Toro 2010 Annual Report Download - page 63

The company also enters into limited inventory repurchase extent, the company maintains insurance against certain product
agreements with third party financing companies and Red Iron for liability losses. The company is also subject to administrative pro-
receivables financed by third party financing companies and Red ceedings with respect to claims involving the discharge of hazard-
Iron. As of October 31, 2010, the company was contingently liable ous substances into the environment. Some of these claims assert
to repurchase up to a maximum amount of $12,109 of inventory damages and liability for remedial investigations and clean up
related to receivables under these financing arrangements. The costs. The company is also typically involved in commercial dis-
company has repurchased only immaterial amounts of inventory putes, employment disputes, and patent litigation cases in the ordi-
under these repurchase agreements. nary course of business. To prevent possible infringement of the
company’s patents by others, the company periodically reviews
End-User Financing. The company has agreements with third competitors’ products. To avoid potential liability with respect to
party financing companies to provide lease-financing options to golf others’ patents, the company regularly reviews certain patents
course and sports fields and grounds equipment customers in the issued by the United States Patent and Trademark Office
U.S. and Europe. During fiscal 2007, the company entered into an (‘‘USPTO’’) and foreign patent offices. Management believes these
amended agreement with a third party financing company that activities help minimize its risk of being a defendant in patent
eliminated the company’s contingent liability for any residual value infringement litigation. The company is currently involved in patent
risk on the underlying equipment financed under this program. In litigation cases where it is asserting patent infringement.
addition, under the terms of the amended agreement, the company
is only contingently liable for a portion of the credit collection risk Lawnmower Engine Horsepower Marketing and Sales
for leases entered into prior to the effective date of the amended Practices Litigation. In June 2004, individuals who claim to have
agreement. From time to time, the company enters into agree- purchased lawnmowers in Illinois and Minnesota filed a class
ments where it provides recourse to the third party finance com- action lawsuit in Illinois state court against the company and other
pany in the event of default by the customer for lease payments to defendants alleging that the horsepower labels on the products the
the third party finance company. The company’s maximum expo- plaintiffs purchased were inaccurate. Those individuals later
sure for credit collection as of October 31, 2010 was $7,886. amended their complaint to add additional plaintiffs and an addi-
tional defendant. The plaintiffs asserted violations of the federal
Purchase Commitments Racketeer Influenced and Corrupt Organizations Act (RICO) and
As of October 31, 2010, the company had $3,933 of noncancel- state statutory and common law claims. The plaintiffs sought certi-
able purchase commitments with some suppliers for materials and fication of a class of all persons in the United States who, begin-
supplies as part of the normal course of business. ning January 1, 1994 purchased a lawnmower containing a
two-stroke or four-stroke gas combustible engine up to 30 horse-
Letters of Credit power that was manufactured or sold by the defendants. The
Letters of credit are issued by the company during the normal amended complaint also sought an injunction, unspecified compen-
course of business, as required by some vendor contracts. As of satory and punitive damages, treble damages under RICO, and
October 31, 2010 and 2009, the company had $13,269 and attorneys’ fees. In May 2006, the case was removed to federal
$12,792, respectively, in outstanding letters of credit. court in the Southern District of Illinois.
In May 2008, the Court issued a memorandum and order that,
Customs Duties among other things, (i) dismissed the RICO claim in its entirety;
The company is liable for customs duties for certain products that and (ii) dismissed all non-Illinois state-law claims but with instruc-
are imported and exported between countries. The company has tions that such claims could be re-filed in local courts. The plaintiffs
determined that it has a potential liability for unpaid customs duties subsequently (i) re-filed the Illinois claims with the court; and
on certain products. The company accrued an estimate of this lia- (ii) filed non-Illinois claims in federal courts throughout the U.S.
bility and is currently working to resolve the matter with the appro- with essentially the same state law claims.
priate governmental officials. Although the ultimate resolution of In September 2008, the company and other defendants filed a
this matter could potentially be different than the original estimate, motion with the MDL Panel that sought to transfer the multiple
the matter is not expected to have a material impact on the con- actions for coordinated pretrial proceedings. In December 2008,
solidated operating results or financial position of the company. the MDL Panel issued an order that (i) transferred the lawsuits for
coordinated or consolidated pretrial proceedings; (ii) selected the
Litigation United States District Court for the Eastern District of Wisconsin as
General. The company is party to litigation in the ordinary course the transferee district; and (iii) provided that additional lawsuits
of business. Litigation occasionally involves claims for punitive as would be treated as ‘‘tag-along’’ actions in accordance with its
well as compensatory damages arising out of use of the com- rules.
pany’s products. Although the company is self-insured to some
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