Toro 2015 Annual Report Download - page 57

LIFO layers were reduced, which resulted in charging lower inven- however, the company reviews them for impairment annually dur-
tory costs prevailing in previous years to cost of sales, thus reduc- ing each fourth fiscal quarter or more frequently if changes in cir-
ing cost of sales by $1,348 and $65, respectively. cumstances or occurrence of events suggest the fair value may
Inventories as of October 31 were as follows: not be recoverable.
The company reviewed the fair value of its reporting units that
have goodwill on their respective balance sheets and compared
2015 2014
these fair values to the respective carrying amounts during the
Raw materials and work in progress $107,086 $ 95,144
fourth quarter of fiscal 2015. The company determined that it has
Finished goods and service parts 291,468 246,954
nine reporting units, which are the same as its nine operating seg-
Total FIFO value 398,554 342,098
ments. Seven reporting units contain goodwill on their respective
Less: adjustment to LIFO value 64,040 67,495
balance sheets. As of August 28, 2015, the company performed an
Total $334,514 $274,603
analysis of qualitative factors to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carry-
Property and Depreciation ing amount as a basis for determining whether it is necessary to
Property, plant, and equipment are carried at cost. The company perform a two-step goodwill impairment test. Based on the com-
provides for depreciation of plant and equipment utilizing the pany’s analysis of qualitative factors, the company determined that
straight-line method over the estimated useful lives of the assets. it was not necessary to perform a two-step goodwill impairment
Buildings, including leasehold improvements, are generally depreci- test for any of its reporting units.
ated over 10 to 45 years, and equipment over two to seven years. As of August 28, 2015, the company also performed an assess-
Tooling costs are generally depreciated over three to five years ment of its indefinite-life intangible assets, which consist of certain
using the straight-line method. Software and web site development trade names. The company’s estimate of the fair value of its trade
costs are generally amortized over two to five years utilizing the names are based on a discounted cash flow model using inputs
straight-line method. Expenditures for major renewals and improve- which included: projected revenues from the company’s forecasting
ments, which substantially increase the useful lives of existing process; assumed royalty rates that could be payable if the com-
assets, are capitalized, and maintenance and repairs are charged pany did not own the trade name; and a discount rate. Based on
to operating expenses as incurred. Interest is capitalized during the this analysis, which was also performed in prior fiscal years, the
construction period for significant capital projects. During the fiscal company concluded its indefinite-life intangible assets were not
years ended October 31, 2015, 2014, and 2013, the company cap- impaired during fiscal 2015, 2014, or 2013.
italized $897, $1,710, and $722 of interest, respectively.
Property, plant, and equipment as of October 31 was as follows: Other Long-Lived Assets
Other long-lived assets include property, plant, and equipment and
2015 2014 definite-life intangible assets, which are identifiable assets that
Land and land improvements $ 34,240 $ 32,731 arose from purchase acquisitions consisting primarily of patents,
Buildings and leasehold improvements 170,342 156,374 non-compete agreements, customer relationships, trade names,
Machinery and equipment 315,884 305,131 and developed technology and are amortized on a straight-line
Tooling 187,652 177,704 basis over periods ranging from 1.5 to 20 years. The company
Computer hardware and software 81,131 77,395
Construction in process 15,349 10,857 reviews other long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
Subtotal 804,598 760,192
Less: accumulated depreciation 579,603 554,997 asset (or asset group) may not be recoverable. An impairment loss
is recognized when estimated undiscounted future cash flows from
Total property, plant, and equipment, net $224,995 $205,195
the operation or disposition of the asset group are less than the
During fiscal years 2015, 2014, and 2013, the company carrying amount of the asset group. Asset groups have identifiable
recorded depreciation expense of $50,322, $47,136, and $48,207, cash flows and are largely independent of other asset groups.
respectively. Measurement of an impairment loss is based on the excess of the
carrying amount of the asset group over its fair value. Fair value is
Goodwill and Indefinite-Life Intangible Assets measured using a discounted cash flow model or independent
Goodwill represents the cost of acquisitions in excess of the fair appraisals, as appropriate. For long-lived assets to be abandoned,
values assigned to identifiable net assets acquired. Goodwill is the company tests for potential impairment. If the company com-
assigned to reporting units based upon the expected benefit of the mits to a plan to abandon a long-lived asset before the end of its
synergies of the acquisition. Goodwill and some trade names, previously estimated useful life, depreciation estimates are revised.
which are considered to have indefinite lives, are not amortized;
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