Toro 2012 Annual Report Download - page 44
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Please find page 44 of the 2012 Toro annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.derivatives and other financial securities arrangements. We will and losses on these contracts offset changes in values of the
adopt this guidance in our first quarter of fiscal 2014, as required. related exposures. Therefore, changes in values of these hedge
The adoption of this guidance is not expected to have a material instruments are highly correlated with changes in market values of
impact on our consolidated financial statements. underlying hedged items both at inception of the hedge and over
No other new accounting pronouncement that has been issued the life of the hedge contract. Further information regarding gains
but not yet effective for us during fiscal 2012 has had or is and losses on our derivative instruments is presented in Note 14 of
expected to have a material impact on our consolidated financial the Notes to Consolidated Financial Statements.
statements. The following foreign currency exchange contracts held by us
have maturity dates in fiscal 2013 and 2014. All items are non-
ITEM 7A. QUANTITATIVE AND QUALITATIVE
trading and stated in U.S. dollars. Some derivative instruments we
enter into do not meet cash flow hedge accounting criteria; there-
DISCLOSURES ABOUT MARKET RISK
fore, changes in fair value are recorded in other income, net. The
We are exposed to market risk stemming from changes in foreign average contracted rate, notional amount, pre-tax value of deriva-
currency exchange rates, interest rates, and commodity prices. We tive instruments in accumulated other comprehensive loss
are also exposed to equity market risk pertaining to the trading (‘‘AOCL’’), and fair value impact of derivative instruments in other
price of our common stock. Changes in these factors could cause income, net as of and for the fiscal year ended October 31, 2012
fluctuations in our earnings and cash flows. See further discussion were as follows:
on these market risks below.
Value in Fair Value
Foreign Currency Exchange Rate Risk. In the normal course of Average AOCL Impact
business, we actively manage the exposure of our foreign currency Dollars in thousands Contracted Notional Income (Loss)
exchange rate market risk by entering into various hedging instru- (except average contracted rate) Rate Amount (Loss) Gain
ments, authorized under company policies that place controls on Buy U.S. $/Sell Australian dollar 1.0156 $44,024.1 $ (93.5) $ (943.9)
these activities, with counterparties that are highly rated financial Buy U.S. $/Sell Canadian dollar 1.0189 6,919.4 (83.5) 404.5
Buy U.S. $/Sell Euro 1.2813 70,853.7 (1,134.8) 4,390.2
institutions. Our hedging activities involve the primary use of for-
Buy U.S. $/Sell British pound 1.6031 2,837.5 – (18.0)
ward currency contracts. We also utilize cross currency swaps to Buy Euro/ Sell U.S. $ 1.2872 6,603.7 – 385.1
offset intercompany loan exposures. We use derivative instruments Buy Mexican peso/ Sell U.S. $ 13.6651 27,588.5 479.6 (1,418.3)
only in an attempt to limit underlying exposure from currency fluc- Buy Euro/Sell Romanian New Leu 4.5645 16,125.3 463.1 663.8
Buy British Pound/Sell Euro 1.2412 5,730.3 – 64.9
tuations and to minimize earnings and cash flow volatility associ-
Buy Japanese Yen/ Sell U.S. $ 79.3000 45.4 – –
ated with foreign currency exchange rate changes and not for trad-
ing purposes. We are exposed to foreign currency exchange rate Our net investment in foreign subsidiaries translated into U.S.
risk arising from transactions in the normal course of business, dollars is not hedged. Any changes in foreign currency exchange
such as sales to third party customers, sales and loans to wholly rates would be reflected as a foreign currency translation adjust-
owned foreign subsidiaries, foreign plant operations, and ment, a component of accumulated other comprehensive loss in
purchases from suppliers. Because our products are manufactured stockholders’ equity, and would not impact net earnings.
or sourced primarily from the United States and Mexico, a stronger Interest Rate Risk. Our market risk on interest rates relates pri-
U.S. dollar and Mexican peso generally have a negative impact on marily to LIBOR-based short-term debt from commercial banks, as
our results from operations, while a weaker dollar and peso gener- well as the potential increase in fair value of long-term debt result-
ally have a positive effect. Our primary foreign currency exchange ing from a potential decrease in interest rates. However, we do not
rate exposures are with the Euro, the Australian dollar, the Cana- have a cash flow or earnings exposure due to market risks on
dian dollar, the British pound, the Mexican peso, the Japanese long-term debt. We generally do not use interest rate swaps to
yen, the Chinese Yuan, and the Romanian New Leu against the mitigate the impact of fluctuations in interest rates. Included in
U.S. dollar, as well as the Romanian New Leu against the Euro. long-term debt is $225.3 million of fixed-rate debt that is not sub-
We enter into various contracts, principally forward contracts that ject to variable interest rate fluctuations. As a result, we have no
change in value as foreign currency exchange rates change, to earnings or cash flow exposure due to market risks on our
protect the value of existing foreign currency assets, liabilities, long-term debt obligations. As of October 31, 2012, the estimated
anticipated sales, and probable commitments. Decisions on fair value of long-term debt with fixed interest rates was
whether to use such contracts are made based on the amount of $262.5 million compared to its carrying amount of $226.9 million.
exposures to the currency involved and an assessment of the The fair value is estimated by discounting the projected cash flows
near-term market value for each currency. Worldwide foreign cur- using the rate that similar amounts and terms of debt could cur-
rency exchange rate exposures are reviewed monthly. The gains rently be borrowed.
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