Toro 2010 Annual Report Download - page 51

units, which are the same as its seven operating segments. Five
Property and Depreciation
reporting units contain goodwill on their respective balance sheets.
Property, plant, and equipment are carried at cost. The company
As of August 27, 2010, the company performed a discounted cash
provides for depreciation of plant and equipment utilizing the
flow analysis for all of its reporting units to estimate their respec-
straight-line method over the estimated useful lives of the assets.
tive fair values. The carrying amount is based on the assets and
Buildings, including leasehold improvements, are generally depreci-
liabilities associated with the operations of each reporting unit,
ated over 10 to 45 years, and equipment over three to seven
which includes an allocation of corporate assets and liabilities
years. Tooling costs are generally depreciated over three to five
based on key financial ratios, such as a proportion of the total
years using the straight-line method. Software and web site devel-
account balances to net sales or cost of sales of the respective
opment costs are generally amortized over two to five years utiliz-
reporting unit. Growth rates for sales and profits are determined
ing the straight-line method. Expenditures for major renewals and
using inputs from the company’s annual long-range planning pro-
improvements, which substantially increase the useful lives of
cess. Management also makes estimates of discount rates,
existing assets, are capitalized, and maintenance and repairs are
perpetuity growth assumptions, and other factors.
charged to operating expenses as incurred. Interest is capitalized
The company also performed an assessment of its indefinite-life
during the construction period for significant capital projects. During
intangible assets, mainly trade names, as of October 31, 2010.
the fiscal years ended October 31, 2010, 2009, and 2008, the
The company’s estimate of the fair value of its trade names are
company capitalized $131, $98, and $419 of interest, respectively.
based on a discounted cash flow model using inputs which
Property, plant, and equipment as of October 31 was as follows:
included: projected revenues from the company’s annual plan;
assumed royalty rates that could be payable if the company did
2010 2009
not own the trade name; and a discount rate.
Land and land improvements $ 24,667 $ 22,736 Other long-lived assets, including property, plant, and equipment
Buildings and leasehold improvements 115,480 114,905
Machinery and equipment 396,228 358,575 and definite-life intangible assets, are reviewed for impairment
Computer hardware and software 57,695 55,531 whenever events or changes in circumstances indicate that the
Subtotal 594,070 551,747 carrying amount of an asset (or asset group) may not be recover-
Less: accumulated depreciation 420,663 385,031 able. An impairment loss would be recognized when estimated
Total property, plant, and equipment, net $173,407 $166,716 undiscounted future cash flows from the operation or disposition of
the asset group are less than the carrying amount of the asset
During fiscal years 2010, 2009, and 2008, the company group. Asset groups have identifiable cash flows and are largely
recorded depreciation expense of $42,108, $42,031, and $46,099, independent of other asset groups. Measurement of an impairment
respectively. loss is based on the excess of the carrying amount of the asset
group over its fair value. Fair value is measured using a dis-
Goodwill and Other Intangible Assets counted cash flow model or independent appraisals, as appropri-
Goodwill represents the excess of the purchase price over the fair ate. For long-lived assets to be abandoned, the company tests for
value of net assets of businesses acquired and accounted for by potential impairment. If the company commits to a plan to abandon
the purchase method of accounting. Other intangible assets with a long-lived asset before the end of its previously estimated useful
determinable lives consist primarily of patents, non-compete agree- life, depreciation estimates are revised.
ments, customer relationships, and developed technology that are Based on the company’s impairment analysis, the company
amortized on a straight-line basis over periods ranging from two to wrote down $348, $1,071, and $3,843 of long-lived assets during
13 years. fiscal 2010, 2009, and 2008, respectively.
Impairment of Long-Lived Assets Accounts Payable
The company reviews indefinite-life intangible assets and goodwill, In fiscal 2009, the company entered into a customer-managed ser-
for impairment annually during each fourth fiscal quarter or more vices agreement with a third party to provide a web-based platform
frequently if changes in circumstances or the occurrence of events that facilitates participating suppliers’ ability to finance payment
suggest the remaining value may not be recoverable. An asset is obligations from the company with a designated third party finan-
deemed impaired and written down to its fair value if estimated cial institution. Participating suppliers may, at their sole discretion,
related future cash flows are less than its carrying amount. make offers to finance one or more payment obligations of the
The company reviewed the fair value of its reporting units that company prior to their scheduled due dates at a discounted price
have goodwill on their respective balance sheets with their corre- to a participating financial institution.
sponding carrying amount (with goodwill) during the fourth quarter The company’s obligations to its suppliers, including amounts
of fiscal 2010. The company determined that it has seven reporting due and scheduled payment dates, are not impacted by suppliers’
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