Toro 2008 Annual Report Download - page 52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
most inventories. The first-in, first-out (FIFO) method is used for all
SUMMARY OF SIGNIFICANT other inventories, constituting approximately 29 percent and
ACCOUNTING POLICIES 35 percent of total inventories as of October 31, 2008 and 2007,
1AND RELATED DATA respectively. The company establishes a reserve for excess,
slow-moving, and obsolete inventory that is equal to the difference
Basis of Presentation and Consolidation between the cost and estimated net realizable value for that inven-
The accompanying consolidated financial statements include the tory. These reserves are based on a review and comparison of
accounts of the company and its majority-owned subsidiaries. The current inventory levels to the planned production as well as
company uses the equity method to account for investments over planned and historical sales of the inventory.
which it has the ability to exercise significant influence over operat- During fiscal 2008, LIFO inventory layers were reduced. This
ing and financial policies. Consolidated net earnings include the reduction resulted in charging lower inventory costs prevailing in
company’s share of the net earnings (losses) of these companies. previous years to cost of sales, thus reducing cost of sales by
The cost method is used to account for investments in companies $423 below the amount that would have resulted from replacing
that the company does not control and for which it does not have the liquidated inventory at end of year prices. During fiscal 2007,
the ability to exercise significant influence over operating and LIFO inventory layers were also reduced but resulted in an imma-
financial policies. In accordance with the cost method, these terial impact to cost of sales.
investments are recorded at cost or fair value, as appropriate. All Inventories as of October 31 were as follows:
intercompany accounts and transactions have been eliminated
from the consolidated financial statements.
2008 2007
Raw materials and work in progress $ 63,268 $ 64,583
Accounting Estimates
Finished goods and service parts 194,118 229,581
The preparation of financial statements in conformity with U.S.
Total FIFO value 257,386 294,164
generally accepted accounting principles requires management to
Less: adjustment to LIFO value 50,302 42,889
make estimates and assumptions that affect the reported amounts
Total $207,084 $251,275
of assets and liabilities, and disclosure of contingent assets and
liabilities as of the date of the financial statements, and the
reported amounts of revenue and expenses during the reporting Property and Depreciation
period. Actual results could differ from those estimates. Property, plant, and equipment are carried at cost. The company
provides for depreciation of plant and equipment utilizing the
Reclassifications straight-line method over the estimated useful lives of the assets.
Certain amounts from prior years’ financial statements have been Buildings, including leasehold improvements, are generally depreci-
reclassified to conform to the current year presentation. The ated over 10 to 45 years, and equipment over three to seven years.
reclassifications had no impact on results of operations as previ- Tooling costs are generally depreciated over three to five years using
ously reported. the straight-line method. Software and web site development costs
are generally amortized over two to five years utilizing the straight-line
Cash and Cash Equivalents method. Expenditures for major renewals and improvements, which
The company considers all highly liquid investments purchased substantially increase the useful lives of existing assets, are capital-
with a maturity of three months or less to be cash equivalents. ized, and maintenance and repairs are charged to operating
expenses as incurred. Interest is capitalized during the construction
Receivables period for significant capital projects. During the fiscal years ended
The company grants credit to customers in the normal course of October 31, 2008, 2007, and 2006, the company capitalized $419,
business. Management performs on-going credit evaluations of $820, and $760 of interest, respectively.
customers and maintains allowances for potential credit losses.
Receivables are recorded at original carrying amount less reserves
for estimated uncollectible accounts.
Inventories
Inventories are valued at the lower of cost or net realizable value,
with cost determined by the last-in, first-out (LIFO) method for
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