UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
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x ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2009.
OR
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o TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to .
Commission file number 1-8649.
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A. Full title of the plan and address of the plan if different from that of the issuer named below:
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The Toro Company Investment, Savings, and Employee Stock Ownership Plan
The Toro Company
8111 Lyndale Avenue South
Minneapolis, MN 55420
Attn: Director, Human Resources
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B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:
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The Toro Company
8111 Lyndale Avenue South
Minneapolis, MN 55420
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
Table of Contents
The Plan Administrator
The Toro Company Investment, Savings,
and Employee Stock Ownership Plan:
We have audited the accompanying statements of net assets available for benefits of The Toro Company Investment, Savings, and Employee Stock Ownership Plan (the Plan) as of December 31, 2009 and 2008, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements 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 the standards of the Public Company Accounting Oversight Board (United States). 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 benefits of the Plan as of December 31, 2009 and 2008, and the changes in net assets available for benefits for the years then ended, in conformity with U.S. generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) as of December 31, 2009 is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is 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. This supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ KPMG LLP
Minneapolis, Minnesota
June 23, 2010
AND EMPLOYEE STOCK OWNERSHIP PLAN
Statements of Net Assets Available for Benefits
December 31, 2009 and 2008
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2009
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2008
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Assets:
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Investments at fair value:
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Interest in the Toro Company Master Trust Fund
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$ |
520,442,217 |
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435,905,687 |
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Loans
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1,156 |
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1,156 |
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Total investments
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520,443,373 |
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435,906,843 |
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| |
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Employee contribution receivable
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32,529 |
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37,877 |
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Employer contribution receivable
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11,801,421 |
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13,119,869 |
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Total receivables
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11,833,950 |
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13,157,746 |
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Total assets before adjustment
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532,277,323 |
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449,064,589 |
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Adjustment from fair value to contract value for
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fully benefit-responsive investment contracts
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(182,381 |
) |
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5,140,753 |
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Net assets available for benefits
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$ |
532,094,942 |
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454,205,342 |
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See accompanying notes to financial statements.
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AND EMPLOYEE STOCK OWNERSHIP PLAN
Statements of Changes in Net Assets Available for Benefits
Years ended December 31, 2009 and 2008
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2009
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2008
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Additions (deductions) to net assets:
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Investment income (loss):
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Participant loan interest
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$ |
- |
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6 |
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Plan interest in net investment income (loss) of
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the Toro Company Master Trust Fund
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97,533,690 |
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(197,420,588 |
) |
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Net investment income (loss)
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97,533,690 |
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(197,420,582 |
) |
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Employer contributions
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14,413,888 |
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16,489,420 |
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Employee contributions
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11,559,241 |
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13,434,214 |
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Rollover contributions
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247,386 |
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872,143 |
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Total contributions
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26,220,515 |
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30,795,777 |
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Total additions (deductions) to net assets
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123,754,205 |
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(166,624,805 |
) |
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Deductions from net assets:
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Administrative fees
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(33,097 |
) |
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(30,455 |
) |
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Benefit payments
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(45,898,850 |
) |
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(33,596,849 |
) |
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Total deductions from net assets
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(45,931,947 |
) |
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(33,627,304 |
) |
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Assets transferred to the Plan
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67,342 |
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1,838,511 |
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Net increase (decrease) in net assets available
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for benefits
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77,889,600 |
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(198,413,598 |
) |
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Net assets available for benefits:
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Beginning of year
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454,205,342 |
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652,618,940 |
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End of year
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$ |
532,094,942 |
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454,205,342 |
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See accompanying notes to financial statements.
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AND EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 2009 and 2008
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(1)
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Summary Description of Plan
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The following description of The Toro Company Investment, Savings, and Employee Stock Ownership Plan (the Plan) is provided for general information purposes only. Participants should refer to the Plan document restated as of May 8, 2009 for more complete information. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). 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. However, there continues to be an Employee Stock Ownership (ESOP) portion and a profit sharing portion of the Plan. Effective September 2, 2003, the Exmark Manufacturing Company, Inc. 401(k) Profit Sharing Plan was merged into the Plan. The Exmark Manufacturing Company, Inc. 401(k) Profit Sharing Plan offered loans to participants. Since loans are not offered under the Plan, outstanding loan balances were transferred as a result of the merger into the Plan and continue to be repaid by participants. Effective April 4, 2008, the Rain Master Irrigation Systems, Inc. 410(k) Profit Sharing Plan was merged into 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 account balances invested in Common Stock of The Toro Company (the Company). The portions of participant accounts that hold Toro Company Common Stock are included in the ESOP portion of the Plan. The portions of participant accounts that do not hold such stock are included in the profit sharing portion of the Plan.
Participants may make their own contributions to the Plan. These are initially made to the profit sharing portion of the Plan.
Plan participants are also eligible to have the Company make ESOP and Investment Fund Contributions 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 Plan with respect to Participant contributions. 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. ESOP Contributions and Matching Contributions are initially invested in Company Common Stock.
Participants may choose to have their accounts including those initially invested in Company Common Stock invested in any of the investment funds made available under the Plan or in Company Common Stock. All contributions under the Plan are made to a trust that holds all of the assets of the Plan.
Participants may receive distributions from their vested accounts under the Plan upon termination of employment, retirement, or death in the form of a lump-sum payment or in installments. Participants are allowed to withdraw amounts that they previously rolled into the Plan. Withdrawals are also allowed from selected accounts in the event of a defined financial hardship to the extent necessary to satisfy the financial need. To the extent an account is invested in
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 2009 and 2008
Company Common Stock, a withdrawal or distribution can be in the form of Common Stock or cash.
Benefit payments and transfers of participants’ interests are made by the trustee (Fidelity).
During the years ended December 31, 2009 and 2008, forfeited nonvested accounts totaled $18,268 and $113,329, respectively. These amounts are used to offset future employer contributions.
The Toro Company (administrator of the Plan) designs, manufactures, and markets professional turf maintenance equipment and services, turf and agricultural micro-irrigation systems, landscaping equipment, and residential yard and snow removal products. The Company absorbs all administrative costs of the Plan, with the exception of investment management fees, which are netted against investment income.
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(2)
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Summary of Significant Accounting Policies
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(a)
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Basis of Financial Statement Presentation
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The accompanying financial statements of The Toro Company Investment, Savings, and Employee Stock Ownership Plan are presented in accordance with U.S generally accepted accounting principles. The accounting records of the Plan are maintained on the accrual basis.
The Plan’s investments are in a Master Trust held by Fidelity. 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. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Purchases and sales of securities are recorded on a trade-date basis. Interest is recorded on an accrual basis. Dividends are recorded on the ex-dividend date. Net appreciation (depreciation) includes the Plan’s gains and losses on investments bought and sold as well as held during the year.
The Company maintains one Master Trust for three profit sharing and retirement plans that are sponsored by the Company. The three plans are the Plan, The Toro Company Profit Sharing Plan for Plymouth Union Employees and the Hahn Equipment Company Savings Plan for 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 Master Trust invests in fully benefit-responsive investment contracts stated at fair value which are then adjusted to contract value. Fair value of the contracts is calculated by discounting the related cash flows based on current yields of similar instruments with comparable durations.
The Plan’s proportionate share of net investment income (loss) 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% as of December 31, 2009 and 2008.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires the Plan Administrator to make estimates and assumptions that
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 2009 and 2008
affect the reported amounts of net assets available for 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 benefits during the reporting period. Actual results could differ from those estimates.
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(d)
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Concentrations of Risk
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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 participants’ account balances and the amounts reported in the statements of net assets available for benefits.
The assets held by the Master Trust include The Toro Company Common Stock. At December 31, 2009 and 2008, approximately 30% of the investments of the Master Trust were invested in Common Stock of the Company. The underlying value of the Company’s Common Stock is entirely dependent upon the performance of the Company and the market’s evaluation of such performance and other factors.
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(e)
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Fully Benefit-Responsive Investment Contracts
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The Plan indirectly invests in investment contracts and security-backed contracts through the Wells Fargo Stable Value Fund E. An investment contract is a contract issued by a financial institution to provide a stated return to the buyer of the contract for a specified period of time. A security-backed contract has similar characteristics as a traditional investment contract and is comprised of two parts: the first part is a fixed-income security or portfolio of fixed-income securities; the second part is a contract value guarantee (wrapper) provided by a third party. The yield earned by the Wells Fargo Stable Value Fund E at December 31, 2009 and 2008 was 3.40% and 5.29%, respectively.
Investment contracts held by a defined contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan. The statements of net assets available for benefits present the fair value of the Master Trust, as well as the adjustment of the fully benefit-responsive investment contract from fair value to contract value. The statement of changes in net assets available for benefits is prepared on a contract value basis.
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(3)
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Funding Policy, Contributions, and Plan Transfers
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For the ESOP portion of the Plan, the funding policy is to make annual contributions pursuant to a formula and to make matching contributions. The formula contribution is made by the Company and equals 1.5% of total participant compensation earned during the Plan year. The formula 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 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
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 2009 and 2008
as of the beginning of the Plan years ended December 31, 2009 and 2008. Investment income is allocated based on participants’ account balances.
Participant contributions are made to the profit sharing portion of the Plan. They 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 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. That contribution is invested in Company Common Stock.
Transfers to/from other funds represent participant elected rollovers to/from plans of other employers or other transfers to/from other plans.
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(4)
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Party-in-interest Transactions
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Fidelity (trustee of the Plan), and The Toro Company are parties-in-interest with respect to the Plan. The Plan’s investments are held by Fidelity, and some of the investment funds available to participants include mutual funds managed by Fidelity. In the opinion of the Plan’s legal counsel, transactions between the Plan and the trustee are exempt from being considered as “prohibited transactions” under the ERISA Section 408(b).
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.
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, except to the extent the trustee is subject to the discretion of participants, other fiduciaries or the Company. In accordance with the trust agreement, the assets of the Plan are held together with assets of other plans sponsored by the Company in the Master Trust. Investment income related to the Master Trust is allocated to the individual plans based upon beginning of the month balances invested in the Plan.
Fair values of Master Trust investments at December 31, 2009 and 2008 were as follows:
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2009
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2008
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Common Collective Trusts
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|
104,183,622 |
|
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|
104,389,900 |
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Registered Investment Securities
|
|
|
193,218,407 |
|
|
|
150,320,458 |
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Common Stock
|
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|
158,746,139 |
|
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|
130,120,605 |
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Pooled Funds
|
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|
67,136,494 |
|
|
|
53,263,895 |
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Total Master Trust Investments
|
|
$ |
523,284,662 |
|
|
|
438,094,858 |
|
| |
|
|
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|
|
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|
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Plan Interest in Master Trust
|
|
$ |
520,442,217 |
|
|
|
435,905,687 |
|
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 2009 and 2008
Net investment income (loss) for the Master Trust for the years ended December 31, 2009 and 2008 was as follows:
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2009
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2008
|
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Net realized and unrealized appreciation (depreciation)
|
|
|
|
|
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in fair value of investments
|
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|
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Common Collective Trusts
|
|
|
9,015,165 |
|
|
|
(354,839 |
) |
|
Registered Investment Securities
|
|
|
42,330,621 |
|
|
|
(106,951,020 |
) |
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Common Stock
|
|
|
35,544,807 |
|
|
|
(86,099,937 |
) |
|
Pooled Funds
|
|
|
12,281,063 |
|
|
|
(18,327,833 |
) |
|
Net realized and unrealized appreciation (depreciation)
|
|
$ |
99,171,656 |
|
|
|
(211,733,629 |
) |
| |
|
|
|
|
|
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Interest
|
|
|
- |
|
|
|
238,302 |
|
|
Dividends
|
|
|
4,215,433 |
|
|
|
8,021,144 |
|
|
Net investment income (loss)
|
|
$ |
103,387,089 |
|
|
|
(203,474,183 |
) |
The Master Trust categorizes its assets and liabilities into one of three levels based on the assumptions (inputs) used in valuing the asset or liability. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment. The three levels are defined as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Master Trust’s investments in common stock and registered investment securities are classified as Level 1 assets in the fair value hierarchy, while the Master Trust’s investments in common collective trusts and pooled funds are classified as Level 2 assets in the fair value hierarchy.
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 2009 and 2008
Assets measured at fair value, as of December 31, 2009 and December 31, 2008 are summarized below:
|
December 31, 2009
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Common Stock
|
|
$ |
158,746,139 |
|
|
|
— |
|
|
|
— |
|
|
|
158,746,139 |
|
|
Registered Investment Securities
|
|
|
193,218,407 |
|
|
|
— |
|
|
|
— |
|
|
|
193,218,407 |
|
|
Common Collective Trusts
|
|
|
— |
|
|
|
104,183,622 |
|
|
|
— |
|
|
|
104,183,622 |
|
|
Pooled Funds
|
|
|
— |
|
|
|
67,136,494 |
|
|
|
— |
|
|
|
67,136,494 |
|
|
Total
|
|
$ |
351,964,546 |
|
|
|
171,320,116 |
|
|
|
— |
|
|
|
523,284,662 |
|
|
December 31, 2008
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Common Stock
|
|
$ |
130,120,605 |
|
|
|
— |
|
|
|
— |
|
|
|
130,120,605 |
|
|
Registered Investment Securities
|
|
|
150,320,458 |
|
|
|
— |
|
|
|
— |
|
|
|
150,320,458 |
|
|
Common Collective Trusts
|
|
|
— |
|
|
|
104,389,900 |
|
|
|
— |
|
|
|
104,389,900 |
|
|
Pooled Funds
|
|
|
— |
|
|
|
53,263,895 |
|
|
|
— |
|
|
|
53,263,895 |
|
|
Total
|
|
$ |
280,441,063 |
|
|
|
157,653,795 |
|
|
|
— |
|
|
|
438,094,858 |
|
The following presents investments in the Master Trust as of December 31, 2009 and 2008 that represent 5% or more of the Master Trust’s net assets in either year:
|
Description
|
|
2009
|
|
|
2008
|
|
|
Wells Fargo Stable Return E
|
|
$ |
91,706,130 |
|
|
|
92,054,997 |
|
|
Fidelity Diversified International Fund
|
|
|
36,584,929 |
|
|
|
28,339,242 |
|
|
Growth Fund of America
|
|
|
54,973,274 |
|
|
|
41,181,028 |
|
|
American Century Large Company Value Fund
|
|
|
1,951 |
|
|
|
35,190,860 |
|
|
Eaton Vance Large Cap Value I
|
|
|
38,510,863 |
|
|
|
— |
|
|
The Toro Company Common Stock
|
|
|
158,746,139 |
|
|
|
130,120,605 |
|
The Plan obtained its latest determination letter on February 19, 2008, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan has been amended since the date of this letter. However, the Plan Administrator believes that the Plan is currently designed and being operated in compliance with the applicable requirements of the Internal Revenue Code. Therefore, no provision for income taxes has been included in the Plan’s financial statements.
THE TORO COMPANY INVESTMENT, SAVINGS,
AND EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 2009 and 2008