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 performance share awards.

   The compensation costs related to stock-based awards were as follows:

   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 non-employee 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 grant and have 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, the fair 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 for ten full fiscal years or more, the fair value of the options granted is fully expensed on the date of the grant.

   The table below presents stock option activity for fiscal 2011:

1

Weighted-average exercise price

2

Weighted-average contractual life in years

   As of October 31, 2011, there was $1,595 of total unrecognized compensation expense related to unvested stock options. That cost is expected to be recognized over a weighted-average period of 1.8 years.

   The following table presents the total market value of stock options exercised and the total intrinsic value of options exercised during the following fiscal years:

1

Intrinsic value is calculated as amount by which the stock price at exercise date exceeded the option exercise price

   The fair value of each stock option is estimated on the date of grant using the Black-Scholes valuation method with the assumptions noted in the table below. The expected life is a significant assumption as it determines the period for which the risk-free interest rate, volatility, and dividend yield must be applied. The expected life is the average length of time that officers, other key employees, and non-employee members of the Board of Directors are expected to exercise their stock options, which is based on historical experience. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. Expected volatilities are based on the movement of the company's common stock over the most recent historical period equivalent to the expected life of the option. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate over the expected life at the time of grant. Dividend yield is estimated over the expected life based on the company's dividend policy, historical cash dividends paid, expected future cash dividends, and expected changes in the company's stock price.

   The following table illustrates the valuation assumptions of stock-based compensation for the following fiscal years:

Restricted Stock Awards.   In the first quarter of fiscal 2011, the company began granting restricted stock awards to certain non-officer employees. Previously, limited restricted stock awards were granted to certain officers and other employees. In the second quarter of fiscal 2011, the company granted restricted stock awards to two officer employees to help ensure a smooth transition in connection with the retirement of the company's then Vice President, Finance and Chief Financial Officer. On August 22, 2011, the company also granted a restricted stock award as part of the offer to the new Vice President, Finance and Chief Financial Officer.

   Restricted stock awards generally vest one-third each year over a three-year period or vest in full on the three-year anniversary of the date of grant. Previously, the company granted limited restricted stock awards with varying vesting schedules. Compensation expense equal to the grant date fair value, which is equal to the closing price of the company's common stock on the date of grant, is recognized for these awards over the vesting period.

   The company granted restricted stock awards during the following fiscal years as follows:

   The table below summarizes the activity during fiscal 2011 for unvested restricted share awards:

   As of October 31, 2011, there was $1,947 of total unrecognized compensation expense related to unvested restricted stock awards. That cost is expected to be recognized over a weighted-average period of 2.6 years.

Performance Share Awards.   The company grants performance share awards to officers and other employees under which they are entitled to receive shares of common stock or performance share units contingent on the achievement of performance goals of the company, which are generally measured over a three-year period. The number of shares of common stock or performance share units a participant receives will be increased (up to 200 percent of target levels) or reduced (down to zero) based on the level of achievement of performance goals and will vest over a three-year period. Performance share awards are granted on an annual basis in the first quarter of the company's fiscal year. Compensation expense is recognized for these awards on a straight-line basis over the vesting period based on the fair value as of the date of grant and the probability of achieving performance goals.

   The company granted performance share awards as follows:

   The table below summarizes the activity during fiscal 2011 for unvested performance share awards:

   As of October 31, 2011, there was $4,473 of total unrecognized compensation expense related to unvested performance share awards. That cost is expected to be recognized over a weighted-average period of 1.7 years.