Toro 2011 Annual Report Download - page 13

expense is accrued at the time of sale based on the type and Overall, worldwide sales levels are historically highest in our fis-
estimated number of products under warranty, historical average cal second quarter and retail demand is generally highest in our
costs incurred to service warranty claims, the trend in the historical fiscal third quarter. Typically, accounts receivable balances
ratio of claims to sales, the historical length of time between the increase between January and April because of higher sales
sale and resulting warranty claim, and other minor factors. Special volumes and extended payment terms made available to our cus-
warranty reserves are also accrued for major rework campaigns. tomers. Accounts receivable balances typically decrease between
Service support outside of the warranty period is provided by May and December when payments are received. Our financing
authorized distributors and dealers at the customer’s expense. We requirements are subject to variations due to seasonal changes in
also sell extended warranty coverage on select products for a pre- working capital levels, which typically increase in the first half of
scribed period after the factory warranty period expires. our fiscal year and then decrease in the second half of our fiscal
year. Seasonal cash requirements of our business are financed
Product Liability from a combination of cash balances, cash flows from operations,
We have rigorous product safety standards and continually work to and our bank credit lines.
improve the safety and reliability of our products. We monitor for The following table shows total consolidated net sales and net
accidents and possible claims and establish liability estimates with earnings for each fiscal quarter as a percentage of the total fiscal
respect to claims based on internal evaluations of the merits of year.
individual claims. We purchase excess insurance coverage for cat-
astrophic product liability claims for incidents that exceed our Fiscal 2011 Fiscal 2010
self-insured retention levels. Net Net Net Net
Quarter Sales Earnings Sales Earnings
Patents and Trademarks First 20% 15% 20% 12%
We hold patents in the United States and foreign countries and Second 33 51 33 49
apply for patents as applicable. Although we believe our patents Third 27 30 27 36
are valuable and patent protection is beneficial, our patent protec- Fourth 20 4 20 3
tion will not necessarily deter or prevent competitors from attempt-
ing to develop similar products. We are not materially dependent Effects of Weather
on any one or more of our patents. From time to time, weather conditions in a particular geographic
To prevent possible infringement of our patents by others, we region or market may adversely or positively affect sales of some
periodically review competitors’ products. To help avoid potential of our products and field inventory levels and result in a negative
liability with respect to others’ patents, we regularly review certain or positive impact on our future net sales. If the percentage of our
patents issued by the United States Patent and Trademark Office net sales from outside the United States increases, our depen-
(‘‘USPTO’’) and foreign patent offices. We believe these activities dency on weather in any one part of the world decreases. None-
help us minimize our risk of being a defendant in patent infringe- theless, weather conditions could materially affect our future net
ment litigation. We are currently involved in patent litigation cases sales.
where we are asserting our patents against competitors and
defending against patent infringement assertions by others. Working Capital
We fund our operations through a combination of cash and cash
Seasonality equivalents, cash flows from operations, short-term borrowings
Sales of our residential products, which accounted for 33 percent under our credit facilities, and long-term debt. Wherever possible,
of total consolidated net sales in fiscal 2011, are seasonal, with cash management is centralized and intercompany financing is
sales of lawn and garden products occurring primarily between used to provide working capital to subsidiaries as needed. In addi-
February and May, depending upon seasonal weather conditions tion, our credit facilities are available for additional working capital
and demand for our products. Sales of snow removal products needs, acquisitions, or other investment opportunities.
occur primarily between July and January, depending upon sea-
sonal snow falls, product availability, and demand for our snow Distribution and Marketing
removal products. Opposite seasons in global markets in which we We market the majority of our products through approximately 40
sell our products somewhat moderate this seasonality of residential domestic and 120 foreign distributors, as well as a large number of
product sales. Seasonality of professional product sales also exists outdoor power equipment dealers, hardware retailers, home cen-
but is tempered because the selling season in the Southern U.S. ters, and mass retailers in more than 90 countries worldwide.
and in our markets in the Southern hemisphere continues for a Residential products, such as walk power mowers, riding prod-
longer portion of the year than in Northern regions of the world. ucts, and snow throwers, are mainly sold directly to home centers,
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