Toro 2014 Annual Report Download - page 14

prevent possible infringement of our patents by others. We believe
Service and Warranty
these activities help us minimize our risk of being a defendant in
Our products are warranted to ensure customer confidence in
patent infringement litigation. We are currently involved in patent
design, workmanship, and overall quality. Warranty coverage is
litigation cases where we are asserting our patents against com-
generally for specified periods of time and on select products’
petitors and defending against patent infringement assertions by
hours of usage, and generally covers parts, labor, and other
others.
expenses for non-maintenance repairs. Warranty coverage gener-
Similarly, we periodically monitor various trademark registers and
ally does not cover operator abuse or improper use. An authorized
the market to prevent infringement of and damage to our trade-
company distributor or dealer must perform warranty work. Distrib-
marks by others. We are currently involved in trademark opposi-
utors and dealers submit claims for warranty reimbursement and
tions where we are asserting our trademarks against third parties
are credited for the cost of repairs, labor, and other expenses as
who are attempting to establish rights in trademarks that are con-
long as the repairs meet our prescribed standards. Warranty
fusingly similar to ours. We believe these activities help minimize
expense is accrued at the time of sale based on the estimated
risk of harm to our trademarks, and help maintain distinct products
number of products under warranty, historical average costs
and services that we believe are well regarded in the marketplace.
incurred to service warranty claims, the trend in the historical ratio
of claims to sales, the historical length of time between the sale
Seasonality
and resulting warranty claim, and other minor factors. Special war-
Sales of our residential products, which accounted for 31 percent
ranty reserves are also accrued for major rework campaigns. Ser-
of total consolidated net sales in fiscal 2014, are seasonal, with
vice support outside of the warranty period is provided by author-
sales of lawn and garden products occurring primarily between
ized distributors and dealers at the customer’s expense. We sell
February and June, depending upon seasonal weather conditions
extended warranty coverage on select products for a prescribed
and demand for our products. Sales of snow thrower products
period after the original warranty period expires.
occur primarily between July and January, depending upon prior
season snow falls, preseason demand, and product availability.
Product Liability
Opposite seasons in global markets in which we sell our products
We have rigorous product safety standards and continually work to
somewhat moderate this seasonality of our residential product
improve the safety and reliability of our products. We monitor for
sales. Seasonality of professional product sales also exists but is
accidents and possible claims and establish liability estimates
tempered because the selling season in the Southern U.S. and our
based on internal evaluations of the merits of individual claims. We
markets in the Southern hemisphere continue for a longer portion
purchase insurance coverage for catastrophic product liability
of the year than in Northern regions of the world. With our recent
claims for incidents that exceed our self-insured retention levels.
acquisition of professional snow and ice management products,
sales of snowplows and salt and sand spreaders occur primarily
Patents and Trademarks
between May and December.
We own patents, trademarks, and trade secrets related to our
Overall, our worldwide sales levels are historically highest in our
products in the U.S. and certain countries outside the U.S. in
fiscal second quarter and retail demand is generally highest in our
which we conduct business. We expect to apply for future patents
fiscal third quarter. Typically, our accounts receivable balances
and trademarks, as appropriate, in connection with the develop-
increase between January and April because of higher sales
ment of innovative new products, services, and enhancements.
volumes and extended payment terms made available to our cus-
Although we believe that, in the aggregate, our patents are valua-
tomers. Accounts receivable balances typically decrease between
ble, and patent protection is beneficial to our business and com-
May and December when payments are received. Our financing
petitive positioning, our patent protection will not necessarily deter
requirements are subject to variations due to seasonal changes in
or prevent competitors from attempting to develop similar products.
working capital levels, which typically increase in the first half of
We are not materially dependent on any one or more of our pat-
our fiscal year and decrease in the second half of our fiscal year.
ents. However, certain Toro trademarks that contribute to our iden-
Seasonal cash requirements of our business are financed from a
tity and the recognition of our products and services, including the
combination of cash balances, cash flows from operations, and our
Toro name and logo, are an integral part of our business.
bank credit lines.
We regularly review certain patents issued by the United States
Patent and Trademark Office (‘‘USPTO’’) and international patent
offices to help avoid potential liability with respect to others’ pat-
ents. Additionally, we periodically review competitors’ products to
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