Toro 2009 Annual Report Download - page 51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
to increase the uncertainty inherent in such estimates and assump-
SUMMARY OF SIGNIFICANT tions. As future events and their effects cannot be determined with
ACCOUNTING POLICIES precision, actual amounts could differ significantly from those esti-
1AND RELATED DATA mated at the time the consolidated financial statements are pre-
pared. Changes in those estimates resulting from changes in the
Basis of Presentation and Consolidation economic environment will be reflected in the consolidated financial
The accompanying consolidated financial statements include the statements in future periods.
accounts of the company and its majority-owned subsidiaries. The
company uses the equity method to account for investments over Cash and Cash Equivalents
which it has the ability to exercise significant influence over operat- The company considers all highly liquid investments purchased
ing and financial policies. Consolidated net earnings include the with an original maturity of three months or less to be cash equiva-
company’s share of the net earnings (losses) of these companies. lents and are stated at cost, which approximates fair value.
The cost method is used to account for investments in companies
that the company does not control and for which it does not have Receivables
the ability to exercise significant influence over operating and The company’s financial exposure to collection of accounts receiv-
financial policies. These investments are recorded at cost. All able is reduced due to its joint venture with TCF Inventory
intercompany accounts and transactions have been eliminated Finance, Inc. (TCFIF), as further discussed in Note 3. For receiv-
from the consolidated financial statements. ables not serviced through the company’s joint venture with TCFIF,
the company grants credit to customers in the normal course of
Accounting Estimates business, performs on-going credit evaluations of customers, and
In preparing the consolidated financial statements in conformity maintains allowances for potential credit losses. Receivables are
with U.S. generally accepted accounting principles (GAAP), man- recorded at original carrying amount less reserves for estimated
agement must make decisions that impact the reported amounts of uncollectible accounts.
assets, liabilities, revenues, expenses, and the related disclosures,
including disclosures of contingent assets and liabilities. Such deci- Inventories
sions include the selection of the appropriate accounting principles Inventories are valued at the lower of cost or net realizable value,
to be applied and the assumptions on which to base accounting with cost determined by the last-in, first-out (LIFO) method for
estimates. Estimates are used in determining, among other items, most inventories. The first-in, first-out (FIFO) method is used for all
sales promotions and incentives accruals, inventory valuation, war- other inventories, constituting approximately 33 percent and
ranty accruals, allowance for doubtful accounts, pension and pos- 29 percent of total inventories as of October 31, 2009 and 2008,
tretirement accruals, useful lives for intangible assets, and future respectively. The company establishes a reserve for excess,
cash flows associated with impairment testing for goodwill and slow-moving, and obsolete inventory that is equal to the difference
other long-lived assets. These estimates and assumptions are between the cost and estimated net realizable value for that inven-
based on management’s best estimates and judgments. Manage- tory. These reserves are based on a review and comparison of
ment evaluates its estimates and assumptions on an ongoing basis current inventory levels to the planned production as well as
using historical experience and other factors that management planned and historical sales of the inventory.
believes to be reasonable under the circumstances, including the During fiscal 2009 and 2008, LIFO inventory layers were
current economic environment. Management adjusts such esti- reduced. This reduction resulted in charging lower inventory costs
mates and assumptions when facts and circumstances dictate. A prevailing in previous years to cost of sales, thus reducing cost of
number of these factors are discussed in Part I, Item 1A, ‘‘Risk sales by $3,284 in fiscal 2009 and $423 in fiscal 2008 below the
Factors’’ of this report, which include, among others, the recession- amount that would have resulted from replacing the liquidated
ary economic conditions, unfavorable foreign currency exchange inventory at end of year prices.
rate changes, commodity costs, tight credit markets, and a decline
in consumer spending and confidence, all of which have combined
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