Toro 2014 Annual Report Download - page 23

•
inaccurate assessment of additional post-acquisition investments, claims allowed under any issued patents will be sufficiently broad
undisclosed, contingent or other liabilities or problems, unantici- to protect our technology. In the absence of enforceable patent
pated costs associated with an acquisition, and an inability to protection, we may be vulnerable to competitors who attempt to
recover or manage such liabilities and costs; and copy our products or gain access to our trade secrets and know-
•
incorrect estimates made in the accounting for acquisitions, how. Others may initiate litigation to challenge the validity of our
incurrence of non-recurring charges, and write-off of significant patents, or allege that we infringe their patents, or they may use
amounts of goodwill or other assets that could adversely affect their resources to design comparable products that do not infringe
our operating results. our patents. We may incur substantial costs if our competitors or
In addition, effective internal controls are necessary for us to others initiate litigation to challenge the validity of our patents, or
provide reliable and accurate financial reports and to effectively allege that we infringe their patents, or if we initiate any proceed-
prevent fraud. The integration of acquired businesses may result in ings to protect our proprietary rights. If the outcome of any such
our systems and controls becoming increasingly complex and more litigation is unfavorable to us, our business, operating results, and
difficult to manage. We devote significant resources and time to financial condition could be adversely affected. We also cannot be
comply with the internal control over financial reporting require- certain that our products or technologies have not infringed or will
ments of the Sarbanes-Oxley Act of 2002. However, we cannot be not infringe the proprietary rights of others. Any such infringement
certain that these measures will ensure that we design, implement, could cause third parties, including our competitors, to bring claims
and maintain adequate control over our financial processes and against us, resulting in significant costs, possible damages and
reporting in the future, especially in the context of acquisitions of substantial uncertainty. We could also be forced to develop an
other businesses. Any difficulties in the assimilation of acquired alternative that could be costly and time-consuming, or acquire a
businesses into our control system could harm our operating license, which we might not be able to do on terms favorable to
results or cause us to fail to meet our financial reporting obliga- us, or at all.
tions. Our ability to grow through acquisitions will depend, in part, We also rely on trade secrets and proprietary know-how that we
on the availability of suitable candidates at acceptable prices, seek to protect, in part, by confidentiality agreements with our
terms, and conditions, our ability to compete effectively for acquisi- employees, suppliers, and consultants. These agreements may be
tion candidates, and the availability of capital and personnel to breached, and we may not have adequate remedies for any such
complete such acquisitions and run the acquired business effec- breach. Even if these confidentiality agreements are not breached,
tively. These risks could be heightened if we complete a large our trade secrets may otherwise become known or be indepen-
acquisition, such as the acquisition of the BOSS business, or multi- dently developed by competitors.
ple acquisitions within a relatively short period of time. In addition,
We manufacture our products at, and distribute our
some acquisitions may require the consent of the lenders under
products from, several locations in the U.S. and
our credit agreements. We cannot predict whether such approvals
internationally. Any disruption at any of these facilities
would be forthcoming or the terms on which the lenders would
or our inability to cost-effectively expand existing, open
approve such acquisitions. Any potential acquisition could impair
and manage new, and/or move production between
our business, financial condition, reputation, and operating results,
manufacturing facilities could adversely affect our
and any large acquisition could, among other things, impair our
business and operating results.
financial condition.
We currently manufacture most of our products at ten locations in
Our reliance upon patents, trademark laws, and the U.S., two locations in Mexico, and one location in each of
contractual provisions to protect our proprietary rights Australia, Italy, the United Kingdom, Romania, and China. We also
may not be sufficient to protect our intellectual property have several locations that serve as distribution centers, ware-
from others who may sell similar products. Our products houses, test labs, and corporate offices. In addition, we have
may infringe the proprietary rights of others. agreements with other third-party manufacturers to manufacture
We hold patents relating to various aspects of our products and products on our behalf. These facilities may be affected by natural
believe that proprietary technical know-how is important to our bus- or man-made disasters and other external events, including drug
iness and their loss could have a material adverse effect on our cartel-related violence that may disrupt our production activities
business and operating results. Proprietary rights relating to our and maquiladora operations based in Juarez, Mexico. In the event
products are protected from unauthorized use by third parties only that one of our manufacturing facilities was affected by a disaster
to the extent that they are covered by valid and enforceable pat- or other event, we could be forced to shift production to one of our
ents or are maintained in confidence as trade secrets. We cannot other manufacturing facilities. Although we maintain insurance for
be certain that we will be issued any patents from any pending or damage to our property and disruption of our business from casu-
future patent applications owned by or licensed to us, or that the alties, such insurance may not be sufficient to cover all of our
17