Toro 2009 Annual Report Download - page 53

Accounts Payable Derivatives
In fiscal 2009, the company entered into a customer-managed ser- Derivatives, consisting mainly of forward currency contracts, are
vices agreement with a third party to provide a web-based platform used to hedge most foreign currency transactions, including fore-
that facilitates participating suppliers’ ability to finance payment casted sales and purchases denominated in foreign currencies.
obligations from the company with a designated third party finan- Derivatives are recognized on the balance sheet at fair value. If
cial institution. Participating suppliers may, at their sole discretion, the derivative is designated as a cash flow hedge, the effective
make offers to finance one or more payment obligations of the portion of the change in the fair value of the derivative is recorded
company prior to their scheduled due dates at a discounted price to a separate component of stockholders’ equity, captioned accu-
to a participating financial institution. mulated other comprehensive loss, and recognized in earnings
The company’s obligations to its suppliers, including amounts when the hedged item affects earnings. Derivatives that do not
due and scheduled payment dates, are not impacted by suppliers’ meet the requirements for hedge accounting are adjusted to fair
decisions to finance amounts under this arrangement. However, value through other (expense) income, net in the consolidated
the company’s right to offset balances due from suppliers against statements of earnings.
payment obligations is restricted by this arrangement for those
Foreign Currency Translation and Transactions
payment obligations that have been financed by suppliers. As of
The functional currency of the company’s foreign operations is the
October 31, 2009, $2,752 of the company’s outstanding payment
applicable local currency. The functional currency is translated into
obligations had been placed on the accounts payable tracking
U.S. dollars for balance sheet accounts using current exchange
system.
rates in effect as of the balance sheet date and for revenue and
Insurance expense accounts using a weighted-average exchange rate during
The company is self-insured for certain losses relating to medical, the fiscal year. The translation adjustments are deferred as a sep-
dental, and workers’ compensation claims, and product liability arate component of stockholders’ equity captioned accumulated
occurrences. Specific stop loss coverages are provided for cata- other comprehensive loss. Gains or losses resulting from transac-
strophic claims in order to limit exposure to significant claims. tions denominated in foreign currencies are included in other
Losses and claims are charged to operations when it is probable a (expense) income, net in the consolidated statements of earnings.
loss has been incurred and the amount can be reasonably esti-
Income Taxes
mated. Accrued insurance liabilities are based on claims filed and
Deferred tax assets and liabilities are recognized for the future tax
estimates of claims incurred but not reported.
consequences attributable to differences between the financial
Accrued Warranties statement carrying amounts of existing assets and liabilities and
The company provides an accrual for estimated future warranty their respective tax bases. Deferred tax assets and liabilities are
costs at the time of sale. The company also establishes accruals measured using enacted tax rates expected to apply to taxable
for major rework campaigns. The amount of warranty accruals is income in the years that those temporary differences are expected
based primarily on the estimated number of products under war- to be recovered or settled. The effect on deferred tax assets and
ranty, historical average costs incurred to service warranty claims, liabilities of a change in tax rates is recognized in income in the
the trend in the historical ratio of claims to sales, and the historical period that includes the enactment date. A valuation allowance is
length of time between the sale and resulting warranty claim. The provided when, in management’s judgment, it is more likely than
company periodically assesses the adequacy of its warranty accru- not that some portion or all of the deferred tax asset will not be
als based on changes in these factors and records any necessary realized. The company has reflected the necessary deferred tax
adjustments if actual claim experience indicates that adjustments assets and liabilities in the accompanying consolidated balance
are necessary. sheets. Management believes the future tax deductions will be
The changes in accrued warranties were as follows: realized principally through carryback to taxable income in prior
years, future reversals of existing taxable temporary differences,
and future taxable income.
Fiscal years ended October 31 2009 2008
The company recognizes the effect of income tax positions only
Beginning Balance $ 58,770 $ 62,030
Warranty provisions 32,721 42,733 if those positions are more likely than not of being sustained. Rec-
Warranty claims (38,225) (43,630) ognized income tax positions are measured at the largest amount
Changes in estimates 907 (2,447) that is greater than 50 percent likely of being realized. Changes in
Addition from acquisitions 100 84 recognition or measurement are reflected in the period in which the
Ending Balance $ 54,273 $ 58,770 change in judgment occurs. The company also records interest
47