Toro 2014 Annual Report Download - page 56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Cash and Cash Equivalents
SUMMARY OF SIGNIFICANT ACCOUNTING The company considers all highly liquid investments purchased
1POLICIES AND RELATED DATA with an original maturity of three months or less to be cash
equivalents and are stated at cost, which approximates fair value.
Basis of Presentation and Consolidation As of October 31, 2014, cash and short-term investments held by
The accompanying consolidated financial statements include the the company’s foreign subsidiaries that are not available to fund
accounts of the company and its wholly owned subsidiaries. The domestic operations unless repatriated were $56,418.
company uses the equity method to account for investments over
which it has the ability to exercise significant influence over operat- Receivables
ing and financial policies. Consolidated net earnings include the The company’s financial exposure to collection of accounts receiv-
company’s share of the net earnings (losses) of these companies. able is reduced due to its Red Iron Acceptance, LLC (‘‘Red Iron’’)
The cost method is used to account for investments in companies joint venture with TCF Inventory Finance, Inc. (‘‘TCFIF’’), as further
that the company does not control and for which it does not have discussed in Note 3. For receivables not serviced through Red
the ability to exercise significant influence over operating and Iron, the company grants credit to customers in the normal course
financial policies. These investments are recorded at cost. All of business and performs on-going credit evaluations of customers.
intercompany accounts and transactions have been eliminated Receivables are recorded at original carrying amount less reserves
from the consolidated financial statements. for estimated uncollectible accounts, as described below.
Accounting Estimates Allowance for Doubtful Accounts
In preparing the consolidated financial statements in conformity The company estimates the balance of allowance for doubtful
with United States (‘‘U.S.’’) generally accepted accounting princi- accounts by analyzing the age of accounts and notes receivable
ples (‘‘GAAP’’), management must make decisions that impact the balances and applying historical write-off trend rates. The company
reported amounts of assets, liabilities, revenues, expenses, and also estimates separately specific customer balances when it is
the related disclosures, including disclosures of contingent assets deemed probable that the balance is uncollectible. Account bal-
and liabilities. Such decisions include the selection of the appropri- ances are charged off against the allowance when all collection
ate accounting principles to be applied and the assumptions on efforts have been exhausted.
which to base accounting estimates. Estimates are used in deter-
mining, among other items, sales promotions and incentives accru- Inventory Valuations
als, incentive compensation accruals, inventory valuation, warranty Inventories are valued at the lower of cost or net realizable value,
reserves, earnout liabilities, allowance for doubtful accounts, pen- with cost determined by the last-in, first-out (‘‘LIFO’’) method for a
sion and postretirement accruals, self-insurance accruals, useful majority of the company’s inventories. The first-in, first-out (‘‘FIFO’’)
lives for tangible and intangible assets, and future cash flows asso- method is used for all other inventories, constituting 28 and 33 per-
ciated with impairment testing for goodwill and other long-lived cent of total inventories as of October 31, 2014 and 2013, respec-
assets. These estimates and assumptions are based on manage- tively. The company establishes a reserve for excess,
ment’s best estimates and judgments at the time they are made. slow-moving, and obsolete inventory that is equal to the difference
Management evaluates its estimates and assumptions on an ongo- between the cost and estimated net realizable value for that inven-
ing basis using historical experience and other factors that man- tory. These reserves are based on a review and comparison of
agement believes to be reasonable under the circumstances, current inventory levels to planned production, as well as planned
including the current economic environment. Management adjusts and historical sales of the inventory. During fiscal 2014 and 2013,
such estimates and assumptions when facts and circumstances LIFO layers were reduced. This reduction resulted in charging
dictate. As future events and their effects cannot be determined lower inventory costs prevailing in previous years to cost of sales,
with certainty, actual amounts could differ significantly from those thus reducing cost of sales by $65 and $122 in fiscal 2014 and
estimated at the time the consolidated financial statements are 2013, respectively. During fiscal 2012, no LIFO layers were
prepared. Changes in those estimates will be reflected in the con- reduced.
solidated financial statements in future periods.
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