Toro 2011 Annual Report Download - page 65

Customer Financing Litigation
Wholesale Financing. During October 2009, Toro Credit Com- General. The company is party to litigation in the ordinary course
pany sold its receivable portfolio to Red Iron, the company’s joint of business. Litigation occasionally involves claims for punitive as
venture with TCFIF. See Note 3 for additional information related well as compensatory damages arising out of use of the com-
to Red Iron. Some products sold to independent dealers in Austra- pany’s products. Although the company is self-insured to some
lia finance their products with a third party finance company. This extent, the company maintains insurance against certain product
third party financing company purchased $21,146 of receivables liability losses. The company is also subject to litigation and admin-
from the company during fiscal 2011. As of October 31, 2011, istrative and judicial proceedings with respect to claims involving
$8,850 of receivables financed by the third party financing com- asbestos and the discharge of hazardous substances into the envi-
pany, excluding Red Iron, was outstanding, and also includes out- ronment. Some of these claims assert damages and liability for
standing receivables that were financed by third party sources personal injury, remedial investigations or clean-up and other costs
before the establishment of Red Iron. and damages. The company is also typically involved in commer-
The company also enters into limited inventory repurchase cial disputes, employment disputes, and patent litigation cases in
agreements with third party financing companies and Red Iron for which it is asserting or defending against patent infringement
receivables financed by third party financing companies and Red claims. To prevent possible infringement of the company’s patents
Iron. As of October 31, 2011, the company was contingently liable by others, the company periodically reviews competitors’ products.
to repurchase up to a maximum amount of $10,406 of inventory To avoid potential liability with respect to others’ patents, the com-
related to receivables under these financing arrangements. The pany regularly reviews certain patents issued by the United States
company has repurchased only immaterial amounts of inventory Patent and Trademark Office (‘‘USPTO’’) and foreign patent
under these repurchase agreements. offices. Management believes these activities help minimize its risk
of being a defendant in patent infringement litigation.
End-User Financing. The company has agreements with third
party financing companies to provide lease-financing options to golf Lawnmower Engine Horsepower Marketing and Sales
course and sports fields and grounds equipment customers in the Practices Litigation. Beginning in June 2004, various plaintiffs
U.S. and Europe. During fiscal 2007, the company entered into an filed class action lawsuits in state and federal courts throughout
amended agreement with a third party financing company that the country against the company and other defendants alleging
eliminated the company’s contingent liability for any residual value that the horsepower labels on the products the plaintiffs purchased
risk on the underlying equipment financed under this program. In were inaccurate. The plaintiffs (i) asserted statutory and common
addition, under the terms of the amended agreement, the company law claims, and (ii) sought an injunction, unspecified compensatory
is only contingently liable for a portion of the credit collection risk and punitive damages, treble damages, and attorneys’ fees. In
for leases entered into prior to the effective date of the amended December 2008, all lawsuits were transferred to the United States
agreement. Based on actual losses and balances outstanding for District Court for the Eastern District of Wisconsin (the ‘‘Court’’) for
leases entered into prior to the effective date of the amended coordinated or consolidated pretrial proceedings.
agreement, the company does not anticipate that it would have The company and certain other defendants entered into a settle-
any contingent liability for potential future losses. ment agreement with plaintiffs in February 2010, the Court
From time to time, the company enters into agreements where it approved the company’s settlement and certified the settlement
provides recourse to third party finance companies in the event of class in August 2010, and the company’s settlement agreement
default by the customer for lease payments to the third party became final in February 2011. The settlement class consists of all
finance company. The company’s maximum exposure for credit persons in the United States who, beginning January 1, 1994 and
collection as of October 31, 2011 was $2,270. through April 12, 2010, purchased a lawnmower containing a
two-stroke or four-stroke gas combustible engine up to 30 horse-
Purchase Commitments power that was manufactured or sold by the company and other
As of October 31, 2011, the company had $17,085 of noncancel- defendants, and the company’s settlement agreement provides for,
able purchase commitments with some suppliers for materials and among other things, (i) a monetary settlement, (ii) an additional
supplies as part of the normal course of business. warranty period for certain engines that are subject to the litigation,
and (iii) injunctive relief relating to power rating labeling practices.
Letters of Credit The expected costs of the company’s performance of its settlement
Letters of credit are issued by the company during the normal obligations are consistent with accruals established in prior periods
course of business, as required by some vendor contracts. As of and, as such, management does not currently expect that the set-
October 31, 2011 and 2010, the company had $16,444 and tlement will have a material adverse effect on the company’s con-
$13,269, respectively, in outstanding letters of credit. solidated operating results or financial condition.
59