Toro 2013 Annual Report Download - page 21

acceptance, or render our products obsolete. Any new products We manufacture our products at, and distribute our
that we develop may not receive market acceptance or otherwise products from, several locations in the U.S. and
generate any meaningful net sales or profits for us relative to our internationally. Any disruption at any of these facilities
expectations based on, among other things, existing and antici- or our inability to cost-effectively expand existing, open
pated investments in manufacturing capacity and commitments to and manage new, and/or move production between
fund advertising, marketing, promotional programs, and research manufacturing facilities could adversely affect our
and development. business and operating results.
We currently manufacture most of our products at seven locations
Our reliance upon patents, trademark laws, and in the U.S., two locations in Mexico, and one location in each of
contractual provisions to protect our proprietary rights Australia, Italy, the United Kingdom, Romania, and China. We also
may not be sufficient to protect our intellectual property have several locations that serve as distribution centers, ware-
from others who may sell similar products. Our products houses, test labs, and corporate offices. In addition, we have
may infringe the proprietary rights of others. agreements with other third-party manufacturers to manufacture
We hold patents relating to various aspects of our products and products on our behalf. These facilities may be affected by natural
believe that proprietary technical know-how is important to our bus- or man-made disasters and other external events, including drug
iness and their loss could have a material adverse effect on our cartel-related violence that may disrupt our production activities
business and operating results. Proprietary rights relating to our and maquiladora operations based in Juarez, Mexico. In the event
products are protected from unauthorized use by third parties only that one of our manufacturing facilities was affected by a disaster
to the extent that they are covered by valid and enforceable pat- or other event, we could be forced to shift production to one of our
ents or are maintained in confidence as trade secrets. We cannot other manufacturing facilities. Although we maintain insurance for
be certain that we will be issued any patents from any pending or damage to our property and disruption of our business from casu-
future patent applications owned by or licensed to us, or that the alties, such insurance may not be sufficient to cover all of our
claims allowed under any issued patents will be sufficiently broad potential losses. Any disruption in our manufacturing capacity could
to protect our technology. In the absence of enforceable patent have an adverse impact on our ability to produce sufficient inven-
protection, we may be vulnerable to competitors who attempt to tory of our products or may require us to incur additional expenses
copy our products or gain access to our trade secrets and in order to produce sufficient inventory, and therefore, may
know-how. Others may initiate litigation to challenge the validity of adversely affect our net sales and operating results. Any disruption
our patents, or allege that we infringe their patents, or they may or delay at our manufacturing facilities, including a work slowdown,
use their resources to design comparable products that do not strike, or similar action at any one of our three facilities operating
infringe our patents. We may incur substantial costs if our competi- under a collective bargaining agreement or the failure to renew or
tors or others initiate litigation to challenge the validity of our pat- enter into new collective bargaining agreements, including two that
ents, or allege that we infringe their patents, or if we initiate any each expire in May 2014 and October 2014, could impair our abil-
proceedings to protect our proprietary rights. If the outcome of any ity to meet the demands of our customers, and our customers may
such litigation is unfavorable to us, our business, operating results, cancel orders or purchase products from our competitors, which
and financial condition could be adversely affected. We also can- could adversely affect our business and operating results.
not be certain that our products or technologies have not infringed Our operating results may also be adversely affected if we are
or will not infringe the proprietary rights of others. Any such unable to cost-effectively open and manage new manufacturing
infringement could cause third parties, including our competitors, to and distribution facilities, and move production between such facili-
bring claims against us, resulting in significant costs, possible dam- ties as needed from time to time. In fiscal 2012, we began opera-
ages and substantial uncertainty. We could also be forced to tions at a new micro-irrigation facility in Ploiesti, Romania and in
develop an alternative that could be costly and time-consuming, or late fiscal 2013, we acquired a company and began operations at
acquire a license, which we might not be able to do on terms a new micro-irrigation facility in China in order to support antici-
favorable to us, or at all. pated growth of our micro-irrigation business and enable future
We also rely on trade secrets and proprietary know-how that we capacity expansion. If our operations at the new facility in Romania
seek to protect, in part, by confidentiality agreements with our do not produce the anticipated manufacturing and operational effi-
employees, suppliers, and consultants. These agreements may be ciencies, the acquisition of our new facility in China does not pro-
breached, and we may not have adequate remedies for any such duce the anticipated sales and profitability targets, or the micro-
breach. Even if these confidentiality agreements are not breached, irrigation products produced at either of these facilities are not
our trade secrets may otherwise become known or be indepen- accepted into new geographic markets at expected levels, we may
dently developed by competitors.
15