Toro 2014 Annual Report Download - page 58

appraisals, as appropriate. For long-lived assets to be abandoned, the trend in the historical ratio of claims to sales, and the historical
the company tests for potential impairment. If the company com- length of time between the sale and resulting warranty claim. The
mits to a plan to abandon a long-lived asset before the end of its company periodically assesses the adequacy of its warranty accru-
previously estimated useful life, depreciation estimates are revised. als based on changes in these factors and records any necessary
For fiscal 2014 and 2013, the company did not have any impair- adjustments if actual claims experience indicates that adjustments
ment losses of other long-lived assets. Based on the company’s are necessary.
impairment analysis, the company wrote down $386 of other The changes in accrued warranties were as follows:
long-lived assets during fiscal 2012. Additionally, based on the
company’s analysis of estimated useful lives of property, plant, and Fiscal years ended October 31 2014 2013
equipment, the company did not have any accelerated depreciation Beginning balance $ 72,177 $ 69,848
expense during fiscal 2014. During fiscal 2013 and 2012, the com- Warranty provisions 41,608 41,067
Warranty claims (38,568) (35,529)
pany had accelerated depreciation expense of $824 and $305,
Changes in estimates (4,137) (3,209)
respectively.
Ending balance $ 71,080 $ 72,177
Accounts Payable
The company has a customer-managed service agreement with a Derivatives
third party to provide a web-based platform that facilitates partici- Derivatives, consisting mainly of forward currency contracts, are
pating suppliers’ ability to finance payment obligations from the used to hedge most foreign currency transactions, including fore-
company with a designated third party financial institution. Partici- casted sales and purchases denominated in foreign currencies.
pating suppliers may, at their sole discretion, make offers to The company also utilizes cross currency swaps to offset foreign
finance one or more payment obligations of the company prior to currency intercompany loan exposures. Derivatives are recognized
their scheduled due dates at a discounted price to a participating on the consolidated balance sheet at fair value. If the derivative is
financial institution. designated as a cash flow hedge, the effective portion of the
The company’s obligations to its suppliers, including amounts change in the fair value of the derivative is recorded as a compo-
due and scheduled payment dates, are not affected by suppliers’ nent of other comprehensive income within the consolidated state-
decisions to finance amounts under this arrangement. However, ments of comprehensive income and the consolidated statements
the company’s right to offset balances due from suppliers against of stockholders’ equity, and recognized in earnings when the
payment obligations is restricted by this arrangement for those hedged item affects earnings. Derivatives that do not meet the
payment obligations that have been financed by suppliers. As of requirements for hedge accounting are adjusted to fair value
October 31, 2014 and 2013, $12,296 and $16,572, respectively, of through other income, net in the consolidated statements of
the company’s outstanding payment obligations had been placed earnings.
on the accounts payable tracking system.
Foreign Currency Translation and Transactions
Insurance The functional currency of the company’s foreign operations is
The company is self-insured for certain losses relating to medical, generally the applicable local currency. The functional currency is
dental, and workers’ compensation claims, and product liability translated into U.S. dollars for balance sheet accounts using cur-
occurrences. Specific stop loss coverages are provided for cata- rent exchange rates in effect as of the balance sheet date and for
strophic claims in order to limit exposure to significant claims. revenue and expense accounts using a weighted-average
Losses and claims are charged to operations when it is probable a exchange rate during the fiscal year. The translation adjustments
loss has been incurred and the amount can be reasonably esti- are deferred as a component of other comprehensive income
mated. Self-insured liabilities are based on a number of factors, (loss) within the consolidated statements of comprehensive income
including historical claims experience, an estimate of claims and the consolidated statements of stockholders’ equity. Gains or
incurred but not reported, demographic and severity factors, and losses resulting from transactions denominated in foreign curren-
utilizing valuations provided by independent third-party actuaries. cies are included in other income, net in the consolidated state-
ments of earnings.
Accrued Warranties
The company provides an accrual for estimated future warranty Income Taxes
costs at the time of sale. The company also establishes accruals Deferred tax assets and liabilities are recognized for the future tax
for major rework campaigns. The amount of warranty accruals is consequences attributable to differences between the financial
based primarily on the estimated number of products under war- statement carrying amounts of existing assets and liabilities and
ranty, historical average costs incurred to service warranty claims, their respective tax bases. Deferred tax assets and liabilities are
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