Toro 2013 Annual Report Download - page 55

Based on the company’s impairment analysis, the company The changes in accrued warranties were as follows:
wrote down $824, $691, and $109 of other long-lived assets during
fiscal 2013, 2012, and 2011, respectively. Fiscal years ended October 31 2013 2012
Beginning balance $ 69,848 $ 62,730
Accounts Payable Warranty provisions 41,067 38,439
The company has a customer-managed services agreement with a Warranty claims (35,529) (35,431)
Changes in estimates (3,209) 3,910
third party to provide a web-based platform that facilitates partici-
Additions from acquisitions – 200
pating suppliers’ ability to finance payment obligations from the
Ending balance $ 72,177 $ 69,848
company with a designated third party financial institution. Partici-
pating suppliers may, at their sole discretion, make offers to
finance one or more payment obligations of the company prior to Derivatives
their scheduled due dates at a discounted price to a participating Derivatives, consisting mainly of forward currency contracts, are
financial institution. used to hedge most foreign currency transactions, including fore-
The company’s obligations to its suppliers, including amounts casted sales and purchases denominated in foreign currencies.
due and scheduled payment dates, are not affected by suppliers’ The company also utilizes cross currency swaps to offset foreign
decisions to finance amounts under this arrangement. However, currency intercompany loan exposures. Derivatives are recognized
the company’s right to offset balances due from suppliers against on the consolidated balance sheet at fair value. If the derivative is
payment obligations is restricted by this arrangement for those designated as a cash flow hedge, the effective portion of the
payment obligations that have been financed by suppliers. As of change in the fair value of the derivative is recorded as a compo-
October 31, 2013 and 2012, $16,572 and $16,159, respectively, of nent of other comprehensive income within the consolidated state-
the company’s outstanding payment obligations had been placed ments of comprehensive income and the consolidated statements
on the accounts payable tracking system. of stockholders’ equity, and recognized in earnings when the
hedged item affects earnings. Derivatives that do not meet the
Insurance requirements for hedge accounting are adjusted to fair value
The company is self-insured for certain losses relating to medical, through other income, net in the consolidated statements of
dental, and workers’ compensation claims, and product liability earnings.
occurrences. Specific stop loss coverages are provided for cata-
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
loss has been incurred and the amount can be reasonably esti- generally the applicable local currency. The functional currency is
mated. Self-insured liabilities are based on a number of factors, translated into U.S. dollars for balance sheet accounts using cur-
including historical claims experience, an estimate of claims rent exchange rates in effect as of the balance sheet date and for
incurred but not reported, demographic and severity factors, and revenue and expense accounts using a weighted-average
utilizing valuations provided by independent third-party actuaries. exchange rate during the fiscal year. The translation adjustments
are deferred as a component of other comprehensive income
Accrued Warranties within the consolidated statements of comprehensive income and
The company provides an accrual for estimated future warranty the consolidated statements of stockholders’ equity. Gains or
costs at the time of sale. The company also establishes accruals losses resulting from transactions denominated in foreign curren-
for major rework campaigns. The amount of warranty accruals is cies are included in other income, net in the consolidated state-
based primarily on the estimated number of products under war- ments of earnings.
ranty, historical average costs incurred to service warranty claims,
the trend in the historical ratio of claims to sales, and the historical Income Taxes
length of time between the sale and resulting warranty claim. The Deferred tax assets and liabilities are recognized for the future tax
company periodically assesses the adequacy of its warranty accru- consequences attributable to differences between the financial
als based on changes in these factors and records any necessary statement carrying amounts of existing assets and liabilities and
adjustments if actual claim experience indicates that adjustments their respective tax bases. Deferred tax assets and liabilities are
are necessary. measured using enacted tax rates expected to apply to taxable
income in the years that those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income tax
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