Toro 2009 Annual Report Download - page 12

intended to streamline work and eliminate waste. We also have reduction efforts, and increase prices on some of our products, as
flexible assembly lines that can handle a wide product mix and appropriate.
deliver products to meet customer demand. Additionally, we spend Most of the components of our products are also affected by
considerable effort to reduce manufacturing costs through Lean commodity cost pressures and are commercially available from a
methods and process improvement, product and platform design, number of sources. In fiscal 2009, we experienced no significant
application of advanced technologies, enhanced environmental work stoppages as a result of shortages of raw materials or com-
management systems, SKU consolidation, safety improvements, modities. The highest raw material and component costs are gen-
and improved supply-chain management. We also manufacture erally for steel, engines, hydraulic components, transmissions,
products sold under a private label agreement to a third party on a plastic resin, and electric motors, which are purchased from sev-
competitive basis, and we have agreements with other third party eral suppliers around the world.
manufacturers to manufacture products on our behalf.
Service and Warranty
Our professional products are manufactured throughout the year.
Our products are warranted to ensure customer confidence in
Our residential lawn and garden products are also generally manu-
design, workmanship, and overall quality. Warranty length varies
factured throughout the year. However, our residential snow
depending on whether product usage is for ‘‘residential’’ or ‘‘profes-
removal equipment products are generally manufactured in the
sional’’ applications within individual product lines. Warranty cover-
summer and fall months but may be extended into the winter
age ranges from a period of six months to seven years and gener-
months depending upon demand. Our products are tested in con-
ally covers parts, labor, and other expenses for non-maintenance
ditions and locations similar to those in which they are used. We
repairs. Warranty coverage generally does not cover operator
use computer-aided design and manufacturing systems to shorten
abuse or improper use. An authorized distributor or dealer must
the time between initial concept and final production. DFMA princi-
perform warranty work. Distributors and dealers submit claims for
ples are used throughout the product development process to opti-
warranty reimbursement and are credited for the cost of repairs,
mize product quality and cost.
labor, and other expenses as long as the repairs meet our pre-
Our production levels and inventory management goals are
scribed standards. Warranty expense is accrued at the time of sale
based on estimates of retail demand for our products, taking into
based on the type and estimated number of products under war-
account production capacity, timing of shipments, and field inven-
ranty, historical average costs incurred to service warranty claims,
tory levels. In fiscal 2009, we continued to roll-out a pull-based
the trend in the historical ratio of claims to sales, the historical
production system at some of our manufacturing facilities to better
length of time between the sale and resulting warranty claim, and
synchronize the production of our products to meet customer
other minor factors. Special warranty reserves are also accrued for
demand at just the right time. Along with improved service levels
major rework campaigns. Service support outside of the warranty
for our participating suppliers, distributors, and dealers, the pro-
period is provided by distributors and dealers at the customer’s
gram has resulted in inventory reductions for us and throughout
expense. We also sell extended warranty coverage on select prod-
the distribution system.
ucts for a prescribed period after the factory warranty period
We periodically shut down production at our manufacturing facili-
expires.
ties in order to allow for maintenance, rearrangement, capital
equipment installation, and as needed to adjust for market
Product Liability
demand. Capital expenditures for fiscal 2010 are planned to be
We have rigorous product safety standards and work continually to
approximately $40 to $45 million as we expect to continue to
improve the safety and reliability of our products. We monitor for
invest in new product tooling, replacement production equipment,
accidents and possible claims and establish liability estimates with
and expansion of our vertical integration capabilities.
respect to claims based on internal evaluations of the merits of
individual claims. We purchase excess insurance coverage for cat-
Raw Materials
astrophic product liability claims for incidents that exceed our
During the first half of fiscal 2009, we experienced higher average
self-insured retention levels.
commodity costs compared to the average prices paid for com-
modities in fiscal 2008. During the second half of fiscal 2009,
Patents and Trademarks
prices paid for commodities declined, which offset the negative
We hold patents in the United States and foreign countries and
impact of higher commodity costs on our gross margin rate during
apply for patents as applicable. Although we believe our patents
the first half of fiscal 2009. We have offset, and expect to continue
are valuable and patent protection is beneficial, our patent protec-
to mitigate, commodity cost increases in part by continuing efforts
tion will not necessarily deter or prevent competitors from attempt-
to engage in proactive vendor negotiations, review alternative
ing to develop similar products. We are not materially dependent
sourcing options, substitute materials, engage in internal cost
on any one or more of our patents.
6