Toro 2015 Annual Report Download - page 56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Reclassifications
SUMMARY OF SIGNIFICANT ACCOUNTING Certain amounts from prior years’ Consolidated Statements of
1POLICIES AND RELATED DATA Stockholders’ Equity and Notes to Consolidated Financial State-
ments have been reclassified to conform to the current year pres-
Basis of Presentation and Consolidation entation. The reclassifications had no impact on the results of
The accompanying consolidated financial statements include the operations as previously reported.
accounts of the company and its wholly owned subsidiaries. The
company uses the equity method to account for investments over Cash and Cash Equivalents
which it has the ability to exercise significant influence over operat- The company considers all highly liquid investments purchased
ing and financial policies. Consolidated net earnings include the with an original maturity of three months or less to be cash
company’s share of the net earnings (losses) of these companies. equivalents and are stated at cost, which approximates fair value.
The cost method is used to account for investments in companies As of October 31, 2015, cash and short-term investments held by
that the company does not control and for which it does not have the company’s foreign subsidiaries that are not available to fund
the ability to exercise significant influence over operating and domestic operations unless repatriated were $61,272.
financial policies. These investments are recorded at cost. All
intercompany accounts and transactions have been eliminated Receivables
from the consolidated financial statements. The company’s financial exposure to collection of accounts receiv-
able is reduced due to its Red Iron Acceptance, LLC (‘‘Red Iron’’)
Accounting Estimates joint venture with TCF Inventory Finance, Inc. (‘‘TCFIF’’), as further
In preparing the consolidated financial statements in conformity discussed in Note 3. For receivables not serviced through Red
with United States (‘‘U.S.’’) generally accepted accounting princi- Iron, the company grants credit to customers in the normal course
ples (‘‘GAAP’’), management must make decisions that impact the of business and performs on-going credit evaluations of customers.
reported amounts of assets, liabilities, revenues, expenses, and Receivables are recorded at original carrying amount less reserves
the related disclosures, including disclosures of contingent assets for estimated uncollectible accounts, as described below.
and liabilities. Such decisions include the selection of the appropri-
ate accounting principles to be applied and the assumptions on Allowance for Doubtful Accounts
which to base accounting estimates. Estimates are used in deter- The company estimates the balance of allowance for doubtful
mining, among other items, sales promotions and incentives accru- accounts by analyzing the age of accounts and notes receivable
als, incentive compensation accruals, inventory valuation, warranty balances and applying historical write-off trend rates. The company
reserves, earnout liabilities, allowance for doubtful accounts, pen- also estimates separately specific customer balances when it is
sion and postretirement accruals, self-insurance accruals, useful deemed probable that the balance is uncollectible. Account bal-
lives for tangible and intangible assets, and future cash flows asso- ances are charged off against the allowance when all collection
ciated with impairment testing for goodwill and other long-lived efforts have been exhausted.
assets. These estimates and assumptions are based on manage-
ment’s best estimates and judgments at the time they are made. Inventory Valuations
Management evaluates its estimates and assumptions on an ongo- Inventories are valued at the lower of cost or net realizable value,
ing basis using historical experience and other factors that man- with cost determined by the last-in, first-out (‘‘LIFO’’) method for a
agement believes to be reasonable under the circumstances, majority of the company’s inventories. The first-in, first-out (‘‘FIFO’’)
including the current economic environment. Management adjusts method is used for all other inventories, constituting 26 and 28 per-
such estimates and assumptions when facts and circumstances cent of total inventories as of October 31, 2015 and 2014, respec-
dictate. As future events and their effects cannot be determined tively. The company establishes a reserve for excess,
with certainty, actual amounts could differ significantly from those slow-moving, and obsolete inventory that is equal to the difference
estimated at the time the consolidated financial statements are between the cost and estimated net realizable value for that inven-
prepared. Changes in those estimates will be reflected in the con- tory. These reserves are based on a review and comparison of
solidated financial statements in future periods. current inventory levels to planned production, as well as planned
and historical sales of the inventory. During fiscal 2015 and 2014,
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