Good day ladies and gentlemen and welcome to the Toro Company Fourth Quarter Earnings Conference Call. My name is Gerri and I will be your coordinator today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s conference. (Operator Instructions) I would now like to turn the presentation over to your host for today’s conference, Mr. Steve Wolfe, Chief Financial Officer of the Toro Company. Please proceed Mr. Wolfe.

Well, thank you Gerri, and good morning to everyone. Joining me this morning for our year-end earnings conference call are Mike Hoffman, Chairman and Chief Executive Officer, Tom Larson, Vice President and Treasurer, and John Wright, Director of Investor Relations. We begin with our customary forward-looking statement policy. Please keep in mind that during our call we’ll make certain forward-looking statements, which are intended to assist you in understanding the company’s results. You’re all aware of the inherent difficulties, risks and uncertainties in making predictive statements. So our Safe Harbor portion of the company’s earnings release, as well as SEC filings, detail some of the important risk factors that may cause actual results to differ from those in our predictions. Our earnings release was issued this morning by Business Wire and can also be found in the Investor information section of our corporate website www.thetorocompany.com. I now would like to turn the call over to Mike.

Thank you Steve, and good morning everyone. When I am looking back over this past year it was out of question one of the most difficult economic environments in decades. Moving through the year, our professional end markets were hardest hit by the recession as customers deferred purchases in light of their business revenue declines, and despite many market challenges we were pleased to see our residential business perform better than expected and as we close the year and now begin fiscal 2010, and as others have said, the situation today seems less worse than a year ago. For Toro, we have begun seeing gradual signs of stabilization in our markets. So, while, fiscal 2009 results were down significantly from the prior year, we are encouraged with how we executed against key priorities in what we achieved given the market realities we experienced. Early last year, we recognized it would be a difficult year and set three clear priorities. One, insures strong liquidity, two, focus on our customers and grow market share, and three, manage through the short-term challenges without materially impacting the long-term health of the organization. These priorities and our resulting actions helped maintain our competitiveness, so as our markets recover we could take advantage of our strong position. Steve will discuss our liquidity priority shortly, but let me take a minute to talk about the other two I just mentioned. First, as we saw signals of market contraction, we were determined to stay focused on the needs of our customers and seize the opportunity to gain market share. We have always tried to innovate our competition and this year was no exception. Once again, we surpassed our goal of having at least 35% of our total sales come from new products. In fact, this year, we had…

Thank you Mike, and let me start with a recap of our GrowLean initiative where we made great progress and unfortunately fell short of the revenue and profitability goals. As you recall, our GrowLean targets were set in a very different economic environment than we experienced this past year. Recognizing many factors that remain out of our control, we worked hard to exceed in the areas we could control and make real progress in our goals to drive working capital as the percent of sales downed into the teams. Our inventory position is the best it’s been in 10 years. When you look back two years we have lowered our inventory by $75 million or 30%, and in the process have managed to significantly reduce field inventory as well. On the receivables and payables front we expect two key partnerships launched in fiscal 2009 to help us reach our working capital goals in the upcoming year. First, the formation of Red Iron acceptance and the resulting sales if receivables has freed up over $90 million in cash to-date to be redeployed for other strategic purposes. The second important partnership is a new trade payables programs, which allows Toro to extend its terms with suppliers while offering them cost effective financing options. Together, we anticipate these efforts will help us reach our working capital goal in 2010 and strengthen our financial position to drive future growth and shareholder value. One of the ways we put some of this case to work is through acquisitions. We announced last fall the asset purchase of Southern Green and more recently acquired the versatile line of Top Dressers and material handing products from TY-CROP to compliment our existing line of application and cultivation equipment. These acquisitions, while small, will expand our position in these important…

Thank you Steve. While we are not happy with the decline in our revenues and earnings in fiscal 2009, we are pleased with what was achieved given the very difficult economic environment. Now, as we begin fiscal 2010, we believe demand in our end markets is beginning to stabilize, but there are real uncertainty as to the pace of recovery and how our customers will respond. Taking these factors into account we expect fiscal 2010 net earnings to be about $2 per share on comparable revenues with fiscal 2009. For our seasonally smaller fiscal first quarter we expect to report net earnings of about $0.18 to $0.20 per share. While it will not be an easy road, we remain confident due to the actions we have taken and to the fact that we have stuck to our values. We have proved we can manage through an extremely challenging time with solid execution against a clear set of priorities. I can assure you that we are more disciplined and focused than ever before and are motivated to pursue new growth opportunities. Looking forward we will focus on three key areas. One, strengthening our core by increasing innovation and building brand leadership, we have seen firsthand the benefits of these investments in a challenging economy and can expect even stronger results from our investments in innovation as our markets improve. Adding to the momentum generated from our 2009 product line up, we have even more innovative offerings placed to launch in fiscal 2010 that will drive demand and compete for our customer’s business. To that end, we look forward to the upcoming Rental Show in late January followed by the Golf Industry Show in February where we’ll introduce many of these exciting new products. Our second area of focus is to find…

(Operator Instructions) Your first question comes from the line of Jim Lucas - Janney Montgomery Scott.

A couple of questions here; first, I guess to kind of go reverse order here. You touched on capital allocation to a certain degree, clearly have been very shareholder friendly, returning cash to shareholders and with the balance sheet position that’s in referring to acquisition. But you also mentioned other growth vehicles, which I don’t recall that phrase being used in the past. Could you expand on the reference please?

Well, just to put that in kind of a broad context Jim, whether it’s an acquisition or a joint-venture or a partnership, there are already a number of ways that we could find ways to work with others outside of, call it our kind of organic internal growth machine here, which certainly hasn’t been the case this last year, and so, we kind of just broadened the acquisition term. But certainly as has been consistent with what we have said in the past, acquisitions are at the top of our list to drive some additional growth, we will find a way to do them, do them in the right way. You can’t necessarily force those to happen and take two people or two entities to agree. So we continue to work on that. That is strategically at the top of the list, and then some of those other things I just mentioned could be bundled in with that and then we get to the returning to shareholders, and kind of third on the list is reducing debt, but that’s kind of the last place we want to go.

And how would you characterize the M&A pipeline today versus six months ago?

Well, I guess I would say it just continues. Things continue, discussions continue, there was a period of 12-24 months ago when evaluations seemed very, very high, while they may have come down some there is still an expectation that you go through the trial period that things are going to come back, and so, sellers still want to get as much as they can. So we continue to work the process.

Okay. And switching gears, more of a questions for Steve with, could you just kind of walk us through briefly with some of these new working cash total initiatives, Red Iron and on the payables, what is the financial statement impact of that and then from a cash flow perspective where is that broken out on the cash flow statement?

Couple of things, what we are really doing is replacing TCC, so to think about TCC entries, first one was taking receivables off TCC’s books and selling those receivables to Red Iron. So that’s just substituting cash for receivable on the balance sheet. When you get into income statement there are number of different places that that falls. The TCC elimination up above net sales, where we have got the inter company elimination; we don’t have that any more. So that actually have the impact of impacting margin slightly down because you don’t have that. You’ve got the SG&A cost of TCC in the income statement that will go away; you will now get the profits off of the joint-venture that will go through other income. So there is four or five different places that you find those, but the main lines are it brings sales down for the elimination that you no longer have and then your SG&A goes away and gets replaced by the profits from the joint venture.

Okay. And on the cash flow statement?

Cash flow statement is in the operating cash statement, its top in our operating cash flow. So a reduction of receivables and turns to cash, so you get the benefit of that through your operating cash flow.

Okay, great. And finally, regarding the 2010 assumptions, you have laid out the flat top line, $2 earnings, could you maybe give us a little bit more of the thought process of the flat top-line, kind of what you are expecting from anything with regards to whether product category as well as thoughts on professional versus residential in 2010?

Jim this is Mike, just to kind of I guess put this in the big picture, as we said, we are very pleased with our residential business, a smaller part of the portfolio, and 2009 it’s obviously from a revenue standpoint outperformed the professional business and surprised us. Now, I think part of that you would attribute we were very well competitively positioned, a good partnership obviously with our key retailers, mother nature played probably a stronger role there in fiscal 2009 than being a factor against the professional business. And so, in the end it was an excellent performance by that team and that business. That will make that somewhat more challenging as we go into fiscal 2010, can we count on Mother Nature, we hope she cooperates we expect to have some snow coming through here later today, and on across into Wisconsin and hopefully into Chicago and Milwaukee, that would be a good thing. Now, a small part of our business, every sale is important. So, we look at that business, again that’s to say that if that comes reasonable with last year, that’s probably the right place to be. On the professional side of the business, the same thing. Obviously there was more contraction there this year and that would be most heavily weighted because of the economic things that were going on. And so, whether it was golf customers or landscape contractors, they reduced their spending. We’re hopeful that that will start to come back. We’re not building a lot of big bounce there coming back in fiscal 2010. And so, that’s kind of neutral to could be a slight tailwind, but it’s offset somewhat by the municipal side of our business, which is smaller. But that’s likely to be somewhat of a headwind because as you know the municipal businesses tend to operate on the previous year’s tax base. And so, in 2009, the municipal business was okay because 2008 tax base was relatively better than it will be going into 2010. So, that will be somewhat of a headwind for that market. So, all in, we sit here in December, as I said in the formal remarks, there’s still some uncertainty. While we’re hopeful things could be better, we’re not expecting a significant bounce up or/and by the same token a significant step down. And let’s face it, we were sitting here in December last year and things turned out very, very different from where we started. So, we’ll see.

Your next question comes from the line of Sam Darkatsh - Raymond James.

A few questions here; first off, you talked about the field inventory drove downs, can you put a little meat on the bone and quantify the impact of those drove downs this year? And then, are you incorporating within your 2010 expectations a rebuild in channel inventories?

Sam, this is Mike. We won’t get into specifically quantifying it. We’ll say that there was a significant drove down, the cost of both segments. But the fact is revenue has obviously declined as well. But we are what we consider very, very good shape going into fiscal 2010 on a field inventory basis. And we will manage that carefully, and to your point, could there be some rebuilding? Well, some of that will depend on as working through the channel to end-users there is, trying to get a better sense just how the market is going to develop. So, we have kept at say relatively flat. There could be some potential there, but again, that depends if you start to see the kind of that inflection points and the market start to move back in a positive way. I think more than anything else what we are, as we prepare for fiscal 2010, and this is the time of the year that we prepare, trying to anticipate how things are going to play out. More than anything, we’re working on flexibility to make sure our operations can respond, and I think we’re better today than we were a year ago or even five years ago, much more so than five years ago, but even a year ago, across the enterprise both in our residential and our professional businesses to respond, that’s always dependent on to what degree, it’s like the snow business you need to be responsive on a basis of a 100 points while you probably can’t do that. But within the core spring and summer businesses I think we are prepared to respond to changes in demand more so than we have been in the past.

Second question. The $2, and I understand you’re talking about or around $2. So there is some withal room either way. But I’m trying to understand how do to get there. A $1.73 2009, but if you ex’ed out some of the one-time items like the workforce reductions and the tax evaluation allowances and the legal expenses and all that, you get to two bucks essentially, maybe $1.95, $1.98 whatever. You’re talking about your gross margins being up in 2010, because of commodities, you’re going to get a benefit from currency and you have maybe as much as 10% fewer shares already from share repurchase already done in 2010. So I’m curious with the flat sales why it would only be $2, and it would seem the math would suggest that it should be a number considerably higher than that.

Sam, this is Steve. Just a couple of things. First of all the currency will probably be a slight headwind this year not a tailwind. As you know the gloat and hedge our plan so that we won’t have any big surprises and that may mean some years we hedge early and we get a benefit and maybe some years we hedge early and we don’t get a benefit, and part of what we are seeing this year is we hedged earlier and the dollars continued to work in our favor, but we won’t get all of that impact. So, when we look at our top-line, currency probably is a slightest headwind. You look at Red Iron I mentioned, that’s going to have a negative impact on the top-line. We are going to get a little price but not much, this is not going to be a year for price increases, so you’re going to get very little price. So the top-line is really going to end up in the margin line based on where the commodities go, and steel probably is the biggest one, as you know it’s our biggest dollar amount and we are seeing that up-and-down, copper is way up. So, when we add them all up it takes us close to the comparable number to this year or a slight bit over.

But you said gross margins will be up on a year-on-year basis?

Slightly, yes, there would be a slight improvement in gross margin. SG&A will be flat, we think to your point about the dollars that we’ve taken out that’s true although you’ve got a lot of things that would come back in second year. Things like furlough days and those types of things are one time. You also have your incentives end up going back into plan that you didn’t have the prior year, and again you’ve got your health care increases, a lot of things that go in that put pressure back up on the SG&A. But what we think is the number will be very similar to what we had in fiscal ‘09.

How much of the discretionary spending cutbacks that you had in 2009, do you anticipate returning in 2010, in times of those, be it bonus or other discretionary type acts?

Well, I guess on the workforce of the restructuring side, I mean I’m unsure I’m answering to your question. We said, I think we said this on the last call that we will realize about $15 million roughly in ‘09 and it will be about $20 million in ‘10, so that’s an incremental of five. But then to your point there, not surprisingly, there were no or very little incentive paid in fiscal ‘09 and that will be back in the plan in ‘010. So I don’t know if that got to your question Sam.

The question would be, how much of the $5 million will you actually recognize or realize due to the return of some of the prior discretionary spending?

If you look at total SG&A dollars it will be roughly the same.

Okay. So the $5 million gets eaten up by the return then?

Basically yes.

Okay. And then, free cash flow, 2010 similar to net income or just trying to get a sense of, there are some moving parts on your working capital lines. How should we look at free cash flow versus net income next year?

Keep in mind I mentioned in my opening comments we had huge operating cash flow and free cash flow this year, but a lot of that came from Red Iron and the inventory and receivables reductions that we had. So that will be tough to match. But in terms of close to net income that’s a good way to look at it.

Your next question comes from the line of Eric Bosshard - Cleveland Research.

Just getting back to the top-line. Can you give us your thoughts on what you’re seeing here domestically versus what you’re seeing outside the U.S, and then in terms of your flat 2010 sales guidance, what would that have looked like maybe 90 days ago, do you have a little bit more clarity today than what you saw 90 days ago on the sales line?

Well, I guess, I started Mark with, everyday we get closer to the market. Our key selling season, we always have a little more clarity. Yes, with that said sitting here in December, contrasted to last year sitting here in December, things changed dramatically as we went into the season. I think we have a better sense for this year and that’s obviously factored into our guidance. And so, I think from, as we talked with people in the golf market or in the municipal markets, grounds markets, landscape markets, there is still some caution there. One day you feel a little more encouraged about the economies, kind of moving along hopefully you can start to see a reflection move more positively, and then we hit a little bit of a set back. But we are not anticipating any kind of a step change down, kind of that second step on the recession in our outlook for ‘10. So, I think on the professional markets, inventories are in great shape, customers just feel somewhat cautious. We’ll get a much better sense for that as we enter into the kind of the new calendar year.

Your U.S. versus non-U.S. outlook, are you thinking forward?

Yes, that’s probably as much the U.S. But you are seeing some of the same things internationally. Some of those countries lagged the U.S. in terms of kind of going into the recession, but you are also seeing some of them come out. So while a Spain or the UK, which are important golf markets went into the recession versus some of the other countries in Europe. For example, earlier Steve and I were over in the UK this last fall, and they’re starting to see signal that they are coming out of the recession not in a full recovery yet, but I believe, again, moving, stabilizing, starting to move in the right direction. So the good news for us along the way is customers continue to use equipment across the professional and residential businesses, and so it was a relatively good year for making the equipment work and cut grass and use the cultivation equipment and even the stone equipment. So it’s still being used up and while we don’t necessarily see all of that convert into new sales that’s good for our sales and ultimately we believe that will drive new sales.

In terms of end-market financing or approval rates, what do you see in there today versus what you were seeing six months ago and a year ago at this time?

Yes, this is Steve. Well, that’s I would say stabilized. We went through a period there where rates were going up, approval rates were going down there, there was uncertainty and the marketplace with what was going on with the financial markets. Some of the things we’ve done is we’ve reacted to go out and get additional providers of those services, for instance in our leasing business, we went out and got three additional providers. So we now have four sources for our people to choose from. We have two retail choices for our people to choose from, and we have now got Red Iron acceptance in the fall. So, I wouldn’t say things have loosened considerably, I think the improval rate scenario still is one of caution, and that’s probably not all bad. But people it’s not a matter of not being able to get financing, it’s more expensive. Some people can’t get financing on the lower end, as you heard me talk about before there are marginal credits. But I would say it stabilized and today it’s okay.

And Mark I’m just going to add a comment to that, and maybe what we have seen more of, while the good news is by and large our customers are still there, they haven’t gone out of business. But the fact is the same pressure we felt because of the recession our customers have felt as well and some of them that has kind of marginalized their financial situation. So, it is less about, there are good resources available to provide credit today I think whether that’s for the channel or for the end-users. But to the degree the customer’s financial situation has been marginalized may play a little bigger part and yet that is not the bulk of the customers, but it’s those at the margin.

The fourth quarter inventory number higher than 3Q, anything abnormal in that number or what was the driver to the $15 million increase in inventory sequentially? I mean is it simply you under produced in 3Q with the downtime or?

It’s just seasonal pattern, bill pattern.

Nothing significant.

Your next question comes from the line of Jim Barrett - C.L. King & Associates. Jim Barrett - C.L. King & Associates: Steve, I think this is a question for you. When I look at your balance sheet, the company’s debt levels, your outlook for earnings, the current industry outlook, what minimum level of cash is the company comfortable with operating on a going forward basis over the next year or two?

Hopefully we have to make that decision, because we have so many places to spend it. But, when we look at the, it’s not just cash, it’s cash and what availability do you have on your borrowing arrangements. And as you know we have significant revolvers in place. One thing I didn’t mention on the financing question was that came up, as we still had very strong relationships for Toro’s financing through our bank group if we needed we are fortunate we didn’t need it much last year, and based on the projections we may not need a whole lot this year. But as long as we have borrowing availability, in a perfect world you would like to pay maybe your bank debt down and have no cash at the end of the year, but still have availability under your bank revolver. So we’ve got plenty of capacity when it comes to cash and it comes to ability to borrow. Jim Barrett - C.L. King & Associates: Okay, good. And Mike just one last question for you and you may have touch upon. But when I look at 2010, 2011, is there going to be a marked difference in the growth rate in your golf business versus your commercial landscaping business versus your municipal -- business?

Well, we talked about the recovery, and so it depends on where you are on the kind of the recovery line. But if you just look at the markets in general we have said this in the past, the domestic golf situation is going to be, the market itself is going to be relatively little growth, in fact it will be relatively flat if not a slight contraction, of cause that have been based on question what we do within that market and how we drive our share position. So, then I’ll offset that with golf on a worldwide basis when you include the domestic market is still favorable, because there need to be golf courses developed. Again, we talked to 16,000 here give or take, there is 16,000 in the rest of the world, and so, while you won’t necessarily extrapolate on the US basis, the fact is you are going to need to be thousands more built over time around the world and will participate in that growth. So, we think that’s all in for worldwide golf is still a positive, it’s not going to be double-digit growth, but it’s both our share position and the prospects for continued growth in golf. The landscape contractor, the trend that’s taken place over a number of years to outsourcing that will continue, but again this isn’t what we have characterized as a double-digit growth market, talking domestically now. One of the things that will happen is as markets are developed outside the US, as they mature and they develop the middle-class that will create more opportunities for us, both on the landscaping side as well as just to some degrees the residential side. And then the last one line is the municipal business, and long-term that’s a GDP like kind of number, short-term we’ll have the pressure against the tax base that I mentioned earlier.

Your next question comes from the line of Seaver Wang - HFP Capital Markets.

You mentioned that inventories are probably in the best shape in 10 years, field inventory is also in very good shape. Well, I assume that when demand comes back would you expect restocking of inventory in the field, and is that going to be slower, gradual, or are you going to see a pop?

Well, I think a couple of things have happened here over the last couple of years. One, our customer base has gotten a little more conservative in terms of how much inventory that they are willing to take on and that’s not all bad. That means the system that means we have to watch our inventory, make sure that we can deliver when things do take off again. But the leader we can get to channel in terms of inventory and still be able to meet the demand the better off we all are. So, I don’t see a big pop. I do see as business picks up and sales pick up, we’re going to have to have seasonally higher inventories to be able to hit those numbers, but not any big ramp up here in the next couple of years.

Okay. And then, again with the demand with so many new product introductions, you mentioned or Mike mentioned, a 50% of sales introduced by in the last three years, and much greater penetration in the residential area, is it reasonable to assume that when demand comes back, it will come back or sales will grow possibly faster as a percentage than other recoveries just because you have lot more penetration, but a lot of the penetration was during kind of the down market?

Well Seaver, this is Mike, certainly that’s always our goal, right. So to what degree our markets grow, to what degree are we growing within those markets from a share standpoint. And you’re right we have a broad array of new products and that certainly helped us this last year, with all those different products our revenues would have contracted even more. So we hope that is, to your point, we hope that’s the case and as the markets do recover we can take advantage of that, and that could be an accelerator. But, that’s the $64,000 question both to what degree will the markets start to move, in a more favorable direction, one, and then how will we perform within those markets. So, we’re comfortable or we think we have a good position to, comfortable is probably not the right word, we have a good position to take advantage of that when and if that happens.

Your next question comes from the line of James Bank - Sidoti and Company.

In regard to the Red Iron, initial impact passing, do you think you’ll still be able to manage your day sales outstanding here in the mid 30 range going forward?

It’ll definitely be dropping from the prior year because you carved out roughly, by the way this is Tom. Essentially what we’ll have is on an average basis, we’ll have in the neighborhood of $100 million plus on average that will be out of our receivables. So I think that’s kind of the way that you look at the impact of that of what is moving or not beyond our balance sheet that will be over on Red Iron. So I think if you will look at it that way.

Okay. And reserve corresponding, comprehensive loss in shareholders equity in a quarter.

No, for the year if you look at for the full fiscal year, equity is down because we spend more money buying shares back than we may.

Okay. And how many more was left in the share purchase program?

Four million shares.

This is a question for Mike. The size of the drip ag irrigation market, what is that?

It’s I think roughly 4% of our revenues.

But I am sorry but the overall size of the market?

It’s an area we are focused on for a strategic growth.

Right, but the overall size of that market?

The overall size of that market, I guess we would say it’s well north of a $1 billion.

Okay. And what actually what types…

And a potential to grow it even more so.

And what types of farmers are you going after, which field crops?

Well, anyone who can use our products. So when you think about ag irrigation, that ag irrigation as we have talked in the past, uses the largest amount of the fresh water that’s consumed in that 70 plus percent range. And so, the largest part of the ag water is used by flood irrigation followed by center pivot kind of products followed by micro-irrigation or drip products, which is where we’re playing today. And so, those drip kind of products have been used more in the specialized crops, strawberries, onions, not your large volume row crops. Yet although there is work being done on that and some of that relates to commodity prices and when the commodity prices go up, as it did for a period of time a couple of years ago, that becomes more interesting because you actually can now control the yield. So, more specialized today, but moving towards just a larger part of the overall ag environment, not surprisingly because we have to manage water more carefully now and well into the future.

Is there an acreage limitation with the drip irrigation?

No. I mean, it’s not an acreage. Again, going back, what I said just a minute ago. You could use, there are people who have tried and in some cases have been successfully using drip tape in raising corn, right. Those are large acreage crops, those are what I would characterize as specialty crops. But it helps when corn has a price of $4 or $5 bushel versus $2 or $3. That makes the economic proposition much more attractive.

Right. Would say that drip irrigation is more efficient than the center pivot irrigation?

Yes.

Right now?

Well, more importantly than me saying it, the colleges and the academics would say it.

Okay, okay, great. I believe that was it. My other questions have been answered. Thank you very much.

Your next question comes from the line of Mark Rupe - Longbow Research.

Good morning. Just one question for you. On the third quarter call, I believe you mentioned a delay in the launch of new line of snow products from the third quarter into later in the year. And I was hoping if you can give us just a little bit of an idea of what sort of impact that had on this quarter’s results?

I guess I would say not material. It is a line of our new model, the Power Clear 180, which is kind of our lightest weight gas powered product. It started shipping in November and they are out there now at our dealers and key retailers. So, it’s going to be a nice product, we’re not talking about something that’s going to significantly move the needle.

And there are no additional questions at this time. I would now like to turn the presentation over to Mr. Michael J. Hoffman for closing remarks. Sir, you may proceed.

Thank you Gerri, and once again thank you for your questions and interest in The Toro Company to all our listeners. We wish you a safe and happy holiday season and look forward to talking with you again in February to discuss our first quarter results. Thanks and have a great day.

Thank you for your participation in today’s conference. This concludes your presentation. You may now disconnect and have a great day.