Toro 2010 Annual Report Download - page 43

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be amortized to interest expense over the 30-year term of the decline in our gross margins to the extent we are not able to
senior notes. increase selling prices of our products or obtain manufacturing effi-
ciencies to offset increases in commodity costs. Further information
Commodity Risk. We are subject to market risk from fluctuating regarding rising prices for commodities is presented in Part II,
market prices of certain purchased commodity raw materials Item 7, ‘‘Management’s Discussion and Analysis of Financial Con-
including steel, aluminum, fuel, petroleum-based resin, and dition and Results of Operations’’ of this report in the section enti-
linerboard. In addition, we are a purchaser of components and tled ‘‘Inflation.’’
parts containing various commodities, including steel, aluminum, We enter into fixed-price contracts for future purchases of natu-
copper, lead, rubber, and others which are integrated into our end ral gas in the normal course of operations as a means to manage
products. While such materials are typically available from numer- natural gas price risks. Our manufacturing facilities enter into these
ous suppliers, commodity raw materials are subject to price fluctu- fixed-price contracts for approximately 70 to 80 percent of their
ations. We generally buy these commodities and components monthly anticipated usage.
based upon market prices that are established with the vendor as
part of the purchase process. We generally attempt to obtain firm Equity Price Risk. The trading price volatility of Toro common
pricing from most of our suppliers for volumes consistent with stock impacts compensation expense related to our stock-based
planned production. To the extent that commodity prices increase compensation plans. Further information is presented in Note 10 of
and we do not have firm pricing from our suppliers, or our suppli- the notes to our consolidated financial statements regarding our
ers are not able to honor such prices, we may experience a stock-based compensation plans.
37