Toro 2011 Annual Report Download - page 51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
inherent in such estimates and assumptions. As future events and
SUMMARY OF SIGNIFICANT ACCOUNTING their effects cannot be determined with precision, actual amounts
1POLICIES AND RELATED DATA could differ significantly from those estimated at the time the con-
solidated financial statements are prepared. Changes in those esti-
Basis of Presentation and Consolidation mates will be reflected in the consolidated financial statements in
The accompanying consolidated financial statements include the future periods.
accounts of the company and its majority-owned subsidiaries. The
company uses the equity method to account for investments over Cash and Cash Equivalents
which it has the ability to exercise significant influence over operat- The company considers all highly liquid investments purchased
ing and financial policies. Consolidated net earnings include the with an original maturity of three months or less to be cash equiva-
company’s share of the net earnings (losses) of these companies. lents and are stated at cost, which approximates fair value.
The cost method is used to account for investments in companies
Receivables
that the company does not control and for which it does not have
The company’s financial exposure to collection of accounts receiv-
the ability to exercise significant influence over operating and
able is reduced due to its Red Iron Acceptance, LLC (‘‘Red Iron’’)
financial policies. These investments are recorded at cost. All
joint venture with TCF Inventory Finance, Inc. (‘‘TCFIF’’), as further
intercompany accounts and transactions have been eliminated
discussed in Note 3. For receivables not serviced through Red
from the consolidated financial statements.
Iron, the company grants credit to customers in the normal course
Accounting Estimates of business and performs on-going credit evaluations of customers.
In preparing the consolidated financial statements in conformity Receivables are recorded at original carrying amount less reserves
with U.S. generally accepted accounting principles (‘‘GAAP’’), man- for estimated uncollectible accounts, as described below.
agement must make decisions that impact the reported amounts of
Allowance for Doubtful Accounts
assets, liabilities, revenues, expenses, and the related disclosures,
The company estimates the balance of allowance for doubtful
including disclosures of contingent assets and liabilities. Such deci-
accounts by analyzing the age of account and note receivable bal-
sions include the selection of the appropriate accounting principles
ances and applying historical write-off trend rates. The company
to be applied and the assumptions on which to base accounting
also estimates separately specific customer balances when it is
estimates. Estimates are used in determining, among other items,
deemed probable that the balance is uncollectible. Account bal-
sales promotions and incentive accruals, incentive compensation
ances are charged off against the allowance when all collection
accruals, inventory valuation, warranty reserves, earnout liabilities,
efforts have been exhausted.
allowance for doubtful accounts, pension and postretirement accru-
als, self-insurance accruals, useful lives of tangible and intangible
Inventory Valuations
assets, and future cash flows associated with impairment testing
Inventories are valued at the lower of cost or net realizable value,
for goodwill and other long-lived assets. These estimates and
with cost determined by the last-in, first-out (‘‘LIFO’’) method for
assumptions are based on management’s best estimates and judg-
most inventories. The first-in, first-out (‘‘FIFO’’) method is used for
ments. Management evaluates its estimates and assumptions on
all other inventories, constituting approximately 33 percent of total
an ongoing basis using historical experience and other factors that
inventories as of October 31, 2011 and 2010. The company estab-
management believes to be reasonable under the circumstances,
lishes a reserve for excess, slow-moving, and obsolete inventory
including the current economic environment. Management adjusts
that is equal to the difference between the cost and estimated net
such estimates and assumptions when facts and circumstances
realizable value for that inventory. These reserves are based on a
dictate. A number of these factors are discussed in Part I, Item 1A,
review and comparison of current inventory levels to the planned
‘‘Risk Factors’’ of this report, which include, among others, eco-
production, as well as planned and historical sales of the inventory.
nomic conditions, including consumer spending and confidence
During fiscal 2011 and 2010, no LIFO inventory layers were
levels; foreign currency exchange rate impact; commodity costs;
reduced.
and credit conditions, all of which may increase the uncertainty
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