Toro 2013 Annual Report Download - page 13

We periodically shut down production at our manufacturing facili- estimated number of products under warranty, historical average
ties in order to allow for maintenance, rearrangement, capital costs incurred to service warranty claims, the trend in the historical
equipment installation, and as needed, to adjust for market ratio of claims to sales, the historical length of time between the
demand. Capital expenditures for fiscal 2014 are planned to be sale and resulting warranty claim, and other minor factors. Special
approximately $65 million as we expect to continue to invest in warranty reserves are also accrued for major rework campaigns.
new product tooling and replacement production equipment, as Service support outside of the warranty period is provided by
well as expansion and construction of facilities, including the con- authorized distributors and dealers at the customer’s expense. We
struction of a new corporate facility and expansion of our product sell extended warranty coverage on select products for a pre-
development and test capacities. scribed period after the original warranty period expires.
Raw Materials Product Liability
We purchase raw materials such as steel, aluminum, petroleum- We have rigorous product safety standards and continually work to
based resins, linerboard, and other commodities, and components, improve the safety and reliability of our products. We monitor for
such as engines, transmissions, transaxles, hydraulics, and electric accidents and possible claims and establish liability estimates
motors, for use in our products. In addition, we are a purchaser of based on internal evaluations of the merits of individual claims. We
components and parts containing various commodities, including purchase insurance coverage for catastrophic product liability
steel, aluminum, copper, lead, rubber, and others that are inte- claims for incidents that exceed our self-insured retention levels.
grated into our end products. During fiscal 2013, we experienced
Patents and Trademarks
lower average commodity costs compared to the average prices
We own patents, trademarks, and trade secrets related to our
paid for commodities in fiscal 2012, which benefited our gross mar-
products in the U.S. and certain countries outside the U.S. in
gin growth rate in fiscal 2013 as compared to fiscal 2012. We
which we conduct business. We expect to apply for future patents
anticipate commodity prices in fiscal 2014 to be higher compared
and trademarks, as appropriate, in connection with the develop-
to average prices paid for commodities during fiscal 2013. Histori-
ment of innovative new products, services, and enhancements.
cally, we have mitigated, and we currently expect to continue to
Although we believe that, in the aggregate, our patents are valua-
mitigate, commodity cost increases, in part, by collaborating with
ble, and patent protection is beneficial to our business and com-
suppliers, reviewing alternative sourcing options, substituting
petitive positioning, our patent protection will not necessarily deter
materials, engaging in internal cost reduction efforts, and increas-
or prevent competitors from attempting to develop similar products.
ing prices on some of our products, all as appropriate.
We are not materially dependent on any one or more of our pat-
Most of the raw materials and components used in our products
ents. However, certain Toro trademarks that contribute to our iden-
are also affected by commodity cost pressures, are commercially
tity and the recognition of our products and services, including the
available from a number of sources, and are in adequate supply.
Toro name and logo, are an integral part of our business.
However, certain of our components are sourced from single sup-
We regularly review certain patents issued by the United States
pliers. In fiscal 2013, we experienced no significant work stop-
Patent and Trademark Office (‘‘USPTO’’) and international patent
pages because of shortages of raw materials or commodities. The
offices to help avoid potential liability with respect to others’ pat-
highest raw material and component costs are generally for steel,
ents. Additionally, we periodically review competitors’ products to
engines, hydraulic components, transmissions, plastic resin, and
prevent possible infringement of our patents by others. We believe
electric motors, all of which we purchase from several suppliers
these activities help us minimize our risk of being a defendant in
around the world.
patent infringement litigation. We are currently involved in patent
Service and Warranty litigation cases where we are asserting our patents against com-
Our products are warranted to ensure customer confidence in petitors and defending against patent infringement assertions by
design, workmanship, and overall quality. Warranty coverage is others.
generally for specified periods of time and on select products’ Similarly, we periodically monitor various trademark registers and
hours of usage, and generally covers parts, labor, and other the market to prevent infringement of and damage to our trade-
expenses for non-maintenance repairs. Warranty coverage gener- marks by others. We are currently involved in trademark opposi-
ally does not cover operator abuse or improper use. An authorized tions where we are asserting our trademarks against third parties
company distributor or dealer must perform warranty work. Distrib- who are attempting to establish rights in trademarks that are con-
utors and dealers submit claims for warranty reimbursement and fusingly similar to ours. We believe these activities help minimize
are credited for the cost of repairs, labor, and other expenses as risk of harm to our trademarks, and help maintain distinct products
long as the repairs meet our prescribed standards. Warranty and services that we believe are well regarded in the marketplace.
expense is accrued at the time of sale based on the type and
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