UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2002.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______________ to _______________.
COMMISSION FILE NUMBER 1-8649.
A. Full title of the plan and address of the plan:
THE TORO COMPANY INVESTMENT, SAVINGS, AND EMPLOYEE STOCK OWNERSHIP PLAN
THE TORO COMPANY
8111 LYNDALE AVENUE SOUTH
MINNEAPOLIS, MN 55420
ATTN: DIRECTOR, TAX ACCOUNTING
B. Name of issuer of the securities held pursuant to the plan and the address of
its principal executive office:
THE TORO COMPANY
8111 LYNDALE AVENUE SOUTH
MINNEAPOLIS, MN 55420
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
Financial Statements and Supplemental Schedules
December 31, 2002 and 2001
(With Independent Auditors' Report Thereon)
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
PAGES
Independent Auditors' Report 1
Statements of Net Assets Available for Plan Benefits 2
Statements of Changes in Net Assets Available for Plan Benefits 3
Notes to Financial Statements 4
SCHEDULES
1 Schedule of Assets Held for Investment Purposes (Held as of the End of the Year) 11
2 Schedule of Reportable Transactions 12
INDEPENDENT AUDITORS' REPORT
The Plan Administrator
The Toro Company Investment, Savings,
and Employee Stock Ownership Plan:
We have audited the accompanying statements of net assets available for
plan benefits of The Toro Company Investment, Savings, and Employee Stock
Ownership Plan (the Plan) as of December 31, 2002 and 2001, and the related
statements of changes in net assets available for plan benefits for the
years then ended. These financial statements and supplemental schedules are
the responsibility of the Plan's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets available for plan benefits as of
December 31, 2002 and 2001, and the changes in net assets available for
plan benefits for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
Our audits were performed for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental schedules of
assets held for investment purposes and reportable transactions are
presented for the purpose of additional analysis and are not a required
part of the basic financial statements, but are supplementary information
required by the Department of Labor's Rules and Regulations for Reporting
and Disclosure under the Employee Retirement Income Security Act of 1974.
These supplemental schedules are the responsibility of the Plan's
management. The supplemental schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in
our opinion, are fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
June 17, 2003 /S/ KPMG LLP
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
Statements of Net Assets Available for Plan Benefits
December 31, 2002 and 2001
2002 2001
------------ ------------
Assets held by Trustee:
Investments at fair value
Mutual funds $117,929,284 149,784,624
Common stock 109,929,847 31,026,196
Master trust fund (Wells Fargo Stable Value Fund) 57,417,357 45,351,817
------------ ------------
Total investments 285,276,488 226,162,637
------------ ------------
Employee contribution receivable 62,813 50,198
Employer contribution receivable 10,284,557 7,764,001
------------ ------------
Net assets available for plan benefits $295,623,858 233,976,836
============ ============
See accompanying notes to financial statements.
2
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
Statements of Changes in Net Assets Available for Plan Benefits
Years ended December 31, 2002 and 2001
2002 2001
------------- -------------
Investment income (loss):
Interest, dividends, and cash earnings $ 3,523,898 6,514,099
Net realized/unrealized gain (loss) in the fair value of investments 5,060,073 (21,513,346)
------------- -------------
Net investment income (loss) 8,583,971 (14,999,247)
Employer contributions 12,583,936 10,093,189
Employee contributions 9,278,584 8,938,374
Rollover contributions 271,417 329,313
------------- -------------
Total contributions 22,133,937 19,360,876
Benefit payments (34,388,406) (16,497,632)
Transfer of assets from other plan 65,317,520 --
------------- -------------
Total payments and transfers 30,929,114 (16,497,632)
Net increase (decrease) in net assets available for plan benefits 61,647,022 (12,136,003)
Net assets available for plan benefits:
Beginning of year 233,976,836 246,112,839
------------- -------------
End of year $ 295,623,858 233,976,836
============= =============
See accompanying notes to financial statements.
3
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(1) DESCRIPTION OF PLAN
Effective January 1, 2002, The Toro Company Employee Stock Ownership
Plan was merged into The Toro Company Investment and Savings Plan to
become The Toro Company Investment, Savings, and Employee Stock
Ownership Plan (the Plan). However, there continues to be an Employee
Stock Ownership (ESOP) portion and a profit sharing portion of the Plan.
The primary purpose of the ESOP portion of the Plan is to provide
employees who become participants in the Plan an opportunity to have
their ESOP account balances invested in Common Stock of the Company.
Employees are eligible to have ESOP contributions made to the Plan on
their behalf after two years of qualifying service with the Company.
Participants are fully vested in the entire balance of their individual
accounts attributable to those contributions. The Company also makes
matching contributions to the ESOP portion of the Plan. Participants are
eligible for matching contributions after completing one year of
qualifying service with the company. Company matching contributions,
together with income attributable thereto, vest at a rate of 20% after
one year of vesting service, with an additional 20% being accumulated
annually thereafter until the participant is 100% vested.
Diversification is offered under the ESOP portion of the Plan to
participants who have completed at least ten years of vesting service
and attained age 55 so that they may move part of the value of their
investment in Company stock into investments which are more diversified.
Contributions and benefit payments are made to a trust under the control
of the Trustee.
Participants and the Company make contributions to the profit sharing
portion of the Plan. Contributions are made to a trust under the control
of the trustee. The investment of the participants' and Company
contributions to the profit sharing portion of the Plan is selected by
the participants.
Benefit payments and transfers of participants' interests are made by
the Trustee.
During the year ended December 31, 2002 and 2001, forfeited nonvested
accounts totaled $52,622 and $16,258, respectively. These accounts are
used to offset future employer contributions.
The Company absorbs all administrative costs of the Plan, with the
exception of investment management fees, which are netted against
investment income.
A general description of the Plan is contained in the Plan document
restated as of January 1, 2002. Participants should refer to the Plan
document for more complete information.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying financial statements of The Toro Company
Investment, Savings, and Employee Stock Ownership Plan are
presented in accordance with accounting principles generally
accepted in the United States of America. The accounting records
of the Plan are maintained on the accrual basis.
4
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(b) INVESTMENTS
The Plan's investments are held by Putnam Fiduciary Trust Company
(the Trustee). The investment securities are stated at fair values
based upon published quotations or, in the absence of available
quotations, at fair values determined by the Trustee. Purchases
and sales of securities are recorded on a trade-date basis.
The Toro Company (the Company) maintains one master trust, the
Wells Fargo Stable Value Fund (master trust) for two profit
sharing and retirement plans that are sponsored by the Company.
The two plans are the Plan and The Toro Company Profit Sharing
Plan for Plymouth Union Employees. The purpose of the master trust
is to pool investment transactions and achieve uniform rates of
return on comparable funds under all plans.
The Plan's proportionate share of net investment income from the
master trust is based upon the percentage of the fair value of the
Plan's investment in the master trust's net assets. The Plan's
percentage interest in the net assets of the master trust was
approximately 99% and 91% as of December 31, 2002 and 2001,
respectively.
The Plan's share of net investment income from the master trust is
determined by the Trustee based on the ratio of the fair value of
the Plan's equity in the investment fund to the total net assets
of the investment fund as of the beginning of the plan year.
(c) ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires the Plan Administrator to make estimates and
assumptions that affect the reported amounts of net assets
available for plan benefits and disclosure of contingent assets
and liabilities as of the date of the financial statements and the
reported amounts of changes in net assets available for plan
benefits during the reporting period. Actual results could differ
from those estimates.
(d) CONCENTRATIONS OF RISK
The Plan has investments in a variety of investment funds.
Investments in general are exposed to various risks, such as
interest rate, credit, and overall market volatility. Due to the
level of risk associated with certain investments, it is
reasonably possible that changes in the values of the investments
will occur in the near term and that such changes could materially
affect the amounts reported in the Statement of Net Assets
Available for Plan Benefits.
Since the assets held by the Trust include The Toro Company Common
Stock, the anticipated assets available for benefits in 2003 will
be the result of the Company's future stock market performance,
which are subject to various risk factors described more fully in
the Company's periodic filings with the Securities and Exchange
Commission.
5
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(3) FUNDING POLICY, CONTRIBUTIONS, AND PLAN TRANSFERS
For the ESOP contributions, the Plan's funding policy is to make annual
contributions pursuant to a formula and to make matching contributions.
The formula contribution equals 1.5% of total participant compensation
earned during the plan year. The Company contribution is allocated to
participants based on the participants' compensation earned during the
plan year as a percentage of total plan year compensation.
For the profit sharing portion of the Plan, the Company's funding policy
is to make annual investment fund contributions to the Plan in amounts
determined by a formula set forth in the Plan. The contribution formula
is based on 5.5% of the participants' total compensation earned during
the plan year plus 5.5% of the participants' compensation above the
Social Security taxable wage base as of the beginning of the plan year.
The contribution formula specifies a minimum annual contribution to the
Plan. Investment income is allocated based on participants' account
balances.
Employee contributions are made to the profit sharing portion of the
Plan consist of salary reduction elections under a 401(k) feature,
voluntary after-tax contributions, and rollover funds from other
qualified plans. The Company is required to make a matching contribution
in the form of Company stock into the ESOP portion of the plan equal to
50% of the participants' contributions to the Plan not to exceed 2% of
the participants' total compensation made.
Transfers to/from other funds represent participant elected transfers
to/from other Company funds.
(4) PARTY-IN-INTEREST TRANSACTIONS
Putnam Fiduciary Trust Company and The Toro Company are
parties-in-interest with respect to the Plan. In the opinion of the
Plan's legal counsel, certain transactions between the Plan, the
Trustee, and the Company are exempt from being considered as "prohibited
transactions" under the Employee Retirement Income Security Act of 1974
(ERISA) Section 408(b).
(5) PLAN TERMINATION
The Company has voluntarily agreed to make contributions to the Plan.
Although the Company has not expressed any intent to terminate the Plan,
it may do so at any time. Each participant's interest in the Plan is
100% vested at all times, except for the portion attributable to
matching contributions which is vested in a manner described above. Upon
termination of the Plan, interests of active participants in the Plan
fully vest.
(6) INVESTMENTS
Under the terms of the trust agreement, the Trustee manages investment
funds on behalf of the Plan. The Trustee has been granted discretionary
authority concerning the purchases and sales of the investments of the
investment funds. In accordance with the trust agreement, certain assets
of the Plan are held together with assets of other plans sponsored by
the Company in the master trust.
The net assets available for benefits of the master trust as of December
31, 2002 and 2001 were $57,516,261 and $49,722,525, respectively. All
assets of the master trust were held in short-term investment funds.
6
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 2002 and 2001
The changes in net assets available for benefits of the master trust for
the years ended December 31, 2002 and 2001 were as follows:
2002 2001
------------ ------------
Realized gain on investments $ 518,502 1,244,460
Unrealized gain on investments 2,360,779 1,695,838
Deposits by participating plans 18,642,981 15,608,657
Withdrawals by participating plans (13,728,526) (12,564,377)
------------ ------------
Increase in net assets 7,793,736 5,984,578
Net assets available for benefits:
Beginning of year 49,722,525 43,737,947
------------ ------------
End of year $ 57,516,261 49,722,525
============ ============
The following investments represent more than 5% of the Plan's net
assets available for plan benefits as of December 31, 2002 and 2001:
2002 2001
------------ ------------
Wells Fargo Stable Value Fund $ 57,417,357 45,351,817
Putnam International Growth Fund* 13,054,478 11,792,599
Putnam Voyager Fund CL Y* 37,910,516 53,812,677
Lord Abbett Affiliated Fund 33,997,629 43,306,240
The Toro Company Common Stock** 109,929,847 31,026,196
Putnam Asset Allocation: Balanced Fund* -- 14,492,489
*Party-in-interest
**Party-in-interest and nonparticipant-directed investment
During 2002 and 2001, the Plan's investments (including gains and losses
on investments bought and sold, as well as held during the year,
interest, dividends, and cash earnings) appreciated and depreciated in
value by $8,583,971 and $(14,999,247), respectively, as follows:
2002 2001
------------ ------------
Mutual funds $(30,839,407) (22,833,314)
Common stocks 36,558,690 6,453,302
Master trust fund 2,864,688 1,380,765
------------ ------------
$ 8,583,971 (14,999,247)
============ ============
7
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 2002 and 2001
Information about the net assets and the significant components of the
changes in net assets relating to the investment in Toro Company Common
Stock is as follows (a majority of which is nonparticipant-directed):
2002 2001
------------- -------------
Net Assets:
The Toro Company Common Stock $ 109,929,847 31,026,196
============= =============
2002 2001
------------- -------------
Investment income:
Dividends $ 890,833 339,011
Net realized/unrealized gain in the
fair value of investments 35,667,856 6,114,291
------------- -------------
Net investment income 36,558,689 6,453,302
Total contributions 5,121,387 3,030,814
Benefit payments (11,424,965) (1,530,896)
Transfers from other plan 55,361,149 --
Transfers to other funds (6,712,609) (3,810,729)
------------- -------------
Increase in net assets
available for plan benefits 78,903,651 4,142,491
Net assets available for plan benefits:
Beginning of year 31,026,196 26,883,705
------------- -------------
End of year $ 109,929,847 31,026,196
============= =============
(7) FEDERAL INCOME TAXES
The Plan Administrator has received a determination letter from the
Internal Revenue Service dated October 23, 2002, stating that the Plan
is qualified under Section 401(a) of the Internal Revenue Code (the
Code), and that the trust created under the Plan is exempt from federal
income taxes under Section 501(a) of the Code. The Plan Administrator
believes that the Plan and its related trust continue to qualify under
the provisions of Sections 401(a) and 501(a) of the Code and are exempt
from federal income taxes. Therefore, no provision for income taxes has
been included in the Plan's financial statements.
8
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(8) SUBSEQUENT EVENTS
Effective June 2, 2003, an enhanced stock diversification provision was
implemented which eliminates the age and service requirement and permits
participants to diversify a portion of restricted employer-contributed
stock balances based on a new quarterly calculation instead of on a
participant's age and service. Also, all accounts that are invested in
common stock other than certain initial contributions to the profit
sharing portion of the Plan were made part of the ESOP portion of the
Plan as of the same date.
(9) RELATED PARTY
The Plan's investments are held by Putnam Fiduciary Trust Company (the
Trustee). Some of the investment funds available to participants also
include mutual funds managed by Putnam Investments.
(10) RECONCILIATION OF DIFFERENCES BETWEEN THESE FINANCIAL STATEMENTS AND
THE FINANCIAL INFORMATION REQUIRED ON FORM 5500
DECEMBER 31,
2002
-------------
Net assets available for plan benefits as presented in these
financial statements $ 295,623,858
Adjustment for employer contribution receivable (10,284,557)
Adjustment for employee contribution receivable (62,813)
-------------
Net assets available for plan benefits as presented on Form 5500 $ 285,276,488
=============
YEAR ENDED
DECEMBER 31,
2002
-------------
Net increase in net assets available for plan benefits as
presented in these financial statements $ 61,647,022
Adjustment for employer contribution receivable at December 31, 2002 (10,284,557)
Adjustment for employee contribution receivable at December 31, 2002 (62,813)
Adjustment for employer contribution receivable at December 31, 2001 7,764,001
Adjustment for employee contribution receivable at December 31, 2001 50,198
-------------
Net increase in net assets available for plan benefits as
presented on Form 5500 $ 59,113,851
=============
9
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 2002 and 2001
DECEMBER 31,
2001
-------------
Net assets available for plan benefits as presented in these
financial statements $ 233,976,836
Adjustment for employer contribution receivable (7,764,001)
Adjustment for employee contribution receivable (50,198)
-------------
Net assets available for plan benefits as presented on Form 5500 $ 226,162,637
=============
YEAR ENDED
DECEMBER 31,
2001
-------------
Net decrease in net assets available for plan benefits as
presented in these financial statements $ (12,136,003)
Adjustment for employer contribution receivable at December 31, 2001 (7,764,001)
Adjustment for employee contribution receivable at December 31, 2001 (50,198)
Adjustment for employer contribution receivable at December 31, 2000 7,212,467
Adjustment for employee contribution receivable at December 31, 2000 35,124
-------------
Net decrease in net assets available for plan benefits as
presented on Form 5500 $ (12,702,611)
=============
10
SCHEDULE 1
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
Schedule of Assets Held for Investment Purposes (Held as of the End of the Year)
December 31, 2002
FACE
AMOUNT FAIR
Description OR SHARES COST VALUE
--------------------------------- --------- --------------- ------------
Wells Fargo Stable Value Fund $ 57,417,357
Putnam S&P 500 Fund* 11,863,181
Putnam International Growth Fund* 13,054,478
Putnam Growth Opportunities Fund* 3,649,215
Putnam Voyager Fund CL Y* 37,910,516
Putnam Bond Index Fund* 9,056,425
UAM-ICM Small Company Portfolio 8,397,840
Lord Abbett Affiliated Fund 33,997,629
The Toro Company Common Stock** 1,720,342 $ 40,820,577 109,929,847
------------
Total investments $285,276,488
============
*Party-in-interest.
**Party-in-interest and nonparticipant-directed investment
Note: The data presented in this schedule has been derived from information
certified as complete and accurate by the Trustee.
See accompanying independent auditors' report.
11
SCHEDULE 2
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
Schedule of Reportable Transactions
Year ended December 31, 2002
NUMBER OF NUMBER
PURCHASES OF SALES FAIR
DESCRIPTION OF ASSETS TRANSACTIONS TRANSACTIONS COST VALUE NET GAIN
----------------------------------- ------------ ------------ ----------- ----------- -----------
5% SERIES OF TRANSACTIONS BY
RULE 2520.103-6(c)(1)(iii):
The Toro Company Common Stock** 238 453 $16,818,720 28,520,766 11,702,046
**Party-in-interst and nonparticipant-directed investment
Note: The data presented in this schedule has been derived from information
certified as complete and accurate by the Trustee. Reportable transactions
are those transactions which either singly or in a series of combined
purchases and sales during the year exceed 5% of the fair value of the
Plan's assets at the beginning of the year.
See accompanying independent auditors' report.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this annual report to be signed on its behalf by the undersigned hereunto
duly authorized.
The Toro Company Investment, Savings,
and Employee Stock Ownership Plan
Dated June 19, 2003 /s/ Stephen P. Wolfe
------------- ---------------------------------------
Stephen P. Wolfe
Vice President - Finance,
Treasurer and Chief Financial Officer
of The Toro Company
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
23(a) Independent Auditors' Consent
99(a) Section 906 Certification of Principal
Executive Officer
99(b) Section 906 Certification of Principal
Financial Officer