Toro 2011 Annual Report Download - page 41

As of October 31, 2011, we also had $16.4 million in outstanding In fiscal 2010, we completed the acquisition of certain assets of,
letters of credit issued, including standby letters of credit, during the and assumed certain liabilities from, USPraxis, Inc., a manufacturer
normal course of business, as required by some vendor contracts. In of stump grinders, wood chippers, and log splitters for rental cen-
addition to the above contractual obligations, we may be obligated ters and landscape professionals. The addition of these products
for additional cash outflows of $6.1 million of unrecognized tax bene- broadens and strengthens our equipment solutions for the rental
fits. The payment and timing of any such payments is affected by and landscape markets.
the ultimate resolution of the tax years that are under audit or In fiscal 2010, we completed the acquisition of certain assets of,
remain subject to examination by the relevant taxing authorities. and assumed certain liabilities from, one of our independent U.S.
Western-based distributorships. During the first quarter of fiscal
Market Risk 2010, our wholly owned domestic distribution company also com-
Due to the nature and scope of our operations, we are subject to pleted the acquisition of certain assets of, and assumed certain
exposures that arise from fluctuations in interest rates, foreign cur- liabilities from, one of our independent U.S. Midwestern-based dis-
rency exchange rates, and commodity prices. We are also tribution companies. During the first quarter of fiscal 2009, we also
exposed to equity market risk pertaining to the trading price of our completed the sale of a portion of the operations of our Midwest-
common stock. Additional information is presented in Part II, ern-based company-owned distributorship.
Item 7A, ‘‘Quantitative and Qualitative Disclosures about Market In fiscal 2009, we completed the purchase of certain assets of,
Risk,’’ and Note 14 of the Notes to Consolidated Financial and assumed certain liabilities from, Ty-Crop Manufacturing Ltd., a
Statements. leading manufacturer of topdressing and material handling equip-
ment for golf course and sports fields applications. The acquisition of
Inflation Ty-Crop’s topdressing and material handling equipment enhanced
We are subject to the effects of inflation, deflation, and changing our product offering of application and cultivation equipment to help
prices. During fiscal 2011, we experienced higher average com- customers achieve improved agronomic conditions of turf.
modity costs compared to the average prices paid for commodities
in fiscal 2010, which hampered our gross margin rate in fiscal CRITICAL ACCOUNTING POLICIES AND ESTIMATES
2011 as compared to fiscal 2010. We will continue to closely follow In preparing our consolidated financial statements in conformity
commodities that affect our product lines, and we anticipate aver- with U.S. generally accepted accounting principles (‘‘GAAP’’), we
age prices paid for commodities to be higher in fiscal 2012 as must make decisions that impact the reported amounts of assets,
compared to fiscal 2011. We expect to mitigate the impact of infla- liabilities, revenues and expenses, and related disclosures. Such
tionary pressures by engaging in proactive vendor negotiations, decisions include the selection of the appropriate accounting princi-
reviewing alternative sourcing options, substituting materials, ples to be applied and the assumptions on which to base account-
engaging in internal cost reduction efforts, and increasing prices on ing estimates. In reaching such decisions, we apply judgments
some of our products, all as appropriate. based on our understanding and analysis of the relevant circum-
stances, historical experience, and actuarial valuations. Actual
Acquisitions and Divestiture amounts could differ from those estimated at the time the consoli-
On June 24, 2011, we completed the acquisition of certain assets dated financial statements are prepared.
of, and assumed certain liabilities from, Lawn Solutions Commercial Our significant accounting policies are described in Note 1 of the
Products, Inc. (‘‘Lawn Solutions’’), a manufacturer of turf renovation Notes to Consolidated Financial Statements. Some of those signifi-
equipment, such as aerators, seeders, power rakes, and brush cut- cant accounting policies require us to make difficult subjective or
ters, for the landscape, rental, municipal, and golf markets. This complex judgments or estimates. An accounting estimate is consid-
acquisition broadens and strengthens our product offering line of turf ered to be critical if it meets both of the following criteria: (i) the
renovation equipment solutions. estimate requires assumptions about matters that are highly uncer-
On January 17, 2011, we completed the acquisition of certain tain at the time the accounting estimate is made, and (ii) different
assets of, and assumed certain liabilities from, Unique Lighting estimates reasonably could have been used, or changes in the
Systems, Inc. (‘‘Unique Lighting’’), a leading manufacturer of pro- estimate that are reasonably likely to occur from period to period
fessionally installed landscape lighting fixtures and transformers for may have a material impact on the presentation of our financial
residential and commercial use. This acquisition includes products, condition, changes in financial condition, or results of operations.
such as the Signature, Odyssey, and Brass and Copper Knight Our critical accounting estimates include the following:
series, and strengthens our product offering to distributors and Warranty Reserve. Warranty coverage on our products is gener-
landscape contractors as many also purchase our irrigation ally for specified periods of time and on select products hours of
products. usage, and generally covers parts, labor, and other expenses for
35