Toro 2014 Annual Report Download - page 24

potential losses. Any disruption in our manufacturing capacity could a result of the strengthening of the U.S. dollar or otherwise, may
have an adverse impact on our ability to produce sufficient inven- have an adverse effect on our operating results, financial condition,
tory of our products or may require us to incur additional expenses and cash flows, as well as the comparability of our consolidated
in order to produce sufficient inventory, and therefore, may financial statements between reporting periods. Our primary foreign
adversely affect our net sales and operating results. Any disruption currency exchange rate exposure is with the Euro, the Australian
or delay at our manufacturing facilities, including a work slowdown, dollar, the Canadian dollar, the British pound, the Mexican peso,
strike, or similar action at any one of our facilities operating under the Japanese yen, the Chinese Renminbi, and the Romanian New
a collective bargaining agreement or the failure to renew or enter Leu against the U.S. dollar, as well as the Romanian New Leu
into new collective bargaining agreements, including three that against the Euro. While we actively manage the exposure of our
each expire in October 2016, October 2017, and May 2018, and a foreign currency market risk in the normal course of business by
collective bargaining agreement we recently negotiated for the entering into various foreign exchange contracts, these instruments
BOSS business that will expire in March 2018, could impair our involve risks and may not effectively limit our underlying exposure
ability to meet the demands of our customers, and our customers from foreign currency exchange rate fluctuations or minimize our
may cancel orders or purchase products from our competitors, net earnings and cash volatility associated with foreign currency
which could adversely affect our business and operating results. exchange rate changes. Further, a number of financial institutions
Our operating results may also be adversely affected if we are similar to those that serve as counterparties to our foreign
unable to cost-effectively open and manage new manufacturing exchange contracts have been adversely affected by the unprece-
and distribution facilities, and move production between such facili- dented distress in the worldwide credit markets during the past few
ties as needed from time to time. In fiscal 2013, we acquired a years. The failure of one or more counterparties to our foreign
company and began operations at a new micro-irrigation facility in currency exchange rate contracts to fulfill their obligations to us
China in order to support anticipated growth of our micro-irrigation could adversely affect our operating results.
business and enable future capacity expansion. If this facility in
Our business, properties, and products are subject to
China does not produce the anticipated manufacturing or opera-
governmental regulation with which compliance may
tional efficiencies, or if the micro-irrigation products produced at
require us to incur expenses, or modify our products or
this facility are not accepted into new geographic markets at
operations, and non-compliance may result in harm to
expected levels, we may not recover our investment in the new
our reputation and/or expose us to penalties.
facility and our operating results may be adversely affected.
Governmental regulation may also adversely affect the
Fluctuations in foreign currency exchange rates could demand for some of our products and our operating
result in declines in our reported net sales and net results.
earnings. Our business, properties, and products are subject to numerous
Because the functional currency of most of our foreign operations international, federal, state, and other governmental laws, rules,
is the applicable local currency, and because our financial report- and regulations relating to, among other things; climate change;
ing currency is the U.S. dollar, preparation of our consolidated emissions to air and discharges to water; restrictions placed on
financial statements requires that we translate the assets, liabilities, water usage and water availability; product and associated packag-
expenses, and revenues of our foreign operations into U.S. dollars ing; use of certain chemicals; restricted substances, including ‘‘con-
at applicable exchange rates. Accordingly, we are exposed to for- flict minerals’’ disclosure rules; import and export compliance,
eign currency exchange rate risk arising from transactions in the including country of origin certification requirements; worker and
normal course of business, such as sales and loans to wholly product user health and safety; energy efficiency; product life-
owned subsidiaries, as well as sales to third party customers, cycles; outdoor noise laws; and the generation, use, handling,
purchases from suppliers, and bank lines of credit with creditors labeling, collection, management, storage, transportation, treat-
denominated in foreign currencies. Our reported net sales and net ment, and disposal of hazardous substances, wastes, and other
earnings are subject to fluctuations in foreign currency exchange regulated materials. Although we believe that we are in substantial
rates. Because our products are manufactured or sourced primarily compliance with currently applicable laws, rules, and regulations,
from the U.S. and Mexico, a stronger U.S. dollar and Mexican we are unable to predict the ultimate impact of adopted or future
peso generally have a negative impact on our operating results, laws, rules, and regulations on our business, properties, or prod-
while a weaker dollar and peso generally have a positive effect. In ucts. Any of these laws, rules, or regulations may cause us to
addition, currency exchange rate fluctuations may affect the com- incur significant expenses to achieve or maintain compliance,
parative prices between products we sell and products our foreign require us to modify our products, adversely affect the price of or
competitors sell in the same market, which may adversely affect demand for some of our products, and ultimately affect the way we
demand for our products. Substantial exchange rate fluctuations as conduct our operations. Failure to comply with any of these laws,
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