Toro 2008 Annual Report Download - page 61

company’s plan. That cost is expected to be recognized over a based on active employee participation rates. The company funds
weighted-average period of 1.6 years. these benefits for retirees on an annual basis. The company uses
The fair value of each share-based option is estimated on the fiscal year end as the measurement date for this plan.
date of grant using a Black-Scholes valuation method that uses the Reconciliation of the change in benefit obligation of this plan is
assumptions noted in the table below. The expected life is a signif- as follows:
icant assumption as it determines the period for which the risk-free
Fiscal years ended October 31 2008 2007
interest rate, volatility, and dividend yield must be applied. The
expected life is the average length of time over which the Projected Benefit Obligation
employee groups are expected to exercise their options, which is Beginning obligation $9,262 $8,914
Service cost 358 378
based on historical experience with similar grants. Separate groups
Interest cost 514 495
of employees that have similar historical exercise behavior are Curtailment 230 –
considered separately for valuation purposes. Expected volatilities Actuarial (gain) loss (99) 129
are based on the movement of the company’s stock price over the Benefits paid (587) (654)
most recent historical period equivalent to the expected life of the Ending obligation $9,678 $9,262
option. The risk-free interest rate for periods within the contractual
life of the option is based on the U.S. Treasury rate over the Assumptions used in calculations are:
expected life at the time of grant. Dividend yield is estimated over
the expected life based on the company’s dividend policy, histori- Fiscal years ended October 31 2008 2007
cal dividends paid, expected future cash dividends, and expected Discount rate used to determine year end obligation 7.75% 5.75%
future movement in the company’s stock price. Discount rate used to determine fiscal year expense 5.75% 5.75%
The following table illustrates the valuation assumptions of stock- Annual increase in cost of benefits 9.0% 9.0%
based compensation in the following fiscal years.
The annual increase in cost of postretirement benefits is
assumed to decrease gradually in future years reaching an ulti-
Fiscal years ended
October 31 2008 2007 2006 mate rate of 5 percent in fiscal 2015.
Components of net benefit cost each fiscal year are as follows:
Stock option valuation
assumptions:
Fiscal years ended October 31 2008 2007 2006
Expected life of option
in years 3 – 6.5 3 – 6.5 2.5 – 6.5 Service cost $ 358 $ 378 $ 381
Expected volatility 24.8% – 25.8% 25.0% – 26.4% 25.3% – 27.0% Interest cost 514 495 510
Weighted-average Curtailment 230 ––
volatility 25.26% 25.65% 26.13% Prior service credit (193) (194) (194)
Risk-free interest rate 3.10% – 4.08% 4.42% – 4.53% 4.40% – 4.53% Amortization of losses 213 217 275
Expected dividend yield 0.92% – 0.95% 0.78% – 0.90% 0.65% – 0.70%
Weighted-average Net expense $1,122 $ 896 $ 972
dividend yield 0.94% 0.84% 0.67%
Assumed trend rates for health-care costs have an important
Grant date weighted-
average fair value of effect on the amounts reported for postretirement benefit plans. If
stock options $13.87 $12.32 $10.94 the health-care cost trend rate increased by 1 percentage point,
Performance share grant the postretirement benefit obligation as of October 31, 2008 would
date fair value $58.96 $44.90 $41.44 increase by $522. If the health-care cost trend rate decreased by
1 percentage point, the postretirement benefit obligation as of
October 31, 2008 would decrease by $474.
The benefits expected to be paid by the company in each fiscal
10 EMPLOYEE RETIREMENT PLANS year from fiscal years 2009 through 2013 are $1,273, $1,388,
The company maintains The Toro Company Investment, Savings, $1,337, $1,146, and $1,050, respectively. The aggregate benefits
and Employee Stock Ownership Plan for eligible employees. The expected to be paid by the company in the five fiscal years from
company’s expenses under this plan were $16,150, $17,170, and 2014 to 2018 are $4,395. The expected benefits to be paid are
$15,150 for the fiscal years ended October 31, 2008, 2007, and based on the same assumptions used to measure the company’s
2006, respectively. benefit obligation as of October 31, 2008.
The company also sponsors a plan that provides health-care In addition, the company and its subsidiaries have defined bene-
benefits to eligible employees upon retirement, up to age 65. The fit, supplemental, and other retirement plans covering certain
health-care benefit plan is contributory with retiree contributions employees in the U.S. and the United Kingdom. The measurement
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