Toro 2013 Annual Report Download - page 70

The following table presents the impact of derivative instruments on the consolidated statements of earnings and the consolidated statements
of comprehensive income for the company’s derivatives designated as cash flow hedging instruments for the fiscal years ended October 31,
2013 and 2012, respectively.
Gain (Loss) Recognized
Gain (Loss) Location of Gain (Loss) Recognized in in Income on Derivatives
Recognized in OCI on Location of Gain (Loss) Reclassified Gain (Loss) Reclassified Income on Derivatives (Ineffective (Ineffective Portion and
Derivatives, net of tax from AOCL into Income from AOCL into Income Portion and excluded from Excluded from
(Effective Portion) (Effective Portion) (Effective Portion) Effectiveness Testing) Effectiveness Testing)
October 31, October 31, October 31, October 31, October 31, October 31,
Fiscal years ended 2013 2012 2013 2012 2013 2012
Forward currency contracts $ 7 $(1,751) Net sales $(805) $(3,561) Other income, net $648 $930
Forward currency contracts (231) 1,194 Cost of sales 473 1,500
Cross currency contracts (680) 463 Other income, net (639) 133
Total $(904) $(94)Total $(971) $(1,928)
As of October 31, 2013, the company anticipates to reclassify such as the market approach (comparable market prices), the
approximately $1,338 of losses from AOCL to earnings during the income approach (present value of future income or cash flow),
next twelve months. and the cost approach (cost to replace the service capacity of an
The following table presents the impact of derivative instruments asset or replacement cost). The framework utilizes a fair value
on the consolidated statements of earnings for the company’s hierarchy that prioritizes the inputs to valuation techniques used to
derivatives not designated as hedging instruments. measure fair value into three broad levels. Level 1 provides the
most reliable measure of fair value, while Level 3 generally
Gain (Loss) Recognized requires significant management judgment. The three levels are
in Net Earnings defined as follows:
Fiscal Year Ended Level 1 – Unadjusted quoted prices in active markets for identi-
Location of Gain (Loss) October 31, October 31, cal assets or liabilities.
Recognized in Net Earnings 2013 2012 Level 2 – Observable inputs other than Level 1 prices, such as
Forward currency contracts Other income, net $(1,402) $4,165 quoted prices for similar assets or liabilities in active markets;
Cross currency contracts Other income, net (483) 379
quoted prices for identical assets or liabilities in markets that are
Total $(1,885) $4,544 not active; or other inputs that are observable or can be corrobo-
During the second quarter of fiscal 2007, the company entered rated by observable market data for substantially the full term of
into three treasury lock agreements based on a 30-year U.S. Trea- the assets or liabilities.
sury security with a principal balance of $30,000 each for two of Level 3 – Unobservable inputs reflecting management’s assump-
the agreements and $40,000 for the third agreement. These trea- tions about the inputs used in pricing the asset or liability.
sury lock agreements provided for a single payment at maturity, Cash balances are valued at their carrying amounts in the con-
which was April 23, 2007, based on the change in value of the solidated balance sheets, which are reasonable estimates of their
reference treasury security. These agreements were designated as fair value due to their short-term nature. Forward currency con-
cash flow hedges and resulted in a net settlement of $182, which tracts are valued based on observable market transactions of for-
was recorded in AOCL, and will be amortized to interest expense ward currency prices and spot currency rates as of the reporting
over the 30-year term of the senior notes. The unrecognized loss date. The fair value of cross currency contracts is determined
portion of the fair value of these agreements in AOCL as of Octo- using discounted cash flow analysis on the expected cash flows of
ber 31, 2013 and 2012 was $143 and $149, respectively. each derivative. This analysis reflects the contractual terms of the
derivatives, including the period to maturity, and uses observable
Fair Value market-based inputs such as interest rates and foreign currency
The company categorizes its assets and liabilities into one of three exchange rates. In addition, credit valuation adjustments, which
levels based on the assumptions (inputs) used in valuing the asset consider the impact of any credit enhancements to the contracts,
or liability. Estimates of fair value for financial assets and financial such as collateral postings, thresholds, mutual puts, and guaran-
liabilities are based on the framework established in the accounting tees, are incorporated in the fair values to account for potential
guidance for fair value measurements. The framework defines fair nonperformance risk. The unfunded deferred compensation liability
value, provides guidance for measuring fair value, and requires is primarily subject to changes in fixed-income investment con-
certain disclosures. The framework discusses valuation techniques tracts based on current yields. For accounts receivable and
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