Toro 2010 Annual Report Download - page 41

reserves for excess, slow moving, and obsolete inventory based New Accounting Pronouncements to be Adopted
on inventory levels, expected product life, and forecasted sales In January 2010, the Financial Accounting Standards Board
demand. Valuation of inventory can also be affected by significant (‘‘FASB’’) issued Accounting Standards Update (‘‘ASU’’)
redesign of existing products or replacement of an existing product No. 2010-06, ‘‘Fair Value Measurements and Disclosures
by an entirely new generation product. In assessing the ultimate (Topic 820).’’ ASU No. 2010-06 requires new disclosures about
realization of inventories, we are required to make judgments as to recurring and nonrecurring fair-value measurements including sig-
future demand requirements compared with inventory levels. nificant transfers in and out of Level 1 and Level 2 fair-value mea-
Reserve requirements are developed according to our projected surements and a description of the reasons for the transfers. In
demand requirements based on historical demand, competitive fac- addition, ASU No. 2010-06 requires new disclosures regarding
tors, and technological and product life cycle changes. It is possi- activity in Level 3 fair value measurements, including information
ble that an increase in our reserve may be required in the future if on purchases, sales, issuances, and settlements on a gross basis
there is a significant decline in demand for our products and we do in the reconciliation of Level 3 fair-value measurements. We
not adjust our manufacturing production accordingly. adopted the provision of ASU No. 2010-06 for Level 1 and Level 2
We also record a reserve for inventory shrinkage. Our inventory fair-value measurements in our second fiscal quarter ended
shrinkage reserve represents anticipated physical inventory losses April 30, 2010, as required. We will adopt the provision of ASU
that are recorded based on historical loss trends, ongoing cycle- No. 2010-06 for Level 3 fair-value measurements for our second
count and periodic testing adjustments, and inventory levels. fiscal quarter beginning on January 30, 2011, as required. We do
Though management considers reserve balances adequate and not expect the adoption of ASU No. 2010-06 for Level 3 fair value
proper, changes in economic conditions in specific markets in measurements will have a material impact on our disclosures.
which we operate could have an effect on the reserve balances In December 2009, the FASB issued ASU No. 2009-16,
required. ‘‘Accounting for Transfers of Financial Assets,’’ which amends
Accounting Standards Codification (‘‘ASC’’) 860, ‘‘Transfers and
Accounts and Notes Receivable Valuation. We value accounts Servicing (FASB Statement No. 166, Accounting for Transfers of
and notes receivable, net of an allowance for doubtful accounts. Financial Assets an amendment of FASB Statement No. 140).’’
Each fiscal quarter, we prepare an analysis of our ability to collect This ASU eliminates the qualifying special purpose entities from
outstanding receivables that provides a basis for an allowance esti- the consolidation guidance and clarifies the requirements for isola-
mate for doubtful accounts. In doing so, we evaluate the age of tion and limitations on portions of financial assets that are eligible
our receivables, past collection history, current financial conditions for sale accounting. It requires additional disclosures about the
of key customers, and economic conditions. Based on this evalua- risks from continuing involvement in transferred financial assets
tion, we establish a reserve for specific accounts and notes receiv- accounted for as sales. We adopted ASU No. 2009-16 on Novem-
able that we believe are uncollectible, as well as an estimate of ber 1, 2010, as required. The adoption did not have a material
uncollectible receivables not specifically known. A deterioration in effect on our consolidated financial statements.
the financial condition of any key customer, inability of customers In December 2009, the FASB issued ASU No. 2009-17,
to obtain bank credit lines, or a significant slow-down in the econ- ‘‘Improvements to Financial Reporting by Enterprises Involved with
omy could have a material negative impact on our ability to collect Variable Interest Entities,’’ which amends ASC 810, ‘‘Consolidation
a portion or all of the accounts and notes receivable. We believe (FASB Statement No. 167, Amendments to FASB Interpretation
that an analysis of historical trends and our current knowledge of No. 46(R)).’’ This ASU requires a qualitative analysis to determine
potential collection problems provide us with sufficient information the primary beneficiary of a variable interest entity (‘‘VIE’’). The
to establish a reasonable estimate for an allowance for doubtful analysis identifies the primary beneficiary as the enterprise that
accounts. However, since we cannot predict with certainty future has both the power to direct the activities of a VIE that most signif-
changes in the financial stability of our customers or in the general icantly impact the VIE’s economic performance and the obligation
economy, our actual future losses from uncollectible accounts may to absorb losses or the right to receive benefits that could be sig-
differ from our estimates. In the event we determined that a nificant to the VIE. This ASU also requires additional disclosures
smaller or larger uncollectible accounts reserve is appropriate, we about an enterprise’s involvement in a VIE. We adopted ASU
would record a credit or charge to SG&A expense in the period No. 2009-17 on November 1, 2010, as required. The adoption did
that we made such a determination. not have a material effect on our consolidated financial statements.
No other new accounting pronouncement that has been issued
but not yet effective for us during fiscal 2010 has had or is
expected to have a material impact on our consolidated financial
statements.
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