Toro 2015 Annual Report Download - page 47

our products and we do not adjust our production schedule date of this standard by one year. We expect to adopt this gui-
accordingly. dance on November 1, 2018, as required, based on the new effec-
We also record a reserve for inventory shrinkage. Our inventory tive date. The guidance permits the use of either a retrospective or
shrinkage reserve represents anticipated physical inventory losses cumulative effect transition method. We have not yet selected a
that are recorded based on historical loss trends, ongoing cycle- transition method and are currently evaluating the impact of the
count and periodic testing adjustments, and inventory levels. amended guidance on our existing revenue recognition policies
Though management considers reserve balances adequate and and procedures.
proper, changes in economic conditions in specific markets in In February 2015, the FASB issued ASU No. 2015-02, Consoli-
which we operate could have an effect on the reserve balances dation (Topic 810), which amends certain requirements for deter-
required. mining whether a variable interest entity must be consolidated. The
amended guidance will become effective for us commencing in the
Accounts and Notes Receivable Valuation. We value accounts first quarter of fiscal 2017. Early adoption is permitted. We antici-
and notes receivable net of an allowance for doubtful accounts. pate the adoption of this guidance will not have a material impact
Each fiscal quarter, we prepare an analysis of our ability to collect on our consolidated financial position.
outstanding receivables that provides a basis for an allowance esti- In April 2015, the FASB issued ASU No. 2015-03, Interest –
mate for doubtful accounts. In doing so, we evaluate the age of Imputation of Interest (Subtopic 835-30): Simplifying the Presenta-
our receivables, past collection history, current financial conditions tion of Debt Issuance Costs. This guidance requires that debt issu-
of key customers, and economic conditions. Based on this evalua- ance costs related to a recognized debt liability be presented in the
tion, we establish a reserve for specific accounts and notes receiv- balance sheet as a direct deduction from the carrying amount of
able that we believe are uncollectible, as well as an estimate of the related debt liability. The amended guidance will become effec-
uncollectible receivables not specifically known. Deterioration in the tive for us commencing in the first quarter of fiscal 2017. Early
financial condition of any key customer, inability of customers to adoption is permitted. We anticipate the adoption of this guidance
obtain bank credit lines, or a significant slow-down in the economy will not have a material impact on our consolidated financial
could have a material negative impact on our ability to collect position.
accounts and notes receivable. We believe that an analysis of his- In April 2015, the FASB issued ASU No. 2015-05, Customer’s
torical trends and our current knowledge of potential collection Accounting for Fees Paid in a Cloud Computing Arrangement. This
problems provide us with sufficient information to establish a rea- amended guidance requires customers to determine whether or not
sonable estimate for an allowance for doubtful accounts. However, an arrangement contains a software license element. If the
since we cannot predict with certainty future changes in the finan- arrangement contains a software element, the related fees paid
cial stability of our customers or in the general economy, our should be accounted for as an acquisition of a software license. If
actual future losses from uncollectible accounts may differ from our the arrangement does not contain a software license, it is
estimates. In the event we determined that a smaller or larger accounted for as a service contract. The amended guidance will
uncollectible accounts reserve is appropriate, we would record a become effective for us commencing in the first quarter of fiscal
credit or charge to SG&A expense in the period that we made 2017. Early adoption is permitted. We anticipate the adoption of
such a determination. this guidance will not have a material impact on our consolidated
financial statements.
New Accounting Pronouncements to be Adopted In July 2015, the FASB issued ASU No. 2015-11, Inventory
In May 2014, the Financial Accounting Standards Board (‘‘FASB’’) (Topic 330): Simplifying the Measurement of Inventory. This
issued Accounting Standards Update (‘‘ASU’’) No. 2014-09, Reve- amended guidance changes the measurement principle for inven-
nue from Contracts with Customers that updates the principles for tory from the lower of cost or market to lower of cost and net
recognizing revenue. The core principle of the guidance is that an realizable value. The amended guidance will become effective for
entity should recognize revenue to depict the transfer of promised us commencing in the first quarter of fiscal 2018. Early adoption is
goods or services to customers in an amount that reflects the con- permitted. We are currently evaluating the impact of this amended
sideration to which the entity expects to be entitled to in exchange guidance on our consolidated financial statements.
for those goods or services. The guidance provides a five-step In November 2015, the FASB issued ASU No. 2015-17, Income
analysis of transactions to determine when and how revenue is Taxes (Topic 740): Balance Sheet Classification of Deferred
recognized. The guidance also requires enhanced disclosures Taxes. This amended guidance requires an entity to present
regarding the nature, amount, timing, and uncertainty of revenue deferred tax assets and liabilities as noncurrent in the statement of
and cash flows arising from an entity’s contracts with customers. In financial position. The amended guidance will become effective for
August 2015, the FASB issued ASU No. 2015-14, Revenue from us commencing in the first quarter of fiscal 2018. Early adoption is
Contracts with Customers (Topic 606), which deferred the effective permitted. We are currently evaluating the impact of this amended
guidance on our consolidated financial statements.
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