Toro 2013 Annual Report Download - page 45

to establish a reasonable estimate for an allowance for doubtful or sourced primarily from the U.S. and Mexico, a stronger U.S.
accounts. However, since we cannot predict with certainty future dollar and Mexican peso generally have a negative impact on our
changes in the financial stability of our customers or in the general results from operations, while a weaker dollar and peso generally
economy, our actual future losses from uncollectible accounts may have a positive effect. Our primary foreign currency exchange rate
differ from our estimates. In the event we determined that a exposures are with the Euro, the Australian dollar, the Canadian
smaller or larger uncollectible accounts reserve is appropriate, we dollar, the British pound, the Mexican peso, the Japanese yen, the
would record a credit or charge to SG&A expense in the period Chinese Yuan, and the Romanian New Leu against the U.S. dollar,
that we made such a determination. as well as the Romanian New Leu against the Euro.
We enter into various contracts, primarily forward contracts that
New Accounting Pronouncement to be Adopted change in value as foreign currency exchange rates change, to
In December 2011, the Financial Accounting Standards Board protect the value of existing foreign currency assets, liabilities,
issued Accounting Standards Update (‘‘ASU’’) No. 2011-11, Disclo- anticipated sales, and probable commitments. Decisions on
sures about Offsetting Assets and Liabilities. ASU No. 2011-11 whether to use such contracts are made based on the amount of
requires entities to disclose gross and net information about both exposures to the currency involved and an assessment of the
instruments and transactions eligible for offset in the statement of near-term market value for each currency. Worldwide foreign cur-
financial position and those subject to an agreement similar to a rency exchange rate exposures are reviewed monthly. The gains
master netting arrangement. This would include derivatives and and losses on these contracts offset changes in values of the
other financial securities arrangements. We will adopt this gui- related exposures. Therefore, changes in values of these hedge
dance in our first quarter of fiscal 2014, as required. The adoption instruments are highly correlated with changes in market values of
of this guidance is not expected to have a material impact on our underlying hedged items both at inception of the hedge and over
consolidated financial statements. the life of the hedge contract. Further information regarding gains
No other new accounting pronouncement that has been issued and losses on our derivative instruments is presented in Note 14 of
but not yet effective for us during fiscal 2013 has had or is the Notes to Consolidated Financial Statements.
expected to have a material impact on our consolidated financial The following foreign currency exchange contracts held by us
statements. have maturity dates in fiscal 2014 and 2015. All items are
non-trading and stated in U.S. dollars. Some derivative instruments
ITEM 7A. QUANTITATIVE AND QUALITATIVE
we enter into do not meet cash flow hedge accounting criteria;
DISCLOSURES ABOUT MARKET RISK therefore, changes in fair value are recorded in other income, net.
The average contracted rate, notional amount, pre-tax value of
We are exposed to market risk stemming from changes in foreign derivative instruments in accumulated other comprehensive loss
currency exchange rates, interest rates, and commodity prices. We (‘‘AOCL’’), and fair value impact of derivative instruments in other
are also exposed to equity market risk pertaining to the trading income, net as of and for the fiscal year ended October 31, 2013
price of our common stock. Changes in these factors could cause were as follows:
fluctuations in our earnings and cash flows. See further discussion
on these market risks below. Value in Fair Value
Average AOCL Impact
Foreign Currency Exchange Rate Risk. In the normal course of Dollars in thousands Contracted Notional Income Gain
business, we actively manage the exposure of our foreign currency (except average contracted rate) Rate Amount (Loss) (Loss)
exchange rate market risk by entering into various hedging instru- Buy U.S. $/Sell Australian dollar 0.9294 $79,155.2 $ (336.0) $ 707.1
ments, authorized under company policies that place controls on Buy U.S. $/Sell Canadian dollar 1.0359 8,678.7 124.4 (12.4)
Buy U.S. $/Sell Euro 1.3481 97,402.8 (1,089.0) (1,315.8)
these activities, with counterparties that are highly rated financial
Buy U.S. $/Sell British pound 1.6001 3,969.8 – (0.5)
institutions. Our hedging activities involve primarily the use of for- Buy Euro/ Sell U.S. $ 1.3585 6,256.9 – (117.1)
ward currency contracts. We also utilize cross currency swaps to Buy Mexican peso/ Sell U.S. $ 14.4183 11,624.1 112.3 1,033.1
offset intercompany loan exposures. We use derivative instruments Buy Euro/Sell Romanian New Leu 4.4345 11,541.7 (217.6) (326.1)
only in an attempt to limit underlying exposure from currency fluc- Buy Japanese Yen/ Sell U.S. $ 98.0800 (17.3) – –
tuations and to minimize earnings and cash flow volatility associ- Our net investment in foreign subsidiaries translated into U.S.
ated with foreign currency exchange rate changes and not for trad- dollars is not hedged. Any changes in foreign currency exchange
ing purposes. We are exposed to foreign currency exchange rate rates would be reflected as a foreign currency translation adjust-
risk arising from transactions in the normal course of business, ment, a component of accumulated other comprehensive loss in
such as sales to third party customers, sales and loans to wholly stockholders’ equity, and would not impact net earnings.
owned foreign subsidiaries, foreign plant operations, and
purchases from suppliers. Because our products are manufactured
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