Toro 2009 Annual Report Download - page 43

uncollectible receivables not specifically known. A deterioration in financial effects of the business combination. We adopted the pro-
the financial condition of any key customer, inability of customers visions of SFAS No. 141R to any business combination occurring
to obtain bank credit lines, or a significant slow-down in the econ- on or after November 1, 2009, as required.
omy could have a material negative impact on our ability to collect No other new accounting pronouncement that has been issued
a portion or all of the accounts and notes receivable. We believe but not yet effective for us during fiscal 2009 has had or is
that an analysis of historical trends and our current knowledge of expected to have a material impact on our consolidated financial
potential collection problems provide us with sufficient information statements.
to establish a reasonable estimate for an allowance for doubtful
accounts. However, since we cannot predict with certainty future
ITEM 7A. QUANTITATIVE AND QUALITATIVE
changes in the financial stability of our customers or in the general
DISCLOSURES ABOUT MARKET RISK
economy, our actual future losses from uncollectible accounts may
differ from our estimates. In the event we determined that a We are exposed to market risk stemming from changes in foreign
smaller or larger uncollectible accounts reserve is appropriate, we currency exchange rates, interest rates, and commodity prices. We
would record a credit or charge to SG&A expense in the period are also exposed to equity market risk pertaining to the trading
that we made such a determination. price of our common stock. Changes in these factors could cause
fluctuations in our net earnings and cash flows. See further discus-
New Accounting Pronouncements to be Adopted sions on these market risks below.
In June 2009, the Financial Accounting Standards Board (FASB)
Foreign Currency Exchange Rate Risk. In the normal course of
issued Statement of Financial Accounting Standards (SFAS)
business, we actively manage the exposure of our foreign currency
No. 167, ‘‘Amendments to FASB Interpretation No. 46(R),’’ and
exchange rate market risk by entering into various hedging instru-
SFAS No. 166, ‘‘Accounting for Transfers of Financial Assets – an
ments, authorized under company policies that place controls on
amendment of FASB Statement No. 140.’’ SFAS No. 167 amends
these activities, with counterparties that are highly rated financial
FASB Interpretation 46(R) to eliminate the quantitative approach
institutions. Our hedging activities involve the primary use of for-
previously required for determining the primary beneficiary of a
ward currency contracts. We use derivative instruments only in an
variable interest entity and requires ongoing qualitative reassess-
attempt to limit underlying exposure from currency fluctuations and
ments of whether an enterprise is the primary beneficiary of a vari-
to minimize earnings and cash flow volatility associated with for-
able interest entity. SFAS No. 166 amends SFAS No. 140 by
eign currency exchange rate changes and not for trading pur-
removing the exemption from consolidation for Qualifying Special
poses. We are exposed to foreign currency exchange rate risk
Purpose Entities. SFAS No. 166 also limits the circumstances in
arising from transactions in the normal course of business, such as
which a financial asset, or portion of a financial asset, should be
sales and loans to wholly owned foreign subsidiaries, foreign plant
derecognized when the transferor has not transferred the entire
operations, and purchases from suppliers. Because our products
original financial asset to an entity that is not consolidated with the
are manufactured or sourced primarily from the United States and
transferor in the financial statements being presented and/or when
Mexico, a stronger U.S. dollar and Mexican peso generally has a
the transferor has continuing involvement with the transferred
negative impact on our results from operations, while a weaker
financial asset. We will adopt both SFAS No. 167 and SFAS
dollar and peso generally has a positive effect. Our primary cur-
No. 166 on November 1, 2010, as required. We are currently eval-
rency exchange rate exposures are with the Euro, the Australian
uating the impact the adoption of these standards will have on our
dollar, the Canadian dollar, the British pound, the Mexican peso,
consolidated financial statements and related disclosures.
and the Japanese yen against the U.S. dollar.
In April 2008, the FASB finalized Staff Position No. 142-3,
We enter into various contracts, principally forward contracts that
‘‘Determination of the Useful Life of Intangible Assets’’ (FSP
change in value as foreign currency exchange rates change, to
142-3). This position amends the factors that should be considered
protect the value of existing foreign currency assets, liabilities,
in developing renewal or extension assumptions used to determine
anticipated sales, and probable commitments. Decisions on
the useful life of a recognized intangible asset under SFAS
whether to use such contracts are made based on the amount of
No. 142, ‘‘Goodwill and Other Intangible Assets.’’ FSP 142-3
exposures to the currency involved and an assessment of the
applies to intangible assets that are acquired individually or with a
near-term market value for each currency. Worldwide foreign cur-
group of other assets and both intangible assets acquired in busi-
rency exchange rate exposures are reviewed monthly. The gains
ness combinations and asset acquisitions. We adopted the provi-
and losses on these contracts offset changes in market values of
sions of FSP 142-3 on November 1, 2009, as required.
the related exposures. Therefore, changes in market values of
In December 2007, the FASB issued SFAS No. 141 (Revised
these hedge instruments are highly correlated with changes in
2007), ‘‘Business Combinations.’’ SFAS No. 141R applies to all
market values of underlying hedged items both at inception of the
business combinations and requires most identifiable assets, liabili-
hedge and over the life of the hedge contract. During fiscal 2009,
ties, noncontrolling interests, and goodwill acquired to be recorded
the amount of gains treated as an increase to net sales for con-
at ‘‘full fair value.’’ This statement also establishes disclosure
tracts to hedge sales were $11.8 million. During fiscal 2008 and
requirements that will enable users to evaluate the nature and
2007, the amount of losses treated as a reduction of net sales for
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