Toro 2011 Annual Report Download - page 53

The changes in accrued warranties were as follows:
Accounts Payable
In fiscal 2009, the company entered into a customer-managed ser-
vices agreement with a third party to provide a web-based platform Fiscal years ended October 31 2011 2010
that facilitates participating suppliers’ ability to finance payment Beginning Balance $ 56,934 $ 54,273
obligations from the company with a designated third party finan- Warranty provisions 40,144 36,540
Warranty claims (33,774) (32,570)
cial institution. Participating suppliers may, at their sole discretion,
Changes in estimates (849) (1,334)
make offers to finance one or more payment obligations of the Addition from acquisitions 275 25
company prior to their scheduled due dates at a discounted price
Ending Balance $ 62,730 $ 56,934
to a participating financial institution.
The company’s obligations to its suppliers, including amounts
Derivatives
due and scheduled payment dates, are not affected by suppliers’
Derivatives, consisting mainly of forward currency contracts and
decisions to finance amounts under this arrangement. However,
cross currency swaps, are used to hedge most foreign currency
the company’s right to offset balances due from suppliers against
transactions, including forecasted sales and purchases denomi-
payment obligations is restricted by this arrangement for those
nated in foreign currencies. Derivatives are recognized on the con-
payment obligations that have been financed by suppliers. As of
solidated balance sheet at fair value. If the derivative is designated
October 31, 2011 and 2010, $14,643 and $7,312, respectively, of
as a cash flow hedge, the effective portion of the change in the fair
the company’s outstanding payment obligations had been placed
value of the derivative is recorded to a separate component of
on the accounts payable tracking system.
stockholders’ equity, captioned accumulated other comprehensive
Insurance loss, and recognized in earnings when the hedged item affects
The company is self-insured for certain losses relating to medical, earnings. Derivatives that do not meet the requirements for hedge
dental, and workers’ compensation claims, and product liability accounting are adjusted to fair value through other income
occurrences. Specific stop loss coverages are provided for cata- (expense), net in the consolidated statements of earnings.
strophic claims in order to limit exposure to significant claims.
Foreign Currency Translation and Transactions
Losses and claims are charged to operations when it is probable a
The functional currency of the company’s foreign operations is the
loss has been incurred and the amount can be reasonably esti-
applicable local currency. The functional currency is translated into
mated. Self-insured liabilities are based on a number of factors,
U.S. dollars for balance sheet accounts using current exchange
including historical claims experience, an estimate of claims
rates in effect as of the balance sheet date and for revenue and
incurred but not reported, demographic and severity factors, and
expense accounts using a weighted-average exchange rate during
utilizing valuations provided by independent third-party actuaries.
the fiscal year. The translation adjustments are deferred as a sep-
Accrued Warranties arate component of stockholders’ equity captioned accumulated
The company provides an accrual for estimated future warranty other comprehensive loss. Gains or losses resulting from transac-
costs at the time of sale. The company also establishes accruals tions denominated in foreign currencies are included in other
for major rework campaigns. The amount of warranty accruals is income (expense), net in the consolidated statements of earnings.
based primarily on the estimated number of products under war-
Income Taxes
ranty, historical average costs incurred to service warranty claims,
Deferred tax assets and liabilities are recognized for the future tax
the trend in the historical ratio of claims to sales, and the historical
consequences attributable to differences between the financial
length of time between the sale and resulting warranty claim. The
statement carrying amounts of existing assets and liabilities and
company periodically assesses the adequacy of its warranty accru-
their respective tax bases. Deferred tax assets and liabilities are
als based on changes in these factors and records any necessary
measured using enacted tax rates expected to apply to taxable
adjustments if actual claim experience indicates that adjustments
income in the years that those temporary differences are expected
are necessary.
to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is
provided when, in management’s judgment, it is more likely than
not that some portion or all of the deferred tax asset will not be
realized. The company has reflected the necessary deferred tax
assets and liabilities in the accompanying consolidated balance
sheets. Management believes the future tax deductions will be
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