made
in a lump sum if the Participant has elected a lump sum distribution or if a
lump sum distribution occurs for any other reason. If the Participant has
elected monthly distributions over one or more years, then distributions of
Company Stock shall be made annually, during the first calendar quarter of each
year over which monthly distributions are scheduled to be made.
6.8 DISTRIBUTIONS FOR CERTAIN TAX PURPOSES
If at any time a court or the Internal Revenue Service determines that any
amount in a Participant's account or in the Trust is includable in a
Participant's gross income and subject to tax, the Company shall make a lump sum
distribution to such Participant (but not in an amount greater than the value of
the Participant's account at the time of the distribution) of an amount equal to
the amount determined to be so includable, and shall debit the Participant's
account under the Plan by a like amount, plus the amount of any excise tax under
Section 4999 of the Code with respect to the amounts so includable.
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VII. ADMINISTRATION OF THE PLAN
7.1 COMPANY AUTHORITY
The Plan shall be administered by the Company, which shall have the
authority, duty and power to interpret and construe the provisions of the Plan
in its sole discretion. The Company shall have the duty and responsibility of
maintaining records, making the requisite calculations and disbursing the
payments hereunder. The Company's interpretations, determinations, regulations
and calculations shall be final and binding on all persons and parties
concerned.
7.2 RELIANCE
The Company shall be entitled to rely conclusively upon all tables,
valuations, certificates, opinions and reports furnished by any actuary,
accountant, controller, counsel or other person employed or engaged by the
Company with respect to the Plan.
7.3 BENEFIT STATEMENTS
The Company shall furnish individual statements of accrued benefits to each
Participant, or current Beneficiary or Surviving Spouse at least annually, in
such form as determined by the Company
7.4 CLAIMS
The employee benefit plan procedures in this section are intended to comply
with Section 503 of ERISA and Section 2560.503-1 of the Department of Labor
Regulations and pertain to claims by Participants and Beneficiaries
("claimants") for Plan benefits, consideration of such claims, and review of
claim denials. For purposes of these procedures, a "claim" is a request for a
benefit by a Participant or Beneficiary under the Plan. A claim is filed when
the requirements of these procedures have been met.
(a) If a claim is wholly or partially denied, notice of the decision,
meeting the requirements of subsection (b) of these procedures, shall be
furnished to the claimant within a reasonable period of time after receipt of
the claim by the Company. If notice of the denial of a claim is not furnished
in accordance with this subsection (a) within a reasonable period of time, the
claim shall be deemed denied and the claimant shall be permitted to proceed to
the review stage described in subsection (c) of these procedures. For purposes
of this subsection (a), the period of time for notification to the claimant will
not exceed 90 days after receipt of the claim by the Company, unless special
circumstances require an extension of time for
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processing the claim. If such an extension of time for processing is
required, written notice of the extension shall be furnished to the claimant
prior to the termination of the initial 90-day period. In no event shall
such extension exceed a period of 90 days from the end of such initial
period. The extension notice shall indicate the special circumstances
requiring an extension of time and the date by which the Company expects to
render the final decision.
(b) The Company shall provide to every claimant who is denied a claim
for benefits written notice setting forth in a manner calculated to be
understood by the claimant:
(i) the specific reason or reasons for the denial;
(ii) specific reference to pertinent provisions of the Plan or Agreement on
which the denial is based;
(iii) a description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why such
material or information is necessary; and
(iv) appropriate information as to the steps to be taken if the Participant
or Beneficiary wishes to submit his or her claim for review.
(c) If a claim is denied in whole or in part and if the claimant is
dissatisfied with the disposition of the claim, the claimant or his or her duly
authorized representative shall have a reasonable opportunity to appeal the
denied claim to the Company or to a person designated by the Company, and shall
have a full and fair review of the claim and its denial. Under this review
procedure, a claimant or his or her duly authorized representative may:
(i) request a review upon written application to the Company;
(ii) review pertinent documents; and
(iii) submit issues and comments in writing.
A claimant must file such a request for review of a denied claim within a
reasonable period of time, not to exceed 60 days, after receipt by the claimant
of written notification of denial of a claim.
(d) A decision by the Company shall be made promptly and shall not
ordinarily be made later than 60 days after the receipt by the Company of a
request for
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review, unless special circumstances (such as the need to hold a hearing)
require an extension of time for processing, in which case a decision shall
be rendered as soon as possible, but not later than 120 days after receipt of
a request for review. If an extension of time for review is required because
of special circumstances, written notice of the extension shall be furnished
to the claimant prior to the commencement of the extension. The decision on
review shall be in writing and shall include specific reasons for the
decision, written in a manner calculated to be understood by the claimant, as
well as specific references to the pertinent provisions of the Plan or
Agreement on which the decision is based. The decision on review shall be
furnished to the claimant within the period of time described in this
subsection (d). If the decision on review is not furnished within such time,
the claim shall be deemed denied on review.
VIII. AMENDMENT OR TERMINATION
The Company intends the Plan to be permanent but reserves the right to
amend or terminate the Plan at any time.
No amendment or termination of the Plan shall directly or indirectly reduce
the balance of any account described in Article III as of the effective date of
such amendment or termination. Upon termination of the Plan, distribution of
amounts credited to such account shall be made to the Participant or his or her
Beneficiary in accordance with Article VI. No additional credits or
contributions will be made to any account under the Plan after termination of
the Plan, but gains or losses will continue to be credited to the Participant's
account under the Plan until all benefits are distributed to the Participants or
their Beneficiaries.
No amendment or termination of the Plan shall directly or indirectly
deprive any current or former Participant or Surviving Spouse of all or any
portion of any benefit under Article IV or Article V of the Plan payment of
which has commenced prior to the effective date of such amendment or termination
or which would be payable if the Participant terminated employment for any
reason, including death, on such effective date.
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IX. GENERAL PROVISIONS
9.1 THE TRUST
The Company has established a Trust which may be used to pay benefits
arising under this Plan and costs, charges and expenses relating thereto. To
the extent that the funds held in the Trust are insufficient to pay such
benefits, costs, charges and expenses, and except as provided in Section 3.5
relating to investment option elections, the Company shall pay them.
9.2 NO ALIENATION
Neither the benefits payable hereunder nor the right to receive future
benefits under the Plan may be anticipated, alienated, sold, transferred,
assigned, pledged, encumbered, or subjected to any charge or legal process; no
interest or right to receive a benefit may be taken, either voluntarily or
involuntarily, for the satisfaction of the debts of, or other obligations or
claims against, such person or entity, including claims for alimony, support,
separate maintenance and claims in bankruptcy proceedings.
9.3 UNFUNDED PLAN
The Plan at all times shall be considered entirely unfunded both for tax
purposes and for purposes of Title I of ERISA. Funds invested under this Plan,
including amounts held in the Trust, shall continue for all purposes to be part
of the general assets of the Company and available to the general creditors of
the Company in the event of the Company's bankruptcy (when the Company is
involved in a pending proceeding under the Federal Bankruptcy Code) or
insolvency (when the Company is unable to pay its debts as they mature). In the
event of the Company's bankruptcy or insolvency, the Company's Board of
Directors and chief executive officer are required to notify the Trustee and
each Participant in writing of such an occurrence within three business days
following the Company's becoming aware thereof. No Participant, Surviving
Spouse or any other person shall have any interest in any particular assets of
the Company by reason of the right to receive a benefit under the Plan and to
the extent the Participant, Surviving Spouse or any other person acquires a
right to receive benefits under this Plan, such right shall be no greater than
the right of any general unsecured creditor of the Company. The Plan
constitutes a mere promise by the Company to make payments to the Participants,
Surviving Spouses, or Beneficiaries in the future.
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9.4 NO GUARANTY
Nothing contained in the Plan shall constitute a guaranty by the Company or
any other person or entity that any funds in the Trust or the assets of the
Company will be sufficient to pay any benefit hereunder.
9.5 NO RIGHT OF EMPLOYMENT
No Participant or Surviving Spouse shall have any right to a benefit under
this Plan except in accordance with the terms of the Plan. Establishment of the
Plan shall not be construed to give any Participant the right to be retained in
the service of the Company.
9.6 SMALLER ACCOUNTS
If the value or actuarial value of any benefit payable to or on behalf of
the Participant under the Plan is $25,000 or less, the Company shall have the
discretion to pay such value or actuarial value to the Participant, Beneficiary,
or Surviving Spouse in a single lump sum in lieu of any further benefit payments
under the Plan.
9.7 INCOMPETENCY
If any person entitled to a benefit payment under the Plan is declared
incompetent and a conservator or other person legally charged with the care of
his or her person or his or her estate is appointed, any benefits under the Plan
to which such person is entitled shall be paid to such conservator or other
person. Except as provided above, when the Company determines that such person
is unable to manage his or her financial affairs, the Company may provide for
such payment or any part thereof to be made to any other person or institution
then contributing toward or providing for the care and maintenance of such
person. Any such payment shall be a payment for the account of such person and
a complete discharge of any liability of the Company and the Plan therefor.
9.8 CORPORATE CHANGES
The Plan shall not be automatically terminated by a transfer or sale of
assets of the Company or by the merger or consolidation of the Company into or
with any other corporation or other entity, but the Plan shall be continued
after such sale, merger or consolidation only if and to the extent that the
transferee, purchaser or successor entity agrees to continue the Plan. In the
event that the Plan is not continued by the transferee, purchaser or successor
entity, then the Plan shall terminate subject to the provisions of Article VIII.
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9.9 ADDRESSES
Each Participant shall keep the Company informed of his or her current
address and the current address of his or her spouse or designated Beneficiary.
The Company shall not be obligated to search for any person. If the location of
a Participant is not made known to the Company within three (3) years after the
date on which payment of the Participant's benefits payable under this Plan may
first be made, payment may be made as though the Participant had died at the end
of the three-year period. If, within one additional year after such three-year
period has elapsed, or, within three (3) years after the actual death of a
Participant, the Company is unable to locate any Surviving Spouse or designated
Beneficiary of the Participant, then the Company shall have no further
obligation to pay any benefit hereunder to such Participant, Surviving Spouse or
designated Beneficiary and such benefits shall be irrevocably forfeited.
9.10 LIMITATIONS ON LIABILITY
Notwithstanding any of the preceding provisions of the Plan, neither the
Company nor any individual acting as an employee or agent of the Company shall
be liable to any Participant, former Participant, Surviving Spouse, or any other
person for any claim, loss, liability or expense incurred in connection with the
Plan, unless attributable to fraud or willful misconduct on the part of the
Company or any such employee or agent of the Company.
9.11 UNFORSEEABLE EMERGENCIES
In the event a Participant incurs an unforeseeable emergency, the
Participant may make a written request to the Committee for a hardship
withdrawal from his or her account established under Article III. An
unforeseeable emergency is a severe financial hardship to the Participant
resulting from a sudden and unexpected illness or accident of the Participant or
of a dependent (as defined in Section 152(a) of the Code) of the Participant,
loss of the Participant's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the Participant. Withdrawals of amounts because of an
unforeseeable emergency are only permitted to the extent reasonably needed to
satisfy the emergency need. This provision shall be interpreted in a manner
consistent with Sections 1.457-2(h)(4) and 1.457-2(h)(5) of the Treasury
Regulations.
9.12 DISABILITY
A Participant who becomes permanently disabled may make a written request
to the Committee for a withdrawal of the accrued benefits in his or her account
under Article IV. For purposes of this Section, a Participant becomes
"permanently
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disabled" if he or she qualifies for long-term disability benefits under the
Company's long-term disability plan. If the Participant does not participate
in such a plan or the Company does not offer such a plan, the Committee in
its sole discretion shall determine whether a Participant is permanently
disabled. Permanent disability does not include any period of short-term
disability under any Company plan providing for short-term disability
benefits. If a withdrawal of accrued benefits under this Section is approved
by the Committee, the maximum amount payable shall be determined as provided
in Section 4.2.
9.13 TRANSFERS TO THE TRUST
On the occurrence of a Change of Control or if a Participant elects to
direct the investment of amounts credited to his or her account pursuant to
Section 3.5, the Company shall transfer cash or property to the Trust in an
amount equal to the present value of all accumulated or accrued benefits then
payable to or on behalf of such Participant or Participants under this Plan,
plus any applicable fees. The Company may also transfer cash or property to the
Trust in an amount equal to the present value of all accumulated or accrued
benefits then payable under this Plan at any time in the sole discretion of the
Company. If a transfer of cash or property occurs, the amounts transferred with
respect to the benefits payable under Articles IV and V shall be, for each
Participant, Beneficiary or Surviving Spouse, the actuarial equivalent, as
determined by using the actuarial assumptions described in the Pension Plan, of
the benefits payable to or on behalf of each such individual under said Articles
IV and V. Thereafter, the Company shall, for each Plan Year, transfer cash or
property no later than thirty (30) days after the end of the Plan Year in which
the initial transfer occurs, and thereafter on each anniversary thereof, to the
Trust for the benefit of each affected individual in an amount equal to the
additional benefit accrued under the terms of this Plan during and in relation
to the most recent Plan Year then ended. In the event of a transfer, the
accounts of the Participants, established pursuant to Article III, shall be
credited with interest, or earnings and losses in accordance with Section 3.5.
9.14 INSPECTION
Each Participant shall receive a copy of the Plan, and the Company will
make available for inspection by any Participant or Beneficiary a copy of any
rules and regulations that are used by the Company in administering the Plan.
9.15 GOVERNING LAW
To the extent that it is not governed by United States federal law, the
Plan shall be construed, administered and governed in all respects under and by
the applicable laws of the State of Delaware, without giving effect to
principles of conflicts of laws.
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Dated this 6th day of April, 1999.
THE TORO COMPANY
/s/ K. B. Melrose
Its Chairman & Chief Executive Officer
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THE TORO COMPANY
SUPPLEMENTAL RETIREMENT PLAN
JULY 27, 1998 RESTATEMENT
<PAGE>
CONTENTS
<TABLE>
<S> <C>
I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
II. ELIGIBILITY AND PARTICIPATION . . . . . . . . . . . . . . . . . . . .5
III. DEFERRED COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . .5
3.1 Deferral Election. . . . . . . . . . . . . . . . . . .5
3.2 Accounts . . . . . . . . . . . . . . . . . . . . . . .6
3.3 Company Credits. . . . . . . . . . . . . . . . . . . .6
3.4 Deferral of Certain 1995 Bonus Amounts . . . . . . . .6
IV. EARNINGS ON PARTICIPANT ACCOUNTS. . . . . . . . . . . . . . . . . . .6
4.1 Earnings Credit. . . . . . . . . . . . . . . . . . . .6
4.2 Optional Earnings Credit . . . . . . . . . . . . . . .7
4.3 No Interest in Assets. . . . . . . . . . . . . . . . .7
V. DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .8
5.1 Distribution Elections . . . . . . . . . . . . . . . .8
5.2 Form of Election; Absence of a Valid Election. . . . .8
5.3 Early Distributions. . . . . . . . . . . . . . . . . .8
5.4 Unforeseeable Emergency. . . . . . . . . . . . . . . .9
5.5 Accelerated Distributions. . . . . . . . . . . . . . .9
5.6 Distributions for Certain Tax Purposes . . . . . . . .9
5.6 Timing of Distributions. . . . . . . . . . . . . . . .9
5.7 Status as General Creditor; Unfunded Plan. . . . . . 10
VI. ADMINISTRATION OF THE PLAN. . . . . . . . . . . . . . . . . . . . . 10
6.1 Company's Authority. . . . . . . . . . . . . . . . . 10
6.2 Reliance . . . . . . . . . . . . . . . . . . . . . . 10
6.3 Benefit Statements . . . . . . . . . . . . . . . . . 10
6.4 Claims . . . . . . . . . . . . . . . . . . . . . . . 11
VII. AMENDMENT OR TERMINATION. . . . . . . . . . . . . . . . . . . . . . 12
VIII. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . 13
8.1 Trust. . . . . . . . . . . . . . . . . . . . . . . . 13
8.2 No Alienation. . . . . . . . . . . . . . . . . . . . 13
8.3 Unfunded Plan. . . . . . . . . . . . . . . . . . . . 13
8.4 No Guaranty. . . . . . . . . . . . . . . . . . . . . 14
8.5 No Right of Employment . . . . . . . . . . . . . . . 14
8.6 Incompetency . . . . . . . . . . . . . . . . . . . . 14
8.7 Corporate Changes. . . . . . . . . . . . . . . . . . 14
8.8 Addresses. . . . . . . . . . . . . . . . . . . . . . 14
8.9 Limitations on Liability . . . . . . . . . . . . . . 15
8.10 Transfers to the Trust . . . . . . . . . . . . . . . 15
8.11 Inspection . . . . . . . . . . . . . . . . . . . . . 15
8.13 Governing Law. . . . . . . . . . . . . . . . . . . . 16
</TABLE>
<PAGE>
THE TORO COMPANY
SUPPLEMENTAL RETIREMENT PLAN
JULY 27, 1998 RESTATEMENT
The Toro Company hereby amends and restates its Supplemental Retirement
Plan, most recently amended and restated effective as of January 1, 1996, which
has been maintained by The Toro Company primarily for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees. This amendment and restatement is effective as of July 27, 1998.
I. DEFINITIONS
When used in this Plan document, the following terms have the meanings
indicated unless a different meaning is plainly required by the context.
"ASSISTANT SECRETARY" means the person serving as Assistant Corporate
Secretary of the Company.
"BENEFICIARY" means the person or persons selected by the Participant to
receive the benefits provided under this Plan in the event of the Participant's
death.
"CHANGE OF CONTROL" means the earliest to occur of (i) a public
announcement that a Person shall have acquired or obtained the right to acquire
Beneficial Ownership (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934 (the "Exchange Act") of 15% or more of the outstanding
shares of Common Stock of the Company, (ii) the commencement of, or announcement
of intention to make, a tender offer or exchange offer, the consummation of
which would result in the Beneficial Ownership by a Person of 15% or more of the
outstanding shares of Common Stock of the Company, or (iii) the occurrence of a
tender offer, exchange offer, merger, consolidation, sale of assets or earning
power, or contested election, or any combination thereof, that causes or would
cause the persons who were directors of the Company immediately before such
Change of Control to cease to constitute a majority of the Board of Directors of
the Company or any parent of or successor to the Company.
For purposes of this definition, "Person" means any individual,
corporation, partnership, trust, other entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act)(excluding the Company, a
Subsidiary of the Company, any employee benefit plan of the Company or any
Subsidiary or any entity holding
<PAGE>
shares of Common Stock for or pursuant to the terms of any such plan). For
purposes of this definition, Beneficial Ownership includes securities
beneficially owned, directly or indirectly, by a Person and such Person's
affiliates and associates, as defined under Rule 12b-2 under the Exchange
Act, and securities which such Person and its affiliates and associates have
the right to acquire or the right to vote, or by any other Person with which
such Person or any of such Person's affiliates or associates has any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of shares of Common Stock, as more fully
described in The Toro Company Preferred Share Purchase Rights Plan dated as
of May 20, 1998.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board of Directors of
the Company, or any successor committee.
"COMMON STOCK" means the Company's common stock, par value $1.00 per share,
and related preferred share purchase rights.
"COMPANY" means The Toro Company, a Delaware corporation.
"COMPENSATION" means all amounts received by a Participant from the Company
that are subject to federal income tax withholding: provided, that
(i) Compensation shall not include any amount received by an employee on account
of the grant or exercise of an option to purchase Common Stock of the Company,
and (ii) Compensation shall include an amount equal to any reductions in a
Participant's gross income as a result of salary reductions under Sections 125
or 401(k) or 402(a)(8) of the Code.
"DIRECTOR" means the person serving as Director of Compensation and
Benefits of the Company.
"ELIGIBILITY SERVICE" means eligibility service as defined in the Profit
Sharing Plan.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"PARTICIPANT" means an eligible employee who has executed a Deferred
Compensation Agreement.
"PLAN" means this Supplemental Retirement Plan, including any amendments
thereto.
"PLAN YEAR" means the calendar year.
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"PROFIT SHARING PLAN" means The Toro Company Investment and Savings Plan
(the successor of the Profit Sharing Plan for Office Employees) or any successor
or replacement plan.
"SECTION 16 INSIDER" means a Participant who is, with respect to the
Company, subject to Section 16 of the Securities Exchange Act of 1934, as
amended.
"SUBSIDIARY" means any corporation that is a component member of the
controlled group of corporations of which the Company is the common parent.
Controlled group shall be determined by reference to Section 1563 of the Code
but including any corporation described in Section 1563(b)(2) thereof.
"TRUST" means the trust established or maintained by the Company that is
used in connection with this Plan to assist the Company in meeting its
obligations under the Plan.
"TRUSTEE" means the corporation or individual selected by the Company to
serve as Trustee for the Trust.
The singular form of any word shall include the plural and the masculine
gender shall include the feminine wherever necessary for the proper
interpretation of this Plan.
II. ELIGIBILITY AND PARTICIPATION
All management or highly compensated employees who are at the director
level or above with the Company, or with any Subsidiary of the Company to which
this Plan has been extended by the Board of Directors of the Company, are
eligible to become Participants.
An eligible employee will become a Participant upon submission of a
completed election form, in the form approved by the Committee, to the Director
or the Assistant Secretary.
Once an employee has become a Participant, his or her account under the
Plan will remain in effect until distributed as provided herein, even if for any
subsequent Plan Year or portion thereof the employee ceases to meet the
eligibility requirements of this Article II or ceases to be a Participant for
any other reason.
III. DEFERRED COMPENSATION
3.1 DEFERRAL ELECTION
A Participant may elect to defer Compensation for a calendar year by
completing and submitting a deferral election on a form provided by the Company.
Such election
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<PAGE>
must be submitted to the Director or the Assistant Secretary by December 31
to be effective in the following year. An election shall remain in effect
until revoked or revised by the Participant by a written election delivered
to the Director or the Assistant Secretary. An election shall take effect as
of January 1 of the year following the year in which it is received.
A Participant shall not be eligible to defer Compensation for any calendar
year following the year in which he or she no longer satisfies the eligibility
requirements of this Plan, unless the Committee in its discretion permits such a
deferral.
3.2 ACCOUNTS
The Company shall establish and maintain an account for each Participant,
and shall credit such account with amounts deferred by the Participant pursuant
to Section 3.1 and the Participant's election.
3.3 COMPANY CREDITS
The Company shall credit a Participant's account as of December 31 each
year with an amount equal to the difference between (i) the amount that would
have been credited to the Participant's account under the Profit Sharing Plan
and the ESOP for the Plan Year had the Participant not made an election to defer
compensation for the year under Section 3.1 of this Plan and (ii) the amount
actually credited to the Participant's account under the Profit Sharing Plan and
the ESOP for the Plan Year. To prevent duplication of benefits, credits under
this Section 3.3 shall not be made with respect to any year or partial year in
which the Participant or any account of the Participant receives comparable
credits under the Supplemental Management Retirement Plan or any other Company
plan.
3.4 DEFERRAL OF CERTAIN 1995 BONUS AMOUNTS
Amounts credited to Participant accounts pursuant to this Section 3.4 prior
to its amendment as of July 27, 1998, representing deferrals of bonuses earned
by Participants for the fiscal year ending October 31, 1995, shall continue to
be held pursuant to the terms and conditions of this Plan, together with any
other amounts credited to the Participant's account under the Plan.
IV. EARNINGS ON PARTICIPANT ACCOUNTS
4.1 EARNINGS CREDIT
Amounts held in an account maintained for a Participant shall be credited
with interest at a rate and in a manner determined by the Committee to be
consistent with the
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<PAGE>
average prime rate of interest charged by U. S. Bank, National Association to
its individual borrowers. Prior to a Change of Control the method for
determining the interest crediting rate may be changed at any time, at the
discretion of the Committee. After a Change of Control, the Trustee shall
have authority to change the method for determining the interest crediting
rate. Interest shall be credited as of the end of each quarter.
4.2 OPTIONAL EARNINGS CREDIT
If a Participant's age and years of Eligibility Service with the Company
equals or exceeds sixty (60), the Participant may request the Trustee in
writing, on a form approved by the Company, to invest a specified percentage of
his or her account in one or more of the investment vehicles available under the
Trust. A Participant may change his or her election as of the first day of
January and as of the first day of July, and more frequently if permitted by the
Committee, by delivering an election form to the Chief Financial Officer of the
Company at least thirty days prior to the effective date of the election. Prior
to a Change of Control, the investment vehicles made available to the
Participants shall be selected by the Chief Executive Officer of the Company or
by such Officer's designee. After a Change of Control, investment vehicles
shall be selected by the Trustee. Any expense incurred in connection with an
investment option shall be charged on a pro rata basis against the Participants'
accounts. The investment vehicles made available under the Trust shall include
at least one vehicle that provides a fixed rate of interest through investment
in fixed income mutual funds or common trust funds, U.S. Treasury bonds and
notes, certificates of deposit, annuity contracts, or such other similar
investments.
If the investment vehicles include a fund that invests exclusively or
primarily in the Company's Common Stock, Participants who are Section 16
Insiders may allocate amounts to or from such fund only in accordance with
Company policies on insider trading and in compliance with the rules for
"Discretionary Trading" as defined in Rule 16b-3 (or any successor provision)
under the Securities Exchange Act of 1934, as amended. Distributions from a
fund that invests exclusively or primarily in the Company's Common Stock shall
be made in Common Stock.
If the Committee approves an election made pursuant to this Section, the
Participant's account will thereafter be credited with earnings or losses based
upon the earnings or losses attributable to the investments so elected; and the
Company shall not credit any portion of the account subject to such investment
election with interest, as described in Section 4.1.
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<PAGE>
4.3 NO INTEREST IN ASSETS
The Company may set aside or earmark funds or other assets to meet its
obligations under the Plan, but title to and ownership of such funds and assets
shall remain in the Company. Neither the Participant nor any beneficiary shall
have any ownership rights or any property interests in any of such funds or
other assets, or in any other assets of the Company, until they are distributed
in accordance with the Plan.
V. DISTRIBUTIONS
5.1 DISTRIBUTION ELECTIONS
Distributions under the Plan shall be made in accordance with the
Participant's election. Elections (both as to distributions and as to
deferrals) made prior to the July 27, 1998 Restatement of this Plan shall remain
in effect until changed by the Participant as provided in this Plan.
5.2 FORM OF ELECTION; ABSENCE OF A VALID ELECTION
Except as provided in Sections 5.3, 5.4, 5.5 and 5.6 hereof, the amount of
the Participant's deferred compensation account shall be distributed on the
Participant's retirement, resignation or termination from employment with the
Company, or on the disability or death of the Participant, whichever occurs
first. Distributions shall be made in accordance with the Participant's
distribution election most recently filed with the Director or Assistant
Secretary: provided, that any election filed two years or less before the date
of the Participant's retirement, resignation or termination of employment shall
be disregarded.
In the absence of a valid election, the Company shall pay the accrued
amount in forty (40) quarterly installments commencing after the Participant's
retirement, resignation or termination from employment with the Company, or on
the disability or death of the Participant, whichever occurs first.
Installments shall reflect earnings or losses on a monthly basis, and be paid on
an actuarially amortized and annually adjusted basis, or on a decreasing
fraction basis (1/40th, 1/39th, 1/38th, etc.), or on such other basis as elected
by the Company in its sole discretion, in order to provide reasonably level
payments throughout the period. In the event of the Participant's death before
distribution is completed (or before any early distribution under Section 5.3
hereof), the balance may be distributed in a lump sum or on an installment basis
as the Company may determine, either to any designated beneficiary or to the
estate or legal representative of the Participant.
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<PAGE>
5.3 EARLY DISTRIBUTIONS
A Participant may irrevocably elect to receive a distribution of all or a
portion of the Participant's account prior to retirement, resignation or
termination of employment with the Company, but early distributions hereunder
shall not commence until after the Participant has attained age 55. The
election shall be made not later than two years prior to the Plan Year in which
the early distribution is to be made. Distributions under this Section shall be
paid in a lump sum. Any election under this Section is subject to Committee
approval.
5.4 UNFORESEEABLE EMERGENCY
A Participant who incurs an unforeseeable emergency may make a written
request to the Company for a hardship withdrawal from the Participant's account.
An unforeseeable emergency is a severe financial hardship to the Participant
resulting from a sudden and unexpected illness or accident of the Participant or
of a dependent (as defined in Section 152(a) of the Internal Revenue Code of
1986, as amended) of the Participant, loss of the Participant's property due to
casualty, or other similar extraordinary and unforeseeable circumstances arising
as a result or events beyond the control of the Participant. Withdrawals of
amounts because of an unforeseeable emergency are permitted to the extent
reasonably needed to satisfy the emergency need. This Section 5.3 shall be
interpreted in a manner consistent with Sections 1.457-2(h)(4) and 1.457(h)(5)
of the Treasury Regulations.
5.5 ACCELERATED DISTRIBUTIONS
Prior to a Change of Control, the Company shall have the right to make
distribution on an accelerated installment basis, including lump sum, or to
purchase an annuity contract for the Participant's benefit, in the event of
merger, reorganization, sale of assets, liquidation of the Company, or for such
other causes as the Company deems appropriate in its sole discretion. Any such
lump sum or annuity payment shall be the actuarial equivalent of the
distribution elected by the Participant, calculated using actuarial assumptions
consistent with those applied at the time under the Company's Retirement Plan
for Office and Hourly Employees, or any successor or replacement plan. Any
amounts remaining in the account during the period of any accelerated
installment distribution shall continue to be credited with earnings or losses
as provided in the Plan.
5.6 DISTRIBUTIONS FOR CERTAIN TAX PURPOSES
If at any time a court or the Internal Revenue Service determines that any
amount in a Participant's account or in the Trust is includable in a
Participant's gross income and
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<PAGE>
subject to tax, the Company shall make a lump sum distribution to such
Participant (but not in an amount greater than the value of the Participant's
account under the Plan at the time of such distribution) of an amount equal
to the amount determined to be so includable, and shall deduct a like amount
from the Participant's account under the Plan.
5.7 TIMING OF DISTRIBUTIONS
Except in the event of the Participant's death or disability, benefits
payable under this Plan shall be paid beginning in the first month of the
calendar year immediately following the calendar year in which the distributable
event occurs or, in the case of distributions pursuant to elections under
Section 5.3, in the first month of the year of distribution, as elected by the
Participant and approved by the Committee. In the event of a Participant's
death or disability, benefits shall be distributed beginning in the first month
following the month in which the Participant's death occurred or the
determination of disability is made.
5.8 STATUS AS GENERAL CREDITOR; UNFUNDED PLAN
To the extent that any person acquires the right to receive any
distribution under this Agreement, such rights shall be no greater than the
right of any unsecured general creditor of the Company. The Agreement shall at
all times be considered unfunded for tax purposes and for purposes of Title I of
the Employee Retirement Income Security Act of 1974, as amended. This Agreement
and all rights, interests, and benefits hereunder shall not be assigned,
transferred or pledged by the Participant and shall not be subject to execution,
attachment or similar process. Any attempted assignment, transfer, pledge, or
other disposition of this Agreement, or of any such rights, interests and
benefits, and any levy of attachment or similar process thereupon, shall be null
and void and without effect.
VI. ADMINISTRATION OF THE PLAN
6.1 COMPANY'S AUTHORITY
The Plan shall be administered by the Company, which shall have the
authority, duty and power to interpret and construe the provisions of the Plan
as it deems appropriate. The Company shall have the duty and responsibility of
maintaining records, making the requisite calculations and dispersing the
payments hereunder. The Company's interpretations, determinations, regulations
and calculations shall be final and binding on all persons and parties
concerned.
-8-
<PAGE>
6.2 RELIANCE
The Company shall be entitled to rely conclusively upon all tables,
valuations, certificates, opinions and reports furnished by any actuary,
accountant, controller, counsel or other person employed or engaged by the
Company with respect to the Plan.
6.3 BENEFIT STATEMENTS
The Company shall furnish individual statements of accrued benefits to each
Participant, or current Beneficiary, at least annually, in such form as
determined by the Company.
6.4 CLAIMS
The employee benefit plan procedures in this section are intended to comply
with Section 503 of ERISA, and Section 2560.503-1 of the Department of Labor
Regulations and pertain to claims by participants and beneficiaries
("claimants") for Plan benefits, consideration of such claims, and review of
claim denials. For purposes of these procedures, a "claim" is a request for a
benefit by a Participant or Beneficiary under the Plan or a Deferred
Compensation Agreement. A claim is filed when the requirements of these
procedures have been met.
(a) If a claim is wholly or partially denied, notice of the
decision, meeting the requirements of subsection (b) of these procedures,
shall be furnished to the claimant within a reasonable period of time after
receipt of the claim by the Company. If notice of the denial of a claim is
not furnished in accordance with this subsection (a) within a reasonable
period of time, the claim shall be deemed denied and the claimant shall be
permitted to proceed to the review stage described in subsection (c) of these
procedures. For purposes of this subsection (a), the period of time for
notification to the claimant will not exceed 90 days after receipt of the
claim by the Company, unless special circumstances require an extension of
time for processing the claim. If such an extension of time for processing
is required, written notice of the extension shall be furnished to the
claimant prior to the termination of the initial 90-day period. In no event
shall such extension exceed a period of 90 days from the end of such initial
period. The extension notice shall indicate the special circumstances
requiring an extension of time and the date by which the Company expects to
render the final decision.
(b) The Company shall provide to every claimant who is denied a claim
for benefits written notice setting forth in a manner calculated to be
understood by the claimant:
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<PAGE>
(i) the specific reason or reasons for the denial;
(ii) specific reference to pertinent provisions of the Plan or Agreement on
which the denial is based;
(iii) a description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why such
material or information is necessary; and
(iv) appropriate information as to the steps to be taken if the Participant
or Beneficiary wishes to submit his or her claim for review.
(c) If a claim is denied in whole or in part and if the claimant is
dissatisfied with the disposition of the claim, the claimant or his or her duly
authorized representative shall have a reasonable opportunity to appeal the
denied claim to the Company or to a person designated by the Company, and shall
have a full and fair review of the claim and its denial. Under this review
procedure, a claimant or his or her duly authorized representative may:
(i) request a review upon written application to the Company;
(ii) review pertinent documents; and
(iii) submit issues and comments in writing.
A claimant must file such a request for review of a denied claim within a
reasonable period of time, not to exceed 60 days, after receipt by the claimant
of written notification of denial of a claim.
(d) A decision by the Company shall be made promptly and shall not
ordinarily be made later than 60 days after the receipt by the Company of a
request for review, unless special circumstances (such as the need to hold a
hearing) require an extension of time for processing, in which case a decision
shall be rendered as soon as possible, but not later than 120 days after receipt
of a request for review. If an extension of time for review is required because
of special circumstances, written notice of the extension shall be furnished to
the claimant prior to the commencement of the extension. The decision on review
shall be in writing and shall include specific reasons for the decision, written
in a manner calculated to be understood by the claimant, as well as specific
references to the pertinent provisions of the Plan or Agreement on which the
decision is based. The decision on review shall be furnished to the claimant
within the period of time described in this subsection (d). If the decision on
review is not furnished within such time, the claim shall be deemed denied on
review.
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VII. AMENDMENT OR TERMINATION
The Company intends the Plan to be permanent but reserves the right to
amend or terminate the Plan at any time.
No amendment or termination of the Plan shall directly or indirectly reduce
the balance of any account described in Article III as of the effective date of
such amendment or termination. The Company shall not credit the accounts of any
Participant with any further deferrals after termination of the Plan, but gains
or losses will continue to be credited to the Participant's account under the
Plan until all benefits are distributed to the Participants or to their
Beneficiaries.
VIII. GENERAL PROVISIONS
8.1 TRUST
The Company has established a Trust which may be used to pay benefits
arising under the Plan and costs, charges and expenses relating thereto. To the
extent that the funds held in the Trust are insufficient to pay such benefits,
costs, charges and expenses, and except as provided in Section 4.2 relating to
investment option elections, the Company shall pay them.
8.2 NO ALIENATION
Neither the benefits payable hereunder nor the right to receive future
benefits under the Plan may be anticipated, alienated, sold, transferred,
assigned, pledged, encumbered, or subjected to any charge or legal process; no
interest or right to receive a benefit may be taken, either voluntarily or
involuntarily, for the satisfaction of the debts of, or other obligations or
claims against, such person or entity, including claims for alimony, support,
separate maintenance and claims in bankruptcy proceedings.
8.3 UNFUNDED PLAN
The Plan shall at all times be considered entirely unfunded both for tax
purposes and for purposes of Title I of ERISA. Funds invested under this Plan,
including amounts held in the Trust, shall continue for all purposes to be part
of the general assets of the Company and available to the general creditors of
the Company in the event of the Company's bankruptcy (when the Company is
involved in a pending proceeding under the Federal Bankruptcy Code) or
insolvency (when the Company is unable to pay its debts as they mature). In the
event of the Company's bankruptcy or insolvency, the Company's Board of
Directors and Chief Executive Officer shall notify the Trustee in writing of
such an occurrence within three business days following the Company's becoming
aware of such occurrence. No Participant or any other person shall have any
interests in any
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<PAGE>
particular assets of the Company by reason of the right to receive a benefit
under the Plan and to the extent the Participant or any other person acquires
a right to receive benefits under this Plan, such right shall be no greater
than the right of any general unsecured creditor of the Company. The Plan
constitutes a mere promise by the Company to make payments to the
Participants in the future.
8.4 NO GUARANTY
Nothing contained in the Plan shall constitute a guaranty by the Company or
any other person or entity that any funds in the Trust or the assets of the
Company will be sufficient to pay any benefit hereunder.
8.5 NO RIGHT OF EMPLOYMENT
No Participant shall have any right to a benefit under this Plan except in
accordance with the terms of the Plan. Establishment and continuance of the
Plan shall not be construed to give any Participant the right to be retained in
the service of the Company.
8.6 INCOMPETENCY
If any person entitled to a benefit payment under the Plan is declared
incompetent and a conservator or other person is legally charged with the care
of such person or of his or her estate is appointed, any benefits under the Plan
to which the person is entitled shall be paid to such conservator or other
person legally charged with the care of the person or his or her estate. Except
as provided above, when the Company determines that such person is unable to
manage his or her affairs, the Company may provide for such payment or any part
thereof to be made to any other person or institution then contributing toward
or providing for the care and maintenance of such person. Any such payment
shall be a payment for the account of such Person and a complete discharge of
any liability of the Company and the Plan therefore.
8.7 CORPORATE CHANGES
The Plan shall not be automatically terminated by a transfer or sale of
assets of the Company or by the merger or consolidation of the Company into or
with any other corporation or other entity, but the Plan shall continue after
such sale, merger or Consolidation only if and to the extent that the
transferee, purchaser or successor entity agrees to continue the Plan. In the
event the Plan is not continued by the transferee, purchaser or successor
entity, then the Plan shall terminate subject to the provisions of Article VII.
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8.8 ADDRESSES
Each Participant shall keep the Company informed of his or her current
address and the current address of his or her spouse. The Company shall not be
obligated to search for any person. If the location of a Participant is not
made known to the Company within three (3) years after the date on which payment
of the Participant's benefits Payable under this Plan may first be made, payment
may be made as though the Participant had died at the end of the three-year
Period. If, within one additional year after such three year period has
elapsed, or, within three (3) years after the actual death of a Participant, the
Company is unable to locate any designated Beneficiary of the Participant, then
the Company shall have no further obligation to pay any benefit hereunder to
such Participant or designated Beneficiary and such benefits shall be
irrevocably forfeited.
8.9 LIMITATIONS ON LIABILITY
Notwithstanding any of the preceding provisions of the Plan, neither the
Company nor any individual acting as an employee or agent of the Company shall
be liable to any Participant, former Participant, or any other person for any
claim, loss, liability or expense incurred in connection with the Plan, unless
attributable to fraud or willful misconduct on the part of the Company or any
such employee or agent of the Company.
8.10 TRANSFERS TO THE TRUST
On the occurrence of a Change of Control or if a Participant elects to
direct the investment of amounts credited to his or her account pursuant to
Section 4.2, the Company shall transfer cash or property to the account or
accounts maintained in the name of each affected Participant or Participants for
this Plan under the Trust in an amount equal to the present value of all
accumulated or accrued benefits then payable to or on behalf of such Participant
or Participants under this Plan, plus any applicable fees. The Company may also
transfer cash or property to the accounts maintained for any Participant under
the Trust in an amount equal to the present value of all accumulated or accrued
benefits then payable under the Plan at any time in the sole discretion of the
Company. Thereafter, the Company may, and after a Change of Control it shall,
for each Plan Year, transfer cash or property no later than thirty (30) days
after the end of the Plan Year in which the initial transfer occurs, and
thereafter on each anniversary thereof, to such account or accounts maintained
for the affected Participant or Participants under the Trust an amount equal to
the additional benefit accrued under the terms of this Plan and the Deferred
Compensation Agreements during and in relation to the most recent Plan Year then
ended. If a transfer occurs, the accounts of the Participants shall be credited
with interest, or earnings and losses in accordance with Sections 4.1 and 4.2.
-13-
<PAGE>
8.11 INSPECTION
Each Participant shall receive a copy of the Plan and the Company will make
available for inspection by any Participant or designated Beneficiary a copy of
any rules and regulations that are used by the Company in administering the
Plan.
8.13 GOVERNING LAW
To the extent that it is not governed by United States federal law, the
Plan shall be construed, administered and governed in all respects under and by
the applicable laws of the State of Delaware, without giving effect to
principles of conflict of laws.
Dated this 6th day of April, 1999.
THE TORO COMPANY
By: K. B. Melrose
Its Chairman & Chief Executive Officer
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND CONDENSED
CONSOLIDATED BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<CASH> 3,341
<SECURITIES> 0
<RECEIVABLES> 439,423<F5>
<ALLOWANCES> 0<F4>
<INVENTORY> 185,699
<CURRENT-ASSETS> 675,858
<PP&E> 336,990
<DEPRECIATION> 214,916
<TOTAL-ASSETS> 931,224
<CURRENT-LIABILITIES> 440,406
<BONDS> 197,382<F1>
0
0
<COMMON> 12,916<F2>
<OTHER-SE> 275,206
<TOTAL-LIABILITY-AND-EQUITY> 931,224
<SALES> 683,869
<TOTAL-REVENUES> 683,869
<CGS> 443,072
<TOTAL-COSTS> 189,136
<OTHER-EXPENSES> (863)<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,727
<INCOME-PRETAX> 40,797
<INCOME-TAX> 15,911
<INCOME-CONTINUING> 24,886
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,886
<EPS-BASIC> 1.91
<EPS-DILUTED> 1.88
<FN>
<F5>Total net receivables.
<F4>Not included in quarterly financial information.
<F1>Total long-term debt.
<F2>Does not include additional paid-in-capital.
<F3>Other income, net.
</FN>
</TABLE>
