Toro 2015 Annual Report Download - page 58

Based on the company’s impairment analysis for definite-life adjustments if actual claims experience indicates that adjustments
intangible assets, the company wrote down $1,383 of other are necessary.
long-lived assets for fiscal 2015. For fiscal 2014, the company did The changes in accrued warranties were as follows:
not have any impairment losses of other long-lived assets. Addi-
tionally, based on the company’s analysis of estimated useful lives Fiscal years ended October 31 2015 2014
of property, plant, and equipment, the company had $531, $0, and Beginning balance $ 71,080 $ 72,177
$824 of accelerated depreciation expense during fiscal 2015, 2014, Warranty provisions 41,747 41,608
Warranty claims (39,730) (38,568)
and 2013, respectively.
Changes in estimates (2,363) (4,137)
Ending balance $ 70,734 $ 71,080
Accounts Payable
The company has a customer-managed service agreement with a
third party to provide a web-based platform that facilitates partici- Derivatives
pating suppliers’ ability to finance payment obligations from the Derivatives, consisting mainly of forward currency contracts, are
company with a designated third party financial institution. Partici- used to hedge most foreign currency transactions, including fore-
pating suppliers may, at their sole discretion, make offers to casted sales and purchases denominated in foreign currencies.
finance one or more payment obligations of the company prior to The company also utilizes cross currency swaps to offset foreign
their scheduled due dates at a discounted price to a participating currency intercompany loan exposures. Derivatives are recognized
financial institution. on the consolidated balance sheet at fair value. If the derivative is
The company’s obligations to its suppliers, including amounts designated as a cash flow hedge, the effective portion of the
due and scheduled payment dates, are not affected by suppliers’ change in the fair value of the derivative is recorded as a compo-
decisions to finance amounts under this arrangement. However, nent of other comprehensive income within the consolidated state-
the company’s right to offset balances due from suppliers against ments of comprehensive income and the consolidated statements
payment obligations is restricted by this arrangement for those of stockholders’ equity, and recognized in earnings when the
payment obligations that have been financed by suppliers. As of hedged item affects earnings. Derivatives that do not meet the
October 31, 2015 and 2014, $16,101 and $12,296, respectively, of requirements for hedge accounting are adjusted to fair value
the company’s outstanding payment obligations had been placed through other income, net in the consolidated statements of
on the accounts payable tracking system. earnings.
Insurance Foreign Currency Translation and Transactions
The company is self-insured for certain losses relating to medical, The functional currency of the company’s foreign operations is
dental, and workers’ compensation claims, and certain product lia- generally the applicable local currency. The functional currency is
bility occurrences. Specific stop loss coverages are provided for translated into U.S. dollars for balance sheet accounts using cur-
catastrophic claims in order to limit exposure to significant claims. rent exchange rates in effect as of the balance sheet date and for
Losses and claims are charged to operations when it is probable a revenue and expense accounts using a weighted-average
loss has been incurred and the amount can be reasonably esti- exchange rate during the fiscal year. The translation adjustments
mated. Self-insured liabilities are based on a number of factors, are deferred as a component of other comprehensive income
including historical claims experience, an estimate of claims (loss) within the consolidated statements of comprehensive income
incurred but not reported, demographic and severity factors, and and the consolidated statements of stockholders’ equity. Gains or
utilizing valuations provided by independent third-party actuaries. losses resulting from transactions denominated in foreign curren-
cies are included in other income, net in the consolidated state-
Accrued Warranties ments of earnings.
The company provides an accrual for estimated future warranty
costs at the time of sale. The company also establishes accruals Income Taxes
for major rework campaigns. The amount of warranty accruals is Deferred tax assets and liabilities are recognized for the future tax
based primarily on the estimated number of products under war- consequences attributable to differences between the financial
ranty, historical average costs incurred to service warranty claims, statement carrying amounts of existing assets and liabilities and
the trend in the historical ratio of claims to sales, and the historical their respective tax bases. Deferred tax assets and liabilities are
length of time between the sale and resulting warranty claim. The measured using enacted tax rates expected to apply to taxable
company periodically assesses the adequacy of its warranty accru- income in the years that those temporary differences are expected
als based on changes in these factors and records any necessary to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income tax
52