Download Toro's annual report from the activities folder and try questions 1-2.

What is the balance-sheet based accrual ratio of Toro for the year of 2011? Note that total debts should include debts, loans, bonds, leases, borrowings, ect., which have interest requirements. Long-term debts due within a year should be reclassified as short-term debts, but they are still debts in nature.

A) .08 B) .14 C) .18 D) .20 E) .24

2.

What is the cash-flow-statement based accrual ratio of Toro for the year of 2011?

A) 0.28 B) 0.20 C) 0.03 D) -0.18 E) -0.28

3.

What is the average age of the PP&E of Ouyang Inc. for the year of 2013?

Table: Ouyang Inc. Financial Information (in millions)

Financial Information	2013	2012	2011
PP&E	1,929	1,728	1,562
Accumulated Depreciation	328	283	263
PP&E, Net	1,601	1,445	1,299
Land	382	372	355

A) 38% B) 34% C) 30% D) 26% E) 21%

4.

Ouyang Inc. reports $356 million capital lease in the balance sheet of 2013. It also discloses in its annual report that the value of total future capital lease payments is $928 million and the value of total future operating lease payments is $6,374 million. The adjustment a financial analyst should make is (round any ratio used in the calculation to two decimal places, such as 15%):

A) the long-term liabilities and long-term assets should be increased by $2,422 million approximately. B) the long-term liabilities and long-term assets should be decreased by $2,422 million approximately. C) the long-term liabilities and long-term assets should be increased by $1,273 million approximately. D) the long-term liabilities and long-term assets should be decreased by $1,273 million approximately. E) None of the above.

5.

Ouyang Inc reports 2012 revenue of $20 billion. During 2012, its A/R rose by $0.8 billion, A/P increased by $1.3 billion, inventories decreased by $0.2 billion and unearned revenue increased by $0.6 billion. Its ratio of revenue to cash collected from customers of 2012 is closest to:

A) 1.84 B) 1.63 C) 1.48 D) 1.24 E) 1.01

CONSOLIDATED STATEMENTS OF EARNINGS (USD $) 12 Months Ended In Thousands, except Per Share data, unless Oct. 31, 2011 Oct. 31, 2010 Oct. 31, 2009 otherwise specified Net sales $1,883,953 $1,690,378 $1,523,447 Cost of sales 1,247,306 1,113,987 1,012,472 Gross profit 636,647 576,391 510,975 Selling, general, and administrative expense 452,160 425,125 395,778 Operating earnings 184,487 151,266 115,197 Interest expense -16,970 -17,113 -17,578 Other income (expense), net 7,309 7,115 -1,831 Earnings before income taxes 174,826 141,268 95,788 Provision for income taxes 57,168 48,031 32,951 Net earnings $117,658 $93,237 $62,837 Basic net earnings per share of common stock (in dollars per share) $3.76 $2.83 $1.76 Diluted net earnings per share of common stock (in dollars per share) $3.70 $2.79 $1.73 Weighted-average number of shares of common stock outstanding - Basic (in shares) Weighted-average number of shares of common stock outstanding - Diluted (in shares) 31,267 32,982 35,788 31,797 33,437 36,240 CONSOLIDATED BALANCE SHEETS (USD $) Oct. 31, 2011 Oct. 31, 2010 Oct. 31, 2009 In Thousands, unless otherwise specified ASSETS Cash and cash equivalents Receivables, net: Customers (net of $1,964 and $3,828 as of October 31, 2011 and 2010, respectively, for allowance for doubtful accounts) 80,886 187,773 142,400 5,740 148,140 223,030 18,303 62,523 532,882 191,140 19,075 92,020 35,546 870,663 128,354 14,547 142,901 194,402 10,766 59,538 584,973 173,407 17,880 86,400 22,962 885,622 134,627 9,082 143,709 176,275 14,914 59,467 582,138 166,716 10,512 86,407 23,324 872,682 1,978 41 118,036 1,970 1,034 125,138 3,765 4,529 91,074 62,730 47,161 53,653 19,417 2,504 53,560 359,080 225,178 10,619 1,368 7,651 603,896 Other Total receivables, net Inventories, net Prepaid expenses and other current assets Deferred income taxes Total current assets Property, plant, and equipment, net Other assets Goodwill Other intangible assets, net Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term debt Short-term debt Accounts payable Accrued liabilities: Warranty Advertising and marketing programs Compensation and benefit costs Insurance Income taxes Other Total current liabilities Long-term debt, less current portion Deferred revenue Deferred income taxes Other long-term liabilities Total liabilities Stockholders' equity: Preferred stock, par value $1.00, authorized 1,000,000 voting and 850,000 non-voting shares, none issued and outstanding 177,366 56,934 43,095 58,707 24,858 7,645 48,902 368,283 223,578 10,944 54,273 45,298 47,214 18,924 440 51,284 316,801 225,046 8,510 7,007 609,812 7,113 557,470 31,395 253,477 -9,062 275,810 885,622 33,369 291,246 -9,403 315,212 872,682 Common stock, par value $1.00, authorized 100,000,000 shares, issued and outstanding 29,603,095 shares as of October 31, 2011 and 31,394,942 shares as of October 31, 2010 Retained earnings Accumulated other comprehensive loss Total stockholders' equity Total liabilities and stockholders' equity 29,603 243,990 -6,826 266,767 870,663 CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified CONSOLIDATED BALANCE SHEETS Customers, allowance for doubtful accounts (in dollars) Preferred stock, par value (in dollars per share) Preferred stock, authorized voting shares Preferred stock, authorized non-voting shares Preferred stock, issued voting shares Preferred stock, issued non-voting shares Preferred stock, outstanding voting shares Preferred stock, outstanding non-voting shares Common stock, par value (in dollars per share) Common stock, authorized shares Common stock, issued shares Common stock, outstanding shares Oct. 31, 2011 Oct. 31, 2010 $1,964 $3,828 $1 1,000,000 $1 1,000,000 850,000 0 0 850,000 0 0 0 0 0 0 $1 $1 100,000,000 100,000,000 29,603,095 31,394,942 29,603,095 31,394,942 CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) 12 Months Ended In Thousands, unless otherwise specified Oct. 31, 2011 Oct. 31, 2010 Oct. 31, 2009 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings Adjustments to reconcile net earnings to net cash provided by operating activities: Provision for depreciation, amortization, and impairment losses Noncash (income) loss from affiliates Gain on disposal of property, plant, and equipment (Increase) decrease in deferred income taxes Stock-based compensation expense Changes in operating assets and liabilities, net of effect of acquisitions: Receivables, net Inventories, net Prepaid expenses and other assets Accounts payable, accrued liabilities, deferred revenue, and other long-term liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant, and equipment, net Proceeds from asset disposals Distributions from (investments in) finance affiliate, net (Increase) decrease in other assets Acquisitions, net of cash acquired Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: $117,658 $93,237 $62,837 48,506 -5,682 45,011 -2,599 44,535 136 -118 -85 -18 -2,006 8,533 2,940 6,442 4,691 4,116 -2,908 -25,667 -7,144 -80 -9,920 3,056 126,721 40,036 -4,360 -17,295 113,877 55,505 193,507 -27,224 251,470 -57,447 653 -48,699 574 -37,939 208 3,034 -360 -15,155 -69,275 -3,659 635 -9,657 -60,806 -3,811 1,982 -6,400 -45,960 -776 -1,857 776 -3,646 -2,326 -3,422 2,988 14,467 -129,955 -24,970 -140,103 -979 3,396 16,680 -135,777 -23,721 -142,292 -816 7,403 13,726 -115,283 -21,403 -121,305 4,209 -96,480 -10,407 88,414 177,366 187,773 99,359 80,886 177,366 187,773 17,120 60,296 17,281 28,569 17,724 29,803 4,005 903 1,524 $3,515 $440 $1,500 (Decrease) increase in short-term debt, net Repayments of long-term debt Excess tax benefits from stock-based awards Proceeds from exercise of stock options Purchases of Toro common stock Dividends paid on Toro common stock Net cash used in financing activities Effect of exchange rates on cash Net (decrease) increase in cash and cash equivalents Cash and cash equivalents as of the beginning of the fiscal year Cash and cash equivalents as of the end of the fiscal year Cash paid during the fiscal year for: Interest Income taxes Shares issued in connection with stockbased compensation plans Long-term debt issued in connection with acquisitions CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (USD $) Total Common Stock Retained Earnings Accumulated Other Comprehensive Loss Comprehensive Income. In Thousands, unless otherwise specified Balance at Oct. 31, 2008 $364,675 Increase (Decrease) in Stockholders' Equity Cash dividends paid on common stock $0.80, $0.72, $0.60 per share during 2011, 2010 and 2009 respectively Issuance of 504,760, 703,930, and 1,201,256 shares under stock-based compensation plans during 2011, 2010 and 2009 respectively Contribution of stock to a deferred compensation trust Purchase of 2,296,380, 2,678,474 and 3,316,536 shares of common stock during 2011, 2010 and 2009 respectively Excess tax benefits from stock-based awards Retirement benefits adjustment, net of tax Foreign currency translation adjustments Unrealized gain (loss) on derivative instruments, net of tax Net earnings Total comprehensive income Balance at Oct. 31, 2009 Increase (Decrease) in Stockholders' Equity Cash dividends paid on common stock $0.80, $0.72, $0.60 per share during 2011, 2010 and 2009 respectively Issuance of 504,760, 703,930, and 1,201,256 shares under stock-based compensation plans during 2011, 2010 and 2009 respectively Contribution of stock to a deferred compensation trust Purchase of 2,296,380, 2,678,474 and 3,316,536 shares of common stock during 2011, 2010 and 2009 respectively Excess tax benefits from stock-based awards Retirement benefits adjustment, net of tax Foreign currency translation adjustments Unrealized gain (loss) on derivative instruments, net of tax Net earnings Total comprehensive income Balance at Oct. 31, 2010 Increase (Decrease) in Stockholders' Equity Cash dividends paid on common stock $0.80, $0.72, $0.60 per share during 2011, 2010 and 2009 respectively Issuance of 504,760, 703,930, and 1,201,256 shares under stock-based compensation plans during 2011, 2010 and 2009 respectively Contribution of stock to a deferred compensation trust Purchase of 2,296,380, 2,678,474 and 3,316,536 shares of common stock during 2011, 2010 and 2009 respectively Excess tax benefits from stock-based awards Retirement benefits adjustment, net of tax Foreign currency translation adjustments Unrealized gain (loss) on derivative instruments, net of tax Net earnings Total comprehensive income Balance at Oct. 31, 2011 $35,485 -21,403 17,725 1,201 16,524 118 -3,317 7,403 -111,967 7,403 -2,633 13,286 -2,633 13,286 33,369 291,246 -9,403 -23,721 704 70 -135,777 -11,512 62,837 61,978 62,837 -23,721 23,052 -2,633 13,286 -11,512 -11,512 62,837 315,212 ($8,544) -21,403 118 -115,284 $337,734 22,348 70 -2,678 3,396 -133,099 3,396 681 -640 681 -640 681 -640 300 93,237 300 300 93,237 93,578 275,810 93,237 31,395 -24,970 22,868 504 22,364 132 -2,296 2,988 -127,659 2,988 -539 104 -539 104 -539 104 2,671 2,671 117,658 $266,767 -9,062 -24,970 132 -129,955 253,477 2,671 117,658 119,894 117,658 $29,603 $243,990 ($6,826) CONSOLIDATED STATEMENTS OF 12 Months Ended STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (Parenthetical) (USD $) Oct. 31, 2011 Oct. 31, 2010 Oct. 31, 2009 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME Cash dividends paid on common stock (in dollars per share) Issuance of shares under stock-based compensation plans (in shares) Purchase of shares of common stock (in shares) $0.80 $0.72 $0.60 504,760 703,930 1,201,256 2,296,380 2,678,474 3,316,536 12 Months Ended SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED DATA Oct. 31, 2011 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED DATA. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED DATA 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED DATA Basis of Presentation and Consolidation The accompanying consolidated financial statements include the accounts of the company and its majority-owned subsidiaries. The company uses the equity method to account for investments over which it has the a influence over operating and financial policies. Consolidated net earnings include the company's share of the net earnings (losses) of these companies. The cost method is used to account for investments in companie control and for which it does not have the ability to exercise significant influence over operating and financial policies. These investments are recorded at cost. All intercompany accounts and transactions have been eli financial statements. Accounting Estimates In preparing the consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"), management must make decisions that impact the reported amounts of assets, liabilities, related disclosures, including disclosures of contingent assets and liabilities. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accountin determining, among other items, sales promotions and incentive accruals, incentive compensation accruals, inventory valuation, warranty reserves, earnout liabilities, allowance for doubtful accounts, pension and post accruals, useful lives of tangible and intangible assets, and future cash flows associated with impairment testing for goodwill and other long-lived assets. These estimates and assumptions are based on management's Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors that management believes to be reasonable under the circumstances, including the current eco adjusts such estimates and assumptions when facts and circumstances dictate. A number of these factors are discussed in Part I, Item 1A, "Risk Factors" of this report, which include, among others, economic condition and confidence levels; foreign currency exchange rate impact; commodity costs; and credit conditions, all of which may increase the uncertainty inherent in such estimates and assumptions. As future events and their e precision, actual amounts could differ significantly from those estimated at the time the consolidated financial statements are prepared. Changes in those estimates will be reflected in the consolidated financial stateme Cash and Cash Equivalents The company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents and are stated at cost, which approximates fair value. Receivables The company's financial exposure to collection of accounts receivable is reduced due to its Red Iron Acceptance, LLC ("Red Iron") joint venture with TCF Inventory Finance, Inc. ("TCFIF"), as further discussed in Note through Red Iron, the company grants credit to customers in the normal course of business and performs on-going credit evaluations of customers. Receivables are recorded at original carrying amount less reserves fo accounts, as described below. Allowance for Doubtful Accounts The company estimates the balance of allowance for doubtful accounts by analyzing the age of account and note receivable balances and applying historical write-off trend rates. The company also estimates separa when it is deemed probable that the balance is uncollectible. Account balances are charged off against the allowance when all collection efforts have been exhausted. Inventory Valuations Inventories are valued at the lower of cost or net realizable value, with cost determined by the last-in, first-out ("LIFO") method for most inventories. The first-in, first-out ("FIFO") method is used for all other inventories 33 percent of total inventories as of October 31, 2011 and 2010. The company establishes a reserve for excess, slow-moving, and obsolete inventory that is equal to the difference between the cost and estimated net r These reserves are based on a review and comparison of current inventory levels to the planned production, as well as planned and historical sales of the inventory. During fiscal 2011 and 2010, no LIFO inventory laye Inventories as of October 31 were as follows: 2011 Raw materials and work in progress $ 94,176 2010 $ 66,152 Finished goods and service parts 189,855 183,992 Total FIFO value 284,031 250,144 61,001 55,742 Less: adjustment to LIFO value Total $ 223,030 $ 194,402 Property and Depreciation Property, plant, and equipment are carried at cost. The company provides for depreciation of plant and equipment utilizing the straight-line method over the estimated useful lives of the assets. Buildings, including lea generally depreciated over 10 to 45 years, and equipment over two to seven years. Tooling costs are generally depreciated over three to five years using the straight-line method. Software and web site development co two to five years utilizing the straight-line method. Expenditures for major renewals and improvements, which substantially increase the useful lives of existing assets, are capitalized, and maintenance and repairs are c incurred. Interest is capitalized during the construction period for significant capital projects. During the fiscal years ended October 31, 2011, 2010, and 2009, the company capitalized $230, $131, and $98 of interest, re Property, plant, and equipment as of October 31 was as follows: 2011 Land and land improvements $ 26,776 2010 $ 24,667 Buildings and leasehold improvements 129,252 115,480 Machinery and equipment 434,796 396,228 63,826 57,695 Subtotal 654,650 594,070 Less: accumulated depreciation 463,510 420,663 Computer hardware and software Total property, plant, and equipment, net $ 191,140 $ 173,407 During fiscal years 2011, 2010, and 2009, the company recorded depreciation expense of $43,539, $42,108, and $42,031, respectively. Goodwill and Other Intangible Assets Goodwill represents the cost of acquisitions in excess of the fair values assigned to identifiable net assets acquired. Goodwill is assigned to reporting units based upon the expected benefit of the synergies of the acq reflect identifiable assets that arose from purchase acquisitions. Other intangible assets with determinable lives consist primarily of patents, non-compete agreements, customer relationships, trade names, and develop amortized on a straight-line basis over periods ranging from two to 15 years. Goodwill and some trade names, which are considered to have indefinite lives, are not amortized; however, both must be tested for impairm Impairment of Long-Lived Assets The company reviews indefinite-life intangible assets and goodwill for impairment annually during each fourth fiscal quarter or more frequently if changes in circumstances or the occurrence of events suggest the rem recoverable. An asset is deemed impaired and written down to its fair value if estimated related future cash flows are less than its carrying amount. The company reviewed the fair value of its reporting units that have goodwill on their respective balance sheets with their corresponding carrying amount (with goodwill) during the fourth quarter of fiscal 2011. The co reporting units, which are the same as its eight operating segments. Six reporting units contain goodwill on their respective balance sheets. As of August 26, 2011, the company performed an analysis of qualitative fact likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. Based on the company's analysis determined that is was not necessary to perform the two-step goodwill impairment test for any of its reporting units. The company also performed an assessment of its indefinite-life intangible assets, which consist of certain trade names, as of October 31, 2011. The company's estimate of the fair value of its indefinite-life trade nam cash flow model using inputs which included: projected revenues from the company's annual plan; assumed royalty rates that could be payable if the company did not own the trade name; and a discount rate. Other long-lived assets, including property, plant, and equipment and definite-life intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an recoverable. An impairment loss is recognized when estimated undiscounted future cash flows from the operation or disposition of the asset group are less than the carrying amount of the asset group. Asset groups ha largely independent of other asset groups. 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 measured using a discounted cash flow as appropriate. For long-lived assets to be abandoned, the company tests for potential impairment. If the company commits to a plan to abandon a long-lived asset before the end of its previously estimated useful life, Based on the company's impairment analysis, the company wrote down $109, $348, and $1,071 of long-lived assets during fiscal 2011, 2010, and 2009, respectively. Accounts Payable In fiscal 2009, the company entered into a customer-managed services agreement with a third party to provide a web-based platform that facilitates participating suppliers' ability to finance payment obligations from t third party financial institution. Participating suppliers may, at their sole discretion, make offers to finance one or more payment obligations of the company prior to their scheduled due dates at a discounted price to a pa The company's obligations to its suppliers, including amounts due and scheduled payment dates, are not affected by suppliers' decisions to finance amounts under this arrangement. However, the company's right to against payment obligations is restricted by this arrangement for those payment obligations that have been financed by suppliers. As of October 31, 2011 and 2010, $14,643 and $7,312, respectively, of the company's had been placed on the accounts payable tracking system. Insurance The company is self-insured for certain losses relating to medical, dental, and workers' compensation claims, and product liability occurrences. Specific stop loss coverages are provided for catastrophic claims in ord claims. Losses and claims are charged to operations when it is probable a loss has been incurred and the amount can be reasonably estimated. Self-insured liabilities are based on a number of factors, including histor estimate of claims incurred but not reported, demographic and severity factors, and utilizing valuations provided by independent third-party actuaries. Accrued Warranties The company provides an accrual for estimated future warranty costs at the time of sale. The company also establishes accruals for major rework campaigns. The amount of warranty accruals is based primarily on th under warranty, historical average costs incurred to service warranty claims, the trend in the historical ratio of claims to sales, and the historical length of time between the sale and resulting warranty claim. The compa adequacy of its warranty accruals based on changes in these factors and records any necessary adjustments if actual claim experience indicates that adjustments are necessary. The changes in accrued warranties were as follows: Fiscal years ended October 31 Beginning Balance 2011 $ Warranty provisions $ 54,273 40,144 Addition from acquisitions (32,570 ) (849 ) Changes in estimates 36,540 (33,774 ) Warranty claims Ending Balance 56,934 2010 (1,334 ) 275 $ 62,730 25 $ 56,934 Derivatives Derivatives, consisting mainly of forward currency contracts and cross currency swaps, are used to hedge most foreign currency transactions, including forecasted sales and purchases denominated in foreign curren on the consolidated balance sheet at fair value. If the derivative is designated as a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded to a separate component of stockhold accumulated other comprehensive loss, and recognized in earnings when the hedged item affects earnings. Derivatives that do not meet the requirements for hedge accounting are adjusted to fair value through other i consolidated statements of earnings. Foreign Currency Translation and Transactions The functional currency of the company's foreign operations is the applicable local currency. The functional currency is translated into U.S. dollars for balance sheet accounts using current exchange rates in effect as revenue and expense accounts using a weighted-average exchange rate during the fiscal year. The translation adjustments are deferred as a separate component of stockholders' equity captioned accumulated other c losses resulting from transactions denominated in foreign currencies are included in other income (expense), net in the consolidated statements of earnings. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax b liabilities are measured using enacted tax rates expected to apply to taxable income in the years that those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities recognized in income in the period that includes the enactment date. A valuation allowance is provided when, in management's judgment, it is more likely than not that some portion or all of the deferred tax asset will no reflected the necessary deferred tax assets and liabilities in the accompanying consolidated balance sheets. Management believes the future tax deductions will be realized principally through carryback to taxable inco of existing taxable temporary differences, and future taxable income. The company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The company also records interest and penalties related to unrecognized tax benefits in income tax Revenue Recognition The company recognizes revenue for product sales when persuasive evidence of an arrangement exists, title and risk of ownership passes to the customer, the sales price is fixed or determinable, and collectability is typically met at the time product is shipped, or in the case of certain agreements, when product is delivered. A provision is made at the time the related revenue is recognized for estimated product returns, floor plan co promotional expenses. Sales, use, value-added, and other excise taxes are not recognized in revenue. Freight revenue billed to customers is included in net sales. Retail customers may obtain financing through third-party financing companies to assist in their purchase of the company's products. Most of these leases are classified as sales-type leases. However, based on the t financing agreements, some transactions are classified as operating leases, which results in recognition of revenue over the lease term on a straight-line basis. The company ships some of its products to a key retailer's seasonal distribution centers on a consignment basis. The company retains title of its products stored at the seasonal distribution centers. As the company's seasonal distribution centers by the key retailer and shipped to the key retailer's stores, title passes from the company to the key retailer. At that time, the company invoices the key retailer and recognizes revenue for t The company does not offer a right of return for products shipped to the key retailer's stores from the seasonal distribution centers. The amount of consignment inventory as of October 31, 2011 and 2010 was $14,874 Revenue earned from service and maintenance contracts is recognized ratably over the contractual period. Revenue from extended warranty programs is deferred at the time the contract is sold and amortized into n method over the extended warranty period. Sales Promotions and Incentives At the time of sale, the company records an estimate for sales promotion and incentive costs. Examples of sales promotion and incentive programs include rebate programs on certain professional products sold to di financing support, cooperative advertising, commissions, and other sales discounts and promotional programs. The estimates of sales promotion and incentive costs are based on the terms of the arrangements with cu experience, field inventory levels, volume purchases, and expectations for changes in relevant trends in the future. The expense of each program is classified either as a reduction from gross sales or as a component o administrative expense. Cost of Sales Cost of sales primarily comprises direct materials and supplies consumed in the manufacture of product, as well as manufacturing labor, depreciation expense, and direct overhead expense necessary to convert purc finished product. Cost of sales also includes inbound freight costs, outbound freight costs for shipping products to customers, obsolescence expense, cost of services provided, and cash discounts on payments to vend Selling, General, and Administrative Expense Selling, general, and administrative expense primarily comprises payroll and benefit costs, occupancy and operating costs of distribution and corporate facilities, warranty expense, depreciation and amortization expe advertising and marketing expenses, selling expenses, engineering and research costs, information systems costs, incentive and profit sharing expense, and other miscellaneous administrative costs, such as legal cos services that are expensed as incurred. Cost of Financing Distributor/Dealer Inventory The company enters into limited inventory repurchase agreements with a third party financing company and Red Iron. The company has repurchased immaterial amounts of inventory under these repurchase agreem years. However, an adverse change in retail sales could cause this situation to change and thereby require the company to repurchase a portion of financed product. See Note 13 for additional information regarding the arrangements. Included as a reduction to net sales are costs associated with programs under which the company shares the expense of financing distributor and dealer inventories, referred to as floor plan expenses. This charge re established length of time based on a predefined rate from a contract with third party financing sources to finance distributor and dealer inventory purchases. These financing arrangements are used by the company as customers to buy inventory. The financing costs for distributor and dealer inventories were $16,394, $14,490, and $9,452 for the fiscal years ended October 31, 2011, 2010, and 2009, respectively. Advertising General advertising expenditures and the related production costs are expensed in the period incurred or the first time advertising takes place. Cooperative advertising represents expenditures for shared advertising reimburses to customers. These obligations are accrued and expensed when the related revenues are recognized in accordance with the programs established for various product lines. Advertising costs were $49,362 fiscal years ended October 31, 2011, 2010, and 2009, respectively. Stock-Based Compensation The company's stock-based compensation awards generally include performance shares issued to key employees that are contingent on the achievement of performance goals of the company, non-qualified stock op awards. Compensation expense equal to the grant date fair value is recognized for these awards over the vesting period. See Note 10 for additional information regarding stock-based compensation plans. Statement of Stockholders' Equity and Comprehensive Income Information Components of accumulated other comprehensive loss as of October 31 were as follows: 2011 Foreign currency translation adjustment $ Adjustments to employee retirement benefits, net of tax $ 3,008 2009 $ 2,368 3,800 $ 3,261 3,942 122 Unrealized loss on derivative instruments, net of tax Total accumulated other comprehensive loss 2,904 2010 2,793 3,093 6,826 $ 9,062 $ 9,403 Net Earnings Per Share Basic net earnings per share is calculated using net earnings available to common stockholders divided by the weighted-average number of shares of common stock outstanding during the year plus the assumed iss Diluted net earnings per share is similar to basic net earnings per share except that the weighted-average number of shares of common stock outstanding plus the assumed issuance of contingent shares is increased shares of common stock that would have been outstanding assuming the issuance of all potentially dilutive shares, such as common stock to be issued upon exercise of options, contingently issuable shares, and restr Reconciliations of basic and diluted weighted-average shares of common stock outstanding are as follows: BASIC (Shares in thousands) Fiscal years ended October 31 Weighted-average number of shares of common stock Assumed issuance of contingent shares Weighted-average number of shares of common stock and assumed issuance of contingent shares 2011 2010 2009 31,265 32,980 35,784 2 2 4 31,267 32,982 35,788 2011 2010 2009 31,267 32,982 35,788 530 455 452 31,797 33,437 36,240 DILUTED (Shares in thousands) Fiscal years ended October 31 Weighted-average number of shares of common stock and assumed issuance of contingent shares Effect of dilutive securities Weighted-average number of shares of common stock, assumed issuance of contingent and restricted shares, and effect of dilutive securities Options to purchase an aggregate of 208,718, 330,555, and 1,406,871 shares of common stock outstanding during fiscal 2011, 2010, and 2009, respectively, were excluded from the diluted net earnings per share ca prices were greater than the average market price of the company's common stock during the same respective periods. Cash Flow Presentation The consolidated statements of cash flows are prepared using the indirect method, which reconciles net earnings to cash flow from operating activities. The necessary adjustments include the removal of timing differ operating receipts and payments and their recognition in net earnings. The adjustments also remove from operating activities cash flows arising from investing and financing activities, which are presented separately fr flows from foreign currency transactions and operations are translated at an average exchange rate for the period. Cash paid for acquisitions is classified as investing activities. New Accounting Pronouncements Adopted In September 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment. AS first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-ste described in Topic 350, Intangibles - Goodwill and Other. The "more likely than not" threshold is defined as having a likelihood of more than 50 percent. ASU No. 2011-08 is effective for annual and interim goodwill imp years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity's financial statements fo period have not yet been issued. The company adopted ASU No. 2011-08, as permitted, for its annual fiscal year ended October 31, 2011. The adoption did not have an impact on the company's consolidated financial In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820). ASU No. 2010-06 requires new disclosures regarding activity in Level 3 fair value measurements, includin issuances, and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements. The company adopted the provision of ASU No. 2010-06 for Level 3 fair-value measurements for its second fiscal q 2011, as required. The adoption of ASU No. 2010-06 for Level 3 fair value measurements did not have an impact on the company's disclosures. In December 2009, the FASB issued ASU No. 2009-16, Accounting for Transfers of Financial Assets, which amends Accounting Standards Codification ("ASC") 860, Transfers and Servicing (FASB Statement No. 166 Financial Assets an amendment of FASB Statement No. 140). ASU No. 2009-16 eliminates the qualifying special purpose entities from the consolidation guidance and clarifies the requirements for isolation and limitatio that are eligible for sale accounting. It also requires additional disclosures about the risks from continuing involvement in transferred financial assets accounted for as sales. The company adopted ASU No. 2009-16 on The adoption did not have an impact on the company's consolidated financial statements. In December 2009, the FASB issued ASU No. 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, which amends ASC 810, Consolidation (FASB Statement No. 167, Interpretation No. 46(R)). ASU No. 2009-17 requires a qualitative analysis to determine the primary beneficiary of a variable interest entity ("VIE"). The analysis identifies the primary beneficiary as the enterprise that ha activities of a VIE that most significantly impact the VIE's economic performance and the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. ASU No. 2009-17 also requires ad enterprise's involvement in a VIE. The company adopted ASU No. 2009-17 on November 1, 2010, as required. The adoption did not have an impact on the company's consolidated financial statements. ability to exercise significant es that the company does not iminated from the consolidated s, revenues, expenses, and the ng estimates. Estimates are used in tretirement accruals, self-insurance s best estimates and judgments. onomic environment. Management ons, including consumer spending effects cannot be determined with ents in future periods. te 3. For receivables not serviced or estimated uncollectible ately specific customer balances es, constituting approximately realizable value for that inventory. ers were reduced. asehold improvements, are osts are generally amortized over charged to operating expenses as espectively. quisition. Other intangible assets ped technology, which are ment annually as discussed below. maining value may not be ompany determined that it has eight tors to determine whether it is more of qualitative factors, the company mes are based on a discounted asset (or asset group) may not be ave identifiable cash flows and are model or independent appraisals, depreciation estimates are revised. the company with a designated participating financial institution. offset balances due from suppliers outstanding payment obligations der to limit exposure to significant rical claims experience, an the estimated number of products any periodically assesses the ncies. Derivatives are recognized ders' equity, captioned income (expense), net in the s of the balance sheet date and for comprehensive loss. Gains or bases. Deferred tax assets and es of a change in tax rates is not be realized. The company has ome in prior years, future reversals n 50 percent likely of being x expense. s probable. These criteria are osts, rebates, and other sales terms and conditions of the s products are removed from the these consignment transactions. and $12,819, respectively. net sales using the straight-line distributors, volume discounts, retail customers, historical payment of selling, general, and rchased materials and supplies into dors. pense on non-manufacturing assets, osts for internal and outside ments over the last three fiscal e company's repurchase epresents interest for a pres a marketing tool to assist costs that the company 2, $39,281, and $33,496 for the options, and restricted stock suance of contingent shares. to include the number of additional ricted common stock. alculation because their exercise rences between the occurrence of rom operating activities. Cash SU No. 2011-08 permits an entity to ep goodwill impairment test pairment tests performed for fiscal or the most recent annual or interim statements. ng information on purchases, sales, quarter beginning on January 30, 66, Accounting for Transfers of ions on portions of financial assets n November 1, 2010, as required. , Amendments to FASB as both the power to direct the dditional disclosures about an 12 Months Ended Oct. 31, 2011 ACQUISITIONS AND DIVESTITURE ACQUISITIONS AND DIVESTITURE ACQUISITIONS AND DIVESTITURE 2 ACQUISITIONS AND DIVESTITURE On June 24, 2011, the company completed the acquisition of certain assets of, and assumed certain liabilities from, Lawn Solutions Commercial Products, Inc. ("Lawn Solutions"), a manufacturer of turf renovation equipment, including aerators, seeders, power rakes, and brush cutters, for the landscape, rental, municipal, and golf markets. On January 17, 2011, the company completed the acquisition of certain assets of, and assumed certain liabilities from, Unique Lighting Systems, Inc. ("Unique Lighting"), a leading manufacturer of professionally installed landscape lighting fixtures and transformers for residential and commercial use. The aggregate net purchase price of these acquisitions during fiscal 2011 was $24,150, which included cash payments, the issuance of long-term notes, and estimated earnout considerations. The earnout considerations are based on annual financial results over certain thresholds as defined in the acquisition agreements. On October 29, 2010, the company completed the acquisition of certain assets of, and assumed certain liabilities from, one of its independent U.S. Western-based distribution companies. On April 30, 2010, the company completed the purchase of certain assets of, and assumed certain liabilities from, USPraxis, Inc., a manufacturer of stump grinders, wood chippers, and log splitters for rental centers and landscape professionals. On December 1, 2009, the company's wholly owned domestic distribution company completed the acquisition of certain assets of, and assumed certain liabilities from, one of the company's independent U.S. Midwestern-based distribution companies. The aggregate net purchase price of these acquisitions during fiscal 2010 was $9,137, which included cash payments, the issuance of a longterm note, and an estimated earnout consideration. On October 13, 2009, the company completed the purchase of certain assets of, and assumed certain liabilities from, Ty-Crop Manufacturing Ltd., a leading manufacturer of topdressing and material handling equipment for golf course and sports fields applications. The purchase price was $7,900, which included a cash payment and a long-term note. During the first quarter of fiscal 2009, the company also completed the sale of a portion of the operations of its Midwestern-based company-owned distributorship. The purchase price of these acquisitions was allocated to the identifiable assets acquired and liabilities assumed based on estimates of their fair value, with the excess purchase price for acquisitions recorded as goodwill. Additional purchase accounting disclosures have been omitted given the immateriality of these acquisitions as compared to the company's consolidated financial condition and results of operations. See Note 5 for further details related to the acquired intangible assets. 12 Months Ended Oct. 31, 2011 INVESTMENT IN JOINT VENTURE INVESTMENT IN JOINT VENTURE INVESTMENT IN JOINT VENTURE 3 INVESTMENT IN JOINT VENTURE On August 12, 2009, the company and TCFIF, a subsidiary of TCF National Bank, established Red Iron, a joint venture in the form of a Delaware limited liability company that provides inventory financing, including floor plan and open account receivable financing, to distributors and dealers of the company's products in the U.S. and to select distributors of the company's products in Canada. The initial term of Red Iron will continue until October 31, 2014, subject to unlimited automatic two-year extensions thereafter. Either the company or TCFIF may elect not to extend the initial term or any subsequent term by giving one-year notice to the other party of its intention not to extend the term. Additionally, in connection with the joint venture, the company and an affiliate of TCFIF entered into an arrangement to provide inventory financing to dealers of the company's products in Canada. In connection with the establishment of Red Iron, the company terminated its agreement with a third party financing company that previously provided floor plan financing to dealers of the company's products in the U.S. and Canada. During the first quarter of fiscal 2010, Red Iron began financing open account receivables, as well as floor plan receivables previously financed by such third party financing company. Red Iron also began financing floor plan receivables during the company's fourth quarter of fiscal 2009. The company owns 45 percent of Red Iron and TCFIF owns 55 percent of Red Iron. The company accounts for its investment in Red Iron under the equity method of accounting. Each of the company and TCFIF contributed a specified amount of the estimated cash required to enable Red Iron to purchase the company's inventory financing receivables and to provide financial support for Red Iron's inventory financing programs. Red Iron borrows the remaining requisite estimated cash utilizing a $450,000 secured revolving credit facility established under a credit agreement between Red Iron and TCFIF. The company's total investment in Red Iron as of October 31, 2011 and 2010 was $11,640 and $9,693, respectively. The company has not guaranteed the outstanding indebtedness of Red Iron. The company has agreed to repurchase products repossessed by Red Iron and the TCFIF Canadian affiliate, up to a maximum aggregate amount of $7,500 in a calendar year. In addition, the company has provided recourse to Red Iron for certain outstanding receivables, which amounted to a maximum amount of $190 and $731 as of October 31, 2011 and 2010, respectively. On October 29, 2010, the company and Red Iron amended their repurchase agreement under which Red Iron provides financing for certain dealers and distributors. Instead of transactions under the agreements being characterized as a sale of receivables from the company to Red Iron, the transactions are structured as an advance in the form of a payment by Red Iron to the company on behalf of a distributor or dealer with respect to invoices financed by Red Iron, which extinguishes the obligation of the dealer or distributor to make payment to the company under the terms of the invoice. Under separate agreements between Red Iron and the dealers and distributors, Red Iron provides loans to the dealers and distributors for the advances paid by Red Iron to the company. The net amount of new receivables financed for dealers and distributors under this arrangement during fiscal 2011 was $1,111,778. In fiscal 2010, prior to this amended repurchase agreement, the company sold receivables to Red Iron and derecognized receivables from its books upon receipt of cash from Red Iron for receivables sold. Red Iron purchased $804,083 of receivables from the company during fiscal 2010. Summarized financial information for Red Iron is presented as follows: For the twelve months ended October 31 Revenue 2011 $ Net income (loss) Other assets Total liabilities $ 12,056 11,070 $ 5,552 2011 As of October 31 Finance receivables, net 17,116 2010 2010 232,600 $ 185,741 6,960 4,991 213,693 169,193 2009 $ 393 (613 ) 12 Months Ended Oct. 31, 2011 OTHER INCOME (EXPENSE), NET OTHER INCOME (EXPENSE), NET OTHER INCOME (EXPENSE), NET 4 OTHER INCOME (EXPENSE), NET Other income (expense) is as follows: Fiscal years ended October 31 Interest income 2011 Foreign currency exchange rate (loss) gain $ 1,056 - 543 966 Retail financing revenue 1,072 - $ Gross finance charge revenue 2010 779 1,716 (1,751 ) Income (loss) from affiliates 5,682 813 898 641 (136 ) (6,811 ) 543 57 Miscellaneous 797 1,811 7,309 $ 7,115 $ $ 2,599 Litigation recovery (settlements), net Total other income (expense), net 2009 1,318 $ (1,831 ) 12 Months Ended Oct. 31, 2011 GOODWILL AND OTHER INTANGIBLE ASSETS GOODWILL AND OTHER INTANGIBLE ASSETS GOODWILL AND OTHER INTANGIBLE ASSETS 5 GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill - The changes in the net carrying amount of goodwill for fiscal 2011 and 2010 were as follows: Professional Segment Balance as of October 31, 2009 Translation and other adjustments Balance as of October 31, 2010 Addition from acquisitions Translation and other adjustments Balance as of October 31, 2011 Residential Segment $75,514 $10,893 (92 ) Total $ 85 $75,422 (7 ) $10,978 5,765 - (197 ) $ 86,400 5,765 52 $80,990 86,407 (145 ) $11,030 $ 92,020 Other Intangible Assets - The components of other intangible assets were as follows: Estimated Gross Accumulated Amortization Life Carrying October 31, 2011 (Years) Amount Patents 13-May Non-compete agreements 10-Feb Customer-related Developed technology Trade name $ 9,403 Net $ (7,505 ) $ 1,898 6,250 (2,685 ) 13-May 8,189 (2,857 ) 5,332 10-Feb 25,236 (7,016 ) 18,220 5 1,500 (250 ) 1,250 800 (800 ) - 51,378 (21,113 ) 30,265 Other Total amortizable Non-amortizable - trade names 5,281 Total other intangible assets, net $ 56,659 3,565 - $ (21,113 ) Estimated Gross 5,281 $ 35,546 Accumulated Amortization Life Carrying October 31, 2010 (Years) Amount Patents 13-May Non-compete Agreements 10-Feb $ 8,703 Net $ (7,034 ) $ 1,669 3,039 (1,910 ) 1,129 Customer-related 13-Jun 7,471 (2,061 ) 5,410 Developed Technology 10-Feb 13,984 (4,511 ) 9,473 800 (800 ) - 33,997 (16,316 ) 17,681 Other Total amortizable Non-amortizable - trade names Total other intangible assets, net 5,281 $ 39,278 - $ (16,316 ) 5,281 $ 22,962 Amortization expense for intangible assets for the fiscal years ended October 31, 2011, 2010, and 2009 was $4,967, $2,903, and $2,504, respectively. Estimated amortization expense for the succeeding fiscal years is as follows: 2012, $5,504; 2013, $5,311; 2014, $4,976; 2015, $4,761; 2016, $4,233; and after 2016, $5,480. 12 Months Ended Oct. 31, 2011 SHORT-TERM CAPITAL RESOURCES SHORT-TERM CAPITAL RESOURCES SHORT-TERM CAPITAL RESOURCES As of October 31, 2011, the company had a $150,000 unsecured SHORT-TERM CAPITAL senior four-year revolving credit facility that expires in July 2015. RESOURCES Included in this $150,000 revolving credit facility is a sublimit for standby letters of credit and a sublimit for swingline loans. At the election of the company, and the approval of the named borrowers on the revolving credit facility, the aggregate maximum principal amount available under the facility may be increased by an amount up to $100,000 in aggregate. Funds are available under the revolving credit facility for working capital, capital expenditures, and other lawful purposes, including, but not limited to, acquisitions and stock repurchases. Interest expense on this credit line is determined based on a LIBOR rate (or other rates quoted by the Administrative Agent, Bank of America, N.A.) plus a basis point spread defined in the credit agreement. The company had no outstanding short-term debt as of October 31, 2011 and 2010 under this line of credit. The company's non-U.S. operations also maintain unsecured short-term lines of credit in the aggregate amount of $14,785. These facilities bear interest at various rates depending on the rates in their respective countries of operation. The company had $0 and $776 of outstanding shortterm debt as of October 31, 2011 and 2010, respectively, under these lines of credit. Additionally, the company had $41 and $258 in short-term debt for certain receivables the company had provided recourse with Red Iron as of October 31, 2011 and 2010, respectively. 6 The revolving credit facility contains standard covenants, including, without limitation, financial covenants, such as the maintenance of minimum interest coverage and maximum debt to earnings ratios; and negative covenants, which among other things, limit loans and investments, disposition of assets, consolidations and mergers, transactions with affiliates, restricted payments, contingent obligations, liens and other matters customarily restricted in such agreements. Most of these restrictions are subject to certain minimum thresholds and exceptions. Under the revolving credit facility, the company is not limited to payments of cash dividends and stock repurchases as long as the debt to earnings before interest, tax, depreciation, and amortization ("EBITDA") ratio from the previous quarter compliance certificate is less than or equal to 2.75; however, the company is limited to $50,000 per fiscal year if the debt to EBITDA ratio from the previous quarter compliance certificate is greater than 2.75. As of October 31, 2011, the company was not limited to payments of cash dividends and stock repurchases as its debt to EBITDA ratio was below 2.75. The company was in compliance with all covenants related to the lines of credit described above as of October 31, 2011 and 2010. 12 Months Ended Oct. 31, 2011 LONG-TERM DEBT LONG-TERM DEBT LONG-TERM DEBT 7 LONG-TERM DEBT A summary of long-term debt as of October 31 is as follows: 2011 7.800% Debentures, due June 15, 2027 $ 6.625% Senior Notes, due May 1, 2037 100,000 2010 $ 100,000 123,420 123,358 3,736 2,190 Total long-term debt 227,156 225,548 Less current portion 1,978 1,970 Other Long-term debt, less current portion $ 225,178 $ 223,578 On April 26, 2007, the company issued $125,000 in aggregate principal amount of 6.625% senior notes due May 1, 2037. The senior notes were priced at 98.513% of par value, and the resulting discount of $1,859 associated with the issuance of these senior notes is being amortized over the term of the notes using the effective interest rate method. The underwriting fee and direct debt issue costs totaling $1,524 will be amortized over the life of the notes. Although the coupon rate of the senior notes is 6.625%, the effective interest rate is 6.741% after taking into account the issuance discount. Interest on the senior notes is payable semi-annually on May 1 and November 1 of each year. The senior notes are unsecured senior obligations of the company and rank equally with the company's other unsecured and unsubordinated indebtedness from time to time outstanding. The indentures under which the senior notes were issued contain customary covenants and event of default provisions. The company may redeem some or all of the senior notes at any time at the greater of the full principal amount of the senior notes being redeemed or the present value of the remaining scheduled payments of principal and interest discounted to the redemption date on a semi-annual basis at the treasury rate plus 30 basis points, plus, in both cases, accrued and unpaid interest. In the event of the occurrence of both (i) a change of control of the company, and (ii) a downgrade of the notes below an investment grade rating by both Moody's Investors Service, Inc. and Standard & Poor's Ratings Services within a specified period, the company would be required to make an offer to purchase the senior notes at a price equal to 101% of the principal amount of the senior notes plus accrued and unpaid interest to the date of repurchase. In connection with the issuance in June 1997 of $175,000 in long-term debt securities, the company paid $23,688 to terminate three forward-starting interest rate swap agreements with notional amounts totaling $125,000. These swap agreements had been entered into to reduce exposure to interest rate risk prior to the issuance of the new long-term debt securities. As of the inception of one of the swap agreements, the company had received payments that were recorded as deferred income to be recognized as an adjustment to interest expense over the term of the new debt securities. As of the date the swaps were terminated, this deferred income totaled $18,710. The excess termination fees over the deferred income recorded has been deferred and is being recognized as an adjustment to interest expense over the term of the debt securities issued. Principal payments required on long-term debt in each of the next five fiscal years ending October 31 are as follows: 2012, $1,978; 2013, $1,758; 2014, $0; 2015, $0; 2016, $0; and after 2016, $225,000. 12 Months Ended Oct. 31, 2011 STOCKHOLDERS' EQUITY STOCKHOLDERS' EQUITY STOCKHOLDERS' EQUITY 8 STOCKHOLDERS' EQUITY Stock Repurchase Program. The company's Board of Directors authorized the repurchase of shares of the company's common stock as follows: In May 2008, 4,000,000 shares In July 2009, 5,000,000 shares In December 2010, 3,000,000 shares During fiscal 2011, 2010, and 2009, the company paid $129,955, $135,777, and $115,283 to repurchase an aggregate of 2,296,380, 2,678,474 shares, and 3,316,536 shares, respectively. As of October 31, 2011, 2,032,858 shares remained authorized for repurchase. Treasury Shares. As of October 31, 2011, the company had 24,429,125 treasury shares at a cost of $984,583. As of October 31, 2010, the company had 22,637,278 treasury shares at a cost of $876,620. On November 30, 2011, the company's Board of Directors authorized the retirement of 15,000,000 treasury shares. 12 Months Ended Oct. 31, 2011 INCOME TAXES INCOME TAXES INCOME TAXES 9 INCOME TAXES A reconciliation of the statutory federal income tax rate to the company's consolidated effective tax rate is summarized as follows: Fiscal years ended October 31 2011 Statutory federal income tax rate 2010 35 % 2009 35 % 35 % Increase (reduction) in income taxes resulting from: Domestic manufacturer's deduction (1.8 ) Effect of foreign source income (1.1 ) (0.8 ) 1.4 State and local income taxes, net of federal income tax benefit 1.4 1.2 0.2 Consolidated effective tax rate 0.1 (0.2 ) (2.1 ) 0.3 Other, net 0.2 (2.4 ) Domestic research tax credit (1.3 ) 1 32.7 % 34 % 34.4 % Components of the provision for income taxes were as follows: Fiscal years ended October 31 2011 2010 2009 Provision for income taxes: Current - Federal $ 47,922 $ 34,582 $ 23,954 State 3,963 2,918 1,951 Non-U.S. 7,103 4,436 4,972 Current provision $ 58,988 $ 41,936 $ 30,877 $ 5,305 $ 1,948 Deferred - Federal $ State (31 ) (211 ) 198 (110 ) Non-U.S. (1,578 ) 592 236 Deferred benefit (1,820 ) 6,095 2,074 Total provision for income taxes $ 57,168 $ 48,031 $ 32,951 As of October 31, 2011, the company had net operating loss carryforwards of approximately $13,822 in foreign jurisdictions with unlimited expiration. Earnings before income taxes were as follows: Fiscal years ended October 31 2011 2010 2009 Earnings before income taxes: U.S. $ Non-U.S. Total 160,444 $ 14,382 $ 174,826 127,508 $ 13,760 $ 141,268 83,357 12,431 $ 95,788 During the fiscal years ended October 31, 2011, 2010, and 2009, respectively, $2,988, $3,396, and $7,403 was added to stockholders' equity reflecting the permanent book to tax difference in accounting for tax benefits related to employee stockbased award transactions. The tax effects of temporary differences that give rise to the net deferred income tax assets are presented below: October 31 2011 2010 Deferred tax assets (liabilities): Allowance for doubtful accounts $ Inventory items 1,156 $ 1,865 5,121 1,750 Warranty reserves and other accruals 38,370 40,156 Employee benefits 16,831 16,159 Depreciation (3,909 ) (2,411 ) 8,514 7,399 Other Deferred tax assets Valuation allowance $ 66,083 (4,928 ) $ 64,918 (4,538 ) Net deferred tax assets $ 61,155 $ 60,380 The valuation allowance as of October 31, 2011 and 2010 principally applies to capital loss carryforwards and foreign net operating loss carryforwards that are expected to expire prior to utilization. As of October 31, 2011, the company had approximately $48,690 of accumulated undistributed earnings from subsidiaries outside the United States that are considered to be reinvested indefinitely. No deferred tax liability has been provided for such earnings. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Balance as of October 31, 2010 $ 5,752 Increase as a result of tax positions taken during a prior period 175 Increase as a result of tax positions taken during the current period 846 Decrease relating to settlements with taxing authorities (1,245 ) Reduction as a result of a lapse of the applicable statute of limitations Balance as of October 31, 2011 (199 ) $ 5,329 Included in the balance of unrecognized tax benefits as of October 31, 2011 are potential benefits of $3,774 that, if recognized, would affect the effective tax rate from continuing operations. The company recognizes potential accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. In addition to the liability of $5,329 for unrecognized tax benefits as of October 31, 2011 was an amount of approximately $760 for accrued interest and penalties. To the extent interest and penalties are not assessed with respect to uncertain tax positions, the amounts accrued will be revised and reflected as an adjustment to the provision for income taxes. The company anticipates that total unrecognized tax benefits will not change significantly within the next 12 months. The company is subject to U.S. federal income tax as well as income tax of numerous state and foreign jurisdictions. The company is generally no longer subject to U.S. federal tax examinations for taxable years before fiscal 2008 and with limited exceptions, state and foreign income tax examinations for fiscal years before 2006. 12 Months Ended Oct. 31, 2011 STOCK-BASED COMPENSATION PLANS STOCK-BASED COMPENSATION PLANS STOCK-BASED COMPENSATION PLANS 10 STOCK-BASED COMPENSATION PLANS The company maintains The Toro Company 2010 Equity and Incentive Plan for officers, other employees, and non-employee members of the company's Board of Directors. The company's incentive plan allows it to grant equity-based compensation awards, including stock options, restricted stock awards, and perfo share awards. The compensation costs related to stock-based awards were as follows: Fiscal years ended October 31 Stock option awards 2011 $ 2010 4,654 Restricted stock awards $ 4,117 2009 $ 3,531 699 68 4 3,180 Performance share awards 2,257 581 Total compensation cost for stock-based awards $ 8,533 $ 6,442 $ 4,116 Tax benefit realized for tax deductions from stockbased awards $ 4,469 $ 4,933 $ 8,490 The number of unissued shares of common stock available for future equity-based grants under the company's equity-based compensation plan was 2,498,262 as of October 31, 2011. Stock Option Awards. Under the company's equity and incentive plan, stock options are granted with an exercise price equal to the closing price of the company's common stock on the date of grant, as reported by the New York Stock Exchange. Options are generally granted to officers, other employees, and no members of the company's Board of Directors on an annual basis in the first quarter of the company's fiscal year. Options generally vest one-third each year over a three-year period and have a ten-year term. Other options granted to certain key employees vest in full on the three-year anniversary of the date of gran a ten-year term. Compensation expense equal to the grant date fair value is generally recognized for these awards over the vesting period. Stock options granted to officers and other employees are subject to accelerated expensing if the option holder meets the retirement definition set forth in the plan. In that case, value of the options is expensed in the fiscal 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 order for the options to continue to vest following retirement. Similarly, if a non-employee director has served on the company's Board of Directors fiscal years or more, the fair value of the options granted is fully expe