Toro 2009 Annual Report Download - page 60

As of October 31, 2009, the company had net operating loss Included in the balance of unrecognized tax benefits at Octo-
carryforwards of approximately $8,022 in foreign jurisdictions with ber 31, 2009 are potential benefits of $3,576 that, if recognized,
unlimited expiration. would affect the effective tax rate from continuing operations.
Earnings before income taxes were as follows: The company recognizes potential accrued interest and penalties
related to unrecognized tax benefits as a component of the provi-
Fiscal years ended October 31 2009 2008 2007 sion for income taxes. In addition to the liability of $5,264 for
Earnings before income taxes: unrecognized tax benefits as of October 31, 2009 was an amount
U.S. $83,357 $175,172 $198,274 of approximately $808 for accrued interest and penalties. To the
Non-U.S. 12,431 6,117 14,953 extent interest and penalties are not assessed with respect to
Total $95,788 $181,289 $213,227 uncertain tax positions, the amounts accrued will be revised and
reflected as an adjustment to the provision for income taxes.
During the fiscal years ended October 31, 2009, 2008, and
The company does not anticipate that total unrecognized tax
2007, respectively, $7,403, $3,522, and $13,775 was added to
benefits will change significantly within the next 12 months.
stockholders’ equity reflecting the permanent book to tax difference
The company is subject to U.S. federal income tax as well as
in accounting for tax benefits related to employee stock-based
income tax of numerous state and foreign jurisdictions. The com-
award transactions.
pany is generally no longer subject to U.S. federal tax examina-
The tax effects of temporary differences that give rise to the net
tions for taxable years before fiscal 2006 and with limited excep-
deferred income tax assets are presented below:
tions, state and foreign income tax examinations for fiscal years
October 31 2009 2008 before 2005. The Internal Revenue Service is currently examining
the company’s income tax returns for the 2006 and 2007 fiscal
Deferred Tax Assets (Liabilities):
Allowance for doubtful accounts $ 2,062 $ 1,793 years. It is possible that the examination phase of the audit may
Inventory items (1,837) 402 conclude in the next 12 months, and the related unrecognized tax
Warranty reserves and other accruals 37,643 38,947 benefits for tax positions taken may change from those recorded
Employee benefits 17,081 21,037 as liabilities for uncertain tax positions in the company’s financial
Depreciation 168 4,019 statements as of October 31, 2009. Although the outcome of this
Other 12,833 (3,312)
examination cannot currently be determined, the company believes
Deferred tax assets $67,950 $62,886 adequate provisions have been made for any potential unfavorable
Valuation allowance (4,898) (2,655)
financial statement impact.
Net deferred tax assets $63,052 $60,231
The valuation allowance as of October 31, 2009 and 2008 princi-
pally applies to capital loss carryforwards and foreign net operating
loss carryforwards that are expected to expire prior to utilization. 10 STOCK-BASED COMPENSATION PLANS
As of October 31, 2009, the company had approximately Under the company’s stock option plans, option awards are
$36,801 of accumulated undistributed earnings from subsidiaries granted with an exercise price equal to the closing price of the
outside the United States that are considered to be reinvested company’s common stock on the date of grant, as reported by the
indefinitely. No deferred tax liability has been provided for such New York Stock Exchange. Options are generally granted to
earnings. non-employee directors, officers, and other key employees in the
A reconciliation of the beginning and ending amount of unrecog- first quarter of the company’s fiscal year. Option awards vest
nized tax benefits is as follows: one-third each year over a three-year period and have a ten-year
term. Compensation expense equal to the grant date fair value is
Balance as of October 31, 2008 $ 5,417 generally recognized for these awards over the vesting period.
Increase as a result of tax positions However, if a director has served on the company’s Board of
taken during a prior period 1,096 Directors for ten full fiscal years or longer, the fair value of the
Increase as a result of tax positions options granted is fully expensed as of the date of the grant. Simi-
taken during the current period 540
larly, options granted to officers and other key employees are also
Decrease relating to settlements with taxing authorities (539)
Reduction as a result of a lapse subject to accelerated expensing if the option holder meets the
of the applicable statute of limitations (1,250) retirement definition set forth in The Toro Company 2000 Stock
Balance as of October 31, 2009 $ 5,264 Option Plan. In that case, the fair value of the options is expensed
in the year of grant because the option holder must be employed
as of the end of the fiscal year in which the options are granted in
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