Toro 2014 Annual Report Download - page 71

company has repurchased only immaterial amounts of inventory certain patents issued by the United States Patent and Trademark
under these repurchase agreements since inception. Office and foreign patent offices. Management believes these
activities help minimize its risk of being a defendant in patent
End-User Financing. The company has agreements with third infringement litigation. The company records a liability in its consol-
party financing companies to provide lease-financing options to golf idated financial statements for costs related to claims, including
course and sports fields and grounds equipment customers in the future legal costs, settlements and judgments, where the company
U.S. and select countries in Europe. The company has no contin- has assessed that a loss is probable and an amount can be rea-
gent liabilities for residual value or credit collection risk under these sonably estimated. If the reasonable estimate of a probable loss is
agreements with third party financing companies. a range, the company records the most probable estimate of the
From time to time, the company enters into agreements where it loss or the minimum amount when no amount within the range is a
provides recourse to third party finance companies in the event of better estimate than any other amount. The company discloses a
default by the customer for lease payments to the third party contingent liability even if the liability is not probable or the amount
finance company. The company’s maximum exposure for credit is not estimable, or both, if there is a reasonable possibility that a
collection as of October 31, 2014 was $1,893. material loss may have been incurred. In the opinion of manage-
ment, the amount of liability, if any, with respect to these matters,
Purchase Commitments individually or in the aggregate, will not materially affect its consoli-
As of October 31, 2014, the company had $18,921 of noncancel- dated results of operations, financial position, or cash flows.
able purchase commitments with some suppliers for materials and
supplies as part of the normal course of business. The company
also entered into a construction agreement for the renovation of its
original corporate facility located at Bloomington, Minnesota, to 14 FINANCIAL INSTRUMENTS
accommodate needs for expansion of product development and
test capacities, for a maximum obligation, subject to certain excep- Concentrations of Credit Risk
tions, of $15,291. Financial instruments, which potentially subject the company to
concentrations of credit risk, consist principally of accounts receiva-
Letters of Credit ble that are concentrated in the Professional and Residential busi-
Letters of credit are issued by the company during the normal ness segments. The credit risk associated with these segments is
course of business, as required by some vendor contracts. As of limited because of the large number of customers in the com-
October 31, 2014 and 2013, the company had $16,220 and pany’s customer base and their geographic dispersion, except for
$12,681, respectively, in outstanding letters of credit. the Residential segment that has significant sales to The Home
Depot.
Litigation
The company is party to litigation in the ordinary course of busi- Derivative Instruments and Hedging Activities
ness. Such matters are generally subject to uncertainties and to The company is exposed to foreign currency exchange rate risk
outcomes that are not predictable with assurance and that may not arising from transactions in the normal course of business, such as
be known for extended periods of time. Litigation occasionally sales to third party customers, sales and loans to wholly owned
involves claims for punitive, as well as compensatory, damages foreign subsidiaries, foreign plant operations, and purchases from
arising out of the use of the company’s products. Although the suppliers. The company actively manages the exposure of its for-
company is self-insured to some extent, the company maintains eign currency exchange rate market risk by entering into various
insurance against certain product liability losses. The company is hedging instruments, authorized under company policies that place
also subject to litigation and administrative and judicial proceedings controls on these activities, with counterparties that are highly
with respect to claims involving asbestos and the discharge of haz- rated financial institutions. The company’s hedging activities prima-
ardous substances into the environment. Some of these claims rily involve the use of forward currency contracts, as well as cross
assert damages and liability for personal injury, remedial investiga- currency swaps that are intended to offset intercompany loan
tions or clean up and other costs and damages. The company is exposures. The company uses derivative instruments only in an
also typically involved in commercial disputes, employment dis- attempt to limit underlying exposure from foreign currency
putes, and patent litigation cases in which it is asserting or defend- exchange rate fluctuations and to minimize earnings and cash flow
ing against patent infringement claims. To prevent possible volatility associated with foreign currency exchange rate changes.
infringement of the company’s patents by others, the company Decisions on whether to use such contracts are primarily based on
periodically reviews competitors’ products. To avoid potential liabil-
ity with respect to others’ patents, the company regularly reviews
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