Toro 2007 Annual Report Download - page 63

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The tax effects of temporary differences that give rise to the net
deferred income tax assets are presented below:
October 31 2007 2006
Deferred Tax Assets:
Allowance for doubtful accounts $ 2,147 $ 1,688
Inventory items 1,260 744
Warranty reserves and other accruals 34,705 30,053
Employee benefits 21,619 18,885
Depreciation 4,094 1,862
Other 1,829 7,386
Deferred tax assets $ 65,654 $ 60,618
Valuation allowance (2,655) (2,910)
Net deferred tax assets $ 62,999 $ 57,708
The valuation allowance as of October 31, 2007 principally ap-
plies to unexpired capital loss carryforwards.
As of October 31, 2007, the company had approximately
$27,022 of accumulated undistributed earnings from subsidiaries
outside the United States that are considered to be reinvested
indefinitely. No deferred tax liability has been provided for such
earnings.
9
STOCK-BASED COMPENSATION PLANS
Under the company’s stock option plans, certain employees and
non-employee directors have been granted options to purchase
shares of common stock at prices equal to the fair market value of
the company’s common stock on the date the option was granted.
A majority of these awards are non-qualified options, and for
certain non-officer employees, the options vest after two years
from the date of grant and have a five-year contractual term. Other
options granted during the first quarter of fiscal 2007 vest one-third
each year over a three-year period and have a ten-year contrac-
tual term. Compensation expense equal to the grant date fair value
is recognized for these awards over the vesting period. The num-
ber of unissued shares of common stock available for future grants
under the company’s stock-based compensation plans was
527,296 as of October 31, 2007.
In 1999, the company’s stockholders approved, and in
March 2007, the company’s stockholders re-approved, a long-term
incentive plan called The Toro Company Performance Share Plan.
Under this plan, key employees are granted the right to receive
shares of common stock or deferred common stock units,
contingent on the achievement of performance goals of the
company, which are generally measured over a three-year period.
The number of shares of common stock a participant receives will
be increased (up to 200 percent of target levels) or reduced (down
to zero) based on the level of achievement of performance goals,
and vest over a three-year period. Compensation expense is
recognized for these awards on a straight-line basis over the
vesting period based on the fair value as of the date of grant and
the probability of achieving performance goals. The number of
unissued shares of common stock available for future grants under
the company’s Performance Share Plan was 832,448 as of
October 31, 2007.
A summary of activity under the plans previously described is
presented below:
Options
Outstanding Price1 Life2
Aggregate
Intrinsic
Value
Performance
Shares
Potentially
Issuable
Outstanding as of
November 1, 2006 3,012,899 $ 21.48 4.7 $ 65,334 580,000
Granted 441,752 44.88 127,600
Exercised/earned (662,334) 19.58 (205,765)
Cancelled/forfeited (17,985) 42.34 (75,435)
Outstanding as of
October 31, 2007 2,774,332 $ 25.52 4.6 $ 83,624 426,400
Exercisable as of
October 31, 2007 1,930,248 $ 18.21 3.9 $ 72,294 –
1Weighted-average exercise price
2Weighted-average contractual life in years
Total stock-based compensation expense for these plans was
$7,293, $6,269, and $9,145 for the fiscal years ended October 31,
2007, 2006, and 2005, respectively. The total intrinsic value of
options (the amount by which the stock price exceeded the strike
price of the option on the date of exercise) that were exercised
during the fiscal years ended October 31, 2007, 2006, and 2005
was $35,752, $37,469, and $20,674, respectively.
The table below presents the non-vested options and perform-
ance share awards as of October 31, 2007, and changes during
the fiscal year ended October 31, 2007:
Options and shares
Stock
Options
Weighted-
Average
Fair Value
at date
of grant
Performance
Shares
Weighted-
Average
Fair Value
at date
of grant
Non-vested as of
November 1, 2006 902,127 $ 10.64 580,000 $ 31.84
Granted 441,752 12.32 127,600 44.90
Vested/earned (481,810 ) 10.30 (205,765) 24.16
Forfeited/cancelled (17,985 ) 8.62 (75,435) 24.16
Non-vested as of
October 31, 2007 844,084 $ 11.76 426,400 $ 40.81
As of October 31, 2007, there was $2,332 of total unrecognized
compensation expense related to non-vested stock option com-
pensation arrangements granted under the company’s plans. That
cost is expected to be recognized over a weighted-average period
of 1.3 years. As of October 31, 2007, there was $2,298 of total
unrecognized compensation expense related to non-vested per-
formance share compensation arrangements granted under the
company’s plan. That cost is expected to be recognized over a
weighted-average period of 1.8 years.