e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
|
|
|
(Mark One)
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the quarterly period ended
July 31, 2007
|
or
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the transition period
from to
|
Commission file number 1-9186
TOLL BROTHERS, INC.
(Exact name of registrant as
specified in its charter)
|
|
|
Delaware
|
|
23-2416878
|
(State or other jurisdiction
of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
250 Gibraltar Road, Horsham,
Pennsylvania
(Address of principal
executive offices)
|
|
19044
(Zip Code)
|
(215) 938-8000
(Registrants telephone
number, including area code)
Not applicable
(Former name, former address
and former fiscal year, if changed since last report)
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for
the past
90 days. Yes þ No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of an
accelerated filer and large accelerated filer in
Rule 12b-2
of the Exchange Act. Check one):
Large accelerated
filer þ
Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the
Registrant is a shell company (as defined in
Rule 12b-2
of the Exchange
Act) Yes o No þ
Indicate the number of shares
outstanding of each of the issuers classes of common
stock, as of the latest practicable date:
At September 3, 2007, there
were approximately 156,747,000 shares of Common Stock,
$.01 par value, outstanding.
TOLL
BROTHERS, INC. AND SUBSIDIARIES
TABLE
OF CONTENTS
STATEMENT
ON FORWARD-LOOKING INFORMATION
Certain information included
herein and in our other reports, SEC filings, verbal or written
statements and presentations is forward-looking within the
meaning of the Private Securities Litigation Reform Act of 1995,
including, but not limited to, information related to our
anticipated operating results, financial resources, changes in
revenues, changes in profitability, changes in margins, changes
in accounting treatment, interest expense, land related
write-downs, effects of home buyer cancellations, growth and
expansion, anticipated income to be realized from our
investments in unconsolidated entities, the ability to acquire
land, the ability to gain governmental approvals and to open new
communities, the ability to sell homes and properties, the
ability to deliver homes from backlog, the expected average
delivered prices of homes, the ability to secure materials and
subcontractors, the ability to produce the liquidity and capital
necessary to expand and take advantage of future opportunities,
and stock market valuations. In some cases you can identify
those so called forward-looking statements by words such as
may, will, should,
expect, plan, anticipate,
believe, estimate, predict,
potential, project, intend,
can, appear, could,
might, or continue or the negative of
those words or other comparable words. Such forward-looking
information involves important risks and uncertainties that
could significantly affect actual results and cause them to
differ materially from expectations expressed herein and in our
other reports, SEC filings, verbal or written statements and
presentations. These risks and uncertainties include local,
regional and national economic conditions, the demand for homes,
domestic and international political events, uncertainties
created by terrorist attacks, the effects of governmental
regulation, the competitive environment in which we operate,
fluctuations in interest rates, changes in home prices, the
availability and cost of land for future growth, adverse market
conditions that could result in substantial inventory
write-downs, the availability of capital, uncertainties and
fluctuations in capital and securities markets, changes in tax
laws and their interpretation, legal proceedings, the
availability of adequate insurance at reasonable cost, the
ability of customers to obtain adequate and affordable financing
for the purchase of homes, the ability of home buyers to sell
their existing homes, the availability and cost of labor and
materials, and weather conditions. Additional information
concerning potential factors that we believe could cause our
actual results to differ materially from expected and historical
results is included in Item 1A Risk Factors of
our Annual Report on
Form 10-K
for the fiscal year ended October 31, 2006 and
Part II, Item 1A Risk Factors of this
Form 10-Q.
If one or more of the assumptions
underlying our forward-looking statements proves incorrect, then
our actual results, performance or achievements could differ
materially from those expressed in, or implied by the
forward-looking statements contained in this report. Therefore,
we caution you not to place undue reliance on our
forward-looking statements. This statement is provided as
permitted by the Private Securities Litigation Reform Act of
1995.
When this report uses the words
we, us, and our, they refer
to Toll Brothers, Inc. and its subsidiaries, unless the context
otherwise requires. Reference herein to fiscal 2007,
fiscal 2006, and fiscal 2005, refer to
our fiscal year ending October 31, 2007, and our fiscal
years ended October 31, 2006 and October 31, 2005,
respectively.
1
PART I.
FINANCIAL INFORMATION
|
|
ITEM 1.
|
FINANCIAL
STATEMENTS
|
TOLL
BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts
in thousands)
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
October 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
771,721
|
|
|
$
|
632,524
|
|
Inventory
|
|
|
5,957,214
|
|
|
|
6,095,702
|
|
Property, construction and office
equipment, net
|
|
|
88,926
|
|
|
|
99,089
|
|
Receivables, prepaid expenses and
other assets
|
|
|
119,777
|
|
|
|
160,446
|
|
Contracts receivable
|
|
|
48,073
|
|
|
|
170,111
|
|
Mortgage loans receivable
|
|
|
140,146
|
|
|
|
130,326
|
|
Customer deposits held in escrow
|
|
|
43,423
|
|
|
|
49,676
|
|
Investments in and advances to
unconsolidated entities
|
|
|
240,251
|
|
|
|
245,667
|
|
Deferred tax assets, net
|
|
|
18,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,427,576
|
|
|
$
|
7,583,541
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Liabilities:
|
|
|
|
|
|
|
|
|
Loans payable
|
|
$
|
715,843
|
|
|
$
|
736,934
|
|
Senior notes
|
|
|
1,142,021
|
|
|
|
1,141,167
|
|
Senior subordinated notes
|
|
|
350,000
|
|
|
|
350,000
|
|
Mortgage company warehouse loan
|
|
|
127,184
|
|
|
|
119,705
|
|
Customer deposits
|
|
|
300,657
|
|
|
|
360,147
|
|
Accounts payable
|
|
|
280,860
|
|
|
|
292,171
|
|
Accrued expenses
|
|
|
782,812
|
|
|
|
825,288
|
|
Income taxes payable
|
|
|
130,720
|
|
|
|
334,500
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,830,097
|
|
|
|
4,159,912
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
8,005
|
|
|
|
7,703
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, none issued
|
|
|
|
|
|
|
|
|
Common stock, 156,705 and
156,292 shares issued at July 31, 2007 and
October 31, 2006, respectively
|
|
|
1,567
|
|
|
|
1,563
|
|
Additional paid-in capital
|
|
|
207,199
|
|
|
|
220,783
|
|
Retained earnings
|
|
|
3,380,766
|
|
|
|
3,263,274
|
|
Treasury stock, at
cost 2 shares and 2,393 shares at
July 31, 2007 and October 31, 2006, respectively
|
|
|
(58
|
)
|
|
|
(69,694
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,589,474
|
|
|
|
3,415,926
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,427,576
|
|
|
$
|
7,583,541
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
2
TOLL
BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts
in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completed contract
|
|
$
|
3,356,895
|
|
|
$
|
4,168,092
|
|
|
$
|
1,178,500
|
|
|
$
|
1,488,905
|
|
Percentage of completion
|
|
|
110,890
|
|
|
|
138,687
|
|
|
|
29,368
|
|
|
|
41,163
|
|
Land sales
|
|
|
9,854
|
|
|
|
7,923
|
|
|
|
4,483
|
|
|
|
1,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,477,639
|
|
|
|
4,314,702
|
|
|
|
1,212,351
|
|
|
|
1,531,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completed contract
|
|
|
2,811,399
|
|
|
|
2,912,750
|
|
|
|
1,023,230
|
|
|
|
1,052,116
|
|
Percentage of completion
|
|
|
87,540
|
|
|
|
110,519
|
|
|
|
24,280
|
|
|
|
31,995
|
|
Land sales
|
|
|
6,441
|
|
|
|
6,842
|
|
|
|
3,677
|
|
|
|
903
|
|
Interest
|
|
|
76,258
|
|
|
|
88,445
|
|
|
|
27,121
|
|
|
|
29,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,981,638
|
|
|
|
3,118,556
|
|
|
|
1,078,308
|
|
|
|
1,114,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
396,263
|
|
|
|
429,341
|
|
|
|
131,686
|
|
|
|
148,117
|
|
Goodwill impairment
|
|
|
8,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
90,765
|
|
|
|
766,805
|
|
|
|
2,357
|
|
|
|
268,266
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings from
unconsolidated entities
|
|
|
15,375
|
|
|
|
36,662
|
|
|
|
3,848
|
|
|
|
7,269
|
|
Interest and other
|
|
|
85,599
|
|
|
|
31,992
|
|
|
|
38,841
|
|
|
|
9,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
191,739
|
|
|
|
835,459
|
|
|
|
45,046
|
|
|
|
285,234
|
|
Income taxes
|
|
|
74,247
|
|
|
|
322,040
|
|
|
|
18,560
|
|
|
|
110,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
117,492
|
|
|
$
|
513,419
|
|
|
$
|
26,486
|
|
|
$
|
174,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.76
|
|
|
$
|
3.32
|
|
|
$
|
0.17
|
|
|
$
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.72
|
|
|
$
|
3.10
|
|
|
$
|
0.16
|
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
154,828
|
|
|
|
154,520
|
|
|
|
155,556
|
|
|
|
153,723
|
|
Diluted
|
|
|
164,239
|
|
|
|
165,423
|
|
|
|
164,375
|
|
|
|
163,514
|
|
See accompanying notes
3
TOLL
BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Amounts
in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
Cash flow from operating
activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
117,492
|
|
|
$
|
513,419
|
|
Adjustments to reconcile net
income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
22,833
|
|
|
|
21,955
|
|
Amortization of initial benefit
obligation
|
|
|
1,088
|
|
|
|
1,455
|
|
Stock-based compensation
|
|
|
22,956
|
|
|
|
21,747
|
|
Excess tax benefits from
stock-based compensation
|
|
|
(14,736
|
)
|
|
|
(12,759
|
)
|
Equity earnings from
unconsolidated entities
|
|
|
(15,375
|
)
|
|
|
(36,662
|
)
|
Distributions from unconsolidated
entities
|
|
|
16,501
|
|
|
|
5,897
|
|
Deferred tax (benefit) provision
|
|
|
(137,350
|
)
|
|
|
33,139
|
|
Inventory write-offs
|
|
|
363,904
|
|
|
|
36,998
|
|
Goodwill impairment charge
|
|
|
8,973
|
|
|
|
|
|
Gain on sales of ancillary
businesses
|
|
|
(24,643
|
)
|
|
|
|
|
Changes in operating assets and
liabilities
|
|
|
|
|
|
|
|
|
Increase in inventory
|
|
|
(183,710
|
)
|
|
|
(918,864
|
)
|
Origination of mortgage loans
|
|
|
(1,064,537
|
)
|
|
|
(656,677
|
)
|
Sale of mortgage loans
|
|
|
1,054,717
|
|
|
|
663,770
|
|
Decrease (increase) in contracts
receivable
|
|
|
122,038
|
|
|
|
(138,687
|
)
|
Decrease in receivables, prepaid
expenses and other assets
|
|
|
26,285
|
|
|
|
25,777
|
|
(Decrease) increase in customer
deposits
|
|
|
(53,237
|
)
|
|
|
27,193
|
|
(Decrease) increase in accounts
payable and accrued expenses
|
|
|
(82,151
|
)
|
|
|
5,777
|
|
Decrease in current income taxes
payable
|
|
|
(79,548
|
)
|
|
|
(1,014
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
101,500
|
|
|
|
(407,536
|
)
|
|
|
|
|
|
|
|
|
|
Cash flow from investing
activities:
|
|
|
|
|
|
|
|
|
Purchase of property, construction
and office equipment, net
|
|
|
(13,717
|
)
|
|
|
(33,053
|
)
|
Proceeds from sales of ancillary
businesses
|
|
|
32,299
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(3,840,620
|
)
|
|
|
(2,187,715
|
)
|
Sales of marketable securities
|
|
|
3,840,620
|
|
|
|
2,187,715
|
|
Investments in and advances to
unconsolidated entities
|
|
|
(21,194
|
)
|
|
|
(93,692
|
)
|
Distributions from unconsolidated
entities
|
|
|
35,953
|
|
|
|
34,249
|
|
Acquisition of joint venture
interest
|
|
|
|
|
|
|
(40,722
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
33,341
|
|
|
|
(133,218
|
)
|
|
|
|
|
|
|
|
|
|
Cash flow from financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds from loans payable
|
|
|
1,133,892
|
|
|
|
2,042,189
|
|
Principal payments of loans payable
|
|
|
(1,162,973
|
)
|
|
|
(1,786,793
|
)
|
Proceeds from stock-based benefit
plans
|
|
|
17,994
|
|
|
|
12,287
|
|
Proceeds from restricted stock
award
|
|
|
1,800
|
|
|
|
|
|
Excess tax benefits from
stock-based compensation
|
|
|
14,736
|
|
|
|
12,759
|
|
Purchase of treasury stock
|
|
|
(1,395
|
)
|
|
|
(109,520
|
)
|
Change in minority interest
|
|
|
302
|
|
|
|
3,163
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
4,356
|
|
|
|
174,085
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
139,197
|
|
|
|
(366,669
|
)
|
Cash and cash equivalents,
beginning of period
|
|
|
632,524
|
|
|
|
689,219
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
771,721
|
|
|
$
|
322,550
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
4
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
|
|
1.
|
Significant
Accounting Policies
|
Basis
of Presentation
The accompanying unaudited
condensed consolidated financial statements include the accounts
of Toll Brothers, Inc. (the Company), a Delaware
corporation, and its majority-owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated. Investments in 50% or less owned partnerships and
affiliates are accounted for using the equity method unless it
is determined that the Company has effective control of the
entity, in which case the entity would be consolidated.
The accompanying unaudited
condensed consolidated financial statements have been prepared
in accordance with the rules and regulations of the Securities
and Exchange Commission (SEC) for interim financial
information. The October 31, 2006 balance sheet amounts and
disclosures included herein have been derived from our
October 31, 2006 audited financial statements. Since the
accompanying condensed consolidated financial statements do not
include all the information and footnotes required by
U.S. generally accepted accounting principles for complete
financial statements, the Company suggests that they be read in
conjunction with the consolidated financial statements and notes
thereto included in its Annual Report on
Form 10-K
for the fiscal year ended October 31, 2006. In the opinion
of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments, which are of a
normal recurring nature, necessary to present fairly the
Companys financial position as of July 31, 2007, the
results of its operations for the nine months and three months
ended July 31, 2007 and its cash flows for the nine months
ended July 31, 2007 and 2006. The results of operations for
such interim periods are not necessarily indicative of the
results to be expected for the full year.
Recent
Accounting Pronouncements
In June 2006, the Financial
Accounting Standards Board (the FASB) issued FASB
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes (FIN 48). FIN 48
clarifies the accounting for uncertainty in income taxes
recognized in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for
Income Taxes, and prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. FIN 48 will be effective for the
Companys fiscal year beginning November 1, 2007. The
Company is currently reviewing the effect FIN 48 will have
on its financial statements.
In September 2006, the FASB issued
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106, and
132(R) (SFAS 158). SFAS 158 requires
the Company to (a) recognize in its statement of financial
position the overfunded or underfunded status of a defined
benefit postretirement plan measured as the difference between
the fair value of plan assets and the benefit obligation,
(b) recognize as a component of other comprehensive income,
net of tax, the actuarial gains and losses and the prior service
costs and credits that arise during the period, (c) measure
defined benefit plan assets and defined benefit plan obligations
as of the date of the Companys statement of financial
position, and (d) disclose additional information about
certain effects on net periodic benefit costs in the upcoming
fiscal year that arise from the delayed recognition of the
actuarial gains and losses and the prior service costs and
credits. SFAS 158 is effective for the Companys
fiscal year beginning November 1, 2007. The Company does
not expect that adoption of SFAS 158 will have a material
effect on its financial statements.
In September 2006, the Emerging
Issues Task Force (the EITF) of the FASB issued EITF
Issue
No. 06-8,
Applicability of the Assessment of a Buyers
Continuing Investment under SFAS No. 66 for the Sale
of Condominiums
(EITF 06-8).
EITF 06-8 states
that in assessing the collectibility of the sales price pursuant
to paragraph 37(d) of SFAS 66, an entity should
evaluate the adequacy of the buyers initial and continuing
investment to conclude that the sales price is collectible. If
an entity is unable to meet the criteria of paragraph 37 of
SFAS 66, including an assessment of collectibility using
the initial and continuing investment tests described in
5
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
paragraphs 8-12
of SFAS 66, then the entity should apply the deposit method
as described in
paragraphs 65-67
of SFAS 66. In November 2006, the FASB ratified the
EITFs recommendation.
EITF 06-8
is effective for the Companys fiscal year beginning
November 1, 2007. The application of the continuing
investment criteria in evaluating the collectibility of the
sales price will limit the Companys ability to recognize
revenues and costs using the percentage of completion accounting
method in the future. The Company does not expect that
EITF 06-08
will affect any revenues or costs it has reported under
percentage of completion accounting. The Company does not expect
that the application of
EITF 06-08
will have a material effect on its financial statements.
In September 2006, the FASB issued
SFAS No. 157, Fair Value Measurements
(SFAS 157). SFAS 157 provides guidance for
using fair value to measure assets and liabilities. The standard
requires expanded information about the extent to which a
company measures assets and liabilities at fair value, the
information used to measure fair value, and the effect of fair
value measurements on earnings. SFAS 157 will be effective
for the Companys fiscal year beginning November 1,
2008. The Company is currently reviewing the effect
SFAS 157 will have on its financial statements.
Reclassifications
The presentation of certain prior
period amounts have been reclassified to conform to the fiscal
2007 presentation.
Inventory consisted of the
following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
October 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Land and land development costs
|
|
$
|
1,738,053
|
|
|
$
|
2,193,850
|
|
Construction in
progress completed contract
|
|
|
3,478,596
|
|
|
|
3,174,483
|
|
Construction in
progress percentage of completion
|
|
|
71,754
|
|
|
|
153,452
|
|
Sample homes and sales offices
|
|
|
330,785
|
|
|
|
244,097
|
|
Land deposits and costs of future
development
|
|
|
319,432
|
|
|
|
315,041
|
|
Other
|
|
|
18,594
|
|
|
|
14,779
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,957,214
|
|
|
$
|
6,095,702
|
|
|
|
|
|
|
|
|
|
|
Construction in progress includes
the cost of homes under construction, land and land development
costs and the carrying costs of lots that have been
substantially improved.
The Company capitalizes certain
interest costs to inventory during the development and
construction period. Capitalized interest is charged to cost of
revenues when the related inventory is delivered for homes
accounted for under the completed contract method of accounting
or when the related inventory is charged to cost of revenues
6
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
under percentage of completion
accounting. Interest incurred, capitalized and expensed for the
nine-month and three-month periods ended July 31, 2007 and
2006 is summarized as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Interest capitalized, beginning of
period
|
|
$
|
181,465
|
|
|
$
|
162,672
|
|
|
$
|
200,560
|
|
|
$
|
176,524
|
|
Interest incurred
|
|
|
102,702
|
|
|
|
100,879
|
|
|
|
34,430
|
|
|
|
34,224
|
|
Capitalized interest in inventory
acquired
|
|
|
|
|
|
|
6,100
|
|
|
|
|
|
|
|
|
|
Interest expensed to cost of
revenues
|
|
|
(76,258
|
)
|
|
|
(88,445
|
)
|
|
|
(27,121
|
)
|
|
|
(29,816
|
)
|
Write-off to other
|
|
|
(40
|
)
|
|
|
(428
|
)
|
|
|
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest capitalized, end of period
|
|
$
|
207,869
|
|
|
$
|
180,778
|
|
|
$
|
207,869
|
|
|
$
|
180,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest included in cost of
revenues for the nine-month and three-month periods ended
July 31, 2007 and 2006 was as follows (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Completed contract
|
|
$
|
71,719
|
|
|
$
|
83,769
|
|
|
$
|
25,690
|
|
|
$
|
28,423
|
|
Percentage of completion
|
|
|
4,256
|
|
|
|
3,683
|
|
|
|
1,257
|
|
|
|
1,138
|
|
Land sales
|
|
|
283
|
|
|
|
993
|
|
|
|
174
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
76,258
|
|
|
$
|
88,445
|
|
|
$
|
27,121
|
|
|
$
|
29,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory write-downs and the
expensing of costs that the Company believed not to be
recoverable for the nine-month and three-month periods ended
July 31, 2007 and 2006 were as follows (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Operating communities and owned
land
|
|
$
|
338,739
|
|
|
$
|
13,500
|
|
|
$
|
139,628
|
|
|
$
|
2,800
|
|
Land options and predevelopment
costs
|
|
|
25,165
|
|
|
|
23,498
|
|
|
|
7,664
|
|
|
|
21,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
363,904
|
|
|
$
|
36,998
|
|
|
$
|
147,292
|
|
|
$
|
23,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At July 31, 2007, the fair
value of the inventory in the 28 current communities and
owned land subject to write-downs in the three-month period
ended July 31, 2007, net of the $139.6 million of
write-downs, was approximately $344.1 million.
The Company evaluated its land
purchase contracts to determine if the selling entities were
variable interest entities (VIE) and, if they were,
whether the Company was the primary beneficiary of the entities
. The Company does not possess legal title to the land, and its
risk is generally limited to deposits paid to the seller. The
sellers and creditors of the seller generally have no recourse
against the Company. At July 31, 2007, the Company had
determined that it was the primary beneficiary of one VIE
related to its land purchase contracts and recorded
$16.3 million of inventory and $12.0 million of
accrued expenses.
|
|
3.
|
Investments
in and Advances to Unconsolidated Entities
|
The Company has investments in and
advances to several joint ventures with unrelated parties to
develop land. Some of these joint ventures develop land for the
sole use of the venture partners, including the Company, and
others develop land for sale to the venture partners and to
unrelated builders. The Company recognizes its share of earnings
from the sale of home sites to other builders. The Company does
not recognize earnings from home sites it
7
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
purchases from the joint ventures,
but instead reduces its cost basis in these home sites by its
share of the earnings on the home sites. At July 31, 2007,
the Company had approximately $149.4 million invested in or
advanced to these joint ventures and was committed to
contributing additional capital in an aggregate amount of
approximately $232.4 million (net of the Companys
$146.2 million of loan guarantees related to two of the
joint ventures loans) if required by the joint ventures.
At July 31, 2007, three of the joint ventures had an
aggregate of $1.46 billion of loan commitments, and had
approximately $1.17 billion borrowed against the
commitments, of which the Companys guarantees of its
pro-rata share of the borrowings was $110.8 million.
The Company has investments in and
advances to two joint ventures with unrelated parties to develop
luxury condominium projects, including for-sale residential
units and commercial space. At July 31, 2007, the Company
had investments in and advances to the joint ventures of
$21.6 million, was committed to making up to
$125.7 million of additional investments in and advances to
the joint ventures if required by the joint ventures, and
guaranteed $14.9 million of joint venture loans. At
July 31, 2007, the joint ventures had an aggregate of
$294.3 million of loan commitments, and had approximately
$153.9 million borrowed against the commitments.
In October 2004, the Company
entered into a joint venture in which it had a 50% interest with
an unrelated party to convert a
525-unit
apartment complex, The Hudson Tea Buildings, located in Hoboken,
New Jersey, into luxury condominium units. At July 31,
2007, the Company had investments in and advances to the joint
venture of $53.5 million, and was committed to making up to
$1.5 million of additional investments in and advances to
the joint venture.
In fiscal 2005, the Company,
together with the Pennsylvania State Employees Retirement System
(PASERS), formed Toll Brothers Realty
Trust Group II (Trust II) to be in a
position to take advantage of commercial real estate
opportunities. Trust II is owned 50% by the Company and 50%
by PASERS. At July 31, 2007, the Company had an investment
of $9.1 million in Trust II. In addition, the Company
and PASERS each entered into subscription agreements that expire
in September 2007, whereby each agreed to invest additional
capital in an amount not to exceed $11.1 million if
required by Trust II. Prior to the formation of
Trust II, the Company used Toll Brothers Realty
Trust Group (the Trust) to invest in commercial
real estate opportunities.
The Company formed the Trust in
1998 to take advantage of commercial real estate opportunities.
The Trust is effectively owned one-third by the Company;
one-third by Robert I. Toll, Bruce E. Toll (and members of his
family), Zvi Barzilay (and members of his family), Joel H.
Rassman and other members of the Companys current and
former senior management; and one-third by PASERS (collectively,
the Shareholders). At July 31, 2007, the
Company had an investment of $6.7 million in the Trust. The
Shareholders entered into subscription agreements whereby each
group has agreed to invest additional capital in an amount not
to exceed $1.9 million if required by the Trust. The
subscription agreements expire in August 2008. The Company
provides development, finance and management services to the
Trust and received fees under the terms of various agreements in
the amounts of $1.5 million and $1.9 million in the
nine-month periods ended July 31, 2007 and 2006,
respectively, and $0.6 million and $0.7 million in the
three-month periods ended July 31, 2007 and 2006,
respectively. The Company believes that the transactions between
itself and the Trust were on terms no less favorable than it
would have agreed to with unrelated parties.
The Companys investments in
these entities are accounted for using the equity method.
During the three-month period
ended January 31, 2007, due to the continued decline of the
Detroit market, the Company re-evaluated the carrying value of
goodwill that resulted from a 1999 acquisition in accordance
with SFAS No. 142, Goodwill and Other Intangible
Assets. The Company estimated the fair value of its assets
in this market including goodwill. Fair value was determined
based on the discounted future cash flow expected to be
generated in this market. Based upon this evaluation and the
Companys expectation that this market will not recover for
a number of years, the Company determined that the related
goodwill was impaired. The Company
8
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recognized a $9.0 million
impairment charge in the three-month period ended
January 31, 2007. After recognizing this charge, the
Company does not have any goodwill remaining from this
acquisition.
Accrued expenses at July 31,
2007 and October 31, 2006 consisted of the following
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
October 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Land, land development and
construction costs
|
|
$
|
342,267
|
|
|
$
|
376,114
|
|
Compensation and employee benefit
costs
|
|
|
104,318
|
|
|
|
127,503
|
|
Insurance and litigation
|
|
|
138,485
|
|
|
|
130,244
|
|
Warranty costs
|
|
|
59,485
|
|
|
|
57,414
|
|
Interest
|
|
|
43,561
|
|
|
|
43,629
|
|
Other
|
|
|
94,696
|
|
|
|
90,384
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
782,812
|
|
|
$
|
825,288
|
|
|
|
|
|
|
|
|
|
|
The Company accrues for the
expected warranty costs at the time each home is closed and
title and possession have been transferred to the home buyer.
Costs are accrued based upon historical experience. Changes in
the warranty accrual for the nine-month and three-month periods
ended July 31, 2007 and 2006 were as follows (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Balance, beginning of period
|
|
$
|
57,414
|
|
|
$
|
54,722
|
|
|
$
|
58,716
|
|
|
$
|
54,372
|
|
Additions
|
|
|
22,392
|
|
|
|
26,141
|
|
|
|
7,509
|
|
|
|
9,217
|
|
Charges incurred
|
|
|
(20,321
|
)
|
|
|
(25,391
|
)
|
|
|
(6,740
|
)
|
|
|
(8,117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
59,485
|
|
|
$
|
55,472
|
|
|
$
|
59,485
|
|
|
$
|
55,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Employee
Retirement Plans
|
In October 2004, the Company
established a defined benefit retirement plan effective as of
September 1, 2004. The plan covers four current or former
senior executives and a director of the Company. Effective as of
February 1, 2006, the Company adopted an additional defined
benefit retirement plan for nine other executives. The
retirement plans are unfunded and vest when the participant has
completed 20 years of service with the Company and reaches
normal retirement age (age 62). Unrecognized prior service
costs are being amortized over the period from the effective
date of the plans until the participants are fully vested. The
Company used a 5.68% and 5.65% discount rate in its calculation
of the present value of its projected benefit obligations for
the fiscal 2007 and 2006 periods, respectively, which
represented the approximate long-term investment rate at October
31 of the preceding fiscal year for which the present value was
calculated.
9
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the nine-month and three-month
periods ended July 31, 2007 and 2006, the Company
recognized the following costs related to these plans (amounts
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Service cost
|
|
$
|
247
|
|
|
$
|
269
|
|
|
$
|
83
|
|
|
$
|
101
|
|
Interest cost
|
|
|
760
|
|
|
|
687
|
|
|
|
253
|
|
|
|
241
|
|
Amortization of initial benefit
obligation
|
|
|
1,088
|
|
|
|
1,455
|
|
|
|
203
|
|
|
|
503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,095
|
|
|
$
|
2,411
|
|
|
$
|
539
|
|
|
$
|
845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
$
|
154
|
|
|
|
|
|
|
$
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
Stock
Based Benefit Plans
|
The fair value of each option
award is estimated on the date of grant using a lattice-based
option valuation model that uses assumptions noted in the
following table. The lattice-based option valuation models
incorporate ranges of assumptions for inputs; those ranges are
disclosed in the table below. Expected volatilities are based on
implied volatilities from traded options on the Companys
stock, historical volatility of the Companys stock and
other factors. The expected life of options granted is derived
from the historical exercise patterns and anticipated future
patterns and represents the period of time that options granted
are expected to be outstanding; the ranges given below results
from certain groups of employees exhibiting different behavior.
The risk-free rate for periods within the contractual life of
the option is based on the U.S. Treasury yield curve in
effect at the time of grant.
The weighted-average assumptions
and the fair values used for stock option grants for the
nine-month and three-month periods ended July 31, 2007 and
2006 are as follows:
|
|
|
|
|
|
|
2007
|
|
2006
|
|
Expected volatility
|
|
36.32% - 38.22%
|
|
36.33% - 38.28%
|
Weighted-average volatility
|
|
37.16%
|
|
37.55%
|
Risk-free interest rate
|
|
4.57% - 4.61%
|
|
4.38% - 4.51%
|
Expected life (years)
|
|
3.69 - 8.12
|
|
4.11 - 9.07
|
Dividends
|
|
none
|
|
none
|
Weighted-average grant date fair
value per share of options granted
|
|
$11.17
|
|
$15.30
|
In the nine-month and three-month
periods ended July 31, 2007 and 2006, the Company
recognized the following costs and tax benefits related to its
option plans (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Stock compensation
|
|
$
|
22,632
|
|
|
$
|
21,513
|
|
|
$
|
4,492
|
|
|
$
|
5,257
|
|
Income tax benefit
|
|
$
|
8,423
|
|
|
$
|
7,466
|
|
|
$
|
1,977
|
|
|
$
|
1,741
|
|
The Company expects to recognize
approximately $27.1 million of expense and
$10.0 million of income tax benefit for the full fiscal
2007 year related to stock option awards. The Company
recognized approximately $26.8 million of expense and
$9.2 million of income tax benefit for the full fiscal
2006 year related to stock option awards.
The Companys stock option
plans for employees (including officers) and non-employee
directors provide for the granting of incentive stock options
(solely to employees) and non-qualified options with a term of
up to ten years
10
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
at a price not less than the
market price of the stock at the date of grant. Options granted
to employees generally vest over a four-year period, although
certain grants vest over a longer or shorter period, and grants
to non-employee directors generally vest over a two-year period.
Shares issued upon the exercise of a stock option are either
from shares held in treasury or newly issued shares.
Pursuant to the provisions of the
Companys stock option plans, participants are permitted to
use the value of the Companys common stock that they own
to pay for the exercise of options. The Company received
4,172 shares with an average fair market value per share of
$35.43 for the exercise of stock options in the nine months
ended July 31, 2006. No shares were received for the
exercise of stock options in the three months ended
July 31, 2006 or in the nine months and three months ended
July 31, 2007.
Stock option activity for the nine
months ended July 31, 2007 and 2006 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
|
(In 000s)
|
|
|
(Per share)
|
|
|
(In 000s)
|
|
|
(Per share)
|
|
|
Outstanding, beginning of period
|
|
|
25,178
|
|
|
$
|
12.70
|
|
|
|
26,155
|
|
|
$
|
11.04
|
|
Granted
|
|
|
1,823
|
|
|
$
|
31.80
|
|
|
|
1,433
|
|
|
$
|
35.97
|
|
Exercised
|
|
|
(2,405
|
)
|
|
$
|
7.15
|
|
|
|
(1,757
|
)
|
|
$
|
6.57
|
|
Cancelled
|
|
|
(150
|
)
|
|
$
|
32.67
|
|
|
|
(179
|
)
|
|
$
|
28.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period
|
|
|
24,446
|
|
|
$
|
14.55
|
|
|
|
25,652
|
|
|
$
|
12.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of period
|
|
|
20,069
|
|
|
$
|
10.86
|
|
|
|
20,830
|
|
|
$
|
8.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At July 31, 2007, the
exercise price of approximately 5.6 million outstanding
options was higher than the average closing price of the
Companys common stock on the New York Stock Exchange (the
NYSE) for the three-month period ended July 31,
2007.
Stock options outstanding and
exercisable at July 31, 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
Range of
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
Exercise
|
|
Number
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Number
|
|
|
Contractual
|
|
|
Exercise
|
|
Prices ($)
|
|
Outstanding
|
|
|
Life
|
|
|
Price ($)
|
|
|
Exercisable
|
|
|
Life
|
|
|
Price ($)
|
|
|
|
|
|
|
(In years)
|
|
|
|
|
|
|
|
|
(In years)
|
|
|
|
|
|
4.38 - 6.86
|
|
|
8,873,048
|
|
|
|
1.8
|
|
|
|
5.16
|
|
|
|
8,873,048
|
|
|
|
1.8
|
|
|
|
5.16
|
|
6.87 - 9.66
|
|
|
2,613,524
|
|
|
|
3.1
|
|
|
|
9.44
|
|
|
|
2,613,524
|
|
|
|
2.9
|
|
|
|
9.44
|
|
9.67 - 10.88
|
|
|
5,128,456
|
|
|
|
4.8
|
|
|
|
10.75
|
|
|
|
5,128,456
|
|
|
|
4.8
|
|
|
|
10.75
|
|
10.89 - 20.14
|
|
|
2,258,261
|
|
|
|
6.4
|
|
|
|
20.14
|
|
|
|
1,722,410
|
|
|
|
6.4
|
|
|
|
20.14
|
|
20.15 - 35.97
|
|
|
5,572,688
|
|
|
|
8.3
|
|
|
|
33.11
|
|
|
|
1,731,420
|
|
|
|
7.6
|
|
|
|
33.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,445,977
|
|
|
|
4.4
|
|
|
|
14.55
|
|
|
|
20,068,858
|
|
|
|
3.6
|
|
|
|
10.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options
outstanding and exercisable is the difference between the fair
market value of the Companys common stock on the
applicable date (Measurement Value) and the exercise
price of those options that had an exercise price that was less
than the Measurement Value. The intrinsic value of options
exercised is the difference between the fair market value of the
Companys common stock on the date of exercise and the
exercise price.
11
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The intrinsic value of options
outstanding and exercisable at July 31, 2007 and 2006 was
as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Intrinsic value of options
|
|
|
|
|
|
|
|
|
Outstanding
|
|
$
|
242,840
|
|
|
$
|
364,441
|
|
Exercisable
|
|
$
|
241,879
|
|
|
$
|
346,060
|
|
The intrinsic value of options
exercised and the fair value of options which became vested in
the nine-month and three-month periods ended July 31, 2007
and 2006 were as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Intrinsic value of options
exercised
|
|
$
|
48,536
|
|
|
$
|
46,343
|
|
|
$
|
36,502
|
|
|
$
|
9,244
|
|
Fair value of options vested
|
|
$
|
21,642
|
|
|
$
|
23,551
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
Earnings
Per Share Information
|
Information pertaining to the
calculation of earnings per share for the nine-month and
three-month periods ended July 31, 2007 and 2006 are as
follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Basic weighted-average shares
|
|
|
154,828
|
|
|
|
154,520
|
|
|
|
155,556
|
|
|
|
153,723
|
|
Common stock equivalents
|
|
|
9,411
|
|
|
|
10,903
|
|
|
|
8,819
|
|
|
|
9,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares
|
|
|
164,239
|
|
|
|
165,423
|
|
|
|
164,375
|
|
|
|
163,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
Stock
Repurchase Program
|
In March 2003, the Companys
Board of Directors authorized the repurchase of up to
20 million shares of its Common Stock, par value $.01, from
time to time, in open market transactions or otherwise, for the
purpose of providing shares for its various employee benefit
plans. At July 31, 2007, the Company had approximately
12.1 million shares remaining to be purchased under this
authorization. The Board of Directors did not fix an expiration
date for the repurchase program.
|
|
10.
|
Commitments
and Contingencies
|
At July 31, 2007, the
aggregate purchase price of land parcels under option and
purchase agreements, excluding parcels that the Company does not
expect to acquire, was approximately $2.48 billion
(including $1.21 billion of land to be acquired from joint
ventures which the Company has investments in, made advances to
or made loan guarantees on behalf of, in the aggregate amount of
$295.7 million), of which it had paid or deposited
approximately $154.8 million. The Companys option
agreements to acquire the home sites do not require the Company
to buy the home sites, although the Company may, in some cases,
forfeit any deposit balance outstanding if and when it
terminates an option contract. Of the $154.8 million the
Company had paid or deposited on these purchase agreements,
$121.7 million were non-refundable at July 31, 2007.
Any deposit in the form of a standby letter of credit is
recorded as a liability at the time the standby letter of credit
is issued. Included in accrued liabilities is $89.7 million
representing the Companys outstanding standby letters of
credit issued in connection with options to purchase home sites.
12
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At July 31, 2007, the Company
had outstanding surety bonds amounting to approximately
$699.1 million, related primarily to its obligations to
various governmental entities to construct improvements in the
Companys various communities. The Company estimates that
approximately $264.1 million of work remains on these
improvements. The Company has an additional $141.5 million
of surety bonds outstanding that guarantee other obligations of
the Company. The Company does not believe it is likely that any
outstanding bonds will be drawn upon.
At July 31, 2007, the Company
had agreements of sale outstanding to deliver 4,997 homes with
an aggregate sales value of approximately $3.71 billion, of
which the Company has recognized $48.1 million of revenues
with regard to a portion of such homes using the percentage of
completion accounting method.
At July 31, 2007, the
Companys mortgage subsidiary was committed to fund
approximately $1.27 billion of mortgage loans.
Approximately $318.2 million of these commitments, as well
as $140.1 million of mortgage loans receivable, have
locked in interest rates. The mortgage subsidiary
has commitments from recognized outside mortgage financing
institutions (investors) to acquire these locked-in
loans and receivables. Our home buyers have not locked
in the interest rate on the remaining $947.3 million
of committments; the Company believes that currently there are
adequate available resources in the primary and secondary
mortgage markets to fund these commitments.
The Company has a
$1.89 billion credit facility consisting of a
$1.56 billion unsecured revolving credit facility and a
$331.7 million term loan facility (collectively, the
Credit Facility) with 35 banks, which extends to
March 17, 2011. At July 31, 2007, interest was payable
on borrowings under the revolving credit facility at 0.475%
(subject to adjustment based upon the Companys debt rating
and leverage ratios) above the Eurodollar rate or at other
specified variable rates as selected by the Company from time to
time. At July 31, 2007, the Company had no outstanding
borrowings against the revolving credit facility but had letters
of credit of approximately $387.8 million outstanding under
it, of which the Company had recorded $89.7 million as
liabilities under land purchase agreements. Under the term loan
facility, interest is payable at 0.50% (subject to adjustment
based upon the Companys debt rating and leverage ratios)
above the Eurodollar rate or at other specified variable rates
as selected by the Company from time to time. At July 31,
2007, interest was payable on the $331.7 million term loan
at 5.82%. Under the terms of the Credit Facility, the Company is
not permitted to allow its maximum leverage ratio (as defined in
the agreement) to exceed 2.00 to 1.00 and was required to
maintain a minimum tangible net worth (as defined in the
agreement) of approximately $2.41 billion at July 31,
2007. At July 31, 2007, the Companys leverage ratio
was approximately 0.46 to 1.00 and its tangible net worth was
approximately $3.56 billion. Based upon the minimum
tangible net worth requirement, the Companys ability to
pay dividends and repurchase its common stock was limited to an
aggregate amount of approximately $1.15 billion at
July 31, 2007.
In January 2006, the Company
received a request for information pursuant to Section 308
of the Clean Water Act from Region 3 of the Environmental
Protection Agency (the EPA) requesting information
about storm water discharge practices in connection with its
homebuilding projects in the states that comprise EPA Region 3.
To the extent the EPAs review were to lead the EPA to
assert violations of state
and/or
federal regulatory requirements and request injunctive relief
and/or civil
penalties, the Company would defend and attempt to resolve any
such asserted violations. At this time, the Company cannot
predict the outcome of the EPAs review.
The Company and several of its
officers and directors have been named as defendants in a
securities class action (including an amended complaint) filed
in the U.S. District Court for the Eastern District of
Pennsylvania. The plaintiffs filed this action on behalf of the
purported class of purchasers of the Companys common stock
between December 9, 2004 and November 8, 2005. The
complaint alleges that the defendants violated
Sections 10(b), 20(a), and 20A of the Securities Exchange
Act of 1934. The Company believes that this lawsuit is without
merit and intends to vigorously defend against it.
On May 21, 2007, a consumer
class action was filed against the Company, its mortgage company
subsidiary and its title company subsidiary in the United States
District Court for the Eastern District of Pennsylvania. The
13
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company filed a motion to dismiss
the complaint and, thereafter, the complaint was voluntarily
withdrawn, without prejudice.
The Company is involved in various
other claims and litigation arising in the ordinary course of
business. The Company believes that the disposition of these
matters will not have a material effect on the business or on
the financial condition of the Company.
During the fourth quarter of
fiscal 2006, the Company reassessed the aggregation of its
operating segments, and as a result, restated its disclosure to
include four separate reportable segments. The restatement had
no impact on the Companys financial position, results of
operations or cash flows for the nine-month and three-month
periods ended July 31, 2006.
Revenue and income (loss) before
income taxes for each of the Companys geographic segments
for the nine months and three months ended July 31, 2007
and 2006 were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Three Months Ended
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(As restated)
|
|
|
|
|
|
(As restated)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
$
|
755.3
|
|
|
$
|
1,015.8
|
|
|
$
|
296.8
|
|
|
$
|
377.3
|
|
Mid-Atlantic
|
|
|
1,015.1
|
|
|
|
1,295.9
|
|
|
|
350.6
|
|
|
|
447.4
|
|
South
|
|
|
778.0
|
|
|
|
838.8
|
|
|
|
243.3
|
|
|
|
282.6
|
|
West
|
|
|
929.2
|
|
|
|
1,164.2
|
|
|
|
321.7
|
|
|
|
423.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,477.6
|
|
|
$
|
4,314.7
|
|
|
$
|
1,212.4
|
|
|
$
|
1,531.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
$
|
19.0
|
|
|
$
|
215.0
|
|
|
$
|
26.8
|
|
|
$
|
79.6
|
|
Mid-Atlantic
|
|
|
182.4
|
|
|
|
372.1
|
|
|
|
61.6
|
|
|
|
120.4
|
|
South
|
|
|
(4.4
|
)
|
|
|
101.5
|
|
|
|
(30.3
|
)
|
|
|
30.6
|
|
West
|
|
|
60.5
|
|
|
|
262.5
|
|
|
|
(1.9
|
)
|
|
|
87.8
|
|
Other
|
|
|
(65.8
|
)
|
|
|
(115.6
|
)
|
|
|
(11.2
|
)
|
|
|
(33.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
191.7
|
|
|
$
|
835.5
|
|
|
$
|
45.0
|
|
|
$
|
285.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other is comprised principally of
general corporate expenses such as the offices of the Chief
Executive Officer and President, and the corporate finance,
accounting, audit, tax, human resources, risk management,
marketing and legal groups, offset in part by interest income
and income from our ancillary businesses.
14
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventory write-downs and the
expensing of costs that the Company believed not to be
recoverable for the nine months and three months ended
July 31, 2007 and 2006 were as follows (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Operating communities and owned
land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
$
|
88,975
|
|
|
$
|
13,500
|
|
|
$
|
9,875
|
|
|
$
|
2,800
|
|
Mid-Atlantic
|
|
|
32,850
|
|
|
|
|
|
|
|
10,750
|
|
|
|
|
|
South
|
|
|
105,450
|
|
|
|
|
|
|
|
60,900
|
|
|
|
|
|
West
|
|
|
111,464
|
|
|
|
|
|
|
|
58,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
338,739
|
|
|
|
13,500
|
|
|
|
139,628
|
|
|
|
2,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land options and predevelopment
costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
4,010
|
|
|
|
2,155
|
|
|
|
449
|
|
|
|
1,625
|
|
Mid-Atlantic
|
|
|
1,949
|
|
|
|
2,845
|
|
|
|
420
|
|
|
|
2,023
|
|
South
|
|
|
4,354
|
|
|
|
12,181
|
|
|
|
2,055
|
|
|
|
11,396
|
|
West
|
|
|
14,852
|
|
|
|
6,317
|
|
|
|
4,740
|
|
|
|
6,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,165
|
|
|
|
23,498
|
|
|
|
7,664
|
|
|
|
21,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
363,904
|
|
|
$
|
36,998
|
|
|
$
|
147,292
|
|
|
$
|
23,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets for each of the
Companys geographic segments at July 31, 2007 and
October 31, 2006 were as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
October 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
North
|
|
$
|
1,685,095
|
|
|
$
|
1,776,723
|
|
Mid-Atlantic
|
|
|
1,633,393
|
|
|
|
1,729,057
|
|
South
|
|
|
1,194,668
|
|
|
|
1,338,344
|
|
West
|
|
|
1,776,551
|
|
|
|
1,843,395
|
|
Other
|
|
|
1,137,869
|
|
|
|
896,022
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,427,576
|
|
|
$
|
7,583,541
|
|
|
|
|
|
|
|
|
|
|
Other is comprised principally of
cash and cash equivalents and the assets of the Companys
manufacturing facilities and mortgage subsidiary.
15
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Supplemental
Disclosure to Statements of Cash Flows
|
The following are supplemental
disclosures to the statements of cash flows for the nine months
ended July 31, 2007 and 2006 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Cash flow
information:
|
|
|
|
|
|
|
|
|
Interest paid, net of amount
capitalized
|
|
$
|
12,486
|
|
|
$
|
14,100
|
|
Income taxes paid
|
|
$
|
291,146
|
|
|
$
|
289,916
|
|
Non-cash activity:
|
|
|
|
|
|
|
|
|
Cost of inventory acquired through
seller financing
|
|
$
|
42,163
|
|
|
$
|
131,962
|
|
Land returned to seller subject to
loan payable
|
|
$
|
8,693
|
|
|
|
|
|
Contribution of inventory, net of
related debt to unconsolidated entity
|
|
|
|
|
|
$
|
4,500
|
|
Stock bonus awards
|
|
$
|
8,041
|
|
|
$
|
10,926
|
|
Contribution to employee
retirement plan
|
|
$
|
2,764
|
|
|
$
|
2,411
|
|
Investment in unconsolidated
entities made by letters of credit
|
|
$
|
17,828
|
|
|
$
|
25,885
|
|
Reduction of investment in
unconsolidated entities due to reduction of letters of credit
|
|
$
|
7,806
|
|
|
$
|
5,038
|
|
Acquisition of joint venture
assets and liabilities:
|
|
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
|
|
|
|
$
|
181,473
|
|
Liabilities assumed
|
|
|
|
|
|
$
|
110,548
|
|
Reduction in investment and
advances to unconsolidated entities
|
|
|
|
|
|
$
|
30,203
|
|
Cash paid
|
|
|
|
|
|
$
|
40,722
|
|
Disposition of ancillary
businesses:
|
|
|
|
|
|
|
|
|
Fair value of assets sold
|
|
$
|
8,453
|
|
|
|
|
|
Liabilities incurred in disposition
|
|
$
|
954
|
|
|
|
|
|
Liabilities assumed by buyer
|
|
$
|
1,751
|
|
|
|
|
|
Cash received
|
|
$
|
32,299
|
|
|
|
|
|
|
|
13.
|
Supplemental
Guarantor Information
|
Toll Brothers Finance Corp., a
100% owned, indirect subsidiary (the Subsidiary
Issuer) of the Company, is the issuer of four series of
senior notes aggregating $1.15 billion. The obligations of
the Subsidiary Issuer to pay principal, premiums, if any, and
interest are guaranteed jointly and severally on a senior basis
by the Company and substantially all of its 100% owned home
building subsidiaries (the Guarantor Subsidiaries).
The guarantees are full and unconditional. The Companys
non-home building subsidiaries and certain home building
subsidiaries (the Non-Guarantor Subsidiaries) do not
guarantee the debt. Separate financial statements and other
disclosures concerning the Guarantor Subsidiaries are not
presented because management has determined that such
disclosures would not be material to investors. The Subsidiary
Issuer has not had and does not have any operations other than
the issuance of the four series of senior notes and the lending
of the proceeds from the senior notes to other subsidiaries of
the Company. Supplemental consolidating financial information of
the Company, the Subsidiary Issuer, the Guarantor Subsidiaries,
the Non-Guarantor Subsidiaries and the eliminations to arrive at
the Company on a consolidated basis are as follows:
16
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Balance Sheet at July 31, 2007 ($ in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
659,663
|
|
|
|
112,058
|
|
|
|
|
|
|
|
771,721
|
|
Inventory
|
|
|
|
|
|
|
|
|
|
|
5,580,031
|
|
|
|
377,183
|
|
|
|
|
|
|
|
5,957,214
|
|
Property, construction and office
equipment, net
|
|
|
|
|
|
|
|
|
|
|
86,229
|
|
|
|
2,697
|
|
|
|
|
|
|
|
88,926
|
|
Receivables, prepaid expenses and
other assets
|
|
|
|
|
|
|
4,414
|
|
|
|
77,622
|
|
|
|
37,678
|
|
|
|
63
|
|
|
|
119,777
|
|
Contracts receivable
|
|
|
|
|
|
|
|
|
|
|
43,142
|
|
|
|
4,931
|
|
|
|
|
|
|
|
48,073
|
|
Mortgage loans receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140,146
|
|
|
|
|
|
|
|
140,146
|
|
Customer deposits held in escrow
|
|
|
|
|
|
|
|
|
|
|
42,295
|
|
|
|
1,128
|
|
|
|
|
|
|
|
43,423
|
|
Deferred tax assets, net
|
|
|
18,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,045
|
|
Investments in and advances to
unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
240,251
|
|
|
|
|
|
|
|
|
|
|
|
240,251
|
|
Investments in and advances to
consolidated entities
|
|
|
3,704,149
|
|
|
|
1,157,339
|
|
|
|
(1,223,638
|
)
|
|
|
(110,548
|
)
|
|
|
(3,527,302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,722,194
|
|
|
|
1,161,753
|
|
|
|
5,505,595
|
|
|
|
565,273
|
|
|
|
(3,527,239
|
)
|
|
|
7,427,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans payable
|
|
|
|
|
|
|
|
|
|
|
522,205
|
|
|
|
193,638
|
|
|
|
|
|
|
|
715,843
|
|
Senior notes
|
|
|
|
|
|
|
1,142,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,142,021
|
|
Senior subordinated notes
|
|
|
|
|
|
|
|
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
350,000
|
|
Mortgage company warehouse loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,184
|
|
|
|
|
|
|
|
127,184
|
|
Customer deposits
|
|
|
|
|
|
|
|
|
|
|
273,941
|
|
|
|
26,716
|
|
|
|
|
|
|
|
300,657
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
269,743
|
|
|
|
11,117
|
|
|
|
|
|
|
|
280,860
|
|
Accrued expenses
|
|
|
|
|
|
|
19,732
|
|
|
|
626,529
|
|
|
|
136,551
|
|
|
|
|
|
|
|
782,812
|
|
Income taxes payable
|
|
|
132,720
|
|
|
|
|
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
130,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
132,720
|
|
|
|
1,161,753
|
|
|
|
2,042,418
|
|
|
|
493,206
|
|
|
|
|
|
|
|
3,830,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,005
|
|
|
|
|
|
|
|
8,005
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1,567
|
|
|
|
|
|
|
|
|
|
|
|
2,003
|
|
|
|
(2,003
|
)
|
|
|
1,567
|
|
Additional paid-in capital
|
|
|
207,199
|
|
|
|
|
|
|
|
4,420
|
|
|
|
2,734
|
|
|
|
(7,154
|
)
|
|
|
207,199
|
|
Retained earnings
|
|
|
3,380,766
|
|
|
|
|
|
|
|
3,458,757
|
|
|
|
59,325
|
|
|
|
(3,518,082
|
)
|
|
|
3,380,766
|
|
Treasury stock, at cost
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,589,474
|
|
|
|
|
|
|
|
3,463,177
|
|
|
|
64,062
|
|
|
|
(3,527,239
|
)
|
|
|
3,589,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,722,194
|
|
|
|
1,161,753
|
|
|
|
5,505,595
|
|
|
|
565,273
|
|
|
|
(3,527,239
|
)
|
|
|
7,427,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Balance Sheet at October 31, 2006 ($ in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
582,465
|
|
|
|
50,059
|
|
|
|
|
|
|
|
632,524
|
|
Inventory
|
|
|
|
|
|
|
|
|
|
|
5,719,057
|
|
|
|
376,645
|
|
|
|
|
|
|
|
6,095,702
|
|
Property, construction and office
equipment, net
|
|
|
|
|
|
|
|
|
|
|
90,676
|
|
|
|
8,413
|
|
|
|
|
|
|
|
99,089
|
|
Receivables, prepaid expenses and
other assets
|
|
|
|
|
|
|
4,932
|
|
|
|
76,317
|
|
|
|
78,920
|
|
|
|
277
|
|
|
|
160,446
|
|
Contracts receivable
|
|
|
|
|
|
|
|
|
|
|
87,030
|
|
|
|
83,081
|
|
|
|
|
|
|
|
170,111
|
|
Mortgage loans receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,326
|
|
|
|
|
|
|
|
130,326
|
|
Customer deposits held in escrow
|
|
|
|
|
|
|
|
|
|
|
46,198
|
|
|
|
3,478
|
|
|
|
|
|
|
|
49,676
|
|
Investments in and advances to
unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
245,667
|
|
|
|
|
|
|
|
|
|
|
|
245,667
|
|
Investments in and advances to
consolidated entities
|
|
|
3,752,372
|
|
|
|
1,157,554
|
|
|
|
(1,350,097
|
)
|
|
|
(151,355
|
)
|
|
|
(3,408,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,752,372
|
|
|
|
1,162,486
|
|
|
|
5,497,313
|
|
|
|
579,567
|
|
|
|
(3,408,197
|
)
|
|
|
7,583,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans payable
|
|
|
|
|
|
|
|
|
|
|
510,848
|
|
|
|
226,086
|
|
|
|
|
|
|
|
736,934
|
|
Senior notes
|
|
|
|
|
|
|
1,141,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,141,167
|
|
Senior subordinated notes
|
|
|
|
|
|
|
|
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
350,000
|
|
Mortgage company warehouse loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,705
|
|
|
|
|
|
|
|
119,705
|
|
Customer deposits
|
|
|
|
|
|
|
|
|
|
|
325,607
|
|
|
|
34,540
|
|
|
|
|
|
|
|
360,147
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
282,194
|
|
|
|
9,977
|
|
|
|
|
|
|
|
292,171
|
|
Accrued expenses
|
|
|
|
|
|
|
21,319
|
|
|
|
690,651
|
|
|
|
113,319
|
|
|
|
(1
|
)
|
|
|
825,288
|
|
Income taxes payable
|
|
|
336,446
|
|
|
|
|
|
|
|
|
|
|
|
(1,946
|
)
|
|
|
|
|
|
|
334,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
336,446
|
|
|
|
1,162,486
|
|
|
|
2,159,300
|
|
|
|
501,681
|
|
|
|
(1
|
)
|
|
|
4,159,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,703
|
|
|
|
|
|
|
|
7,703
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1,563
|
|
|
|
|
|
|
|
|
|
|
|
2,003
|
|
|
|
(2,003
|
)
|
|
|
1,563
|
|
Additional paid-in capital
|
|
|
220,783
|
|
|
|
|
|
|
|
4,420
|
|
|
|
2,734
|
|
|
|
(7,154
|
)
|
|
|
220,783
|
|
Retained earnings
|
|
|
3,263,274
|
|
|
|
|
|
|
|
3,333,593
|
|
|
|
65,446
|
|
|
|
(3,399,039
|
)
|
|
|
3,263,274
|
|
Treasury stock, at cost
|
|
|
(69,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,415,926
|
|
|
|
|
|
|
|
3,338,013
|
|
|
|
70,183
|
|
|
|
(3,408,196
|
)
|
|
|
3,415,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,752,372
|
|
|
|
1,162,486
|
|
|
|
5,497,313
|
|
|
|
579,567
|
|
|
|
(3,408,197
|
)
|
|
|
7,583,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Income for the nine months ended
July 31, 2007 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completed contract
|
|
|
|
|
|
|
|
|
|
|
3,356,895
|
|
|
|
|
|
|
|
|
|
|
|
3,356,895
|
|
Percentage of completion
|
|
|
|
|
|
|
|
|
|
|
61,473
|
|
|
|
49,417
|
|
|
|
|
|
|
|
110,890
|
|
Land sales
|
|
|
|
|
|
|
|
|
|
|
9,854
|
|
|
|
|
|
|
|
|
|
|
|
9,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,428,222
|
|
|
|
49,417
|
|
|
|
|
|
|
|
3,477,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completed contract
|
|
|
|
|
|
|
|
|
|
|
2,767,236
|
|
|
|
44,770
|
|
|
|
(607
|
)
|
|
|
2,811,399
|
|
Percentage of completion
|
|
|
|
|
|
|
|
|
|
|
49,529
|
|
|
|
38,011
|
|
|
|
|
|
|
|
87,540
|
|
Land sales
|
|
|
|
|
|
|
|
|
|
|
6,441
|
|
|
|
|
|
|
|
|
|
|
|
6,441
|
|
Interest
|
|
|
|
|
|
|
50,204
|
|
|
|
65,687
|
|
|
|
10,571
|
|
|
|
(50,204
|
)
|
|
|
76,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,204
|
|
|
|
2,888,893
|
|
|
|
93,352
|
|
|
|
(50,811
|
)
|
|
|
2,981,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
30
|
|
|
|
533
|
|
|
|
396,606
|
|
|
|
26,270
|
|
|
|
(27,176
|
)
|
|
|
396,263
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
8,973
|
|
|
|
|
|
|
|
|
|
|
|
8,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
(30
|
)
|
|
|
(50,737
|
)
|
|
|
133,750
|
|
|
|
(70,205
|
)
|
|
|
77,987
|
|
|
|
90,765
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings
|
|
|
|
|
|
|
|
|
|
|
15,388
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
15,375
|
|
Interest and other
|
|
|
|
|
|
|
50,737
|
|
|
|
42,631
|
|
|
|
60,169
|
|
|
|
(67,938
|
)
|
|
|
85,599
|
|
Earnings from subsidiaries
|
|
|
191,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(191,769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
191,739
|
|
|
|
|
|
|
|
191,769
|
|
|
|
(10,049
|
)
|
|
|
(181,720
|
)
|
|
|
191,739
|
|
Income taxes
|
|
|
74,247
|
|
|
|
|
|
|
|
66,606
|
|
|
|
(3,929
|
)
|
|
|
(62,677
|
)
|
|
|
74,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
117,492
|
|
|
|
|
|
|
|
125,163
|
|
|
|
(6,120
|
)
|
|
|
(119,043
|
)
|
|
|
117,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Income for the three months ended
July 31, 2007 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completed contract
|
|
|
|
|
|
|
|
|
|
|
1,178,500
|
|
|
|
|
|
|
|
|
|
|
|
1,178,500
|
|
Percentage of completion
|
|
|
|
|
|
|
|
|
|
|
17,523
|
|
|
|
11,845
|
|
|
|
|
|
|
|
29,368
|
|
Land sales
|
|
|
|
|
|
|
|
|
|
|
4,483
|
|
|
|
|
|
|
|
|
|
|
|
4,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,200,506
|
|
|
|
11,845
|
|
|
|
|
|
|
|
1,212,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completed contract
|
|
|
|
|
|
|
|
|
|
|
981,546
|
|
|
|
40,308
|
|
|
|
1,376
|
|
|
|
1,023,230
|
|
Percentage of completion
|
|
|
|
|
|
|
|
|
|
|
14,007
|
|
|
|
10,273
|
|
|
|
|
|
|
|
24,280
|
|
Land sales
|
|
|
|
|
|
|
|
|
|
|
3,677
|
|
|
|
|
|
|
|
|
|
|
|
3,677
|
|
Interest
|
|
|
|
|
|
|
16,734
|
|
|
|
24,075
|
|
|
|
3,046
|
|
|
|
(16,734
|
)
|
|
|
27,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,734
|
|
|
|
1,023,305
|
|
|
|
53,627
|
|
|
|
(15,358
|
)
|
|
|
1,078,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
22
|
|
|
|
180
|
|
|
|
131,755
|
|
|
|
9,318
|
|
|
|
(9,589
|
)
|
|
|
131,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
(22
|
)
|
|
|
(16,914
|
)
|
|
|
45,446
|
|
|
|
(51,100
|
)
|
|
|
24,947
|
|
|
|
2,357
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings
|
|
|
|
|
|
|
|
|
|
|
3,868
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
3,848
|
|
Interest and other
|
|
|
|
|
|
|
16,914
|
|
|
|
(4,246
|
)
|
|
|
27,619
|
|
|
|
(1,446
|
)
|
|
|
38,841
|
|
Earnings from subsidiaries
|
|
|
45,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
45,046
|
|
|
|
|
|
|
|
45,068
|
|
|
|
(23,501
|
)
|
|
|
(21,567
|
)
|
|
|
45,046
|
|
Income taxes
|
|
|
18,560
|
|
|
|
|
|
|
|
12,520
|
|
|
|
(9,188
|
)
|
|
|
(3,332
|
)
|
|
|
18,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
26,486
|
|
|
|
|
|
|
|
32,548
|
|
|
|
(14,313
|
)
|
|
|
(18,235
|
)
|
|
|
26,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Income for the nine months ended
July 31, 2006 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completed contract
|
|
|
|
|
|
|
|
|
|
|
4,168,092
|
|
|
|
|
|
|
|
|
|
|
|
4,168,092
|
|
Percentage of completion
|
|
|
|
|
|
|
|
|
|
|
72,453
|
|
|
|
66,234
|
|
|
|
|
|
|
|
138,687
|
|
Land sales
|
|
|
|
|
|
|
|
|
|
|
7,923
|
|
|
|
|
|
|
|
|
|
|
|
7,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,248,468
|
|
|
|
66,234
|
|
|
|
|
|
|
|
4,314,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completed contract
|
|
|
|
|
|
|
|
|
|
|
2,910,189
|
|
|
|
3,882
|
|
|
|
(1,321
|
)
|
|
|
2,912,750
|
|
Percentage of completion
|
|
|
|
|
|
|
|
|
|
|
55,875
|
|
|
|
54,644
|
|
|
|
|
|
|
|
110,519
|
|
Land sales
|
|
|
|
|
|
|
|
|
|
|
6,842
|
|
|
|
|
|
|
|
|
|
|
|
6,842
|
|
Interest
|
|
|
|
|
|
|
50,204
|
|
|
|
77,066
|
|
|
|
11,379
|
|
|
|
(50,204
|
)
|
|
|
88,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,204
|
|
|
|
3,049,972
|
|
|
|
69,905
|
|
|
|
(51,525
|
)
|
|
|
3,118,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
32
|
|
|
|
525
|
|
|
|
429,987
|
|
|
|
23,789
|
|
|
|
(24,992
|
)
|
|
|
429,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
(32
|
)
|
|
|
(50,729
|
)
|
|
|
768,509
|
|
|
|
(27,460
|
)
|
|
|
76,517
|
|
|
|
766,805
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings
|
|
|
|
|
|
|
|
|
|
|
36,662
|
|
|
|
|
|
|
|
|
|
|
|
36,662
|
|
Interest and other
|
|
|
|
|
|
|
50,729
|
|
|
|
30,320
|
|
|
|
36,021
|
|
|
|
(85,078
|
)
|
|
|
31,992
|
|
Earnings from subsidiaries
|
|
|
835,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(835,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
835,459
|
|
|
|
|
|
|
|
835,491
|
|
|
|
8,561
|
|
|
|
(844,052
|
)
|
|
|
835,459
|
|
Income taxes
|
|
|
322,040
|
|
|
|
|
|
|
|
315,983
|
|
|
|
3,347
|
|
|
|
(319,330
|
)
|
|
|
322,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
513,419
|
|
|
|
|
|
|
|
519,508
|
|
|
|
5,214
|
|
|
|
(524,722
|
)
|
|
|
513,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Income for the three months ended
July 31, 2006 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completed contract
|
|
|
|
|
|
|
|
|
|
|
1,488,905
|
|
|
|
|
|
|
|
|
|
|
|
1,488,905
|
|
Percentage of completion
|
|
|
|
|
|
|
|
|
|
|
19,413
|
|
|
|
21,750
|
|
|
|
|
|
|
|
41,163
|
|
Land sales
|
|
|
|
|
|
|
|
|
|
|
1,145
|
|
|
|
|
|
|
|
|
|
|
|
1,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,509,463
|
|
|
|
21,750
|
|
|
|
|
|
|
|
1,531,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completed contract
|
|
|
|
|
|
|
|
|
|
|
1,050,725
|
|
|
|
1,319
|
|
|
|
72
|
|
|
|
1,052,116
|
|
Percentage of completion
|
|
|
|
|
|
|
|
|
|
|
14,611
|
|
|
|
17,384
|
|
|
|
|
|
|
|
31,995
|
|
Land sales
|
|
|
|
|
|
|
|
|
|
|
903
|
|
|
|
|
|
|
|
|
|
|
|
903
|
|
Interest
|
|
|
|
|
|
|
16,734
|
|
|
|
27,773
|
|
|
|
1,050
|
|
|
|
(15,741
|
)
|
|
|
29,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,734
|
|
|
|
1,094,012
|
|
|
|
19,753
|
|
|
|
(15,669
|
)
|
|
|
1,114,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
16
|
|
|
|
176
|
|
|
|
148,181
|
|
|
|
8,765
|
|
|
|
(9,021
|
)
|
|
|
148,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
(16
|
)
|
|
|
(16,910
|
)
|
|
|
267,270
|
|
|
|
(6,768
|
)
|
|
|
24,690
|
|
|
|
268,266
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings
|
|
|
|
|
|
|
|
|
|
|
7,269
|
|
|
|
|
|
|
|
|
|
|
|
7,269
|
|
Interest and other
|
|
|
|
|
|
|
16,910
|
|
|
|
10,711
|
|
|
|
11,297
|
|
|
|
(29,219
|
)
|
|
|
9,699
|
|
Earnings from subsidiaries
|
|
|
285,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(285,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
285,234
|
|
|
|
|
|
|
|
285,250
|
|
|
|
4,529
|
|
|
|
(289,779
|
)
|
|
|
285,234
|
|
Income taxes
|
|
|
110,602
|
|
|
|
|
|
|
|
105,549
|
|
|
|
1,770
|
|
|
|
(107,319
|
)
|
|
|
110,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
174,632
|
|
|
|
|
|
|
|
179,701
|
|
|
|
2,759
|
|
|
|
(182,460
|
)
|
|
|
174,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Cash Flows for the nine months ended
July 31, 2007
($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
117,492
|
|
|
|
|
|
|
|
125,163
|
|
|
|
(6,120
|
)
|
|
|
(119,043
|
)
|
|
|
117,492
|
|
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
854
|
|
|
|
21,644
|
|
|
|
335
|
|
|
|
|
|
|
|
22,833
|
|
Amortization of initial benefit
obligation
|
|
|
|
|
|
|
|
|
|
|
1,088
|
|
|
|
|
|
|
|
|
|
|
|
1,088
|
|
Stock-based compensation
|
|
|
22,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,956
|
|
Excess tax benefit from stock-based
compensation
|
|
|
(14,736
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,736
|
)
|
Equity earnings (loss) from
unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
(15,388
|
)
|
|
|
13
|
|
|
|
|
|
|
|
(15,375
|
)
|
Distributions from unconsolidated
entities
|
|
|
|
|
|
|
|
|
|
|
16,501
|
|
|
|
|
|
|
|
|
|
|
|
16,501
|
|
Deferred tax provision
|
|
|
(137,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(137,350
|
)
|
Inventory write-offs
|
|
|
|
|
|
|
|
|
|
|
324,204
|
|
|
|
39,700
|
|
|
|
|
|
|
|
363,904
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
8,973
|
|
|
|
|
|
|
|
|
|
|
|
8,973
|
|
Gain on sales of businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,643
|
)
|
|
|
|
|
|
|
(24,643
|
)
|
Changes in operating assets and
liabilities
(Increase) decrease in inventory
|
|
|
|
|
|
|
|
|
|
|
(143,472
|
)
|
|
|
(40,238
|
)
|
|
|
|
|
|
|
(183,710
|
)
|
Origination of mortgage loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,064,537
|
)
|
|
|
|
|
|
|
(1,064,537
|
)
|
Sale of mortgage loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,054,717
|
|
|
|
|
|
|
|
1,054,717
|
|
Decrease in contracts receivable
|
|
|
|
|
|
|
|
|
|
|
43,888
|
|
|
|
78,150
|
|
|
|
|
|
|
|
122,038
|
|
Decrease (increase) in receivables,
prepaid expenses and other assets
|
|
|
48,224
|
|
|
|
733
|
|
|
|
(138,900
|
)
|
|
|
(2,815
|
)
|
|
|
119,043
|
|
|
|
26,285
|
|
Decrease in customer deposits
|
|
|
|
|
|
|
|
|
|
|
(47,763
|
)
|
|
|
(5,474
|
)
|
|
|
|
|
|
|
(53,237
|
)
|
(Decrease) increase in accounts
payable and accrued expenses
|
|
|
9,774
|
|
|
|
(1,587
|
)
|
|
|
(116,461
|
)
|
|
|
26,123
|
|
|
|
|
|
|
|
(82,151
|
)
|
Decrease in current income taxes
payable
|
|
|
(79,495
|
)
|
|
|
|
|
|
|
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
(79,548
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
(33,135
|
)
|
|
|
|
|
|
|
79,477
|
|
|
|
55,158
|
|
|
|
|
|
|
|
101,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment,
net
|
|
|
|
|
|
|
|
|
|
|
(12,925
|
)
|
|
|
(792
|
)
|
|
|
|
|
|
|
(13,717
|
)
|
Proceeds from sale of business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,299
|
|
|
|
|
|
|
|
32,299
|
|
Purchase of marketable securities
|
|
|
|
|
|
|
|
|
|
|
(3,505,995
|
)
|
|
|
(334,625
|
)
|
|
|
|
|
|
|
(3,840,620
|
)
|
Sale of marketable securities
|
|
|
|
|
|
|
|
|
|
|
3,505,995
|
|
|
|
334,625
|
|
|
|
|
|
|
|
3,840,620
|
|
Investments in and advances to
unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
(21,194
|
)
|
|
|
|
|
|
|
|
|
|
|
(21,194
|
)
|
Distributions from unconsolidated
entities
|
|
|
|
|
|
|
|
|
|
|
35,953
|
|
|
|
|
|
|
|
|
|
|
|
35,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing
activities
|
|
|
|
|
|
|
|
|
|
|
1,834
|
|
|
|
31,507
|
|
|
|
|
|
|
|
33,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of loans payable
|
|
|
|
|
|
|
|
|
|
|
32,986
|
|
|
|
1,100,906
|
|
|
|
|
|
|
|
1,133,892
|
|
Proceeds from loans payable
|
|
|
|
|
|
|
|
|
|
|
(37,099
|
)
|
|
|
(1,125,874
|
)
|
|
|
|
|
|
|
(1,162,973
|
)
|
Proceeds from stock-based benefit
plans
|
|
|
17,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,994
|
|
Proceeds from restricted stock award
|
|
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,800
|
|
Excess tax benefit from stock-based
compensation
|
|
|
14,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,736
|
|
Purchase of treasury stock
|
|
|
(1,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,395
|
)
|
Change in minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
302
|
|
|
|
|
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
33,135
|
|
|
|
|
|
|
|
(4,113
|
)
|
|
|
(24,666
|
)
|
|
|
|
|
|
|
4,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
|
|
|
|
|
|
|
|
|
77,198
|
|
|
|
61,999
|
|
|
|
|
|
|
|
139,197
|
|
Cash and cash equivalents,
beginning of period
|
|
|
|
|
|
|
|
|
|
|
582,465
|
|
|
|
50,059
|
|
|
|
|
|
|
|
632,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
|
|
|
|
|
|
|
|
|
659,663
|
|
|
|
112,058
|
|
|
|
|
|
|
|
771,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Cash Flows for the nine months ended
July 31, 2006
($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
513,419
|
|
|
|
|
|
|
|
519,508
|
|
|
|
5,214
|
|
|
|
(524,722
|
)
|
|
|
513,419
|
|
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
854
|
|
|
|
19,020
|
|
|
|
2,081
|
|
|
|
|
|
|
|
21,955
|
|
Amortization of initial benefit
obligation
|
|
|
|
|
|
|
|
|
|
|
1,455
|
|
|
|
|
|
|
|
|
|
|
|
1,455
|
|
Stock-based compensation
|
|
|
21,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,747
|
|
Excess tax benefits from
stock-based compensation
|
|
|
(12,759
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,759
|
)
|
Equity earnings from unconsolidated
entities
|
|
|
|
|
|
|
|
|
|
|
(36,662
|
)
|
|
|
|
|
|
|
|
|
|
|
(36,662
|
)
|
Distributions from unconsolidated
entities
|
|
|
|
|
|
|
|
|
|
|
5,897
|
|
|
|
|
|
|
|
|
|
|
|
5,897
|
|
Deferred tax provision
|
|
|
33,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,139
|
|
Inventory write-offs
|
|
|
|
|
|
|
|
|
|
|
36,998
|
|
|
|
|
|
|
|
|
|
|
|
36,998
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in inventory
|
|
|
|
|
|
|
|
|
|
|
(844,657
|
)
|
|
|
(74,207
|
)
|
|
|
|
|
|
|
(918,864
|
)
|
Origination of mortgage loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(656,677
|
)
|
|
|
|
|
|
|
(656,677
|
)
|
Sale of mortgage loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
663,770
|
|
|
|
|
|
|
|
663,770
|
|
Increase in contracts receivable
|
|
|
|
|
|
|
|
|
|
|
(72,453
|
)
|
|
|
(66,234
|
)
|
|
|
|
|
|
|
(138,687
|
)
|
Decrease (increase) in receivables,
prepaid expenses and other assets
|
|
|
(483,394
|
)
|
|
|
4
|
|
|
|
(94,240
|
)
|
|
|
111,553
|
|
|
|
491,854
|
|
|
|
25,777
|
|
Increase (decrease) in customer
deposits
|
|
|
|
|
|
|
|
|
|
|
(2,523
|
)
|
|
|
29,716
|
|
|
|
|
|
|
|
27,193
|
|
Increase (decrease) in accounts
payable and accrued expenses
|
|
|
13,336
|
|
|
|
(858
|
)
|
|
|
(44,372
|
)
|
|
|
4,803
|
|
|
|
32,868
|
|
|
|
5,777
|
|
Decrease in current income taxes
payable
|
|
|
(1,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
operating activities
|
|
|
84,474
|
|
|
|
|
|
|
|
(512,029
|
)
|
|
|
20,019
|
|
|
|
|
|
|
|
(407,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment,
net
|
|
|
|
|
|
|
|
|
|
|
(31,888
|
)
|
|
|
(1,165
|
)
|
|
|
|
|
|
|
(33,053
|
)
|
Purchases of marketable securities
|
|
|
|
|
|
|
|
|
|
|
(2,150,940
|
)
|
|
|
(36,775
|
)
|
|
|
|
|
|
|
(2,187,715
|
)
|
Sales of marketable securities
|
|
|
|
|
|
|
|
|
|
|
2,150,940
|
|
|
|
36,775
|
|
|
|
|
|
|
|
2,187,715
|
|
Investments in unconsolidated
entities
|
|
|
|
|
|
|
|
|
|
|
(93,692
|
)
|
|
|
|
|
|
|
|
|
|
|
(93,692
|
)
|
Distributions from unconsolidated
entities
|
|
|
|
|
|
|
|
|
|
|
34,249
|
|
|
|
|
|
|
|
|
|
|
|
34,249
|
|
Acquisition of joint venture
interest
|
|
|
|
|
|
|
|
|
|
|
(40,722
|
)
|
|
|
|
|
|
|
|
|
|
|
(40,722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
|
|
|
|
|
|
|
|
(132,053
|
)
|
|
|
(1,165
|
)
|
|
|
|
|
|
|
(133,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from loans payable
|
|
|
|
|
|
|
|
|
|
|
1,395,876
|
|
|
|
646,313
|
|
|
|
|
|
|
|
2,042,189
|
|
Principal payments of loans payable
|
|
|
|
|
|
|
|
|
|
|
(1,144,590
|
)
|
|
|
(642,203
|
)
|
|
|
|
|
|
|
(1,786,793
|
)
|
Proceeds from stock-based benefit
plans
|
|
|
12,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,287
|
|
Purchase of treasury stock
|
|
|
(109,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109,520
|
)
|
Excess tax benefits from
stock-based compensation
|
|
|
12,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,759
|
|
Change in minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,163
|
|
|
|
|
|
|
|
3,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
(84,474
|
)
|
|
|
|
|
|
|
251,286
|
|
|
|
7,273
|
|
|
|
|
|
|
|
174,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and
cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(392,796
|
)
|
|
|
26,127
|
|
|
|
|
|
|
|
(366,669
|
)
|
Cash and cash equivalents,
beginning of period
|
|
|
|
|
|
|
|
|
|
|
664,312
|
|
|
|
24,907
|
|
|
|
|
|
|
|
689,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
|
|
|
|
|
|
|
|
|
271,516
|
|
|
|
51,034
|
|
|
|
|
|
|
|
322,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
ITEM 2.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
OVERVIEW
In the nine-month and three-month
periods ended July 31, 2007, we recognized
$3.48 billion and $1.21 billion of revenues,
respectively, as compared to $4.31 billion and
$1.53 billion of revenues in the comparable periods of
fiscal 2006.
Net income in the nine-month and
three-month periods ended July 31, 2007 was
$117.5 million and $26.5 million, respectively, as
compared to $513.4 million and $174.6 million in the
comparable periods of fiscal 2006. We recognized
$363.9 million and $147.3 million of inventory
write-downs in the nine-month and three-month periods ended
July 31, 2007, respectively. In addition, we recognized a
$9.0 million goodwill impairment charge in the three-month
period ended January 31, 2007. We recognized
$37.0 million and $23.9 million of inventory
write-downs in the nine-month and three-month periods ended
July 31, 2006 respectively.
Our backlog of $3.67 billion
at July 31, 2007 decreased 34.4% compared to our backlog of
$5.59 billion at July 31, 2006. Backlog includes the
value of homes under contract but not yet delivered to our home
buyers which are accounted for using the completed contract
method of accounting and the value of homes for which we use the
percentage of completion accounting method, which consists of
homes under contract but not yet delivered to our home buyers
less the amount of revenues we have recognized related to those
homes.
Beginning in the fourth quarter of
fiscal 2005 and continuing throughout fiscal 2006 and into the
fourth quarter of fiscal 2007, we have experienced a slowdown in
new contracts signed. In the nine-month and three-month periods
ended July 31, 2007, we signed $2.64 billion and
$727.0 million of net new contracts, respectively, as
compared to $3.75 billion and $1.05 billion of net new
contracts in the comparable periods of fiscal 2006. We believe
this slowdown is attributable to a decline in consumer
confidence, an overall softening of demand for new homes, an
oversupply of homes available for sale, the inability of some of
our home buyers to sell their current home and the direct and
indirect impact of the turmoil in the sub-prime mortgage loan
market. We attribute the reduction in demand to concerns on the
part of prospective home buyers about the direction of home
prices, due in part to many home builders advertising
price reductions and increased sales incentives, and concerns by
the prospective home buyers about being able to sell their
existing homes. In addition, we believe speculators and
investors are no longer helping to fuel demand. We try to avoid
selling homes to speculators, and we generally do not build
detached homes without having a signed agreement of sale and
receiving a substantial down payment from a buyer. Nonetheless,
we have been impacted by an overall increase in the supply of
homes available for sale in many markets, as speculators attempt
to sell the homes they previously purchased or cancel contracts
for homes under construction, and as other builders, who, as
part of their business strategy, were building homes in
anticipation of capturing additional sales in a demand-driven
market, attempt to reduce their inventories by aggressively
lowering prices and adding incentives. Non-speculative buyer
cancellations are also adding to the supply of homes in the
marketplace. In the nine-month and three-month periods ended
July 31, 2007, home buyers cancelled 1,167 contracts and
347 contracts, respectively, or approximately 24% and 24%,
respectively, of the gross number of contracts signed in the
respective periods. In the comparable periods of fiscal 2006,
home buyers cancelled 688 contracts and 317 contracts,
respectively, or approximately 12% and 18%, respectively, of the
gross number of contracts signed in the respective periods. In
the quarter ended October 31, 2006, home buyers cancelled
approximately 37% of the gross contracts signed. When we report
contracts signed, the number and value of contracts signed are
reported net of any cancellations occurring during the reporting
period, whether signed in that reporting period or in a prior
period. Despite this slowdown, our industry demographics remain
strong due to the continuing regulation-induced constraints on
lot supplies and the growing number of affluent households. We
continue to seek a balance between our short-term goal of
selling homes in a tough market and maximizing the value of our
communities. We believe that many of our communities are in
locations that are difficult to replace and in markets where
approvals are increasingly difficult to achieve. We believe that
many of these communities have substantial embedded value that
will be realizable in the future and that their value should not
necessarily be sacrificed in the current soft market.
We, along with many others, are
concerned about the dislocation in the secondary mortgage
market. We maintain relationships with a widely diversified
group of mortgage providers (investors), most of
which are among the largest and, we believe, most reliable in
our industry. With few exceptions, the investors who provide our
25
customers with mortgages continue
to issue new commitments. Through our third-quarter-end, our
buyers generally were able to obtain loans. Nevertheless,
tightening credit standards will likely shrink the pool of
potential home buyers. Mortgage market liquidity issues and
higher borrowing rates may impede some of our home buyers from
closing, while others may find it more difficult to sell their
existing homes as their buyer faces the problem of obtaining a
mortgage. However, we believe that our buyers generally should
be able to continue to secure mortgages, due to their typically
lower loan-to-value ratios and attractive credit profiles, as
compared to the average American home buyer. Although we cannot
predict the short- and long-term liquidity of the loan markets,
we caution that, with the uncertainties in the mortgage markets
right now, the pace of home sales could slow further until the
credit markets settle down.
In the current challenging
environment, we believe our access to reliable capital and our
strong balance sheet give us an important competitive advantage.
Based on our experience during prior downturns in the housing
market, we have learned that unexpected opportunities may arise
in difficult times for those who are well-prepared. We believe
that our solid financial base, our broad geographic presence,
our diversified product lines and our national brand name all
position us well for such opportunities now and in the future.
At July 31, 2007, we had $771.7 million of cash and
cash equivalents and approximately $1.17 billion available
under our bank revolving credit facility which extends to
March 17, 2011.
We believe geographic and product
diversification, access to lower-cost capital, and strong
demographics have in the past and will in the future, as market
conditions improve, benefit those builders who can control land
and persevere through the increasingly difficult regulatory
approval process. We believe that this evolution in our industry
favors the large publicly traded home building companies with
the capital and expertise to control home sites and gain market
share. We believe that as the homebuilders reduce the number of
home sites being taken through the approval process and the
process continues to become more difficult, and as the political
pressure from no-growth proponents continues to increase, our
expertise in taking land through the approval process and our
already approved land positions will allow us to grow in the
years to come, as market conditions improve.
Because of the length of time that
it takes to obtain the necessary approvals on a property,
complete the land improvements on it, and deliver a home after a
home buyer signs an agreement of sale, we are subject to many
risks. We attempt to reduce certain risks by: controlling land
for future development through options whenever possible, thus
allowing us to obtain the necessary governmental approvals
before acquiring title to the land; generally commencing
construction of a detached home only after executing an
agreement of sale and receiving a substantial down payment from
a buyer; and using subcontractors to perform home construction
and land development work on a fixed-price basis. In response to
current market conditions, we have been re-evaluating and
renegotiating many of our optioned land positions. As a result,
we have reduced our land position to approximately 63,000 lots
controlled at July 31, 2007 compared to 73,800 lots at
October 31, 2006 and 82,000 lots at July 31, 2006.
In the nine-month period ended
July 31, 2007, we recognized impairment charges of
approximately $338.7 million on communities in which we are
currently selling and on land owned, primarily located in
Arizona, California, Florida, Illinois, Maryland, Michigan,
Minnesota, Nevada, New Jersey and Virginia, and
$25.2 million of write-downs attributable to land under
option related to future communities. In the three-month period
ended July 31, 2007, we recognized impairment charges of
approximately $139.6 million on communities in which we
were currently selling and on land owned, primarily located in
California, Florida, Nevada, and Virginia, and $7.7 million
of write-downs attributable to land under option related to
future communities.
At July 31, 2007, the fair
value of the inventory in the 28 current communities and
owned land subject to write-downs in the three-month period
ended July 31, 2007, net of the $139.6 million of
write-downs, was approximately $344.1 million.
In the ordinary course of doing
business, we must make estimates and judgments that affect
decisions on how we operate and on the reported amounts of
assets, liabilities, revenues and expenses. These estimates
include, but are not limited to, those related to the
recognition of income and expenses; impairment of assets;
estimates of future improvement and amenity costs;
capitalization of costs to inventory; provisions for litigation,
insurance and warranty costs; and income taxes. We base our
estimates on historical experience and on various other
assumptions that we believe to be reasonable under the
circumstances. On an ongoing basis, we evaluate and adjust our
estimates
26
based on the information currently
available. Actual results may differ from these estimates and
assumptions or conditions.
At July 31, 2007, we were
selling from 315 communities compared to 300 communities at
October 31, 2006 and 295 communities at July 31, 2006.
We expect to be selling from approximately 305 communities at
October 31, 2007.
CRITICAL
ACCOUNTING POLICIES
We believe the following critical
accounting policies reflect the more significant judgments and
estimates used in the preparation of our consolidated financial
statements.
Inventory
Inventory is stated at the lower
of cost or fair value in accordance with Statement of Financial
Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144). In addition to direct
land acquisition, land development and home construction costs,
costs include interest, real estate taxes and direct overhead
related to development and construction, which are capitalized
to inventories during the period beginning with the commencement
of development and ending with the completion of construction.
Once a parcel of land has been approved for development, it
generally takes four to five years to fully develop, sell and
deliver all the homes in one of our typical communities. Longer
or shorter time periods are possible depending on the number of
home sites in a community and the sales and delivery pace of the
homes in a community. Our master planned communities, consisting
of several smaller communities, may take up to 10 years or
more to complete. Because our inventory is considered a
long-lived asset under U.S. generally accepted accounting
principles, we are required, under SFAS 144, to regularly
review the carrying value of each of our communities and write
down the value of those communities for which we believe the
values are not recoverable.
Current
Communities: When
the profitability of a current community deteriorates, the sales
pace declines significantly or some other factor indicates a
possible impairment in the recoverability of the asset, the
asset is reviewed for impairment by comparing the estimated
future undiscounted cash flow for the community to its carrying
value. If the estimated future undiscounted cash flow is less
than the communitys carrying value, the carrying value is
written down to its estimated fair value. Fair value is
primarily determined by discounting the estimated future cash
flow of each community. The impairment is charged to cost of
revenues in the period the impairment is determined. In
estimating the cash flow of a community, we use various
estimates such as (a) the expected sales pace in a
community based upon general economic conditions that will have
a short-term or long-term impact on the market in which the
community is located and competition within the market,
including the number of homes/home sites available and pricing
and incentives being offered in other communities owned by us or
by other builders; (b) the expected sales prices and sales
incentives to be offered in a community; (c) costs expended
to date and expected to be incurred in the future, including,
but not limited to, land and land development costs, home
construction costs, interest costs and overhead costs;
(d) alternative product offerings that may be offered in a
community that will have an impact on sales pace, sales price,
building cost or on the number of homes that can be built on a
particular site; and (e) alternative uses for the property
such as the possibility of a sale of the entire community to
another builder or the sale of individual home sites.
Future
Communities: We
evaluate all land held for future communities or future sections
of current communities, whether owned or under contract, to
determine whether or not we expect to proceed with the
development of the land as originally contemplated. This
evaluation encompasses the same types of estimates used for
current communities described above as well as an evaluation of
the regulatory environment in which the land is located and the
estimated probability of obtaining the necessary approvals, the
estimated time and cost it will take to obtain the approvals and
the possible concessions that will be required to be given in
order to obtain them. Concessions may include cash payments to
fund improvement to public places such as parks and streets,
dedication of a portion of the property for use by the public or
as open space or a reduction in the density or size of the homes
to be built. Based upon this review, we decide (a) as to
land under contract to be purchased, whether the contract will
likely be terminated or renegotiated, and (b) as to land we
own, whether the land will likely be developed as contemplated
or in an alternative manner, or should be sold. We then further
determine whether costs that have been
27
capitalized to the community are
recoverable or should be written off. The write-off is charged
to cost of revenues in the period that the need for the
write-off is determined.
The estimates used in the
determination of the estimated cash flows and fair value of a
community are based on factors known to us at the time such
estimates are made and our expectations of future operations and
economic conditions. Should the estimates or expectations used
in determining estimated fair value deteriorate in the future,
we may be required to recognize additional write-downs related
to current and future communities.
Variable Interest
Entities: We
have a significant number of land purchase contracts, sometimes
referred to herein as options or option
agreements, and several investments in unconsolidated
entities which we evaluate in accordance with the Financial
Accounting Standards Board (FASB) Interpretation
No. 46 Consolidation of Variable Interest Entities,
an interpretation of ARB No. 51, as amended by
FIN 46R (FIN 46). Pursuant to FIN 46,
an enterprise that absorbs a majority of the expected losses or
receives a majority of the expected residual returns of a
variable interest entity (VIE) is considered to be
the primary beneficiary and must consolidate the VIE. A VIE is
an entity with insufficient equity investment or in which the
equity investors lack some of the characteristics of a
controlling financial interest. For land purchase contracts with
sellers meeting the definition of a VIE, we perform a review to
determine which party is the primary beneficiary of the VIE.
This review requires substantial judgment and estimation. These
judgments and estimates involve assigning probabilities to
various estimated cash flow possibilities relative to the
entitys expected profits and losses and the cash flows
associated with changes in the fair value of the land under
contract. At July 31, 2007, we determined that we were the
primary beneficiary of one VIE related to a land purchase
contract and recorded inventory of $16.3 million and
accrued expenses of $12.0 million.
Revenue
and Cost Recognition
Completed Contract
Method: The
construction time of our homes is generally less than one year
although some may take more than one year to complete. Revenues
and cost of revenues from these home sales are recorded at the
time each home is delivered and title and possession are
transferred to the buyer. Closing normally occurs shortly after
construction is substantially completed. In addition, we have
several high-rise/mid-rise projects which do not qualify for
percentage of completion accounting in accordance
SFAS No. 66, Accounting for Sales of Real
Estate (SFAS 66), which we will include
in this category of revenues and costs commencing in the fourth
quarter of fiscal 2007 when units in these buildings begin to be
delivered to home buyers.
Land, land development and related
costs, both incurred and estimated to be incurred in the future,
are amortized to the cost of homes closed based upon the total
number of homes to be constructed in each community. Any changes
resulting from a change in the estimated number of homes to be
constructed or in the estimated costs subsequent to the
commencement of delivery of homes are allocated to the remaining
undelivered homes in the community. Home construction and
related costs are charged to the cost of homes closed under the
specific identification method. The estimated land, common area
development and related costs of master planned communities,
including the cost of golf courses, net of their estimated
residual value, are allocated to individual communities within a
master planned community on a relative sales value basis. Any
changes resulting from a change in the estimated number of homes
to be constructed or in the estimated costs are allocated to the
remaining home sites in each of the communities of the master
planned community.
Percentage of Completion
Method: We
are developing several high-rise/mid-rise projects that may take
substantially more than one year to complete. Under the
provisions of SFAS 66, revenues and costs are recognized
using the percentage of completion method of accounting when
construction is beyond the preliminary stage, the buyer is
committed to the extent of being unable to require a refund
except for non-delivery of the unit, sufficient units in the
project have been sold to ensure that the property will not be
converted to rental property, the sales proceeds are collectible
and the aggregate sales proceeds and the total cost of the
project can be reasonably estimated. Revenues and costs of
individual projects are recognized on the individual
projects aggregate value of units for which the home
buyers have signed binding agreements of sale, less an allowance
for cancellations, and are based on the percentage of total
estimated construction costs that have been incurred. Total
estimated revenues and construction costs are reviewed
periodically, and any change is applied to current and future
periods.
28
Land
Sales: Land
sales revenues and cost of revenues are recorded at the time
that title and possession of the property have been transferred
to the buyer. We recognize the pro rata share of revenues and
cost of land sales revenues to entities in which we have a 50%
or less interest based upon the ownership percentage
attributable to the non-Company investors. Any profit not
recognized in a transaction reduces our investment in the entity.
OFF-BALANCE
SHEET ARRANGEMENTS
We have investments in and
advances to several joint ventures, to Toll Brothers Realty
Trust Group (Trust) and Toll Brothers Realty
Trust Group II (Trust II). At
July 31, 2007, we had investments in and advances to these
entities of $240.3 million, were committed to invest or
advance an additional $372.7 million in the aggregate to
these entities if needed, and had guaranteed approximately
$161.1 million of these entities indebtedness
and/or loan
commitments. See Note 3 of the Notes to Condensed
Consolidated Financial Statements, Investments in and
Advances to Unconsolidated Entities for more information
regarding these entities. We do not believe that these
arrangements, individually or in the aggregate, have or are
reasonably likely to have a current or future material effect on
our financial condition, liquidity or capital resources. Our
investments in these entities are accounted for using the equity
method.
29
RESULTS
OF OPERATIONS
The following table sets forth,
for the nine-month and three-month periods ended July 31,
2007 and 2006, a comparison of certain income statement items
related to our operations ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Completed contract:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
3,356.9
|
|
|
|
|
|
|
|
4,168.1
|
|
|
|
|
|
|
|
1,178.5
|
|
|
|
|
|
|
|
1,488.9
|
|
|
|
|
|
Costs
|
|
|
2,811.4
|
|
|
|
83.7
|
|
|
|
2,912.8
|
|
|
|
69.9
|
|
|
|
1,023.2
|
|
|
|
86.8
|
|
|
|
1,052.1
|
|
|
|
70.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
545.5
|
|
|
|
|
|
|
|
1,255.3
|
|
|
|
|
|
|
|
155.3
|
|
|
|
|
|
|
|
436.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of completion:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
110.9
|
|
|
|
|
|
|
|
138.7
|
|
|
|
|
|
|
|
29.4
|
|
|
|
|
|
|
|
41.2
|
|
|
|
|
|
Costs
|
|
|
87.5
|
|
|
|
78.9
|
|
|
|
110.5
|
|
|
|
79.7
|
|
|
|
24.3
|
|
|
|
82.7
|
|
|
|
32.0
|
|
|
|
77.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.4
|
|
|
|
|
|
|
|
28.2
|
|
|
|
|
|
|
|
5.1
|
|
|
|
|
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
9.9
|
|
|
|
|
|
|
|
7.9
|
|
|
|
|
|
|
|
4.5
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
Costs
|
|
|
6.4
|
|
|
|
65.4
|
|
|
|
6.8
|
|
|
|
86.4
|
|
|
|
3.7
|
|
|
|
82.0
|
|
|
|
0.9
|
|
|
|
78.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.4
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest*
|
|
|
76.3
|
|
|
|
2.2
|
|
|
|
88.4
|
|
|
|
2.0
|
|
|
|
27.1
|
|
|
|
2.2
|
|
|
|
29.8
|
|
|
|
1.9
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
3,477.6
|
|
|
|
|
|
|
|
4,314.7
|
|
|
|
|
|
|
|
1,212.4
|
|
|
|
|
|
|
|
1,531.2
|
|
|
|
|
|
Costs
|
|
|
2,981.6
|
|
|
|
85.7
|
|
|
|
3,118.6
|
|
|
|
72.3
|
|
|
|
1,078.3
|
|
|
|
88.9
|
|
|
|
1,114.8
|
|
|
|
72.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
496.0
|
|
|
|
|
|
|
|
1,196.1
|
|
|
|
|
|
|
|
134.0
|
|
|
|
|
|
|
|
416.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative*
|
|
|
396.3
|
|
|
|
11.4
|
|
|
|
429.3
|
|
|
|
10.0
|
|
|
|
131.7
|
|
|
|
10.9
|
|
|
|
148.1
|
|
|
|
9.7
|
|
Goodwill impairment
|
|
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
90.8
|
|
|
|
|
|
|
|
766.8
|
|
|
|
|
|
|
|
2.4
|
|
|
|
|
|
|
|
268.3
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings from
unconsolidated entities
|
|
|
15.4
|
|
|
|
|
|
|
|
36.7
|
|
|
|
|
|
|
|
3.8
|
|
|
|
|
|
|
|
7.3
|
|
|
|
|
|
Interest and other
|
|
|
85.6
|
|
|
|
|
|
|
|
32.0
|
|
|
|
|
|
|
|
38.8
|
|
|
|
|
|
|
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
191.7
|
|
|
|
|
|
|
|
835.5
|
|
|
|
|
|
|
|
45.0
|
|
|
|
|
|
|
|
285.2
|
|
|
|
|
|
Income taxes
|
|
|
74.2
|
|
|
|
|
|
|
|
322.0
|
|
|
|
|
|
|
|
18.6
|
|
|
|
|
|
|
|
110.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
117.5
|
|
|
|
|
|
|
|
513.4
|
|
|
|
|
|
|
|
26.5
|
|
|
|
|
|
|
|
174.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Percentages are based on
total revenues.
Note: Amounts may not add due to
rounding.
HOME
SALES REVENUES AND COSTS COMPLETED
CONTRACT
Home sales revenues for the nine
months and three months ended July 31, 2007 were lower than
those for the comparable periods of 2006 by approximately
$811.2 million, or 19.5%, and $310.4 million, or
20.8%, respectively. The decrease in the nine-month period was
attributable to a 17.4% decrease in the number of homes
delivered and a 2.5% decrease in the average price of the homes
delivered. The decrease in the three-month period was
attributable to a 16.9% decrease in the number of homes
delivered and a 4.7% decrease in the average price of the homes
30
delivered. The decrease in the
number of homes delivered in the nine-month and three-month
periods ended July 31, 2007 was primarily due to the lower
backlog of homes at October 31, 2006 as compared to
October 31, 2005, which was primarily the result of a 41%
decrease in the number of new contracts signed in fiscal 2006
over fiscal 2005, and the increased number of contract
cancellations by home buyers in the fiscal 2007 periods as
compared to the fiscal 2006 periods. In the nine-month and
three-month periods ended July 31, 2007, the number of
contracts cancelled as a percentage of the gross contracts
signed in the respective periods was 23.5% and 23.2%,
respectively, as compared to 11.8% and 18.0% in the comparable
periods of fiscal 2006. When we report or refer to contracts
signed, the number and value of contracts signed are net of the
number and value of any cancellations occurring during the
reporting period, whether signed in that reporting period or in
a prior period. The decline in the average price of the homes
delivered in the nine-month and three-month periods ended
July 31, 2007, as compared to the comparable periods of
fiscal 2006, was due primarily to higher sales incentives on the
homes delivered and a shift in the mix of homes delivered to
lower priced product in the fiscal 2007 periods.
The value of new sales contracts
signed in the nine months and three months ended July 31,
2007 was $2.61 billion (3,743 homes) and
$723.1 million (1,107 homes), respectively. This
represented a 29.4% decrease and 30.6% decrease, respectively,
compared to the value of contracts signed in the comparable
periods of fiscal 2006 of $3.70 billion (5,101 homes) in
the nine-month period and $1.04 billion (1,433 homes) in
the three-month period ended July 31, 2006. These decreases
were attributable to a 26.6% decrease and 22.7% decrease in the
number of new contracts signed in the nine-month and three-month
periods of fiscal 2007, respectively, as compared to the
comparable periods of fiscal 2006, and a 3.8% decrease and a
10.2% decrease in the average value of each contract signed in
each of the respective periods of fiscal 2007 as compared to the
comparable periods of fiscal 2006. We believe the decrease in
both periods in the number of contracts signed is attributable
to the increased number of cancellations, a decline in consumer
confidence, an overall softening of demand for new homes and an
oversupply of homes available for sale. We attribute the
reduction in demand to concerns on the part of prospective home
buyers about the direction of home prices, due in part to many
homebuilders advertising price reductions and increased
sales incentives, and concerns by the prospective home buyer
about being able to sell their existing homes. In addition,
speculators and investors are no longer helping to fuel demand.
We try to avoid selling homes to speculators, and we generally
do not build detached homes without having a signed agreement of
sale. Nonetheless, we have been impacted by an overall increase
in the supply of homes available for sale in many markets as
speculators attempt to sell the homes they previously purchased
or cancel contracts for homes under construction, and as
builders, who, as part of their business strategy, were building
homes in anticipation of capturing additional sales in a
demand-driven market, attempt to reduce their inventories by
aggressively lowering prices and adding incentives. In addition,
based on the high cancellation rates reported by us and by other
builders, non-speculative buyer cancellations are also adding to
the supply of homes in the marketplace. The decline in the
average sales price was due primarily to a shift in the number
of contracts signed to less expensive areas
and/or
smaller homes and the effect of increased sales incentive in the
fiscal 2007 periods as compared to the comparable periods of
fiscal 2006.
At July 31, 2007, our backlog
of homes under contract accounted for under the completed
contract method of accounting was $3.59 billion (4,847
homes), 33.7% lower than the $5.41 billion (7,645 homes)
backlog at July 31, 2006. The decrease in backlog at
July 31, 2007 compared to the backlog at July 31, 2006
is primarily attributable to a lower backlog at October 31,
2006 as compared to the backlog at October 31, 2005, and
the decrease in the value and number of new contracts signed in
the nine-month period ended July 31, 2007 as compared to
the nine-month period ended July 31, 2006, offset in part
by fewer deliveries in the fiscal 2007 period as compared to the
fiscal 2006 period.
Home costs as a percentage of home
sales revenue were 83.7% and 86.8% in the nine-month and
three-month periods ended July 31, 2007, respectively, as
compared to 69.9% and 70.7% in the comparable periods of fiscal
2006. The increase in the percentages in the fiscal 2007 periods
was primarily the result of the higher amount of inventory
write-offs/write-downs recognized in the fiscal 2007 periods as
compared to the fiscal 2006 periods, the increased sales
incentives given to home buyers on the homes delivered in the
fiscal 2007 periods as compared to the comparable periods of
fiscal 2006 and increased overhead cost per home delivered due
to the decreased construction activity. In the nine-month
periods ended July 31, 2007 and 2006, we recognized
inventory write-downs and the expensing of costs that we
believed not to be recoverable of $363.9 million and
$37.0 million, respectively. In the three-month periods
ended July 31, 2007 and 2006, we recognized inventory
write-downs and the expensing of costs that we believed not to
be recoverable of $147.3 million and $23.9 million,
respectively.
31
HOME
SALES REVENUES AND COSTS PERCENTAGE OF
COMPLETION
We are developing several projects
for which we are recognizing revenues and costs using the
percentage of completion method of accounting. Revenues and
costs of individual projects are recognized on the individual
projects aggregate value of units for which home buyers
have signed binding agreements of sale and are based on the
percentage of total estimated construction costs that have been
incurred. Total estimated revenues and construction costs are
reviewed periodically and any change is applied to current and
future periods. In the nine-month periods ended July 31,
2007 and 2006, we recognized $110.9 million and
$138.7 million of revenues, respectively, and
$87.5 million and $110.5 million of costs,
respectively, on these projects. In the three-month periods
ended July 31, 2007 and 2006, we recognized
$29.4 million and $41.2 million of revenues,
respectively, and $24.3 million and $32.0 million of
costs, respectively, on these projects. In the nine-month period
ended July 31, 2007, cost of revenues as a percentage of
revenues recognized was comparable to the nine-month period of
fiscal 2006. In the three-month period ended July 31, 2007,
cost of revenues increased as a percentage of revenues
recognized by 495 basis points as compared to the
comparable period of fiscal 2006. The increase was due primarily
to cost increases and a change in the mix of revenues recognized
to more costly projects. In the nine-month and three-month
periods ended July 31, 2007, we delivered
$233.0 million (283 homes) and $56.1 million (67
homes) in projects for which we are using the percentage of
completion method of accounting.
At July 31, 2007, our backlog
of homes in communities that we account for using the percentage
of completion method of accounting was $75.9 million (net
of $48.1 million of revenue recognized) compared to
$179.6 million at July 31, 2006 (net of
$138.7 million of revenue recognized). The decline in the
backlog at July 31, 2007 is primarily the result of the
recognition of revenues offset in part by the new contracts
signed. We expect that this decline will continue as we
recognize revenues, and as we sell out of existing projects
without replacing them with new projects that qualify under the
accounting rules for the application of the percentage of
completion accounting method. See New Accounting
Pronouncements in Note 1 of our Condensed
Consolidated Financial Statements for further information.
LAND
SALES REVENUES AND COSTS
We are developing several
communities in which we expect to sell a portion of the land to
other builders or entities. The amount and profitability of land
sales will vary from year to year depending upon the sale and
delivery of the specific land parcels. In the nine-month periods
ended July 31, 2007 and 2006, land sales were
$9.9 million and $7.9 million, respectively, and the
cost of land sales was approximately 65.4% and 86.4% of land
sales revenues, respectively. In the three-month periods ended
July 31, 2007 and 2006, land sales were $4.5 million
and $1.1 million, respectively, and the cost of land sales
was approximately 82.0% and 78.9% of land sales revenues,
respectively.
INTEREST
EXPENSE
In our communities accounted for
using the completed contract method of accounting, we determine
interest expense on a specific
lot-by-lot
basis and for land sales, on a
parcel-by-parcel
basis. As a percentage of total revenues, interest expense
varies depending on many factors, including the period of time
that we owned the land, the length of time that the homes
delivered during the period were under construction, and the
interest rates and the amount of debt carried by us in
proportion to the amount of our inventory during those periods.
For projects using the percentage
of completion method of revenue recognition, interest expense is
determined based on the total estimated interest for the project
and the percentage of total estimated construction costs that
have been incurred to date. Any change in the estimated interest
expense for the project is applied to current and future periods.
Interest expense as a percentage
of revenues was slightly higher in the nine-month and
three-month periods ended July 31, 2007 as compared to the
comparable periods of fiscal 2006.
32
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
(SG&A)
SG&A spending decreased by
$33.1 million, or 7.7%, and $16.4 million, or 11.1%,
in the nine-month and three-month periods ended July 31,
2007 as compared to the comparable periods of fiscal 2006. The
reductions in spending were due primarily to cost reductions,
offset in part by the expenses resulting from the increased
number of communities from which we are operating. At
July 31, 2007, we had 315 selling communities, a 7%
increase over the 295 selling communities we had at
July 31, 2006. At April 30, 2007, we had 325 selling
communities.
GOODWILL
IMPAIRMENT
During the three-month period
ended January 31, 2007, due to the continued decline of the
Detroit market, we re-evaluated the carrying value of goodwill
associated with a 1999 acquisition. We estimated the fair value
of our assets in this market, including goodwill. Fair value was
determined based on the discounted future cash flow expected to
be generated in this market. Based upon this evaluation and our
expectation that this market will not recover for a number of
years, we determined that the related goodwill was impaired. We
recognized a $9.0 million impairment charge in the
three-month period ended January 31, 2007. After
recognizing this charge, we do not have any goodwill remaining
from this acquisition.
EQUITY
EARNINGS FROM UNCONSOLIDATED ENTITIES
We are a participant in several
joint ventures and in the Trust and Trust II. We recognize
our proportionate share of the earnings from these entities.
Many of our joint ventures are land development projects or
high-rise/mid-rise construction projects and do not generate
revenues and earnings for a number of years during the
development of the property. Once development is complete, the
joint ventures will generally, over a relatively short period of
time, generate revenues and earnings until all the assets of the
entities are sold. Because there is not a steady flow of
revenues and earnings from these entities, the earnings
recognized from these entities will vary significantly from
quarter to quarter and year to year. In the nine-month and
three-month periods ended July 31, 2007, we recognized
$15.4 million and $3.8 million, respectively, of
earnings from unconsolidated entities as compared to
$36.7 million and $7.3 million, respectively, in the
comparable periods of fiscal 2006.
INTEREST
AND OTHER INCOME
For the nine-month and three-month
periods ended July 31, 2007, interest and other income was
$85.6 million and $38.8 million, respectively, as
compared to the $32.0 million and $9.7 million
recognized in the comparable periods of fiscal 2006. The
$53.6 million increase in the nine-month period of fiscal
2007 as compared to the nine-month period of fiscal 2006 was
primarily the result of a $14.8 million gain realized from
the sale of our security business and, a $9.9 million gain
realized from the sale of our cable TV and broadband internet
business, higher retained customer deposits on cancelled
contracts, higher interest income and a $2.5 million gain
from the sale of certain miscellaneous assets, offset in part by
lower management fee income. The $29.1 million increase in
the three-month period of fiscal 2007 as compared to the
three-month period of fiscal 2006 was primarily the result of a
$14.8 million gain realized from the sale of our security
business, higher retained customer deposits on cancelled
contracts, and higher interest income, offset in part by lower
management fee income.
INCOME
BEFORE INCOME TAXES
For the nine-month period ended
July 31, 2007, income before taxes was $191.7 million,
a decrease of 77% from the $835.5 million earned in the
comparable period of fiscal 2006. For the three-month period
ended July 31, 2007, income before taxes was
$45.0 million, a decrease of 84% from the
$285.2 million earned in the comparable period of fiscal
2006.
INCOME
TAXES
Income taxes were provided at an
effective rate of 38.72% and 38.55% for the nine-month periods
ended July 31, 2007 and 2006, respectively, and 41.20% and
38.78% for the three-month periods ended July 31, 2007 and
2006, respectively. The increase in the effective tax rate in
the nine-month period of fiscal 2007 as compared to the
comparable period of fiscal 2006 was due to an increase in our
estimated state income rate to reflect our current
33
estimated allocation of income
among the various taxing jurisdictions in which we operate and
lower estimated benefits from various tax credits that we are
eligible for, offset, in part, by the favorable impact of the
higher tax-free interest income earned in the fiscal 2007 period
as compared to the comparable period of fiscal 2006. The
increase in the effective tax rates in the three-month period
ended July 31, 2007 as compared to the comparable period of
fiscal 2006 was due primarily to the recalculation of our
effective state tax rate for fiscal 2007 based upon the filing
of our fiscal 2006 state tax returns during the quarter
ended July 31, 2007, lower estimated benefits from various
tax credits that we are eligible for, offset, in part, by the
favorable impact of tax-free interest income earned in the
fiscal 2007 period as compared to the comparable period of
fiscal 2006, and the recognition of less interest expense (net
of interest income) on estimated income tax assessments in the
fiscal 2007 period as compared to the comparable period of
fiscal 2006.
CAPITAL
RESOURCES AND LIQUIDITY
Funding for our business has been
provided principally by cash flow from operating activities,
unsecured bank borrowings and the public debt and equity
markets. We have used our cash flow from operating activities,
bank borrowings and the proceeds of public debt and equity
offerings to acquire additional land for new communities, fund
additional expenditures for land development, fund construction
costs needed to meet the requirements of our backlog and the
increasing number of communities in which we are offering homes
for sale, invest in unconsolidated entities, repurchase our
stock, and repay debt.
In the nine months ended
July 31, 2007, we generated approximately
$139.2 million of cash including $101.5 million of
cash flow from operating activities. In the three months ended
July 31, 2007, we generated approximately
$189.7 million of cash from operating activities. Cash flow
from operating activities in the nine-month period of fiscal
2007 was due primarily to the commencement of deliveries of
units accounted for using the percentage of completion method of
accounting and the decrease in home sites owned during the
period from 41,800 lots at October 31, 2006 to 38,900 at
July 31, 2007, offset, in part, by our continued spending
for inventory as we continued to improve land that we owned,
continued construction spending in existing communities and the
opening of additional high density communities and the funding
of the cost of the increased number of speculative units that we
have in our inventory as a result of contract cancellations. In
addition, during the nine-month period of fiscal 2007, cash flow
from operating activities was impacted from the timing of the
deductibility of inventory write-downs. For income tax purposes,
we cannot recognize a deduction on the write-down of an
operating community until we deliver the homes in the community,
whereas for financial reporting purposes we can recognize an
income tax benefit in the period that the write-down is
recognized.
At July 31, 2007, the
aggregate purchase price of land parcels under option and
purchase agreements was approximately $2.48 billion
(including $1.21 billion of land to be acquired from joint
ventures which we have invested in, made advances to or made
loan guarantees on behalf of, in the aggregate amount of
295.7 million), of which we had paid or deposited
approximately $154.8 million.
In general, cash flow from
operating activities assumes that, as each home is delivered, we
will purchase a home site to replace it. Because we own several
years supply of home sites, we do not need to buy home
sites immediately to replace the ones delivered. In addition, we
generally do not begin construction of our single-family
detached homes until we have a signed contract with the home
buyer, although in fiscal 2006 and during the nine-month period
ended July 31, 2007, due to an extremely high cancellation
rate of customer contracts and the increase in the number of
attached-home communities that we were operating from, the
number of speculative homes in our inventory increased
significantly. In the nine-month period ended July 31,
2007, the value of net new contracts signed decreased 30% versus
the comparable period of fiscal 2006. For the full 2006 fiscal
year, the value of net new contracts signed with home buyers
decreased by 41% from fiscal 2005. Should our business continue
to decline significantly, we believe that our inventory levels
would continue to decrease, as we complete and deliver the homes
under construction but do not commence construction of as many
new homes, complete the improvements on the land we already own
and sell and deliver the speculative homes that are currently in
inventory, resulting in an increase in our cash flow from
operating activities. In addition, we might continue to delay or
curtail our acquisition of additional land, as we did in the
first nine months of fiscal 2007 and the second half of fiscal
2006, which would further reduce our inventory levels and cash
needs. We decreased our home sites owned and controlled at
July 31, 2007 by approximately 15% from the
October 31, 2006 level, by approximately 24% from the
July 31, 2006 level,
34
and by 31% from the April 30,
2006 level, the high point of lots owned and controlled, in
response to the deterioration of the housing market.
During the past several years, we
have had a significant amount of cash invested in either
short-term cash equivalents or short-term interest-bearing
marketable securities. In addition, we have made a number of
investments in unconsolidated entities related to the
acquisition and development of land for future home sites or in
entities that are constructing or converting apartment buildings
into luxury condominiums. Our investment activities related to
marketable securities and investments in and distributions of
investments from unconsolidated entities are contained in the
Condensed Consolidated Statements of Cash Flows in the section
Cash flow from investing activities.
We have a $1.89 billion
credit facility consisting of a $1.56 billion unsecured
revolving credit facility and a $331.7 million term loan
facility (collectively, the Credit Facility) with 35
banks, which extends to March 2011. At July 31, 2007,
interest was payable on borrowings under the revolving credit
facility at 0.475% (subject to adjustment based upon our
corporate debt rating and leverage ratios) above the Eurodollar
rate or at other specified variable rates as selected by us from
time to time. At July 31, 2007, we had no outstanding
borrowings against the revolving credit facility but had letters
of credit of approximately $387.8 million outstanding under
it. Under the term loan facility, interest is payable at 0.50%
(subject to adjustment based upon our corporate debt rating and
leverage ratios) above the Eurodollar rate or at other specified
variable rates as selected by us from time to time. At
July 31, 2007, interest was payable on the term loan at
5.82%.
We believe that we will be able to
continue to fund our operations and meet our contractual
obligations through a combination of existing cash resources and
our existing sources of credit.
INFLATION
The long-term impact of inflation
on us is manifested in increased costs for land, land
development, construction and overhead, as well as in increased
sales prices of our homes. We generally contract for land
significantly before development and sales efforts begin.
Accordingly, to the extent land acquisition costs are fixed,
increases or decreases in the sales prices of homes will affect
our profits. Because the sales price of each of our homes is
fixed at the time a buyer enters into a contract to acquire a
home, and because we generally contract to sell our homes before
we begin construction, any inflation of costs in excess of those
anticipated will result in lower gross margins. We generally
attempt to minimize that effect by entering into fixed-price
contracts with our subcontractors and material suppliers for
specified periods of time, which generally do not exceed one
year.
In general, housing demand is
adversely affected by increases in interest rates and housing
costs. Interest rates, the length of time that land remains in
inventory and the proportion of inventory that is financed
affect our interest costs. If we are unable to raise sales
prices enough to compensate for higher costs, or if mortgage
interest rates increase significantly, affecting prospective
buyers ability to adequately finance home purchases, our
revenues, gross margins and net income would be adversely
affected. Increases in sales prices of homes, whether the result
of inflation or demand, may affect the ability of prospective
buyers to afford new homes.
GEOGRAPHIC
SEGMENTS
We operate in four geographic
segments around the United States: the North, consisting of
Connecticut, Illinois, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Rhode Island; the Mid-Atlantic,
consisting of Delaware, Maryland, Pennsylvania, Virginia and
West Virginia; the South, consisting of Florida, Georgia, North
Carolina, South Carolina and Texas; and the West, consisting of
Arizona, California, Colorado and Nevada. We stopped selling
homes in Ohio in fiscal 2005 and delivered our last home in that
state in fiscal 2006. The operations in Ohio were immaterial to
the North segment. We acquired our first communities in Georgia
in fiscal 2007 and are preparing them to open for sale in the
near future.
35
The following table summarizes by
geographic segment total revenues and income (loss) before
income taxes for each of the nine-month and three-month periods
ended July 31, 2007 and 2006 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
$
|
755.3
|
|
|
$
|
1,015.8
|
|
|
$
|
296.8
|
|
|
$
|
377.3
|
|
Mid-Atlantic
|
|
|
1,015.1
|
|
|
|
1,295.9
|
|
|
|
350.6
|
|
|
|
447.4
|
|
South
|
|
|
778.0
|
|
|
|
838.8
|
|
|
|
243.3
|
|
|
|
282.6
|
|
West
|
|
|
929.2
|
|
|
|
1,164.2
|
|
|
|
321.7
|
|
|
|
423.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,477.6
|
|
|
$
|
4,314.7
|
|
|
$
|
1,212.4
|
|
|
$
|
1,531.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
$
|
19.0
|
|
|
$
|
215.0
|
|
|
$
|
26.8
|
|
|
$
|
79.6
|
|
Mid-Atlantic
|
|
|
182.4
|
|
|
|
372.1
|
|
|
|
61.6
|
|
|
|
120.4
|
|
South
|
|
|
(4.4
|
)
|
|
|
101.5
|
|
|
|
(30.3
|
)
|
|
|
30.6
|
|
West
|
|
|
60.5
|
|
|
|
262.5
|
|
|
|
(1.9
|
)
|
|
|
87.8
|
|
Other
|
|
|
(65.8
|
)
|
|
|
(115.6
|
)
|
|
|
(11.2
|
)
|
|
|
(33.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
191.7
|
|
|
$
|
835.5
|
|
|
$
|
45.0
|
|
|
$
|
285.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other is comprised principally of
general corporate expenses such as the offices of the Chief
Executive Officer and President, and the corporate finance,
accounting, audit, tax, human resources, risk management,
marketing and legal groups, offset in part by interest income
and income from our ancillary businesses.
The discussion of our business
activities in each geographic segment refers to net contracts
signed and cancellation rates. Net contracts signed is
calculated by deducting all contracts cancelled during the
period, whether signed in the period being referred to or in
prior periods from the total contracts signed in the period
(gross contracts). Cancellation rates are calculated
by dividing the total number of contracts cancelled in the
period by the gross contracts signed.
North
Revenues for the nine months and
three months ended July 31, 2007 were lower than those for
the comparable periods of 2006 by approximately
$260.5 million and $80.5 million, or 26% and 21%,
respectively. The decrease in revenues for the nine-month period
was attributable to a 26% decrease in the number of homes
delivered, a 1% decrease in the average price of the homes
delivered and a decrease in percentage of completion revenues of
approximately $12.8 million. Approximately 57% of the
decrease in revenues related to the New Jersey suburban markets
where the number of homes delivered decreased 31%. The decrease
in revenues for the three months ended July 31, 2007 was
attributable to an 18% and 5% decrease in the number of homes
and average price of the homes delivered, respectively, and a
decrease in percentage of completion revenues of approximately
$5.2 million. The decrease in the number of homes delivered
in the nine-month and three-month periods ended July 31,
2007 was primarily due to the lower backlog of homes at
October 31, 2006 as compared to October 31, 2005,
which was primarily the result of a 27% decrease in the number
of new contracts signed in fiscal 2006 over fiscal 2005 and the
increased cancellation rate by home buyers in the nine-month and
three-month periods of fiscal 2007 as compared to the rates in
the comparable periods of fiscal 2006.
For the nine months ended
July 31, 2007, the value of net new contracts signed was
approximately $877.6 million as compared to
$951.1 million for the nine months ended July 31,
2006, a decrease of 8%. The number of net new contracts signed
and the average value of each contract decreased 7% and 1%,
respectively. The value of net new contracts signed in the three
months ended July 31, 2007 was approximately
$220.0 million, a 19% decline from the $270.3 million
of net new contracts signed in the three months ended
July 31, 2006. This decrease was attributable to a 5%
decrease in the number of net new contracts signed and a 14%
decrease in the average value
36
of each contract. The decline in new contracts signed in the
fiscal 2007 was primarily due to a slowdown in the housing
market primarily in Illinois, Michigan and the suburban markets
in New Jersey. However, in New York and the urban markets of New
Jersey, net new signed contracts increased by
$150.8 million in the nine months ended July 31, 2007,
as compared to the same period in 2006. The contract
cancellation rates for the nine-month periods ended
July 31, 2007 and 2006 were 12.1% and 6.8%, respectively,
and 16.9% and 9.1% for the three-month periods ended
July 31, 2007 and 2006, respectively.
For the nine-month and three-month
periods ended July 31, 2007, we reported income before
income taxes of $19.0 million and $26.8 million,
respectively, as compared to $215.0 million and
$79.6 million reported for the nine-month and three-month
periods ended July 31, 2006, respectively. The decreases
were due to higher costs of revenues in the fiscal 2007 periods
as compared to the fiscal 2006 periods (principally related to
$93.0 million and $10.3 million of inventory
write-downs in the nine months and three months ended
July 31, 2007, respectively, as compared to
$15.7 million and $4.4 million of write-downs in the
same periods in 2006), the lower profits realized from the
decreased revenues in the nine-month period and three-month
period ended July 31, 2007 as compared to the nine-month
and three-month period ended July 31, 2006, and decreased
income realized from unconsolidated entities in the fiscal 2007
periods as compared to the comparable periods of fiscal 2006.
Mid-Atlantic
Revenues for the nine months ended
July 31, 2007 were lower than those for the comparable
period of 2006 by approximately $280.8 million, primarily
due to a 17% decrease in the number of homes delivered and a 6%
decrease in the average price of homes delivered. For the three
months ended July 31, 2007, revenues were lower by
$96.8 million, or 22%, than the comparable period of fiscal
2006. The decrease in the three-month period was attributable to
a 15% decrease in the number of homes delivered (primarily in
Virginia) and an 8% decrease in the average price of the homes
delivered. The decreases in the number of homes delivered in the
nine-month and three- month periods ended July 31, 2007
were primarily due to a lower backlog of homes at
October 31, 2006 as compared to October 31, 2005. The
decrease in the backlog of homes was primarily the result of a
43% decrease in the number of new contracts signed in fiscal
2006 over fiscal 2005, due primarily to weak demand, and a
significantly higher number of contract cancellations in fiscal
2006 as compared to fiscal 2005. The decrease in the average
price of the homes delivered in the fiscal 2007 periods as
compared to the comparable periods of fiscal 2006 was primarily
related to a change in mix of communities delivering homes in
Maryland to a lower price point product.
The value of net new contracts
signed in the nine months ended July 31, 2007 of
approximately $776.2 million decreased 26% from the net new
contracts signed of approximately $1,044.0 million in the
comparable period of fiscal 2006. The decline was due primarily
to a 24% decrease in the number of contracts signed and a 2%
decrease in the average value of each contract. The value of net
new contracts signed in the three-month period ended
July 31, 2007 was approximately $222.9 million, a 28%
decline from the $310.9 million of net new contracts signed
in the three-month period ended July 31, 2006. This
decrease was attributable to a 27% decrease in the number of net
new contracts signed. The decline in the number of net new
contracts signed was due primarily to weak demand in both
periods of fiscal 2007 as compared to fiscal 2006, and in the
nine-month period of fiscal 2007 as compared to the nine-month
period of fiscal 2006, higher than normal contract
cancellations. The contract cancellation rates for the nine
months ended July 31, 2007 and 2006 were 13.9% and 8.8%,
respectively, and 12.3% and 11.9% for the three months ended
July 31, 2007 and 2006, respectively.
Income before income taxes for the
nine months and three months ended July 31, 2007 declined
$189.7 million and $58.8 million, respectively. These
decreases were attributable to lower revenues and higher cost of
revenues in the periods ended July 31, 2007 as compared to
the comparable periods in fiscal 2006. The higher cost of
revenues in the nine-month and three-month periods of fiscal
2007 period was primarily due to $34.8 million and
$11.2 million of inventory write-downs in nine months and
three months ended July 31, 2007, respectively, as compared
to $2.8 million and $2.0 million in the same periods
in fiscal 2006, respectively, and higher sales incentives given
on the homes delivered in 2007 as compared to those delivered in
2006.
37
South
Revenues for the nine months ended
July 31, 2007 were lower than those for the nine months
ended July 31, 2006 by approximately $60.8 million, or
7%. The decrease in revenues was primarily due to a 10% decrease
in the number of homes delivered, a decrease in percentage of
completion revenues of approximately $12 million and a
decrease of $3.3 million of land sales, offset in part by a
4% increase in the average price of the homes delivered in the
fiscal 2007 period compared to the fiscal 2006 period. Revenues
for the three months ended July 31, 2007 were lower than
those for the comparable period of 2006 by approximately
$39.3 million, or 14%. The decrease in revenues was
attributable to a 12% decrease in the number of homes delivered.
The decrease in the number of homes delivered in the nine months
and three months ended July 31, 2007 was primarily
attributable to our operations in Florida, where we had a lower
number of homes in backlog at October 31, 2006 as compared
to October 31, 2005 and the increased cancellation rate by
home buyers in the nine month and three month periods of fiscal
2007 as compared to the comparable periods of fiscal 2006.
The value of net new contracts
signed in the nine-month and three-month periods ended
July 31, 2007 was approximately $402.4 million and
$116.1 million, respectively, a 41% and 37% decline,
respectively, from the net new contracts signed in the
nine-month and three-month periods ended July 31, 2006. The
decline in the nine-month period of fiscal 2007 as compared to
the comparable period of fiscal 2006 was due to a 34% decrease
in the number of net new contracts signed and a 10% decrease in
the average value of each contract. The decline in the
three-month period of fiscal 2007 as compared to the comparable
period of fiscal 2006 was due to a 24% decrease in the number of
net new contracts signed and a 17% decrease in the average value
of each contract. The decreases in the number of net new signed
contracts was primarily the result of weak market conditions in
Florida in the fiscal 2007 periods as compared to the comparable
periods of fiscal 2006 and a significantly higher number of
contract cancellations in the fiscal 2007 periods than in the
comparable period in 2006. For the nine months ended
July 31, 2007, the cancellation rate in Florida was 55.7%
compared to 16.9% in the nine months ended July 31, 2006.
For the three months ended July 31, 2007, the cancellation
rate in Florida was 71.3% compared to 31.4% in the three months
ended July 31, 2006. For the entire region, the
cancellation rate was 32.6% and 12.3% for the nine months ended
July 31, 2007 and 2006, respectively, and 32.8% and 21.6%
for the three-month periods ended July 31, 2007 and 2006,
respectively. The decrease in the average sales price was due
primarily to a shift in the number of contracts to areas with
lower priced homes in the fiscal 2007 period as compared to the
comparable periods of fiscal 2006.
We reported a loss before income
taxes for the nine months and three months ended July 31,
2007 of $4.4 million and $30.3 million, respectively,
as compared to income before taxes of $101.5 million and
$30.6 million for the same periods in 2006, respectively.
These decreases were primarily due to a higher cost of revenues
as a percentage of total revenues in the fiscal 2007 periods as
compared to the comparable periods of fiscal 2006, partially
offset by higher retained customer deposits on contract
cancellations for the nine months and three months ended
July 31, 2007 as compared to the nine months and three
months ended July 31, 2006. The higher costs of revenues
were principally due to inventory write-downs and higher sales
incentives given on the homes delivered in 2007 as compared to
those delivered in 2006. We recognized inventory write-downs of
$109.8 million and $63.0 million in the nine and three
months ended July 31, 2007, respectively, as compared to
$12.2 million and $11.4 million in the comparable
periods of fiscal 2006.
West
Revenues for the nine months and
three months ended July 31, 2007 were lower than those for
the comparable periods of 2006 by approximately
$235.0 million and $102.2 million, or 20% and 24%,
respectively. The decrease in revenues was attributable to a
decrease in the number of homes delivered of 17% and 23% for the
nine- and three-month periods ended July 31, 2007 as
compared to the comparable periods in 2006, and a decrease in
the average price of homes delivered of 4% and 2% for the nine-
and three-month periods ended July 31, 2007 as compared to
the comparable periods in 2006. The decrease in the number of
homes delivered was primarily attributable to the lower number
of homes in backlog at October 31, 2006 as compared to
October 31, 2005, and a significantly higher number of
contract cancellations in fiscal 2007 than in fiscal 2006.
For the nine months ended
July 31, 2007, the value of net new contracts signed was
approximately $588.6 million compared to
$1,075.0 million for the first nine months of 2006, a
decrease of 45%. The number
38
of new contracts signed decreased
46% for the nine months ended July 31, 2007 as compared to
the same period in 2006.
The value of net new contracts
signed in the three months ended July 31, 2007 of
approximately $168.0 million, decreased 41% from the net
new contracts signed of approximately $284.9 million in the
comparable period of fiscal 2006. The decline was primarily due
to a 40% decrease in the number of net new contracts signed in
the fiscal 2007 period as compared to the fiscal 2006 period
which was attributable to weak demand and higher than normal
contract cancellations in the three months ended July 31,
2007 as compared to the three-month period ended July 31,
2006. The cancellation rate for the nine months and three months
ended July 31, 2007 was 42.8% and 40.1%, respectively, as
compared to 20.1% and 31.9% for the comparable periods in 2006.
Income before income taxes for the
nine months ended July 31, 2007 of $60.5 million
declined $202.0 million from the $262.5 million
reported for the same period in 2006. For the three months ended
July 31, 2007, we reported a loss before income taxes of
$1.9 million, compared to income before taxes of
$87.8 million for the same period in 2006. These decreases
were attributable to lower revenues and higher cost of revenues
in the periods ended July 31, 2007 as compared to the
comparable periods in 2006. The higher cost of revenues in the
fiscal 2007 period was primarily due to $126.3 million and
$62.8 million of inventory write-down in the nine months
and three months ended July 31, 2007 compared to
$6.3 million and $6.0 million in the comparable
periods of fiscal 2006 and higher sales incentives given on the
homes delivered in the fiscal 2007 periods as compared to those
delivered in the comparable periods of fiscal 2006.
Other
Other loss before income taxes for
the nine months ended July 31, 2007 was $65.8 million,
a decrease of $49.8 million from the $115.6 million
loss before income taxes reported for the nine months ended
July 31, 2006. This decline was primarily the result of
lower general and administrative costs attributable to lower
compensation expenses, a $14.8 million gain realized from
the sale of our security business, a $9.9 million gain
realized from the sale of our cable TV and broadband internet
business, and higher interest income.
For the three months ended
July 31, 2007, other loss before income taxes decreased by
$22.0 million from the comparable period of fiscal 2006.
This decrease was primarily due to a $14.8 million gain
realized from the sale of our security business, higher interest
income and lower general and administration costs.
39
HOUSING
DATA
Revenues Three months ended July 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
Completed contract communities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
423
|
|
|
|
516
|
|
|
$
|
272.8
|
|
|
$
|
351.5
|
|
Mid-Atlantic
|
|
|
575
|
|
|
|
678
|
|
|
|
350.6
|
|
|
|
447.4
|
|
South
|
|
|
416
|
|
|
|
473
|
|
|
|
233.4
|
|
|
|
266.1
|
|
West
|
|
|
378
|
|
|
|
490
|
|
|
|
321.7
|
|
|
|
423.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,792
|
|
|
|
2,157
|
|
|
$
|
1,178.5
|
|
|
$
|
1,488.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of completion
communities(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
$
|
20.6
|
|
|
$
|
25.9
|
|
South
|
|
|
|
|
|
|
|
|
|
|
8.8
|
|
|
|
15.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
29.4
|
|
|
$
|
41.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
423
|
|
|
|
516
|
|
|
$
|
293.4
|
|
|
$
|
377.4
|
|
Mid-Atlantic
|
|
|
575
|
|
|
|
678
|
|
|
|
350.6
|
|
|
|
447.4
|
|
South
|
|
|
416
|
|
|
|
473
|
|
|
|
242.2
|
|
|
|
281.4
|
|
West
|
|
|
378
|
|
|
|
490
|
|
|
|
321.7
|
|
|
|
423.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
|
1,792
|
|
|
|
2,157
|
|
|
$
|
1,207.9
|
|
|
$
|
1,530.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracts Three
months ended July 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completed contract communities(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
366
|
|
|
|
381
|
|
|
$
|
216.0
|
|
|
$
|
263.8
|
|
Mid-Atlantic
|
|
|
349
|
|
|
|
480
|
|
|
|
222.9
|
|
|
|
310.9
|
|
South
|
|
|
219
|
|
|
|
286
|
|
|
|
116.2
|
|
|
|
182.7
|
|
West
|
|
|
173
|
|
|
|
286
|
|
|
|
168.0
|
|
|
|
284.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,107
|
|
|
|
1,433
|
|
|
$
|
723.1
|
|
|
$
|
1,042.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of completion
communities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
3
|
|
|
|
9
|
|
|
$
|
4.0
|
|
|
$
|
6.5
|
|
South
|
|
|
|
|
|
|
1
|
|
|
|
(0.1
|
)
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3
|
|
|
|
10
|
|
|
$
|
3.9
|
|
|
$
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
369
|
|
|
|
390
|
|
|
$
|
220.0
|
|
|
$
|
270.3
|
|
Mid-Atlantic
|
|
|
349
|
|
|
|
480
|
|
|
|
222.9
|
|
|
|
310.9
|
|
South
|
|
|
219
|
|
|
|
287
|
|
|
|
116.1
|
|
|
|
184.2
|
|
West
|
|
|
173
|
|
|
|
286
|
|
|
|
168.0
|
|
|
|
284.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
|
1,110
|
|
|
|
1,443
|
|
|
$
|
727.0
|
|
|
$
|
1,050.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
Backlog at July 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
Completed contract communities(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
1,614
|
|
|
|
1,703
|
|
|
$
|
1,205.2
|
|
|
$
|
1,221.6
|
|
Mid-Atlantic
|
|
|
1,198
|
|
|
|
2,003
|
|
|
|
828.0
|
|
|
|
1,327.7
|
|
South
|
|
|
1,021
|
|
|
|
1,978
|
|
|
|
560.4
|
|
|
|
1,122.7
|
|
West
|
|
|
1,014
|
|
|
|
1,961
|
|
|
|
995.7
|
|
|
|
1,739.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,847
|
|
|
|
7,645
|
|
|
$
|
3,589.3
|
|
|
$
|
5,411.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of completion
communities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
132
|
|
|
|
303
|
|
|
$
|
76.4
|
|
|
$
|
202.5
|
|
South
|
|
|
18
|
|
|
|
77
|
|
|
|
47.6
|
|
|
|
115.8
|
|
Less revenue recognized on units
remaining in backlog
|
|
|
|
|
|
|
|
|
|
|
(48.1
|
)
|
|
|
(138.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
150
|
|
|
|
380
|
|
|
$
|
75.9
|
|
|
$
|
179.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
1,746
|
|
|
|
2,006
|
|
|
$
|
1,281.6
|
|
|
$
|
1,424.1
|
|
Mid-Atlantic
|
|
|
1,198
|
|
|
|
2,003
|
|
|
|
828.0
|
|
|
|
1,327.7
|
|
South
|
|
|
1,039
|
|
|
|
2,055
|
|
|
|
608.0
|
|
|
|
1,238.5
|
|
West
|
|
|
1,014
|
|
|
|
1,961
|
|
|
|
995.7
|
|
|
|
1,739.0
|
|
Less revenue recognized on units
remaining in backlog
|
|
|
|
|
|
|
|
|
|
|
(48.1
|
)
|
|
|
(138.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
|
4,997
|
|
|
|
8,025
|
|
|
$
|
3,665.2
|
|
|
$
|
5,590.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues Nine months ended July 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
Completed contract communities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
1,035
|
|
|
|
1,399
|
|
|
$
|
679.7
|
|
|
$
|
930.7
|
|
Mid-Atlantic
|
|
|
1,621
|
|
|
|
1,954
|
|
|
|
1,012.8
|
|
|
|
1,295.5
|
|
South
|
|
|
1,286
|
|
|
|
1,429
|
|
|
|
735.2
|
|
|
|
780.6
|
|
West
|
|
|
1,095
|
|
|
|
1,317
|
|
|
|
929.2
|
|
|
|
1,161.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,037
|
|
|
|
6,099
|
|
|
$
|
3,356.9
|
|
|
$
|
4,168.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of completion
communities(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
$
|
72.3
|
|
|
$
|
85.1
|
|
South
|
|
|
|
|
|
|
|
|
|
|
38.6
|
|
|
|
50.6
|
|
West
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
110.9
|
|
|
$
|
138.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
1,035
|
|
|
|
1,399
|
|
|
$
|
752.0
|
|
|
$
|
1,015.8
|
|
Mid-Atlantic
|
|
|
1,621
|
|
|
|
1,954
|
|
|
|
1,012.8
|
|
|
|
1,295.5
|
|
South
|
|
|
1,286
|
|
|
|
1,429
|
|
|
|
773.8
|
|
|
|
831.2
|
|
West
|
|
|
1,095
|
|
|
|
1,317
|
|
|
|
929.2
|
|
|
|
1,164.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
|
5,037
|
|
|
|
6,099
|
|
|
$
|
3,467.8
|
|
|
$
|
4,306.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
Contracts Nine months ended July 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
Completed contract communities(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
1,209
|
|
|
|
1,291
|
|
|
$
|
848.2
|
|
|
$
|
915.8
|
|
Mid-Atlantic
|
|
|
1,214
|
|
|
|
1,597
|
|
|
|
776.2
|
|
|
|
1,044.0
|
|
South
|
|
|
716
|
|
|
|
1,089
|
|
|
|
399.1
|
|
|
|
666.4
|
|
West
< |