e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
October 31, 2008
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
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For the transition period
from to
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Commission file number 1-9186
TOLL BROTHERS, INC.
(Exact name of Registrant as
specified in its charter)
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Delaware
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23-2416878
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(State or other jurisdiction
of
incorporation or organization)
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I.R.S. Employer
Identification No.)
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250 Gibraltar Road, Horsham, Pennsylvania
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19044
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(Address of principal executive
offices)
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(Zip
Code)
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Registrants telephone number, including area code
(215) 938-8000
Securities registered pursuant to Section 12(b) of the
Act:
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Name of Each Exchange
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Title of Each Class
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on Which Registered
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Common Stock (par value $.01)*
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New York Stock Exchange
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Guarantee of Toll Brothers Finance Corp. 6.875% Senior
Notes due 2012
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New York Stock Exchange
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Guarantee of Toll Brothers Finance Corp. 5.95% Senior
Notes due 2013
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New York Stock Exchange
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Guarantee of Toll Brothers Finance Corp. 4.95% Senior
Notes due 2014
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New York Stock Exchange
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Guarantee of Toll Brothers Finance Corp. 5.15% Senior
Notes due 2015
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New York Stock Exchange
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* Includes associated Right to Purchase Series A Junior
Participating Preferred Stock.
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the Registrant is not required to
file reports pursuant to Section 13 or 15(d) of the
Securities
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of Registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o
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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
As of April 30, 2008, the aggregate market value of the
Common Stock held by non-affiliates (all persons other than
executive officers and directors of Registrant) of the
Registrant was approximately $2,951,122,000.
As of December 10, 2008, there were approximately
160,466,000 shares of Common Stock outstanding.
Documents
Incorporated by Reference:
Portions of the proxy statement of Toll Brothers, Inc. with
respect to the 2009 Annual Meeting of Stockholders, scheduled to
be held on March 11, 2009, are incorporated by reference
into Part III of this report.
TABLE OF CONTENTS
PART I
General
Toll Brothers, Inc., a Delaware corporation formed in May 1986,
began doing business through predecessor entities in 1967. When
this report uses the words we, us, and
our, it refers to Toll Brothers, Inc. and its
subsidiaries, unless the context otherwise requires.
We design, build, market and arrange financing for single-family
detached and attached homes in luxury residential communities.
We are also involved, directly and through joint ventures, in
projects where we are building, or converting existing rental
apartment buildings into high-, mid- and low-rise luxury homes.
We cater to
move-up,
empty-nester, active-adult, age-qualified and second-home buyers
in 21 states of the United States. In the five years ended
October 31, 2008, we delivered 35,851 homes from 637
communities, including 4,831 homes from 370 communities in
fiscal 2008. Included in the five-year and fiscal 2008
deliveries are 424 units and 88 units, respectively,
that were delivered from several communities where we used the
percentage of completion accounting method to recognize revenues
and cost of revenues.
Our traditional, single-family communities are generally located
on land we have either acquired and developed or acquired fully
approved and, in some cases, improved. Currently, we operate in
the major suburban and urban residential areas of:
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the Philadelphia, Pennsylvania metropolitan area
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the Lehigh Valley area of Pennsylvania
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central and northern New Jersey
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the Virginia and Maryland suburbs of Washington, D.C.
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the Baltimore, Maryland metropolitan area
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the Eastern Shore of Maryland and Delaware
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the Richmond, Virginia metropolitan area
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the Boston, Massachusetts metropolitan area
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Fairfield, Hartford and New Haven Counties, Connecticut
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Westchester, Dutchess, Ulster and Saratoga Counties, New York
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the boroughs of Manhattan, Brooklyn and Queens in New York City
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the Los Angeles, California metropolitan area
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the San Francisco Bay, Sacramento and San Jose areas
of northern California
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the Palm Springs, California area
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the Phoenix and Tucson, Arizona metropolitan areas
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the Raleigh and Charlotte, North Carolina metropolitan areas
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the Dallas, Austin and San Antonio, Texas metropolitan areas
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the southeast and southwest coasts and the Jacksonville and
Orlando areas of Florida
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the Atlanta, Georgia metropolitan area
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the Las Vegas and Reno, Nevada metropolitan areas
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the Detroit, Michigan metropolitan area
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the Chicago, Illinois metropolitan area
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the Denver, Colorado metropolitan area
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the Hilton Head area of South Carolina
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the Minneapolis/St. Paul, Minnesota metropolitan area
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the Martinsburg, West Virginia area
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We continue to explore additional geographic areas and markets
for expansion, as appropriate.
We operate our own land development, architectural, engineering,
mortgage, title, landscaping, lumber distribution, house
component assembly, and manufacturing operations. We also
develop, own and operate golf courses and country clubs
associated with several of our master planned communities.
Since the fourth quarter of fiscal 2005, we have experienced a
slowdown in our business. This slowdown has worsened over the
past several months. The value of net new contracts signed in
fiscal 2008 was 78% lower than the value of net new contracts
signed in fiscal 2005. This slowdown, which we believe started
with a decline in consumer confidence, an overall softening of
demand for new homes and an oversupply of homes available for
sale, has been exacerbated by, among other things, a decline in
the overall economy, increasing unemployment, fear of job loss,
a significant decline in the securities markets, a continuing
decline in home prices, a large number of homes that are or will
be available for sale due to foreclosure, the inability of our
home buyers to sell their current homes, a deterioration in the
credit markets, and the direct and indirect impact of the
turmoil in the mortgage loan market. We believe that the key to
a recovery in our business is the return of consumer confidence
and a stabilization of financial markets and home prices.
For information and analyses of recent trends in our operations
and financial condition, see Managements Discussion
and Analysis of Financial Condition and Results of
Operations in Item 7 of this
Form 10-K,
and for financial information about our revenues, earnings,
assets, liabilities, stockholders equity and cash flows,
please see the accompanying consolidated financial statements
and notes thereto in Item 8 of this
Form 10-K.
At October 31, 2008, we were operating from 323 communities
containing approximately 22,560 home sites that we owned or
controlled through options. Of the 22,560 home sites, 20,514
were available for sale and 2,046 were under agreement of sale
but not yet delivered (backlog). Of our 323
communities, 273 were offering homes for sale, 21 had been
offering homes for sale but were temporarily closed due to
business conditions or the lack of availability of improved home
sites, 2 were preparing to open and 27 were sold out but not all
homes had been completed and delivered. At October 31,
2008, we also owned or controlled through options approximately
17,224 home sites in 137 proposed communities. We expect to be
selling from approximately 255 communities by October 31,
2009. Of the approximately 39,800 total home sites that we owned
or controlled through options at October 31, 2008, we owned
approximately 32,100.
At October 31, 2008, we were offering single-family
detached homes in 194 communities at prices, excluding
customized options and lot premiums, generally ranging from
$263,000 to $2,000,000. During fiscal 2008, we delivered 2,786
detached homes at an average base price of approximately
$674,300. On average, our detached home buyers added
approximately 24.4%, or $164,500 per home, in customized options
and lot premiums to the base price of detached homes we
delivered in fiscal 2008.
At October 31, 2008, we were offering attached homes in 79
communities at prices, excluding customized options and lot
premiums, generally ranging from $229,000 to $2,160,000, with
some units offered at prices higher than $2,160,000. During
fiscal 2008, we delivered 1,957 attached homes at an average
base price of approximately $514,600. On average, our attached
home buyers added approximately 9.5%, or $48,900 per home, in
customized options and lot premiums to the base price of
attached homes we delivered in fiscal 2008.
We had a backlog of $1.33 billion (2,046 homes) at
October 31, 2008 and $2.85 billion (3,950 homes) at
October 31, 2007. Backlog at October 31, 2007 was
reduced by $55.2 million for revenue we recognized using
the percentage of completion accounting method. Of the homes in
backlog at October 31, 2008, approximately 95% are
scheduled to be delivered by October 31, 2009.
In recognition of our achievements, we have received numerous
awards from national, state and local home builder publications
and associations. We are the only publicly traded national home
builder to have won all three of
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the industrys highest honors: Americas Best Builder
(1996), the National Housing Quality Award (1995), and Builder
of the Year (1988).
We attempt to reduce certain risks by: controlling land for
future development through options whenever we can, thus
allowing the necessary governmental approvals to be obtained
before acquiring title to the land; generally commencing
construction of a home only after executing an agreement of sale
with a buyer; and using subcontractors to perform home
construction and land development work on a fixed-price basis.
In order to obtain better terms or prices, or due to competitive
pressures, we may purchase properties outright, or acquire an
underlying mortgage, prior to obtaining all of the governmental
approvals necessary to commence development. Our risk reduction
strategy of generally not commencing the construction of a home
until we had an agreement of sale with a buyer was effective in
the past, but due to the significant number of cancellations of
agreements of sale that we have had in the current downturn in
the housing market, many of which were for homes on which we had
commenced construction, and the increase in the number of
multi-family communities that we have under construction, the
number of homes under construction for which we do not have an
agreement of sale has increased from our historical levels.
Our
Communities
Our communities are generally located in affluent suburban areas
near major highways providing access to major cities. We are
also operating in the affluent urban markets of Hoboken and
Jersey City, New Jersey; New York City, New York; and
Philadelphia, Pennsylvania. We currently operate in
21 states. The following table lists the states in which we
operate and the fiscal years in which we or our predecessors
commenced operations:
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Fiscal Year
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State
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of Entry
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Pennsylvania
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1967
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New Jersey
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1982
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Delaware
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1987
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Massachusetts
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1988
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Maryland
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1988
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Virginia
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1992
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Connecticut
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1992
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New York
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1993
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California
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1994
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North Carolina
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1994
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Texas
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1995
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Florida
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1995
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Arizona
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1995
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Nevada
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1998
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Illinois
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1998
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Michigan
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1999
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Colorado
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2001
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South Carolina
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2002
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Minnesota
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2005
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West Virginia
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2006
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Georgia
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2007
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We market our high-quality single-family homes to
upscale luxury home buyers, generally comprised of
those persons who have previously owned a principal residence
and who are seeking to buy a larger home the
so-called
move-up
market. We believe our reputation as a developer of homes for
this market enhances our competitive position with respect to
the sale of our smaller, more moderately priced detached homes,
as well as our attached homes.
3
We also market to the 50+ year-old empty-nester
market and believe that this market has strong growth potential.
We have developed a number of home designs with features such as
one-story living and first floor master bedroom suites, as well
as communities with recreational amenities such as golf courses,
marinas, pool complexes, country clubs and recreation centers,
that we believe appeal to this category of home buyer. We have
integrated these designs and features in our other home types
and communities.
In 1999, we opened for sale our first active-adult,
age-qualified community for households in which at least one
member is 55 years of age. We are currently selling from 19
such communities and expect to open additional age-qualified
communities during the next few years. In fiscal 2008,
approximately 10% of the value of new contracts signed was in
active-adult communities.
We also sell homes in the second-home market. We have been
selling homes in this market for several years and currently
offer them in Arizona, California, Delaware, Florida, Maryland,
Nevada, Pennsylvania and South Carolina.
In order to serve a growing market of affluent
move-up
families, empty-nesters and young professionals seeking to live
in or close to major cities, we have developed and are
developing a number of high-density, high-, mid- and low-rise
urban luxury communities and are in the process of converting
several for-rent apartment buildings to condominiums. These
communities, which we are currently developing on our own or
through joint ventures, are located in Phoenix, Arizona; Dublin,
California; Singer Island, Florida; Bloomingdale, Illinois;
North Bethesda, Maryland; Hoboken and Jersey City, New
Jersey; the boroughs of Manhattan, Brooklyn and Queens, New
York; Philadelphia, Pennsylvania and its suburbs; and Leesburg,
Virginia.
We believe that the demographics of the
move-up,
empty-nester, active-adult, age-qualified and second-home
up-scale markets will provide us with the potential for growth
in the coming decade. According to the U.S. Census Bureau,
the number of households earning $100,000 or more (in constant
2007 dollars) now stands at 23.6 million households, or
approximately 20.2% of all households. This group has grown at
five times the rate of increase of all U.S. households
since 1980. According to Claritas, Inc., a provider of
demographic information, approximately 10.3 million of
these households are located in our current markets. According
to Harvard University, the number of projected new household
formations during the ten year period between 2010 and 2020 will
be approximately 14.4 million.
Although the leading edge of the baby boom generation is now in
its late 50s and early 60s, the largest group of
baby boomers, the more than four million born annually between
1954 and 1964, are now in their peak
move-up home
buying years. The number of households with persons 55 to
64 years old, the focus of our age-qualified communities,
is projected to increase significantly over the next
10 years.
We develop individual stand-alone communities as well as
multi-product master planned communities. We currently have 28
master planned communities. Our master planned communities, many
of which include golf courses and other country club-type
amenities, enable us to offer multiple home types and sizes to a
broad range of
move-up,
empty-nester, active-adult and second-home buyers. We seek to
realize efficiencies from shared common costs such as land
development and infrastructure over the several communities
within the master planned community. We currently have master
planned communities in Arizona, California, Florida, Illinois,
Maryland, Michigan, Nevada, New Jersey, North Carolina,
Pennsylvania, South Carolina, Texas, Virginia and West Virginia.
Each of our single-family detached-home communities offers
several home plans, with the opportunity for home buyers to
select various exterior styles. We design each community to fit
existing land characteristics. We strive to achieve diversity
among architectural styles within an overall planned community
by offering a variety of house models and several exterior
design options for each house model, by preserving existing
trees and foliage whenever practicable, and by curving street
layouts which allow relatively few homes to be seen from any
vantage point. Normally, homes of the same type or color may not
be built next to each other. Our communities have attractive
entrances with distinctive signage and landscaping. We believe
that our added attention to community detail avoids a
development appearance and gives each community a
diversified neighborhood appearance that enhances home values.
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Our traditional attached home communities generally offer one-
to four-story homes, provide for limited exterior options and
often include commonly-owned recreational facilities such as
playing fields, swimming pools and tennis courts.
Our
Homes
In most of our single-family detached home communities, we offer
at least four different house floor plans, each with several
substantially different architectural styles. In addition, the
exterior of each basic floor plan may be varied further by the
use of stone, stucco, brick or siding. Our traditional attached
home communities generally offer several different floor plans
with two, three or four bedrooms.
In all of our communities, a wide selection of options is
available to home buyers for additional charges. The number and
complexity of options typically increase with the size and base
selling price of our homes. Major options include additional
garages, guest suites and other additional rooms, finished lofts
and extra fireplaces. On average, options purchased by our
detached home buyers, including lot premiums, added
approximately 24.4%, or $164,500 per home, to the base price of
homes delivered in fiscal 2008, and options purchased by our
attached home buyers, including lot premiums, added
approximately 9.5%, or $48,900 per home, to the base price of
homes delivered in fiscal 2008.
The general range of base sales prices for our different lines
of homes at October 31, 2008, was as follows:
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Detached homes
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Move-up
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$
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263,000
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to
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$
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1,037,000
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Executive
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283,000
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to
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977,000
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Estate
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330,000
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to
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2,000,000
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Active-adult, age-qualified
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286,000
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to
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596,000
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Attached homes
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Flats
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$
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229,000
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to
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$
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700,000
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Townhomes/Carriage homes
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195,000
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to
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840,000
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Active-adult, age-qualified
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200,000
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to
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700,000
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High-rise/Mid-rise
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225,000
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to
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2,160,000
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At October 31, 2008, we were offering some of our
single-family, high-rise attached units at prices that were
considerably higher than $2,160,000.
Contracts for the sale of homes are at fixed prices. In the
past, the prices at which homes were offered in a community
generally increased during the period in which that community
was offering homes for sale; however, the current weak market
has adversely affected that pattern. In fiscal 2008, the average
sales incentive on homes delivered was approximately $70,200, as
compared to approximately $34,100 in fiscal 2007. At
October 31, 2008, we were offering sales incentives that
averaged $60,900 per home, as compared to $44,800 at
October 31, 2007.
We offer some of the same basic home designs in similar
communities. However, we are continuously developing new designs
to replace or augment existing ones to ensure that our homes
reflect current consumer tastes. We use our own architectural
staff, and also engage unaffiliated architectural firms, to
develop new designs. During the past year, we introduced 43 new
single-family detached models, 6 new single-family attached
models and 20 new condominium unit models.
We operate in the following four geographic segments around the
United States: the North, consisting of Connecticut, Illinois,
Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio
and Rhode Island; the Mid-Atlantic, consisting of Delaware,
Maryland, Pennsylvania, Virginia and West Virginia; the South,
consisting of Florida, Georgia, North Carolina, South Carolina
and Texas; and the West, consisting of Arizona, California,
Colorado and Nevada. We began operations in Georgia in the
fourth quarter of fiscal 2007. We stopped selling homes in Ohio
in fiscal 2005 and delivered our last home there in fiscal 2006.
We stopped selling homes in Rhode Island in the first quarter of
fiscal 2008 and delivered our last home there in the first
quarter of fiscal 2008. Our operations in Ohio and Rhode Island
were immaterial to the North geographic segment.
5
The following table summarizes by geographic segment, revenues
and new contracts signed during fiscal 2008, 2007 and 2006, and
backlog at October 31, 2008, 2007 and 2006 (dollars in
millions):
Revenues
Twelve months ended October 31,
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Units
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$ (In millions)
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2008
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2007
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2006
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2008
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2007
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2006
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Completed contract communities (1):
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North
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1,300
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1,467
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1,983
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$
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894.4
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$
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993.1
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$
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1,333.9
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Mid-Atlantic
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1,443
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2,137
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2,697
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878.6
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1,338.4
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1,777.5
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South
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1,095
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1,631
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2,017
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556.2
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922.3
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1,124.8
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West
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905
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1,452
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1,904
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777.1
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1,241.8
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1,709.0
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Total
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4,743
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6,687
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8,601
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3,106.3
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4,495.6
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5,945.2
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Percentage of completion communities (2):
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North
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37.5
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91.0
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110.3
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South
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|
|
|
|
|
|
4.4
|
|
|
|
48.5
|
|
|
|
59.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41.9
|
|
|
|
139.5
|
|
|
|
170.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
1,300
|
|
|
|
1,467
|
|
|
|
1,983
|
|
|
|
931.9
|
|
|
|
1,084.1
|
|
|
|
1,444.2
|
|
Mid-Atlantic
|
|
|
1,443
|
|
|
|
2,137
|
|
|
|
2,697
|
|
|
|
878.6
|
|
|
|
1,338.4
|
|
|
|
1,777.5
|
|
South
|
|
|
1,095
|
|
|
|
1,631
|
|
|
|
2,017
|
|
|
|
560.6
|
|
|
|
970.8
|
|
|
|
1,184.6
|
|
West
|
|
|
905
|
|
|
|
1,452
|
|
|
|
1,904
|
|
|
|
777.1
|
|
|
|
1,241.8
|
|
|
|
1,709.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
|
4,743
|
|
|
|
6,687
|
|
|
|
8,601
|
|
|
$
|
3,148.2
|
|
|
$
|
4,635.1
|
|
|
$
|
6,115.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracts
Twelve months ended October 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
|
$ (In millions)
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Completed contract communities (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
739
|
|
|
|
1,458
|
|
|
|
1,612
|
|
|
$
|
406.0
|
|
|
$
|
1,007.4
|
|
|
$
|
1,134.2
|
|
Mid-Atlantic
|
|
|
1,028
|
|
|
|
1,505
|
|
|
|
1,942
|
|
|
|
564.2
|
|
|
|
950.4
|
|
|
|
1,262.8
|
|
South
|
|
|
660
|
|
|
|
829
|
|
|
|
1,290
|
|
|
|
332.3
|
|
|
|
454.9
|
|
|
|
784.3
|
|
West
|
|
|
495
|
|
|
|
621
|
|
|
|
1,255
|
|
|
|
305.1
|
|
|
|
573.0
|
|
|
|
1,220.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,922
|
|
|
|
4,413
|
|
|
|
6,099
|
|
|
|
1,607.6
|
|
|
|
2,985.7
|
|
|
|
4,401.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of completion communities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
8
|
|
|
|
27
|
|
|
|
61
|
|
|
|
6.8
|
|
|
|
22.0
|
|
|
|
43.1
|
|
South
|
|
|
(3
|
)
|
|
|
|
|
|
|
4
|
|
|
|
(6.2
|
)
|
|
|
2.4
|
|
|
|
16.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5
|
|
|
|
27
|
|
|
|
65
|
|
|
|
0.6
|
|
|
|
24.4
|
|
|
|
59.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
747
|
|
|
|
1,485
|
|
|
|
1,673
|
|
|
|
412.8
|
|
|
|
1,029.4
|
|
|
|
1,177.3
|
|
Mid-Atlantic
|
|
|
1,028
|
|
|
|
1,505
|
|
|
|
1,942
|
|
|
|
564.2
|
|
|
|
950.4
|
|
|
|
1,262.8
|
|
South
|
|
|
657
|
|
|
|
829
|
|
|
|
1,294
|
|
|
|
326.1
|
|
|
|
457.3
|
|
|
|
800.3
|
|
West
|
|
|
495
|
|
|
|
621
|
|
|
|
1,255
|
|
|
|
305.1
|
|
|
|
573.0
|
|
|
|
1,220.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
|
2,927
|
|
|
|
4,440
|
|
|
|
6,164
|
|
|
$
|
1,608.2
|
|
|
$
|
3,010.1
|
|
|
$
|
4,460.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
Backlog
at October 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
|
$ (In millions)
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Completed contract communities (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
870
|
|
|
|
1,431
|
|
|
|
1,440
|
|
|
$
|
562.5
|
|
|
$
|
1,051.0
|
|
|
$
|
1,036.7
|
|
Mid-Atlantic
|
|
|
558
|
|
|
|
973
|
|
|
|
1,605
|
|
|
|
362.3
|
|
|
|
676.7
|
|
|
|
1,064.7
|
|
South
|
|
|
354
|
|
|
|
789
|
|
|
|
1,591
|
|
|
|
205.1
|
|
|
|
428.9
|
|
|
|
896.4
|
|
West
|
|
|
264
|
|
|
|
674
|
|
|
|
1,505
|
|
|
|
195.6
|
|
|
|
667.6
|
|
|
|
1,336.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,046
|
|
|
|
3,867
|
|
|
|
6,141
|
|
|
|
1,325.5
|
|
|
|
2,824.2
|
|
|
|
4,334.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of completion communities (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
66
|
|
|
|
316
|
|
|
|
|
|
|
|
38.7
|
|
|
|
210.4
|
|
South
|
|
|
|
|
|
|
17
|
|
|
|
76
|
|
|
|
|
|
|
|
46.7
|
|
|
|
114.0
|
|
Less revenue recognized on units remaining in backlog
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55.2
|
)
|
|
|
(170.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
83
|
|
|
|
392
|
|
|
|
|
|
|
|
30.2
|
|
|
|
154.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
870
|
|
|
|
1,497
|
|
|
|
1,756
|
|
|
|
562.5
|
|
|
|
1,089.7
|
|
|
|
1,247.1
|
|
Mid-Atlantic
|
|
|
558
|
|
|
|
973
|
|
|
|
1,605
|
|
|
|
362.3
|
|
|
|
676.7
|
|
|
|
1,064.7
|
|
South
|
|
|
354
|
|
|
|
806
|
|
|
|
1,667
|
|
|
|
205.1
|
|
|
|
475.6
|
|
|
|
1,010.4
|
|
West
|
|
|
264
|
|
|
|
674
|
|
|
|
1,505
|
|
|
|
195.6
|
|
|
|
667.6
|
|
|
|
1,336.3
|
|
Less revenue recognized on units remaining in backlog
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55.2
|
)
|
|
|
(170.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
|
2,046
|
|
|
|
3,950
|
|
|
|
6,533
|
|
|
$
|
1,325.5
|
|
|
$
|
2,854.4
|
|
|
$
|
4,488.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Completed contract communities revenues, contracts and
backlog include certain projects that have extended sales and
construction cycles. Information related to revenue recognized
by these projects and contracts signed in these projects during
the twelve-month periods ended October 31, 2008, 2007 and
2006, and the backlog of undelivered homes in these projects at
October 31, 2008, 2007 and 2006 are provided below.
|
Revenues
Twelve months ended October 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
|
$ (In millions)
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
North
|
|
|
311
|
|
|
|
52
|
|
|
|
|
|
|
$
|
288.3
|
|
|
$
|
70.3
|
|
|
|
|
|
Mid-Atlantic
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
25.9
|
|
|
|
|
|
|
|
|
|
West
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
386
|
|
|
|
52
|
|
|
|
|
|
|
$
|
323.5
|
|
|
$
|
70.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracts Twelve months ended October 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
(8
|
)
|
|
|
329
|
|
|
|
240
|
|
|
$
|
(1.8
|
)
|
|
$
|
325.4
|
|
|
$
|
228.4
|
|
Mid-Atlantic
|
|
|
(1
|
)
|
|
|
14
|
|
|
|
28
|
|
|
|
0.1
|
|
|
|
6.4
|
|
|
|
10.6
|
|
West
|
|
|
(36
|
)
|
|
|
(6
|
)
|
|
|
19
|
|
|
|
(21.2
|
)
|
|
|
(4.0
|
)
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(45
|
)
|
|
|
337
|
|
|
|
287
|
|
|
$
|
(22.9
|
)
|
|
$
|
327.8
|
|
|
$
|
251.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog at October 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
214
|
|
|
|
533
|
|
|
|
256
|
|
|
$
|
208.8
|
|
|
$
|
499.0
|
|
|
$
|
244.0
|
|
Mid-Atlantic
|
|
|
9
|
|
|
|
72
|
|
|
|
58
|
|
|
|
4.2
|
|
|
|
30.0
|
|
|
|
23.6
|
|
West
|
|
|
|
|
|
|
20
|
|
|
|
26
|
|
|
|
|
|
|
|
14.2
|
|
|
|
18.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
223
|
|
|
|
625
|
|
|
|
340
|
|
|
$
|
213.0
|
|
|
$
|
543.2
|
|
|
$
|
285.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
(2) |
|
Percentage of Completion deliveries in the twelve-month periods
ended October 31, 2008 and 2007 are provided below. No
deliveries of units from projects accounted for using the
percentage of completion method of accounting were made in the
twelve months ended October 31, 2006. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
|
$ (In millions)
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
North
|
|
|
74
|
|
|
|
277
|
|
|
|
|
|
|
$
|
45.6
|
|
|
$
|
193.7
|
|
|
|
|
|
South
|
|
|
14
|
|
|
|
59
|
|
|
|
|
|
|
|
40.5
|
|
|
|
69.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
88
|
|
|
|
336
|
|
|
|
|
|
|
$
|
86.1
|
|
|
$
|
263.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes certain information with respect
to our residential communities under development at
October 31, 2008:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes
|
|
|
|
|
|
|
Total
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Under
|
|
|
|
|
Geographic
|
|
Number of
|
|
|
Selling
|
|
|
Homes
|
|
|
Homes
|
|
|
Contract but
|
|
|
Home Sites
|
|
Segment
|
|
Communities
|
|
|
Communities
|
|
|
Approved
|
|
|
Closed
|
|
|
not Closed
|
|
|
Available
|
|
|
North
|
|
|
85
|
|
|
|
73
|
|
|
|
11,363
|
|
|
|
5,269
|
|
|
|
870
|
|
|
|
5,224
|
|
Mid-Atlantic
|
|
|
86
|
|
|
|
67
|
|
|
|
12,816
|
|
|
|
5,755
|
|
|
|
558
|
|
|
|
6,503
|
|
South
|
|
|
81
|
|
|
|
65
|
|
|
|
9,038
|
|
|
|
3,556
|
|
|
|
354
|
|
|
|
5,128
|
|
West
|
|
|
71
|
|
|
|
68
|
|
|
|
6,893
|
|
|
|
2,970
|
|
|
|
264
|
|
|
|
3,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
323
|
|
|
|
273
|
|
|
|
40,110
|
|
|
|
17,550
|
|
|
|
2,046
|
|
|
|
20,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At October 31, 2008, significant site improvements had not
yet commenced on approximately 11,900 of the 20,514 available
home sites. Of the 20,514 available home sites, 1,996 were not
yet owned by us, but were controlled through options.
Of our 323 communities under development at October 31,
2008, 273 were offering homes for sale, 21 had previously been
offering homes for sale but were temporarily closed at
October 31, 2008 due to business conditions or the
unavailability of improved home sites, 2 were preparing to open
and 27 were sold out but not all homes had been completed and
delivered. Of the 273 communities in which homes were being
offered for sale at October 31, 2008, 194 were
single-family detached home communities containing a total of
304 homes (exclusive of model homes) under construction or
completed but not under contract, and 79 were attached home
communities containing a total of 1,042 homes (exclusive of
model homes and 183 units that are temporarily being held
as rental units) under construction or completed but not under
contract. Of the 1,042 homes under construction or completed but
not under contract in attached home communities at
October 31, 2008, 522 were in high- and mid-rise projects
and 51 were in two communities that we acquired and are
converting to condominium units.
At the end of each fiscal quarter, we review the profitability
of each of our operating communities. For those communities
operating below certain profitability thresholds, we estimate
the expected future cash flow for each of those communities. For
those communities whose estimated cash flow is not sufficient to
recover its carrying value, we estimate the fair value of these
communities in accordance with Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets
(SFAS 144) and recognize an impairment charge
for the difference between the estimated fair value of each
community and its carrying value. In fiscal 2008, 2007 and 2006,
we recognized impairment charges related to operating
communities and land owned of $543.5 million,
$581.6 million, and $61.1 million, respectively.
For more information regarding revenues, income before income
taxes and assets by geographic segment, see Note 15 of the
Notes to the Consolidated Financial Statements,
Information on Business Segments.
Land
Policy
Before entering into an agreement to purchase a land parcel, we
complete extensive comparative studies and analyses on detailed
Company-designed forms that assist us in evaluating the
acquisition. We generally attempt to enter into option
agreements to purchase land for future communities. However, in
order to obtain better terms or
8
prices, or due to competitive pressures, we may acquire property
outright from time to time. We have also entered into several
joint ventures with other builders or developers to develop land
for the use of the joint venture participants or for sale to
outside third parties. In addition, we have, at times, acquired
the underlying mortgage on a property and subsequently obtained
title to that property.
We generally enter into agreements to purchase land, referred to
in this Form 10-K as land purchase contracts,
purchase agreements, options or
option agreements on a non-recourse basis, thereby
limiting our financial exposure to the amounts expended in
obtaining any necessary governmental approvals, the costs
incurred in the planning and design of the community and, in
some cases, some or all of our deposit. The use of options or
purchase agreements may increase the price of land that we
eventually acquire, but reduces our risk by allowing us to
obtain the necessary development approvals before acquiring the
land or allowing us to delay the acquisition to a later date.
Historically, as approvals were obtained, the value of the
options, purchase agreements and land generally increased.
However, in any given time period, this may not happen. We have
the ability to extend many of these options for varying periods
of time, in some cases by making an additional payment and, in
other cases, without any additional payment. Our purchase
agreements are typically subject to numerous conditions
including, but not limited to, the ability to obtain necessary
governmental approvals for the proposed community. Our deposit
under an agreement may be returned to us if all approvals are
not obtained, although pre-development costs may not be
recoverable. We generally have the right to cancel any of our
agreements to purchase land by forfeiture of some or all of the
deposits we have made pursuant to the agreement.
Our ability to continue development activities over the
long-term will be dependent, among other things, upon a suitable
economic environment and our continued ability to locate and
enter into options or agreements to purchase land, obtain
governmental approvals for suitable parcels of land, and
consummate the acquisition and complete the development of such
land.
The following is a summary of the parcels of land that we either
owned or controlled through options or purchase agreements at
October 31, 2008 for proposed communities, as distinguished
from those communities currently under development:
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Number of
|
|
Geographic
|
|
Number of
|
|
|
Planned
|
|
Segment
|
|
Communities
|
|
|
Home Sites(a)
|
|
|
North
|
|
|
31
|
|
|
|
4,561
|
|
Mid-Atlantic
|
|
|
61
|
|
|
|
6,945
|
|
South
|
|
|
13
|
|
|
|
1,915
|
|
West
|
|
|
32
|
|
|
|
3,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137
|
|
|
|
17,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
We have additional home sites under option that have been
excluded from this table because, due to market conditions, we
do not believe that we will complete the purchase of these home
sites. |
Of the 17,224 planned home sites at October 31, 2008, we
owned 11,517 and controlled 5,707 through options and purchase
agreements. At October 31, 2008, the aggregate purchase
price of land parcels under option and purchase agreements in
current and future communities was approximately
$637.0 million (including $147.0 million of land to be
acquired from joint ventures in which we have invested). Of the
$637.0 million of land purchase commitments at
October 31, 2008, we had paid or deposited
$70.8 million and had investments in or guaranteed loans on
behalf of joint ventures of $113.4 million. The purchases
of these home sites are scheduled to take place over the next
several years.
We evaluate all of the land under our control for proposed
communities on an ongoing basis for continued economic and
market feasibility. During each of the fiscal years ended
October 31, 2008, 2007 and 2006, such feasibility analyses
resulted in approximately $101.5 million,
$37.9 million, and $90.9 million, respectively, of
capitalized costs related to proposed communities being charged
to cost of revenue because they were no longer deemed to be
recoverable.
9
We have a substantial amount of land currently under control for
which approvals have been obtained or are being sought (as set
forth in the tables above). We devote significant resources to
locating suitable land for future development and to obtaining
the required approvals on land under our control. There can be
no assurance that the necessary development approvals will be
secured for the land currently under our control or for land
which we may acquire control of in the future or that, upon
obtaining such development approvals, we will elect to complete
the purchases of land under option or complete the development
of land that we own. We generally have been successful in
obtaining governmental approvals in the past. Based upon our
current decreased level of business, we believe that we have an
adequate supply of land in our existing communities and proposed
communities (assuming that all properties are developed) to
maintain our operations at current levels for several years.
Community
Development
We expend considerable effort in developing a concept for each
community, which includes determining the size, style and price
range of the homes, the layout of the streets and individual
home sites, and the overall community design. After the
necessary governmental subdivision and other approvals have been
obtained, which may take several years, we improve the land by
clearing and grading it; installing roads, underground utility
lines and recreational amenities; erecting distinctive entrance
structures; and staking out individual home sites.
Each community is managed by a project manager. Working with
sales staff, construction managers, marketing personnel and,
when required, other in-house and outside professionals such as
accountants, engineers, architects and legal counsel, the
project manager is responsible for supervising and coordinating
the various developmental steps from the approval stage through
land acquisition, marketing, selling, construction and customer
service, and for monitoring the progress of work and controlling
expenditures. Major decisions regarding each community are made
in consultation with senior members of our management team.
For our single-family detached and attached homes that generally
take less than one year to build, we recognize revenue and costs
from these home sales only when title and possession of a home
is transferred to the buyer, which usually occurs shortly after
home construction is substantially completed. For
high-rise/mid-rise projects where the construction time is
substantially longer than one year and which qualify under
Statement of Financial Accounting Standard No. 66 for
percentage of completion accounting, revenues and costs of
individual communities 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 is based on the percentage of total
estimated construction costs which have been incurred. For
high-rise/mid-rise projects that do not qualify for percentage
of completion accounting, we recognize revenues and costs when
title and possession of a home is transferred to the buyer.
During the past two years, we completed construction on four
projects for which we used the percentage of completion
accounting method to recognize revenues and costs; the remaining
units in these projects will be accounted for using the
completed contract method of accounting. Based upon the current
accounting rules and interpretations, we do not believe that any
of our current or future communities qualify for percentage of
completion accounting.
The most significant variable affecting the timing of our
revenue stream, other than housing demand, is the opening of the
community for sale, which generally occurs shortly after receipt
of final land regulatory approvals. Receipt of approvals permits
us to begin the process of obtaining executed sales contracts
from home buyers. Although our sales and construction activities
vary somewhat by season, which can affect the timing of
closings, any such seasonal effect is relatively insignificant
compared to the effect of the timing of receipt of final
governmental approvals, the opening of the community and the
subsequent timing of closings. In the current economic and
housing slowdown, we have delayed the opening of new communities
to reduce operating expenses and conserve cash.
We act as a general contractor for many of our projects.
Subcontractors perform all home construction and land
development work, generally under fixed-price contracts. We
purchase most of the materials we use to build our homes and in
our land development activities directly from the manufacturers
or producers. We generally have multiple sources for the
materials we purchase and we have not experienced significant
delays due to unavailability of necessary materials. See
Manufacturing/Distribution Facilities in Item 2.
Our construction managers and assistant construction managers
coordinate subcontracting activities and supervise all aspects
of construction work and quality control. One of the ways in
which we seek to achieve home
10
buyer satisfaction is by providing our construction managers
with incentive compensation arrangements based on each home
buyers satisfaction as expressed by their responses on
pre-closing and post-closing questionnaires.
We maintain insurance, subject to deductibles and self-insured
amounts, to protect us against various risks associated with our
activities, including, among others, general liability,
all-risk property, workers compensation,
automobile and employee fidelity. We accrue for our expected
costs associated with the deductibles and self-insured amounts.
Marketing
and Sales
We believe that our marketing strategy, which emphasizes our
more expensive Estate and Executive
lines of homes, has enhanced our reputation as a
builder-developer of high-quality upscale housing. We believe
this reputation results in greater demand for all of our lines
of homes. To enhance this image, we generally include attractive
decorative features such as chair rails, crown moldings, dentil
moldings, vaulted and coffered ceilings and other aesthetic
elements, even in our less expensive homes, based on our belief
that this additional construction expense improves our marketing
and sales effort.
In determining the prices for our homes, we utilize, in addition
to managements extensive experience, an internally
developed value analysis program that compares our homes with
homes offered by other builders in each local marketing area. In
our application of this program, we assign a positive or
negative dollar value to differences between our product
features and those of our competitors, such as house and
community amenities, location and reputation.
We expend great effort in designing and decorating our model
homes, which play an important role in our marketing. In our
models, we attempt to create an attractive atmosphere, which may
include bread baking in the oven, fires burning in fireplaces,
and music playing in the background. Interior decorating varies
among the models and is carefully selected to reflect the
lifestyles of prospective buyers. During the past several years,
we have received numerous awards from various home builder
associations for our interior merchandising.
We typically have a sales office in each community that is
staffed by our own sales personnel. Sales personnel are
generally compensated with both salary and commission. A
significant portion of our sales is also derived from the
introduction of customers to our communities by local
cooperating realtors.
We advertise in newspapers, other local and regional
publications, and on billboards. We also use attractive color
brochures to market our communities. The Internet is also an
important resource we use in marketing and providing information
to our customers. A visitor to our award winning web site,
www.tollbrothers.com, can obtain detailed information
regarding our communities and homes across the country, take
panoramic or video tours of our homes and design their own homes
based upon our available floor plans and options.
Due to the current weak market conditions and in an effort to
promote the sales of homes, including the significant number of
speculative homes that we had due to sales contract
cancellations, we have been increasing the amount of sales
incentives offered to home buyers. These incentives will vary by
type and amount on a
community-by-community
and home-by-home basis. The average value of sales incentives
given to home buyers on homes delivered in fiscal 2008, 2007 and
2006 was approximately $70,200, $34,100 and $10,100,
respectively.
All of our homes are sold under our limited warranty as to
workmanship and mechanical equipment. Many homes also come with
a limited ten-year warranty as to structural integrity.
We have a two-step sales process. The first step takes place
when a potential home buyer visits one of our communities and
decides to purchase one of our homes, at which point the home
buyer signs a non-binding deposit agreement and provides a
small, refundable deposit. This deposit will reserve, for a
short period of time, the home site or unit that the home buyer
has selected and will lock in the base price of the home.
Deposit rates are tracked on a weekly basis to help us monitor
the strength or weakness in demand in each of our communities.
If demand for homes in a particular community is strong, senior
management will determine whether the base selling prices in
that community should be increased, whereas if demand for the
homes in a particular community is weak, we may determine
whether sales incentives
and/or
discounts on home prices should be added to the communitys
sales
11
effort. Because these deposit agreements are non-binding, they
are not recorded as signed contracts, nor are they recorded in
backlog.
The second step in the sales process occurs when we actually
sign a binding agreement of sale with the home buyer and the
home buyer gives us a cash down payment. Cash down payments
currently average approximately 10% of the total purchase price
of a home, although, historically, they have averaged
approximately 7% of the total purchase price of a home. Between
the time that the home buyer signs the non-binding deposit
agreement and the binding agreement of sale, he or she is
required to complete a financial questionnaire that gives us the
ability to evaluate whether the home buyer has the financial
resources necessary to purchase the home. If we determine that
the home buyer is not financially qualified, we will not enter
into an agreement of sale with the home buyer. During fiscal
2008, 2007 and 2006, our customers signed 3,920, 6,025 and
7,470 gross contracts, respectively. They cancelled 993,
1,585 and 1,306 contracts during fiscal 2008, 2007 and 2006,
respectively. Contract cancellations in a fiscal year include
all contracts cancelled in that fiscal year, including contracts
signed in that fiscal year as well as contracts signed in prior
fiscal years. 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. Only outstanding
agreements of sale that have been signed by both the home buyer
and us as of the end of the period for which we are reporting
are included in backlog. Of the value of backlog reported on
October 31, 2007, 2006 and 2005, home buyers subsequently
cancelled approximately 20.9%, 19.9% and 19.2% of such value of
backlog, respectively. As a result of these cancellations, we
retained $32.5 million, $36.5 million and
$15.4 million of customer deposits in fiscal 2008, 2007 and
fiscal 2006, respectively. These retained deposits are included
in other income in our statements of operations.
While we try to avoid selling homes to speculators and generally
do not build detached homes without first having a signed
agreement of sale, 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 purchased or cancel
contracts for homes under construction, the large number of
homes that are or will be available for sale due to
foreclosures, 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 lowering prices and adding
incentives. In addition, based on the high cancellation rates
reported by us and by other builders, cancellations by
non-speculative buyers are also adding to the oversupply of
homes in the marketplace. At October 31, 2008, we had 1,295
unsold units under construction (excluding condominium
conversion units), including 522 units in high density
product that generally have a longer construction time than our
traditional product. At October 31, 2007, we had 1,613
unsold units (excluding condominium conversion units), including
672 units in high density product that generally have a
longer construction time than our traditional product.
At October 31, 2008, our backlog of homes was
$1.33 billion (2,046 homes). Of the homes in backlog at
October 31, 2008, approximately 95% of the homes were
scheduled to be delivered by October 31, 2009.
Our mortgage subsidiary provides mortgage financing for a
portion of our home closings. Our mortgage subsidiary determines
whether the home buyer qualifies for the mortgage he or she is
seeking based upon information provided by the home buyer, and
other sources. For those home buyers that qualify, our mortgage
subsidiary provides the home buyer with a mortgage commitment
that specifies the terms and conditions of a proposed mortgage
loan based upon then-current market conditions. Prior to the
actual closing of the home and funding of the mortgage, the home
buyer will lock in an interest rate based upon the terms of the
commitment. At the time of rate lock, our mortgage subsidiary
agrees to sell the proposed mortgage loan to one of several
outside recognized mortgage financing institutions
(investors) that it uses, which is willing to honor
the terms and conditions, including interest rate, committed to
the home buyer. We believe that these investors have adequate
financial resources to honor their commitments to our mortgage
subsidiary. At October 31, 2008, our mortgage subsidiary
was committed to fund $486.8 million of mortgage loans. Of
these commitments, $95.8 million, as well as
$49.3 million of mortgage loans receivable, have
locked in interest rates. Our mortgage subsidiary
has commitments from investors to acquire $142.7 million of
these locked-in loans and receivables. Our home buyers have not
locked-in the interest rate on the remaining
$390.9 million.
12
Competition
The homebuilding business is highly competitive and fragmented.
We compete with numerous home builders of varying sizes, ranging
from local to national in scope, some of which have greater
sales and financial resources than we have. Sales of existing
homes, whether by a homeowner or by a financial institution who
has acquired a home through a foreclosure, also provide
competition. We compete primarily on the basis of price,
location, design, quality, service and reputation; however, we
believe our financial stability, relative to most others in our
industry, has become an increasingly favorable competitive
factor. When our industry recovers, we believe that we will see
reduced competition from the small and mid-sized private
builders in the luxury market. Their access to capital already
appears to be severely constrained. We envision that there will
be fewer and more selective lenders serving our industry at that
time. We believe that those lenders likely will gravitate to the
home building companies that offer them the greatest security,
the strongest balance sheets and the broadest array of potential
business opportunities.
Regulation
and Environmental Matters
We are subject to various local, state and federal statutes,
ordinances, rules and regulations concerning zoning, building
design, construction and similar matters, including local
regulations which impose restrictive zoning and density
requirements in order to limit the number of homes that can
eventually be built within the boundaries of a particular
property or locality. In a number of our markets, there has been
an increase in state and local legislation authorizing the
acquisition of land as dedicated open space, mainly by
governmental, quasi-public and non-profit entities. In addition,
we are subject to various licensing, registration and filing
requirements in connection with the construction, advertisement
and sale of homes in our communities. The impact of these laws
has been to increase our overall costs, and may have delayed the
opening of communities or caused us to conclude that development
of particular communities would not be economically feasible,
even if any or all necessary governmental approvals were
obtained. See Land Policy in this Item 1. We
also may be subject to periodic delays or may be precluded
entirely from developing communities due to building moratoriums
in one or more of the areas in which we operate. Generally, such
moratoriums relate to insufficient water or sewage facilities or
inadequate road capacity.
In order to secure certain approvals, in some areas, we may be
required to provide affordable housing at below market rental or
sales prices. The impact on us depends on how the various state
and local governments in the areas in which we engage, or intend
to engage, in development implement their programs for
affordable housing. To date, these restrictions have not had a
material impact on us.
We also are subject to a variety of local, state and federal
statutes, ordinances, rules and regulations concerning
protection of public health and the environment
(environmental laws). The particular environmental
laws that apply to any given community vary greatly according to
the location and environmental condition of the site, and the
present and former uses of the site. Complying with these
environmental laws may result in delays, may cause us to incur
substantial compliance and other costs,
and/or may
prohibit or severely restrict development in certain
environmentally sensitive regions or areas.
We maintain a policy of engaging independent environmental
consultants to evaluate land for the potential of hazardous or
toxic materials, wastes or substances before consummating an
acquisition. Because we generally have obtained such assessments
for the land we have purchased, we have not been significantly
affected to date by the presence of such materials.
Our mortgage subsidiary is subject to various state and federal
statutes, rules and regulations, including those that relate to
licensing, lending operations and other areas of mortgage
origination and financing. The impact of those statutes, rules
and regulations can increase our home buyers cost of
financing, increase our cost of doing business, as well as to
restrict our home buyers access to some types of loans.
Employees
At October 31, 2008, we employed 3,160 persons
full-time. Of the 3,160 full-time employees at
October 31, 2008, 201 were in executive management
positions, 395 were engaged in sales activities, 213 were
engaged in project management activities, 1,231 were engaged in
administrative and clerical activities, 417 were engaged in
13
construction activities, 70 were engaged in architectural and
engineering activities, 353 were engaged in golf course
operations, and 280 were engaged in manufacturing and
distribution. At October 31, 2008, we were subject to one
collective bargaining agreement that covered approximately 1.5%
of our employees. We consider our employee relations to be good.
Available
Information
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange
Commission (the SEC). These filings are available to
the public over the Internet at the SECs web site at
http://www.sec.gov.
You may also read and copy any document we file at the
SECs public reference room located at
100 F Street, N.E., Washington, DC 20549. Please call
the SEC at
1-800-SEC-0330
for further information on the public reference room.
Our principal Internet address is www.tollbrothers.com.
We make available free of charge on or through
www.tollbrothers.com our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports, as soon as reasonably
practicable after we electronically file such material with, or
furnish it to, the SEC. The contents of our website are not,
however, a part of this report.
Our Board of Directors has an audit committee, an executive
compensation committee and a nominating and corporate governance
committee. Each of these committees has a formal charter. We
also have Corporate Governance Guidelines, a Code of Ethics for
the Principal Executive Officer and Senior Financial Officers,
and a Code of Ethics and Business Conduct which applies to all
directors, officers and employees. Copies of these charters,
guidelines and codes, and any waivers or amendments to such
codes which are applicable to our executive officers, senior
financial officers or directors, can be obtained free of charge
from our web site, www.tollbrothers.com.
In addition, you may request a copy of the foregoing filings
(excluding exhibits), charters, guidelines and codes, and any
waivers or amendments to such codes which are applicable to our
executive officers, senior financial officers or directors, at
no cost by writing to us at Toll Brothers, Inc., 250 Gibraltar
Road, Horsham, PA 19044, Attention: Director of Investor
Relations, or by telephoning us at
(215) 938-8000.
Factors
That May Affect Our Future Results (Cautionary Statements Under
the Private Securities Litigation Reform Act of
1995)
Certain information included in this report or in other
materials we have filed or will file with the SEC (as well as
information included in oral statements or other written
statements made or to be made by us) contains or may contain
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended. You
can identify these statements by the fact that they do not
relate strictly to historical or current facts. They contain
words such as anticipate, estimate,
expect, project, intend,
plan, believe, may,
can, could, might,
should and other words or phrases of similar meaning
in connection with any discussion of future operating or
financial performance. Such statements may include, but are not
limited to, information relating to anticipated operating
results (including, for example, changes in revenues,
profitability and operating margins), financial resources,
interest expense, inventory impairments and write-downs, changes
in accounting treatment, effects of home buyer cancellations,
growth and expansion, anticipated income to be realized from our
investments in unconsolidated entities, the ability to acquire
land and gain approvals to open new communities, to sell homes
and properties, to deliver homes from backlog, to secure
materials and subcontractors, to produce the liquidity and
capital necessary to expand and take advantage of opportunities
in the future, industry trends, and stock market valuations.
From time to time, forward-looking statements also are included
in our other periodic reports on
Forms 10-Q
and 8-K, in
press releases, in presentations, on our web site and in other
materials released to the public.
Any or all of the forward-looking statements included in this
report and in any other reports or public statements made by us
are not guarantees of future performance and may turn out to be
inaccurate. This can occur as a result of incorrect assumptions
or as a consequence of known or unknown risks and uncertainties.
Many factors mentioned in this report or in other reports or
public statements made by us, such as government regulation and
the
14
competitive environment, will be important in determining our
future performance. Consequently, actual results may differ
materially from those that might be anticipated from our
forward-looking statements.
Forward-looking statements speak only as of the date they are
made. We undertake no obligation to publicly update any
forward-looking statements, whether as a result of new
information, future events or otherwise.
On December 4, 2008, we issued a press release and held a
conference call to review the results of operations for our
fiscal year ended October 31, 2008 and to discuss the
current state of our business. The information contained in this
report is consistent with that given in the press release and on
the conference call on December 4, 2008, and we are not
reconfirming or updating that information in this
Form 10-K.
However, any further disclosures made on related subjects in our
subsequent reports on
Forms 10-K,
10-Q and
8-K should
be consulted.
The following cautionary discussion of risks, uncertainties and
possible inaccurate assumptions relevant to our business
includes factors we believe could cause our actual results to
differ materially from expected and historical results. Other
factors beyond those listed below, including factors unknown to
us and factors known to us which we have not determined to be
material, could also adversely affect us. This discussion is
provided as permitted by the Private Securities Litigation
Reform Act of 1995, and all of our forward-looking statements
are expressly qualified in their entirety by the cautionary
statements contained or referenced in this section.
The
homebuilding industry is undergoing a significant downturn, and
its duration and ultimate severity are uncertain in the current
state of the economy. A continued slowdown in our business will
continue to adversely affect our operating results and financial
condition.
The downturn in the homebuilding industry, which is in its
fourth year, has become one of the most severe in U.S. history.
This downturn, which we believe started with a decline in
consumer confidence, a decline in home prices and an oversupply
of homes available for sale, has been exacerbated by, among
other things, a decline in the overall economy, increasing
unemployment, fear of job loss, a decline in the securities
markets, the number of homes that are or will be available for
sale due to foreclosures, an inability of home buyers to sell
their current homes, a deterioration in the credit markets, and
the direct and indirect impact of the turmoil in the mortgage
loan market. All of these factors, in an economy that is now in
recession, have contributed to the significant decline in the
demand for new homes. Moreover, the governments
legislative and administrative measures aimed at restoring
liquidity to the credit markets and providing relief to
homeowners facing foreclosure have only recently begun. It is
unclear whether these measures will effectively stabilize prices
and home values or restore consumer confidence and increase
demand in the homebuilding industry.
As a result of this downturn, our sales and results of
operations have been adversely affected, we have incurred
significant inventory impairments and other write-offs, our
gross margins have declined significantly, and we incurred a
substantial loss, after write-offs, during fiscal 2008. We
cannot predict the duration or ultimate severity of the current
challenging conditions, nor can we provide assurance that our
responses to the current downturn or the governments
attempts to address the troubles in the economy will be
successful. If these conditions persist or continue to worsen,
they will further adversely affect our operating results and
financial condition.
Additional
adverse changes in economic conditions where we conduct our
operations and where prospective purchasers of our homes live
could further reduce the demand for homes and, as a result,
could further reduce our results of operations and continue to
adversely affect our financial condition.
Adverse changes in national, regional and local economic
conditions where we conduct our operations and where prospective
purchasers of our homes live, have had and may continue to have
a negative impact on our business. Adverse changes in employment
levels, job growth, consumer confidence, interest rates and
population growth, or an oversupply of homes for sale may
further reduce demand, depress prices for our homes and cause
home buyers to cancel their agreements to purchase our homes.
This, in turn, could further reduce our results of operations
and continue to adversely affect our financial condition.
15
Continued
higher than normal cancellations of existing agreements of sale
will have a continued adverse effect on our
business.
Our backlog reflects agreements of sale with our home buyers for
homes that have not yet been delivered. We have received a
deposit from our home buyer for each home reflected in our
backlog, and generally we have the right to retain the deposit
if the home buyer does not complete the purchase. In some cases,
however, a home buyer may cancel the agreement of sale and
receive a complete or partial refund of the deposit for reasons
such as state and local law, the home buyers inability to
obtain mortgage financing, his or her inability to sell their
current home or our inability to complete and deliver the home
within the specified time. Our home buyers have cancelled a
higher than normal number of agreements of sale since the fourth
quarter of our fiscal 2005. If the current industry downturn
continues, if the current decline in economic conditions
continues, or if mortgage financing becomes less available, more
home buyers may cancel their agreements of sale with us. The
continued high levels of home buyer cancellations will continue
to have an adverse effect on our business and results of
operations.
The
homebuilding industry is highly competitive and, if others are
more successful or offer better value to our customers, our
business could decline.
We operate in a very competitive environment which is
characterized by competition from a number of other home
builders in each market in which we operate. We compete with
large national and regional home building companies and with
smaller local home builders for land, financing, raw materials
and skilled management and labor resources. We also compete with
the resale, or previously owned, home market which
has increased significantly due to the large number of homes
that have been foreclosed on or will be foreclosed on due to the
current economic downturn. Increased competition could cause us
to increase our selling incentives
and/or
reduce our prices. An oversupply of homes available for sale and
the heavy discounting of home prices by some of our competitors
have adversely affected demand for our homes and the results of
our operations. If we are unable to compete effectively in our
markets, our business could decline disproportionately to our
competitors.
If we
are not able to obtain suitable financing or our credit ratings
are lowered, our business and results of operations may
decline.
Our business and results of operations depend substantially on
our ability to obtain financing for the development of our
residential communities, whether from bank borrowings or from
financing in the public debt markets. Our revolving credit
facility matures in March 2011, $343.0 million of our
senior subordinated debt becomes due and payable in 2011 and
$1.15 billion of our senior notes become due and payable at
various times from November 2012 through May 2015. The
availability of financing from banks and the public debt markets
has declined significantly. Due to the deterioration of the
credit markets and the uncertainties that exist in the economy
and for home builders in general, we cannot be certain that we
will be able to replace existing financing or find additional
sources of financing.
If we are not able to obtain suitable financing or replace
existing debt and credit facilities when they become due or
expire, our costs for borrowings will likely increase and our
revenues may decrease, or we could be precluded from continuing
our operations at current levels.
Increases in interest rates can make it more difficult
and/or
expensive for us to obtain the funds we need to operate our
business. The amount of interest we incur on our revolving bank
credit facility fluctuates based on changes in short-term
interest rates, the amount of borrowings we incur and the
ratings that national rating agencies assign to our outstanding
debt securities. Increases in interest rates generally
and/or any
downgrading in the ratings that national rating agencies assign
to our outstanding debt securities could increase the interest
rates we must pay on any subsequent issuances of debt
securities, and any such ratings downgrade could also make it
more difficult for us to sell such debt securities.
If we
cannot obtain letters of credit and surety bonds, our ability to
operate may be restricted.
We use letters of credit and surety bonds to secure our
performance under various construction and land development
agreements, escrow agreements, financial guarantees and other
arrangements. Should banks decline
16
to issue letters of credit or surety companies decline to issue
surety bonds, our ability to operate could be significantly
restricted and could have an adverse effect on our business and
results of operations.
If our
home buyers or our home buyers buyers are not able to
obtain suitable financing, our results of operations may further
decline.
Our results of operations also depend on the ability of our
potential home buyers to obtain mortgages for the purchase of
our homes. The uncertainties created by recent events in the
mortgage markets and their impact on the overall mortgage
market, including the tightening of credit standards, could
adversely affect the ability of our customers to obtain
financing for a home purchase, thus preventing our potential
home buyers from purchasing our homes. Moreover, increases in
the cost of home mortgage financing could prevent our potential
home buyers from purchasing our homes. In addition, where our
potential home buyers must sell their existing homes in order to
buy a home from us, increases in mortgage costs
and/or lack
of availability of mortgages could prevent the buyers of our
potential home buyers existing homes from obtaining the
mortgages they need to complete the purchase, which would result
in our potential customers inability to buy a home from
us. Similar risks apply to those buyers who are in our backlog
of homes to be delivered. If our home buyers, potential buyers
or buyers of our home buyers current homes cannot obtain
suitable financing, our sales and results of operations would be
adversely affected.
If our
ability to resell mortgages to investors is impaired, our home
buyers will be required to find alternative
financing.
Generally, when our mortgage subsidiary closes a mortgage for a
home buyer at a previously locked in rate, it already has an
agreement in place with an investor to acquire the mortgage
following the closing. Due to the deterioration of the credit
and financial markets, the number of investors that are willing
to purchase our mortgages has decreased and the underwriting
standards of the remaining investors have become more stringent.
Should the resale market for our mortgages further decline or
the underwriting standards of our investors become more
stringent, our ability to sell future mortgages could decline
and our home buyers will be required to find an alternative
source of financing. If our home buyers cannot obtain an
alternative source of financing in order to purchase our homes,
our sales and results of operations could be adversely affected.
If
land is not available at reasonable prices, our sales and
results of operations could decrease.
In the long-term, our operations depend on our ability to obtain
land for the development of our residential communities at
reasonable prices. Due to the current downturn in our business,
our supply of available home sites, both owned and optioned, has
decreased from 91,200 home sites controlled at April 30,
2006 to 39,800 at October 31, 2008. In the future, changes
in the general availability of land, competition for available
land, availability of financing to acquire land, zoning
regulations that limit housing density and other market
conditions may hurt our ability to obtain land for new
residential communities at prices that will allow us to make a
reasonable profit. If the supply of land appropriate for
development of our residential communities becomes more limited
because of these factors, or for any other reason, the cost of
land could increase
and/or the
number of homes that we sell and build could be reduced.
If the
market value of our land and homes drop, our results of
operations will likely decrease.
The market value of our land and housing inventories depends on
market conditions. We acquire land for expansion into new
markets and for replacement of land inventory and expansion
within our current markets. If housing demand decreases below
what we anticipated when we acquired our inventory, we may not
be able to make profits similar to what we have made in the
past, may experience less than anticipated profits
and/or may
not be able to recover our costs when we sell and build homes.
Due to the significant decline in our business since September
2005, we have recognized significant write-downs of our
inventory in fiscal 2006, fiscal 2007 and fiscal 2008. If these
adverse market conditions continue or worsen, we may have to
write-down our inventories further
and/or may
have to sell land or homes at a loss.
17
Errors
in estimates and judgments that affect decisions about how we
operate and on the reported amounts of assets, liabilities,
revenues and expenses could have a material impact on
us.
In the ordinary course of doing business, we must make estimates
and judgments that affect decisions about 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;
estimates of sales levels and sales prices; capitalization of
costs to inventory; provisions for litigation, insurance and
warranty costs; cost of complying with government regulations;
and income taxes. We base our estimates on historical experience
and on various other assumptions that are believed to be
reasonable under the circumstances. On an ongoing basis, we
evaluate and adjust our estimates based upon the information
then currently available. Actual results may differ from these
estimates, assumptions and conditions.
We
participate in certain joint ventures where we may be adversely
impacted by the failure of the joint venture or its participants
to fulfill their obligations.
We have investments in and commitments to certain joint ventures
with unrelated parties to develop land. These joint ventures
usually borrow money to help finance their activities. In
certain circumstances, the joint venture participants, including
ourselves, are required to provide guarantees of certain
obligations relating to the joint ventures. As a result of the
continued downturn in the homebuilding industry, some of these
joint ventures or their participants have or may become unable
or unwilling to fulfill their respective obligations. In
addition, in many of these joint ventures, we do not have a
controlling interest and, as a result, we are not be able to
require these joint ventures or their participants to honor
their obligations or renegotiate them on acceptable terms. If
the joint ventures or their participants do not honor their
obligations, we may be required to expend additional resources
or suffer losses, which could be significant.
Government
regulations and legal challenges may delay the start or
completion of our communities, increase our expenses or limit
our homebuilding activities, which could have a negative impact
on our operations.
The approval of numerous governmental authorities must be
obtained in connection with our development activities, and
these governmental authorities often have broad discretion in
exercising their approval authority. We incur substantial costs
related to compliance with legal and regulatory requirements.
Any increase in legal and regulatory requirements may cause us
to incur substantial additional costs, or in some cases cause us
to determine that the property is not feasible for development.
Various local, state and federal statutes, ordinances, rules and
regulations concerning building, zoning, sales and similar
matters apply to
and/or
affect the housing industry. Governmental regulation affects
construction activities as well as sales activities, mortgage
lending activities and other dealings with consumers. The
industry also has experienced an increase in state and local
legislation and regulations that limit the availability or use
of land. We may be required to apply for additional approvals or
modify our existing approvals because of changes in local
circumstances or applicable law. Further, we may experience
delays and increased expenses as a result of legal challenges to
our proposed communities, whether brought by governmental
authorities or private parties.
Expansion
of regulation in the housing industry has increased the time
required to obtain the necessary approvals to begin construction
and has prolonged the time between the initial acquisition of
land or land options and the commencement and completion of
construction. These delays can increase our costs and decrease
our profitability.
Municipalities may restrict or place moratoriums on the
availability of utilities, such as water and sewer taps. In some
areas, municipalities may enact growth control initiatives,
which will restrict the number of building permits available in
a given year. If municipalities in which we operate take actions
like these, it could have an adverse effect on our business by
causing delays, increasing our costs or limiting our ability to
operate in those municipalities.
Increases
in taxes or government fees could increase our costs, and
adverse changes in tax laws could reduce customer demand for our
homes.
Increases in real estate taxes and other local government fees,
such as fees imposed on developers to fund schools, open space,
road improvements,
and/or
provide low and moderate income housing, could increase our
costs and have an adverse effect on our operations. In addition,
increases in local real estate taxes could adversely affect our
potential customers who may consider those costs in determining
whether to make a new home purchase
18
and decide, as a result, not to purchase one of our homes. In
addition, any changes in the income tax laws that would reduce
or eliminate tax deductions or incentives to homeowners, such as
a change limiting the deductibility of interest on home
mortgages, could make housing less affordable or otherwise
reduce the demand for housing, which in turn could reduce our
sales and hurt our results of operations.
Adverse
weather conditions and conditions in nature beyond our control
could disrupt the development of our communities, which could
harm our sales and results of operations.
Adverse weather conditions and natural disasters, such as
hurricanes, tornadoes, earthquakes, floods and fires, can have
serious effects on our ability to develop our residential
communities. We also may be affected by unforeseen engineering,
environmental or geological problems. Any of these adverse
events or circumstances could cause delays in the completion of,
or increase the cost of, developing one or more of our
residential communities and, as a result, could harm our sales
and results of operations.
If we
experience shortages or increased costs of labor and supplies or
other circumstances beyond our control, there could be delays or
increased costs in developing our communities, which could
adversely affect our operating results.
Our ability to develop residential communities may be affected
by circumstances beyond our control, including: work stoppages,
labor disputes and shortages of qualified trades people, such as
carpenters, roofers, electricians and plumbers; changes in laws
relating to union organizing activity; lack of availability of
adequate utility infrastructure and services; our need to rely
on local subcontractors who may not be adequately capitalized or
insured; and shortages, or delays in availability, or
fluctuations in prices of, building materials. Any of these
circumstances could give rise to delays in the start or
completion of, or could increase the cost of, developing one or
more of our residential communities. We may not be able to
recover these increased costs by raising our home prices because
the price for each home is typically set months prior to its
delivery pursuant to the agreement of sale with the home buyer.
If that happens, our operating results could be harmed.
Additionally, we may be limited in the amount we can raise sales
prices by our home buyers unwillingness to pay higher
prices.
We are subject to one collective bargaining agreement that
covers approximately 1.5% of our employees. We have not
experienced any work stoppages due to strikes by unionized
workers, but we cannot assure you that there will not be any
work stoppages due to strikes or other job actions in the
future. We use independent contractors to construct our homes.
At any given point in time, some or all of these subcontractors
may be unionized.
Product
liability litigation and warranty claims that arise in the
ordinary course of business may be costly, which could adversely
affect our business.
As a home builder, we are subject to construction defect and
home warranty claims arising in the ordinary course of business.
These claims are common in the homebuilding industry and can be
costly. In addition, the costs of insuring against construction
defect and product liability claims are high, and the amount of
coverage offered by insurance companies is currently limited.
There can be no assurance that this coverage will not be further
restricted and become more costly. If we are not able to obtain
adequate insurance against these claims, we may experience
losses that could hurt our financial results.
Our
principal stockholders may effectively exercise control over
matters requiring stockholder approval.
As of December 10, 2008, Robert I. Toll and his affiliates
owned, directly or indirectly, or had the right to acquire
within 60 days, approximately 15.3% of the outstanding
shares of Toll Brothers, Inc.s common stock, and his
brother Bruce E. Toll and his affiliates owned, directly or
indirectly, or had the right to acquire within 60 days,
approximately 3.9% of the outstanding shares of Toll Brothers,
Inc.s common stock. All our directors and executive
officers as a group and their affiliates (including the shares
of Robert I. Toll and Bruce E. Toll and their affiliates) owned,
directly or indirectly, or had the right to acquire within
60 days, approximately 22.1% of the outstanding shares of
Toll Brothers, Inc.s common stock as of December 10,
2008. To the extent that Robert I. Toll, Bruce E. Toll
and our other directors and executive officers vote their shares
in the same manner, their combined stock ownership may have a
significant or decisive effect on the election of all of the
directors and control the management, operations and affairs of
Toll Brothers, Inc. Their ownership may discourage someone from
making a significant equity investment in Toll Brothers, Inc.,
even if we needed the investment to operate our business. The
size of their combined stock holdings could be a significant
factor in delaying or preventing a change of control
19
transaction that other stockholders may deem to be in their best
interests, such as a transaction in which the other stockholders
would receive a premium for their shares over their current
trading prices.
Our
business is seasonal in nature, so our quarterly operating
results fluctuate.
Our quarterly operating results typically fluctuate with the
seasons. A significant portion of our agreements of sale are
entered into with customers in the winter and spring months.
Construction of a customers home typically proceeds after
signing the agreement of sale and can require 12 months or
more to complete. Weather-related problems may occur in the late
winter and early spring, delaying starts or closings or
increasing costs and reducing profitability. In addition, delays
in opening new communities or new sections of existing
communities could have an adverse impact on home sales and
revenues. Expenses are not incurred and recognized evenly
throughout the year. Because of these factors, our quarterly
operating results may be uneven and may be marked by lower
revenues and earnings in some quarters than in others.
Changes
in accounting principles, interpretations and practices may
affect our reported revenues, earnings and results of
operations.
Generally accepted accounting principles and their accompanying
pronouncements, implementation guidelines, interpretations and
practices for certain aspects of our business are complex and
may involve subjective judgments, such as revenue recognition,
inventory valuations and income taxes. Changes in
interpretations could significantly affect our reported
revenues, earnings and operating results, and could add
significant volatility to those measures without a comparable
underlying change in cash flows from operations.
Changes
in tax laws or the interpretation of tax laws may negatively
affect our operating results.
We believe that our recorded tax balances are adequate. However,
it is not possible to predict the effects of possible changes in
the tax laws or changes in their interpretation and whether they
could have a material negative effect on our operating results.
We may
not be able to realize our deferred tax assets.
At October 31, 2008, we had $405.7 million of net
deferred tax assets (net of $24.1 million of valuation
allowances). Realization of our deferred tax assets is dependent
upon taxable income in the future
and/or our
ability to carryback future tax losses against prior year
taxable income. Losses for federal income tax purposes can
generally be carried forward for a period of 20 years.
For financial reporting purposes, a valuation allowance must be
established when, based upon available evidence, it is more
likely than not that all or a portion of the deferred tax assets
will not be realized. The valuation allowance may be increased
or decreased as conditions change and the ultimate realization
of the deferred tax assets depends on sufficient taxable income
in future carryforward periods. If the slowdown in our business
persists or continues to worsen, we might not be able to project
future income to apply against our deferred tax assets and we
would be required to increase our valuation allowances against
our deferred tax assets.
Our
cash flows and results of operations could be adversely affected
if legal claims are brought against us and are not resolved in
our favor.
Claims, including a securities class action and a related
shareholder derivative action, have been brought against us in
various legal proceedings that have not had, and are not
expected to have, a material adverse effect on our business or
financial condition. Should claims be filed in the future, it is
possible that our cash flows and results of operations could be
affected, from time to time, by the negative outcome of one or
more of such matters.
Future
terrorist attacks against the United States or increased
domestic or international instability could have an adverse
effect on our operations.
In the weeks following the September 11, 2001 terrorist
attacks, we experienced a sharp decrease in the number of new
contracts signed for homes and an increase in the cancellation
of existing contracts. Although new home purchases stabilized
and subsequently recovered in the months after that initial
period, adverse developments in the war on terrorism, future
terrorist attacks against the United States, or increased
domestic or international instability could adversely affect our
business.
20
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ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
Not applicable
Headquarters
Our corporate office, which we lease from an unrelated third
party, contains approximately 200,000 square feet, and is
located in Horsham, Montgomery County, Pennsylvania.
Manufacturing/Distribution
Facilities
We own a manufacturing facility of approximately
300,000 square feet located in Morrisville, Pennsylvania, a
manufacturing facility and warehouse of approximately
186,000 square feet located in Emporia, Virginia and a
manufacturing facility of approximately 134,000 square feet
in Knox, Indiana. We lease a facility of approximately
144,000 square feet located in Fairless Hills,
Pennsylvania. At these facilities, we manufacture open wall
panels, roof and floor trusses, and certain interior and
exterior millwork to supply a portion of our construction needs.
These facilities supply components used in our North,
Mid-Atlantic and South geographic segments. These operations
also permit us to purchase wholesale lumber, plywood, windows,
doors, certain other interior and exterior millwork and other
building materials to supply to our communities. We believe that
increased efficiencies, cost savings and productivity result
from the operation of these plants and from the wholesale
purchase of materials.
Office
and Other Facilities
We lease other office and warehouse space in various locations,
none of which are material to our business.
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ITEM 3.
|
LEGAL
PROCEEDINGS
|
In January 2006, we received a request for information pursuant
to Section 308 of the Clean Water Act from Region 3 of the
U.S. Environmental Protection Agency (the EPA)
concerning storm water discharge practices in connection with
our homebuilding projects in the states that comprise EPA Region
3. The U.S. Department of Justice (DOJ) has now
assumed responsibility for the oversight of this matter. To the
extent the DOJs review were to lead it to assert
violations of state
and/or
federal regulatory requirements and request injunctive relief
and/or civil
penalties, we would defend and attempt to resolve any such
asserted violations.
In October 2006, the Illinois Attorney General and State
Attorney of Lake County, Illinois brought suit against us
alleging violations in Lake County, IL of certain storm water
discharge regulations. In August 2008, we signed a consent order
with the Illinois Attorney General and the State Attorney of
Lake County, Illinois. Under the order, we will pay $80,000 to
the Illinois Environmental Protection Agency; pay $30,000 to the
State Attorney of Lake County; and make a contribution of
$100,000 to the Lake County Health Department and Community
Health Center Lakes Management Unit for use toward an
environmental restoration project. We also agreed to implement
certain management, record-keeping and reporting practices
related to storm water discharges at the subject site. On
October 9, 2008, the consent order was entered and the case
was dismissed with prejudice.
On April 17, 2007, a securities class action suit was filed
against Toll Brothers, Inc. and Robert I. Toll and Bruce E. Toll
in the U.S. District Court for the Eastern District of
Pennsylvania on behalf of the purported class of purchasers of
our common stock between December 9, 2004 and
November 8, 2005. The original plaintiff has been replaced
by two new lead plaintiffs: The City of Hialeah Employees
Retirement System and the Laborers Pension Trust Funds for
Northern California. On August 14, 2007, an amended
complaint was filed and the following individual defendants, who
are directors
and/or
officers of Toll Brothers, Inc., were added to the suit: Zvi
Barzilay, Joel H. Rassman, Robert S. Blank, Richard J. Braemer,
Carl B. Marbach, Paul E. Shapiro and Joseph R. Sicree. The
amended complaint filed on behalf of the purported class alleges
that the defendants violated federal securities laws by issuing
various materially false and misleading statements that had the
effect of artificially inflating the market price of our stock.
They further allege that the individual defendants sold shares
for a substantial gain during the class period. The purported
class is seeking compensatory damages, counsel fees, and expert
costs.
On November 4, 2008, a shareholder derivative action was
filed in the Chancery Court of Delaware against Robert I. Toll,
Zvi Barzilay, Joel H. Rassman, Bruce E. Toll, Paul E. Shapiro,
Robert S. Blank, Carl B. Marbach, and Richard J. Braemer. The
plaintiff, Milton Pfeiffer, purports to bring his claims on
behalf of Toll Brothers, Inc. and
21
alleges that the director and officer defendants breached their
fiduciary duties to us and our stockholders with respect to the
stock sales alleged in the securities class action discussed
above, by selling while in possession of material inside
information about the Company. The plaintiff seeks contribution
and indemnification from the individual director and officer
defendants for any liability found against us in the securities
class action suit. In addition, again purportedly on our behalf,
the plaintiff seeks disgorgement of the defendants profits
from their stock sales.
Other than as set forth above, there are no proceedings required
to be disclosed pursuant to Item 103 of
Regulation S-K.
We are involved in various other claims and litigation arising
principally in the ordinary course of business. We believe that
the disposition of these matters will not have a material
adverse effect on our business or our financial condition.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to a vote of security holders, through
the solicitation of proxies or otherwise, during the fourth
quarter of the fiscal year ended October 31, 2008.
|
|
ITEM 4A.
|
EXECUTIVE
OFFICERS OF THE REGISTRANT
|
The following table includes information with respect to all of
our executive officers at October 31, 2008. All executive
officers serve at the pleasure of our Board of Directors.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Positions
|
|
Robert I. Toll
|
|
|
67
|
|
|
Chairman of the Board, Chief Executive Officer and Director
|
Zvi Barzilay
|
|
|
62
|
|
|
President, Chief Operating Officer and Director
|
Joel H. Rassman
|
|
|
63
|
|
|
Executive Vice President, Treasurer, Chief Financial Officer and
Director
|
Robert I. Toll, with his brother Bruce E. Toll, the Vice
Chairman of the Board and a Director of Toll Brothers, Inc.,
co-founded our predecessors operations in 1967. Robert I.
Toll has been our Chief Executive Officer and Chairman of the
Board since our inception.
Zvi Barzilay joined us as a project manager in 1980 and
has been an officer since 1983. Mr. Barzilay was elected a
Director of Toll Brothers, Inc. in 1994. He has held the
position of Chief Operating Officer since May 1998 and the
position of President since November 1998.
Joel H. Rassman joined us as Senior Vice President, Chief
Financial Officer and Treasurer in 1984. Mr. Rassman has
been a Director of Toll Brothers, Inc. since 1996. He has held
the position of Executive Vice President since May 2002.
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our common stock is traded on the New York Stock Exchange
(Symbol: TOL).
22
The following table sets forth the price range of our common
stock on the New York Stock Exchange for each fiscal quarter
during the two years ended October 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
October 31
|
|
|
July 31
|
|
|
April 30
|
|
|
January 31
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
27.19
|
|
|
$
|
25.35
|
|
|
$
|
26.13
|
|
|
$
|
23.93
|
|
Low
|
|
$
|
16.51
|
|
|
$
|
16.25
|
|
|
$
|
18.31
|
|
|
$
|
15.49
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
25.55
|
|
|
$
|
31.14
|
|
|
$
|
35.64
|
|
|
$
|
34.43
|
|
Low
|
|
$
|
19.31
|
|
|
$
|
21.82
|
|
|
$
|
26.90
|
|
|
$
|
26.79
|
|
On October 31, 2008, 2007 and 2006, the closing price of
our common stock on the New York Stock Exchange was $23.12,
$22.91 and $28.91, respectively.
For information regarding securities authorized for issuance
under equity compensation plans, see Equity Compensation
Plan Information in Item 12.
During the three months ended October 31, 2008, we
repurchased the following shares under our repurchase program
(amounts in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
|
of Shares that
|
|
|
|
Total
|
|
|
Average
|
|
|
Part of a
|
|
|
May Yet be
|
|
|
|
Number of
|
|
|
Price
|
|
|
Publicly
|
|
|
Purchased
|
|
|
|
Shares
|
|
|
Paid per
|
|
|
Announced
|
|
|
Under the Plan
|
|
Period
|
|
Purchased(a)
|
|
|
Share
|
|
|
Plan or Program(b)
|
|
|
or Program(b)
|
|
|
August 1 to August 31, 2008
|
|
|
3
|
|
|
|
21.92
|
|
|
|
3
|
|
|
|
11,961
|
|
September 1 to September 30, 2008
|
|
|
12
|
|
|
|
24.34
|
|
|
|
12
|
|
|
|
11,949
|
|
October 1 to October 31, 2008
|
|
|
8
|
|
|
|
20.31
|
|
|
|
8
|
|
|
|
11,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
23
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Our stock incentive plans permit participants to exercise stock
options using a net exercise method at the
discretion of the Executive Compensation Committee of our Board
of Directors. In a net exercise, we withhold from the total
number of shares that otherwise would be issued to the
participant upon exercise of the stock option that number of
shares having a fair market value at the time of exercise equal
to the option exercise price and applicable income tax
withholdings, and remit the remaining shares to the participant.
During the three-month period ended October 31, 2008, the
net exercise method was employed to exercise options to acquire
2,106,152 shares of our common stock; we withheld 1,079,388
of the shares subject to the options to cover $28.5 million
of option exercise costs and income tax withholdings and issued
the remaining 1,026,764 shares to the participants. In
addition, pursuant to the provisions of the stock incentive
plans, participants are permitted to use the value of the
Companys common stock that they own to pay for the
exercise of options. During the three-month period ended
October 31, 2008, we received 1,420 shares with an
average fair market value per share of $26.47 for the exercise
of 6,576 options. |
|
(b) |
|
On March 20, 2003, our Board of Directors authorized the
repurchase of up to 20 million shares of our common stock,
par value $.01, from time to time, in open market transactions
or otherwise, for the purpose of providing shares for our
various employee benefit plans. The Board of Directors did not
fix an expiration date for the repurchase program. |
23
Except as set forth above, we did not repurchase any of our
equity securities during the three-month period ended
October 31, 2008.
We have not paid any cash dividends on our common stock to date
and expect that, for the foreseeable future, we will not do so;
rather, we will follow a policy of retaining earnings in order
to finance our business and, from time to time, repurchase
shares of our common stock. The payment of dividends is within
the discretion of our Board of Directors and any decision to pay
dividends in the future will depend upon an evaluation of a
number of factors, including our earnings, capital requirements,
our operating and financial condition, and any contractual
limitation then in effect. In this regard, our senior
subordinated notes contain restrictions on the amount of
dividends we may pay on our common stock. In addition, our bank
credit agreement requires us to maintain a minimum tangible net
worth (as defined in the agreement), which restricts the amount
of dividends we may pay. At October 31, 2008, under the
most restrictive of these provisions, we could have paid up to
approximately $964.0 million of cash dividends.
At December 10, 2008, there were approximately 900 record
holders of our common stock.
24
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The following tables set forth selected consolidated financial
and housing data at and for each of the five fiscal years in the
period ended October 31, 2008. It should be read in
conjunction with the Consolidated Financial Statements and Notes
thereto, included in this report beginning at
page F-1,
and Managements Discussion and Analysis of Financial
Condition and Results of Operations, included in Item 7 of
this Form 10-K.
Summary
Consolidated Statements of Operations and Balance Sheets
(amounts in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Revenues
|
|
$
|
3,158,213
|
|
|
$
|
4,646,979
|
|
|
$
|
6,123,453
|
|
|
$
|
5,793,425
|
|
|
$
|
3,861,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
$
|
(466,787
|
)
|
|
$
|
70,680
|
|
|
$
|
1,126,616
|
|
|
$
|
1,323,128
|
|
|
$
|
647,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(297,810
|
)
|
|
$
|
35,651
|
|
|
$
|
687,213
|
|
|
$
|
806,110
|
|
|
$
|
409,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.88
|
)
|
|
$
|
0.23
|
|
|
$
|
4.45
|
|
|
$
|
5.23
|
|
|
$
|
2.75
|
|
Diluted
|
|
$
|
(1.88
|
)
|
|
$
|
0.22
|
|
|
$
|
4.17
|
|
|
$
|
4.78
|
|
|
$
|
2.52
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
158,730
|
|
|
|
155,318
|
|
|
|
154,300
|
|
|
|
154,272
|
|
|
|
148,646
|
|
Diluted
|
|
|
158,730
|
|
|
|
164,166
|
|
|
|
164,852
|
|
|
|
168,552
|
|
|
|
162,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At October 31:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Cash and cash equivalents
|
|
$
|
1,633,495
|
|
|
$
|
900,337
|
|
|
$
|
632,524
|
|
|
$
|
689,219
|
|
|
$
|
465,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
4,127,475
|
|
|
$
|
5,572,655
|
|
|
$
|
6,095,702
|
|
|
$
|
5,068,624
|
|
|
$
|
3,878,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,586,836
|
|
|
$
|
7,220,316
|
|
|
$
|
7,583,541
|
|
|
$
|
6,343,840
|
|
|
$
|
4,905,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans payable
|
|
$
|
613,594
|
|
|
$
|
696,814
|
|
|
$
|
736,934
|
|
|
$
|
250,552
|
|
|
$
|
340,380
|
|
Senior debt
|
|
|
1,143,445
|
|
|
|
1,142,306
|
|
|
|
1,141,167
|
|
|
|
1,140,028
|
|
|
|
845,665
|
|
Senior subordinated debt
|
|
|
343,000
|
|
|
|
350,000
|
|
|
|
350,000
|
|
|
|
350,000
|
|
|
|
450,000
|
|
Mortgage company warehouse loan
|
|
|
37,867
|
|
|
|
76,730
|
|
|
|
119,705
|
|
|
|
89,674
|
|
|
|
92,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
2,137,906
|
|
|
$
|
2,265,850
|
|
|
$
|
2,347,806
|
|
|
$
|
1,830,254
|
|
|
$
|
1,728,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
$
|
3,237,653
|
|
|
$
|
3,527,234
|
|
|
$
|
3,415,926
|
|
|
$
|
2,763,571
|
|
|
$
|
1,919,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Housing
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Closings(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of homes
|
|
|
4,743
|
|
|
|
6,687
|
|
|
|
8,601
|
|
|
|
8,769
|
|
|
|
6,627
|
|
Value (in thousands)
|
|
$
|
3,106,291
|
|
|
$
|
4,495,600
|
|
|
$
|
5,945,169
|
|
|
$
|
5,759,301
|
|
|
$
|
3,839,451
|
|
Revenues percentage of completion (in thousands)
|
|
$
|
41,873
|
|
|
$
|
139,493
|
|
|
$
|
170,111
|
|
|
|
|
|
|
|
|
|
Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of homes
|
|
|
2,927
|
|
|
|
4,440
|
|
|
|
6,164
|
|
|
|
10,372
|
|
|
|
8,684
|
|
Value (in thousands)
|
|
$
|
1,608,191
|
|
|
$
|
3,010,013
|
|
|
$
|
4,460,734
|
|
|
$
|
7,152,463
|
|
|
$
|
5,641,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At October 31:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Backlog:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of homes
|
|
|
2,046
|
|
|
|
3,950
|
|
|
|
6,533
|
|
|
|
8,805
|
|
|
|
6,709
|
|
Value (in thousands)(2)
|
|
$
|
1,325,491
|
|
|
$
|
2,854,435
|
|
|
$
|
4,488,400
|
|
|
$
|
6,014,648
|
|
|
$
|
4,433,895
|
|
Number of selling communities
|
|
|
273
|
|
|
|
315
|
|
|
|
300
|
|
|
|
230
|
|
|
|
220
|
|
Homesites:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
|
|
|
32,081
|
|
|
|
37,139
|
|
|
|
41,808
|
|
|
|
35,838
|
|
|
|
29,804
|
|
Controlled
|
|
|
7,703
|
|
|
|
22,112
|
|
|
|
31,960
|
|
|
|
47,288
|
|
|
|
30,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
39,784
|
|
|
|
59,251
|
|
|
|
73,768
|
|
|
|
83,126
|
|
|
|
60,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes 88 units and 336 units delivered in fiscal
2008 and 2007, respectively, that were accounted for using the
percentage of completion accounting method with an aggregate
delivered value of $86.1 million in fiscal 2008 and
$263.3 million in fiscal 2007. |
|
(2) |
|
Net of revenues of $55.2 million and $170.1 million of
revenue recognized in fiscal 2007 and 2006, respectively, under
the percentage of completion accounting method. At
October 31, 2008, we did not have any revenue recognized on
undelivered units accounted for under the percentage of
completion accounting method. |
26
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
On December 4, 2008, we issued a press release and held a
conference call to review the results of operations for our
fiscal year ended October 31, 2008 and to discuss the
current state of our business. The information and estimates
contained in this report are consistent with those given in the
press release and on the conference call on December 4,
2008, and we are not reconfirming or updating that information.
OVERVIEW
In fiscal 2008, we recognized $3.16 billion of revenues and
recorded a net loss of $297.8 million, compared to
$4.65 billion of revenues and $35.7 million of net
income in fiscal 2007. The loss recognized in fiscal 2008, as
compared to the income recognized in fiscal 2007, was due
primarily to the higher inventory impairment charges and
write-offs and joint venture impairment charges recognized in
fiscal 2008, as compared to fiscal 2007, a 32% decline in
revenues in fiscal 2008, as compared to fiscal 2007, and the
negative impact on profit margins due to the higher sales
incentives given on the homes delivered in fiscal 2008, as
compared to fiscal 2007, offset in part by the positive impact
on cost of sales on homes settled in fiscal 2008 from
communities that had reduced inventory values as a result of
impairments previously recognized. We recognized inventory
impairment charges and write-offs, joint venture impairment
charges and goodwill impairment charges of $848.9 million
in fiscal 2008, as compared to $687.7 million in fiscal
2007. Cost of sales was reduced by approximately
$121.7 million and $21.1 million in fiscal 2008 and
2007, respectively, due to reduced inventory values as a result
of impairments previously recognized.
The value of net new contracts signed declined by 47% in fiscal
2008, as compared to fiscal 2007. The decrease in the value of
net new contracts signed was the result of a 34% decrease in the
number of net new contracts signed and a 19% decline in the
average value of the contracts signed. When we report the number
and value of net new contracts signed, we report such totals net
of any cancellations that occur during the reporting period,
whether signed in that reporting period or in a prior period.
The decrease in the number of net new contracts signed was due
to the slowdown in our business discussed below. The decrease in
the average value of contracts signed in fiscal 2008, as
compared to fiscal 2007, was due primarily to higher sales
incentives given to home buyers in fiscal 2008, as compared to
fiscal 2007 and a shift in the number of contracts signed to
less expensive areas
and/or
products in fiscal 2008, as compared to fiscal 2007. During
fiscal 2008, our customers cancelled 993 contracts with an
aggregate sales value of $733.3 million, as compared to
1,585 cancelled contracts with an aggregate sales value of
$1.17 billion in fiscal 2007. In fiscal 2008 and 2007,
these cancellations represented 25.3% and 26.3%, respectively,
of the gross number of contracts signed, and 31.3% and 27.9%,
respectively, of the gross value of contracts signed.
Our backlog at October 31, 2008 of $1.33 billion
decreased 54%, as compared to our backlog at October 31,
2007 of $2.85 billion. Backlog consists of homes under
contract but not yet delivered to our home buyers for our
communities accounted for using the completed contract method of
accounting. Only outstanding agreements of sale that have been
signed by both the home buyer and us as of the end of the period
for which we are reporting are included in backlog. Of the value
of backlog reported on October 31, 2007, 2006 and 2005,
home buyers subsequently cancelled approximately 20.9%. 19.9%
and 19.2%, respectively.
Since the fourth quarter of fiscal 2005, we have experienced a
slowdown in our business. This slowdown has worsened over the
past several months. The value of net new contracts signed in
fiscal 2008 is 78% lower than the value of contracts signed in
fiscal 2005. This slowdown, which we believe started with a
decline in consumer confidence, an overall softening of demand
for new homes and an oversupply of homes available for sale, has
been exacerbated by, among other things, a decline in the
overall economy, increasing unemployment, fear of job loss, a
significant decline in the securities markets, the continuing
decline in home prices, the large number of homes that are or
will be available due to foreclosures, the inability of some of
our home buyers to sell their current home, the deterioration in
the credit markets, and the direct and indirect impact of the
turmoil in the mortgage loan market. We believe that the key to
a recovery in our business is the return of consumer confidence
and a stabilization of financial markets and home prices.
We continue to seek a balance between our short-term goal of
selling homes in a tough market and our long-term goal of
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 have been increasingly difficult
to achieve. We believe
27
that many of these communities have substantial embedded value
that will be realizable in the future and that this value should
not necessarily be sacrificed in the current soft market.
We are concerned about the dislocation in the secondary mortgage
market. We maintain relationships with a widely diversified
group of mortgage financial institutions, most of which are
among the largest and, we believe, most reliable in the
industry. Our buyers generally have been able to obtain adequate
financing. Nevertheless, tightening credit standards have shrunk
the pool of potential home buyers and the availability of
certain loan products previously available to our 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
prospective buyers face the problem of obtaining a mortgage. We
believe that our home 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 home buyer. Because we cannot predict the short-
and long-term liquidity of the credit markets, we continue to
caution that, with the uncertainties in these markets, the pace
of home sales could slow further until these markets stabilize.
Based on our experience during prior downturns in the housing
market, we believe that unexpected opportunities may arise in
difficult times for those builders that are well-prepared. In
the current challenging environment, we believe our strong
balance sheet, liquidity and access to capital, our broad
geographic presence, our diversified product lines, our
experienced personnel and our national brand name all position
us well for such opportunities now and in the future. At
October 31, 2008, we had $1.63 billion of cash and
cash equivalents on hand and approximately $1.32 billion
available under our revolving credit facility which extends to
2011. We believe we have the resources available to fund
attractive opportunities, should they arise.
When our industry recovers, we believe that we will see reduced
competition from the small and mid-sized private builders who
are our primary competitors in the luxury market. We believe
that the access of these private builders to capital already
appears to be severely constrained. We envision that there will
be fewer and more selective lenders serving our industry at that
time. Those lenders likely will gravitate to the home building
companies that offer them the greatest security, the strongest
balance sheets and the broadest array of potential business
opportunities. We believe that this reduced competition,
combined with attractive long-term demographics, will reward
those well-capitalized builders who can persevere through the
current challenging environment.
Notwithstanding the current market conditions, we believe that
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 over time, benefit
those builders that can control land and persevere through the
increasingly difficult regulatory approval process. We believe
that these factors favor the large publicly traded home building
companies with the capital and expertise to control home sites
and gain market share. We believe that, as builders reduce the
number of home sites being taken through the approval process
and this process continues to become more difficult, and if 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 (also referred to herein as
land purchase contracts, contracts,
purchase agreements or option
agreements) whenever we can, thus allowing the necessary
governmental approvals to be obtained 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 the buyer; and using
subcontractors to perform home construction and land development
work on a fixed-price basis. Our risk reduction strategy of
generally not commencing the construction of a home until we had
an agreement of sale with a buyer was effective in the past, but
due to the significant number of cancellations of agreements of
sale, that we have had in the current downturn in the housing
market, many of which were for homes on which we had commenced
construction, and the increase in the number of multi-family
communities that we have under construction, the number of homes
under construction for which we do not have an agreement of sale
has increased from our historical levels.
28
In response to current market conditions, we have been
reevaluating and renegotiating or canceling many of our land
purchase contracts. As a result, we have reduced our land
position from a high of approximately 91,200 home sites at
April 30, 2006, to approximately 39,800 home sites at
October 31, 2008. Of the 39,800 home sites that we
controlled at October 31, 2008, we owned approximately
32,100 of them. Of the 32,100 home sites owned at
October 31, 2008, significant improvements have been
completed on approximately 14,000 of them.
At October 31, 2008, we were selling from 273 communities
compared to 315 communities at October 31, 2007. We expect
to be selling from approximately 255 communities at
October 31, 2009.
Given the current business climate in which we are operating and
the numerous uncertainties related to sales paces, sales prices,
mortgage markets, cancellations, market direction and the
potential for and magnitude of future impairments, it is
difficult to provide guidance for fiscal 2009. Subject to our
caveats and risks reported elsewhere and the preceding caveats,
we currently estimate that we will deliver between 2,000 and
3,000 homes in fiscal 2009 at an average sales price of between
$600,000 and $625,000 per home. We believe that, as a result of
continuing sales incentives given to our home buyers and slower
sales per community, our cost of sales as a percentage of
revenues, before impairment charges and write-downs, will be
higher in fiscal 2009 than in fiscal 2008. Additionally, based
on fiscal 2009s lower projected revenues, our selling,
general and administrative expenses, which we expect to be lower
in fiscal 2009 than in fiscal 2008, will be higher as a
percentage of revenues.
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, as
determined 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
also include interest, real estate taxes and direct overhead
related to development and construction, which are capitalized
to inventory during the period beginning with the commencement
of development and ending with the completion of construction.
For those communities that have been temporarily closed, no
additional interest is allocated to the communitys
inventory until it re-opens and other carrying costs are
expensed as incurred. Once a parcel of land has been approved
for development and we open the community, it may take 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 ten years or more to
complete. Because of the downturn in our business, the
aforementioned estimated community lives will likely be
significantly longer. 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. Estimated 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 in which the impairment is determined. In
estimating the future undiscounted 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 on competition within the market,
including the number of 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
29
offerings that may be offered in a community that will have an
impact on sales pace, sales price, building cost or 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
the approvals. Concessions may include cash payments to fund
improvements 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 capitalized to the
community are recoverable or should be written off. The
write-off is charged to cost of revenues in the period in which
the need for the write-off is determined.
The estimates used in the determination of the estimated cash
flows and fair value of both current and future communities 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 impairment charges and
write-offs related to current and future communities.
Variable Interest Entities: We have a
significant number of land purchase contracts 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 FASB
Interpretation No. 46R (collectively referred to as
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 October 31, 2008, we determined that we were
the primary beneficiary of two VIEs related to land purchase
contracts and had recorded $20.9 million of inventory and
$17.3 million of accrued expenses.
Revenue
and Cost Recognition
Home Sales-Completed Contract Method: The
construction time of our homes is generally less than one year,
although some homes 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 with SFAS No. 66,
Accounting for Sales of Real Estate
(SFAS 66), which are included in this category
of revenues and costs.
For our standard attached and detached homes, 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
30
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.
For high-rise/mid-rise projects that do not qualify for
percentage of completion accounting, land, land development,
construction and related costs, both incurred and estimated to
be incurred in the future, are generally amortized to the cost
of units closed based upon an estimated relative sales value of
the units closed to the total estimated sales value. Any changes
resulting from a change in the estimated total costs or revenues
of the project are allocated to the remaining units to be
delivered.
Forfeited customer deposits are recognized in other income in
the period in which we determine that the customer will not
complete the purchase of the home and when we determine that we
have the right to retain the deposit.
Home Sales-Percentage of Completion
Method: During the past two years, we completed
construction on four projects for which we used the percentage
of completion accounting method to recognize revenues and costs;
the remaining units in these projects will be accounted for
using the completed contract method of accounting. Based upon
the current accounting rules and interpretations, we do not
believe that any of our current or future communities qualify
for percentage of completion accounting. Under the provisions of
SFAS 66, revenues and costs are recognized using the
percentage of completion method of accounting for those
communities that qualify 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 costs are reviewed periodically,
and any change is applied to current and future periods.
Forfeited customer deposits are recognized as a reduction in the
amount of revenues reversed in the period in which we determine
that the customer will not complete the purchase of the home and
when we determine that we have the right to retain the deposit.
Sales Incentives: In order to promote sales of
our homes, we grant our home buyers sales incentives from
time-to-time. These incentives will vary by type of incentive
and by amount on a
community-by-community
and home-by-home basis. Incentives that impact the value of the
home or the sales price paid, such as special or additional
options, are generally reflected as a reduction in sales
revenues. Incentives that we pay to an outside party, such as
paying some or all of a home buyers closing costs are
recorded as an additional cost of revenues. Incentives are
recognized at the time the home is delivered to the home buyer
and we receive the sales proceeds.
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 land sales 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 partners. Any profit not recognized in a transaction
reduces our investment in the entity or is recorded as an
accrued expense on our consolidated balance sheets.
OFF-BALANCE
SHEET ARRANGEMENTS
We have investments in and advances to various joint ventures
and to Toll Brothers Realty Trust Group (Trust)
and Toll Brothers Realty Trust Group II
(Trust II). At October 31, 2008, we had
investments in and advances to these entities of
$151.8 million, and were committed to invest or advance
additional funds to these entities if needed and had guaranteed
several of these entities indebtedness
and/or loan
commitments. See Note 3 of the Notes to Condensed
Consolidated Financial Statements
Investments in and Advances to Unconsolidated
Entities for more information regarding these entities.
Our investments in these entities are accounted for using the
equity method.
31
RESULTS
OF OPERATIONS
The following table compares certain statement of operations
items related to fiscal 2008, 2007 and 2006 ($ amounts in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completed contract
|
|
$
|
3,106.3
|
|
|
|
|
|
|
$
|
4,495.6
|
|
|
|
|
|
|
$
|
5,945.2
|
|
|
|
|
|
Percentage of completion
|
|
|
41.9
|
|
|
|
|
|
|
|
139.5
|
|
|
|
|
|
|
|
170.1
|
|
|
|
|
|
Land sales
|
|
|
10.0
|
|
|
|
|
|
|
|
11.9
|
|
|
|
|
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,158.2
|
|
|
|
|
|
|
|
4,647.0
|
|
|
|
|
|
|
|
6,123.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completed contract
|
|
|
2,995.7
|
|
|
|
96.4
|
%
|
|
|
3,905.9
|
|
|
|
86.9
|
%
|
|
|
4,263.2
|
|
|
|
71.7
|
%
|
Percentage of completion
|
|
|
36.2
|
|
|
|
86.5
|
%
|
|
|
109.0
|
|
|
|
78.1
|
%
|
|
|
132.3
|
|
|
|
77.8
|
%
|
Land sales
|
|
|
4.8
|
|
|
|
48.0
|
%
|
|
|
8.1
|
|
|
|
67.9
|
%
|
|
|
7.0
|
|
|
|
85.6
|
%
|
Interest
|
|
|
88.9
|
|
|
|
2.8
|
%
|
|
|
102.4
|
|
|
|
2.2
|
%
|
|
|
122.0
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,125.6
|
|
|
|
99.0
|
%
|
|
|
4,125.4
|
|
|
|
88.8
|
%
|
|
|
4,524.5
|
|
|
|
73.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
429.9
|
|
|
|
13.6
|
%
|
|
|
516.7
|
|
|
|
11.1
|
%
|
|
|
573.4
|
|
|
|
9.4
|
%
|
Goodwill impairment
|
|
|
3.2
|
|
|
|
|
|
|
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(400.5
|
)
|
|
|
|
|
|
|
(4.1
|
)
|
|
|
|
|
|
|
1,025.6
|
|
|
|
|
|
(Loss) earnings from unconsolidated entities
|
|
|
(186.4
|
)
|
|
|
|
|
|
|
(40.4
|
)
|
|
|
|
|
|
|
48.4
|
|
|
|
|
|
Interest and other
|
|
|
120.1
|
|
|
|
|
|
|
|
115.1
|
|
|
|
|
|
|
|
52.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(466.8
|
)
|
|
|
|
|
|
|
70.7
|
|
|
|
|
|
|
|
1,126.6
|
|
|
|
|
|
Income tax (benefit) provision
|
|
|
(169.0
|
)
|
|
|
|
|
|
|
35.0
|
|
|
|
|
|
|
|
439.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(297.8
|
)
|
|
|
|
|
|
$
|
35.7
|
|
|
|
|
|
|
$
|
687.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Percentages for cost of revenues for
completed contract, percentage of completion and land sales are
based on the corresponding item under revenues. Percentages for
interest expense and selling, general and administrative
expenses are based on total revenues. Amounts may not add due to
rounding.
FISCAL
2008 COMPARED TO FISCAL 2007
Unless otherwise stated, contracts signed represents a number or
amount equal to the gross number or amount of contracts signed
during the relevant period, less the number or amount of
contracts cancelled during the relevant period, which includes
contracts that were signed during the relevant period and
contracts signed in prior periods.
Revenues
and Costs Completed Contract
Revenues in fiscal 2008 were lower than those for fiscal 2007 by
$1.39 billion, or 31%. The decrease was primarily
attributable to a 29% decrease in the number of homes delivered
and a 3% decrease in the average price of the homes delivered.
The decrease in the number of homes delivered was primarily due
to the lower backlog of homes at October 31, 2007 as
compared to October 31, 2006. This lower backlog of homes
was primarily the result of a 28% decrease in the number of net
new contracts signed in fiscal 2007 over fiscal 2006. The
decline in the average price of the homes delivered in fiscal
2008, as compared to fiscal 2007, was due primarily to higher
sales incentives given on homes closed in fiscal 2008, as
compared to fiscal 2007, which was offset by the settlement of
units in several of our higher-priced high rise projects (not
accounted for under the percentage of completion accounting
method) in fiscal 2008 that did not have settlements in fiscal
2007, and a shift in product mix during fiscal 2008 to
higher-priced product. Sales incentives given on homes delivered
in fiscal 2008 averaged $70,200 per home, as compared to $34,100
per home in fiscal 2007.
The aggregate value of net new sales contracts signed decreased
46% in fiscal 2008, as compared to fiscal 2007. The value of net
new sales contracts signed was $1.61 billion (2,922 homes)
in fiscal 2008 and $2.99 billion (4,413 homes) in fiscal 2007.
The decrease in fiscal 2008 was the result of a 34% decrease in
the number of net new contracts
32
signed and a 19% decrease in the average value of each contract
signed. We believe the decrease in the number of new contracts
signed was attributable to the overall softening of demand for
new homes. (See Overview above for an expanded
discussion related to the decrease in the number of signed
contracts and the slowdown in our business.)
The decrease in the average value of net new contracts signed in
fiscal 2008, as compared to fiscal 2007, was due primarily to
higher sales incentives given to home buyers in fiscal 2008, as
compared to fiscal 2007, and a shift in the number of contracts
signed to less expensive areas
and/or
products in fiscal 2008, as compared to fiscal 2007. At
October 31, 2008, we were offering sales incentives that
averaged approximately 9.5% of the sales price of the home, as
compared to an average of approximately 7.5% at October 31,
2007.
At October 31, 2008, our backlog of homes under contract
was $1.33 billion (2,046 homes), 53% lower than our
$2.82 billion (3,867 homes) backlog at October 31,
2007. The decrease in backlog at October 31, 2008 compared
to our backlog at October 31, 2007 was primarily
attributable to a lower backlog at October 31, 2007, as
compared to the backlog at October 31, 2006, and the
decrease in the value and number of net new contracts signed in
fiscal 2008, as compared to fiscal 2007, offset in part by lower
deliveries in fiscal 2008, as compared to fiscal 2007.
Home costs, including inventory impairment charges and
write-offs but before interest, as a percentage of home sales
revenue were 96.4% in fiscal 2008, as compared to 86.9% in
fiscal 2007. In fiscal 2008 and 2007, we recognized inventory
impairment charges and write-offs of $645.0 million and
$619.5 million, respectively. Excluding inventory
impairment charges and write-offs, cost of revenues was 75.7% in
fiscal 2008, as compared to 73.1% in fiscal 2007. The increase
in the cost of revenues percentage before inventory impairment
charges and write-offs was due primarily to higher sales
incentives on the homes delivered and higher overhead costs per
home due to decreased construction activity, offset in part by
the positive impact on cost of sales on homes settled in
fiscal 2008 from communities that had reduced inventory
values as a result of impairments previously recognized.
Revenues
and Costs Percentage of Completion
In fiscal 2008 and 2007, we recognized $41.9 million and
$139.5 million of revenues, respectively, and
$36.2 million and $109.0 million of costs (excluding
interest), respectively, on projects accounted for using the
percentage of completion method. This decline in revenues in
fiscal 2008 was primarily the result of the delivery of
available units to be sold in projects accounted for using the
percentage of completion method and the lack of new projects
that qualify under the accounting rules for the application of
the percentage of completion accounting method. During the past
two years, we completed construction on four projects for which
we used the percentage of completion accounting method to
recognize revenues and costs; the remaining units in these
projects will be accounted for using the completed contract
method of accounting. Based upon the current accounting rules
and interpretations, we do not believe that any of our current
or future communities qualify for the percentage of completion
accounting method.
Revenues
and Costs Land Sales
We are developing several communities in which we expect to sell
a portion of the land to other builders or unrelated 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 fiscal 2008 and 2007, we recognized
$10.0 million and $11.9 million of land sales
revenues, respectively, and $4.8 million and
$8.1 million of costs (excluding interest), respectively.
Interest
Expense
In our homebuilding operations that are 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 that used the percentage of completion method of
revenue recognition, we determined interest expense based on the
total estimated interest for the project and the percentage of
total estimated construction costs that had been incurred. Any
change in the estimated interest expense for the project was
applied to current and future periods from the date the estimate
was made.
Interest expense as a percentage of revenues was 2.8% of total
revenues in fiscal 2008, as compared to 2.2% in fiscal 2007. The
increase in interest expense as a percentage of revenues in
fiscal 2008 was due to the added length of
33
time that the homes delivered in fiscal 2008 remained in
inventory and accumulated additional capitalized interest. In
addition, as our inventory has been reduced, there is less
available inventory to which we allocate the interest incurred.
Selling,
General and Administrative Expenses
(SG&A)
As a percentage of revenues, SG&A was 13.6% in fiscal 2008,
as compared to 11.1% in fiscal 2007. SG&A spending
decreased by $86.8 million, or 16.8%, in fiscal 2008, as
compared to fiscal 2007. The reduction in spending was due
primarily to reduced compensation costs and reduced costs for
advertising, promotions and marketing.
Goodwill
Impairment
During fiscal 2008, due to the continued decline of the Nevada
and Florida housing markets, we re-evaluated the carrying value
of goodwill associated with the acquisition of two small home
builders in these markets. During fiscal 2007, due to the
continued decline of the Detroit housing market, we re-evaluated
the carrying value of goodwill associated with the acquisition
of a small home builder. We estimated the fair value of our
assets in these markets, including goodwill. Fair value was
determined based on the discounted future cash flow expected to
be generated in these markets. Based upon this evaluation and
our expectation that these markets would not recover for a
number of years, we determined that the related goodwill had
been impaired. We recognized $3.2 million and
$9.0 million of impairment charges in fiscal 2008 and 2007,
respectively. After recognizing these charges, we do not have
any goodwill remaining on our balance sheet at October 31,
2008.
Losses
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 and losses 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 generally, over
a relatively short period of time, are expected to 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 operating results recognized
from these entities will vary significantly from quarter to
quarter and year to year.
In fiscal 2008, we recognized $186.4 million of losses from
unconsolidated entities as compared to $40.4 million of
losses in fiscal 2007. The loss in fiscal 2008 was the result of
$200.7 million of impairment charges related to seven of
our investments in unconsolidated entities. The loss in fiscal
2007 was attributable to $59.2 million of impairment
charges related to two of our investments in unconsolidated
entities.
Interest
and Other Income
For fiscal 2008 and 2007, interest and other income was
$120.1 million and $115.1 million, respectively. The
increase in other income in fiscal 2008, as compared to fiscal
2007, was primarily due to the recognition in fiscal 2008 of a
gain of $40.2 million related to the receipt of proceeds
from a condemnation judgment in the Companys favor, and
higher interest income, offset, in part, by $24.7 million
of gains from the sales of our cable TV and broadband internet
businesses and our security monitoring business, higher retained
customer deposits, higher income from ancillary businesses and
higher management fees in fiscal 2007.
(Loss)
Income Before Income Taxes
For fiscal 2008, we reported a loss before income tax benefits
of $466.8 million, as compared to $70.7 million of
income before income taxes for fiscal 2007.
Income
Taxes
In fiscal 2008, an income tax benefit was provided at an
effective rate of 36.2%. In fiscal 2007, an income tax provision
was provided at an effective rate of 49.6%. The effective tax
rates for fiscal 2008 and 2007 are not comparable because of the
impact of the individual components that comprise the benefit
for income taxes that was recognized in fiscal 2008 related to
our reported loss in fiscal 2008 and the impact of the
individual components that
34
comprise the provision for income taxes that was recognized in
fiscal 2007 related to our reported income in fiscal 2007. See
Note 7 to the Notes to Consolidated Financial
Statements, Income Taxes, for additional
information regarding the change in the income tax rates and the
impact on the financial statements.
Geographic
Segments
We operate in four geographic segments around the United States:
the North, consisting of Connecticut, Illinois, Massachusetts,
Michigan, Minnesota, New Jersey, New York, and Rhode Island; the
Mid-Atlantic, consisting of Delaware, Maryland, Pennsylvania,
Virginia and West Virginia; the South, consisting of Florida,
Georgia, North Carolina, South Carolina, and Texas; and the
West, consisting of Arizona, California, Colorado and Nevada. We
acquired and opened our first communities for sale in Georgia in
fiscal 2007. We stopped selling homes in Rhode Island in the
first quarter of fiscal 2008 and delivered our last home there
in fiscal 2008. Our operations in Rhode Island were immaterial
to the North geographic segment.
The following table summarizes by geographic segment total
revenues and (loss) income before income taxes for each of the
years ended October 31, 2008 and 2007 ($ amounts in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income Before
|
|
|
|
Revenues
|
|
|
Income Taxes
|
|
|
|
2008 Units
|
|
|
2007 Units
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
North(a)
|
|
|
1,300
|
|
|
|
1,467
|
|
|
$
|
932.9
|
|
|
$
|
1,087.7
|
|
|
$
|
0.9
|
|
|
$
|
51.2
|
|
Mid-Atlantic(b)
|
|
|
1,443
|
|
|
|
2,137
|
|
|
|
881.0
|
|
|
|
1,340.6
|
|
|
|
(10.9
|
)
|
|
|
206.4
|
|
South(c)
|
|
|
1,095
|
|
|
|
1,631
|
|
|
|
562.1
|
|
|
|
976.9
|
|
|
|
(170.0
|
)
|
|
|
(20.4
|
)
|
West(d)
|
|
|
905
|
|
|
|
1,452
|
|
|
|
782.2
|
|
|
|
1,241.8
|
|
|
|
(190.5
|
)
|
|
|
(87.9
|
)
|
Corporate and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(96.3
|
)
|
|
|
(78.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,743
|
|
|
|
6,687
|
|
|
$
|
3,158.2
|
|
|
$
|
4,647.0
|
|
|
$
|
(466.8
|
)
|
|
$
|
70.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes percentage of completion revenues of $37.5 million
and $91.0 million in fiscal 2008 and 2007, respectively,
and land revenues of $1.0 million and $3.5 million in
fiscal 2008 and 2007, respectively. |
|
(b) |
|
Includes land revenues of $2.4 million and
$2.3 million in fiscal 2008 and 2007, respectively. |
|
(c) |
|
Includes percentage of completion revenues of $4.4 million
and $48.5 million in fiscal 2008 and 2007, respectively,
and land revenues of $1.6 million and $6.1 million in
fiscal 2008 and 2007, respectively. |
|
(d) |
|
Includes land revenues of $5.1 million in fiscal 2008. |
North
Revenues in fiscal 2008 were lower than those in fiscal 2007 by
$154.8 million, or 14%. The decrease in revenues was
attributable to a decrease of $53.5 million in percentage
of completion revenues and an 11% decrease in the number of
homes delivered, partially offset by a 2% increase in the
average price of homes delivered. The decrease in the number of
homes delivered in the year ended October 31, 2008, as
compared to fiscal 2007, was primarily due to lower backlog at
October 31, 2007, as compared to October 31, 2006. The
decline in backlog at October 31, 2007, as compared to
October 31, 2006, was due primarily to an 11% decrease in
the number of new contracts signed in fiscal 2007 over fiscal
2006. The increase in the average price of homes delivered in
the year ended October 31, 2008, as compared to the year
ended October 31, 2007, was primarily due to closings
during fiscal 2008 in several high-rise completed contract
communities in the New York and New Jersey urban markets, which
had higher average prices than our typical product; we did not
have any closings of this type of product in fiscal 2007.
Excluding these deliveries, the average price of homes delivered
in fiscal 2008 decreased 9%, as compared to fiscal 2007,
primarily due to higher sales incentives and a shift in the
number of settlements to less expensive products
and/or
locations in fiscal 2008.
The value of net new contracts signed during the year ended
October 31, 2008 was $412.8 million, a 60% decline,
from the $1.03 billion of net new contracts signed during
the year ended October 31, 2007. The decline in fiscal
2008, as compared to fiscal 2007, was due to a 50% decrease in
the number of net new contracts signed and a 20% decrease in the
average value of each contract. The decrease in the number of
net new contracts signed in fiscal
35
2008 was primarily due to the continued slowdown in the housing
market. The decline in the average sales price was primarily the
result of: fewer net new contracts signed in the New York and
New Jersey urban markets, which had higher average prices than
our typical product, as several communities in these areas sold
out in fiscal 2007; higher sales incentives given during the
year ended October 31, 2008, as compared to the year ended
October 31, 2007; and a shift in the number of contracts
signed to less expensive product in fiscal 2008, as compared to
fiscal 2007. The number of contract cancellations for the year
ended October 31, 2008, was 271, as compared to 251 in the
year ended October 31, 2007.
We reported $0.9 million of income before income taxes in
the year ended October 31, 2008, as compared to income
before income taxes of $51.2 million in the year ended
October 31, 2007. The decrease in income was due to a
$46.2 million loss from unconsolidated entities in fiscal
2008, as compared to $15.7 million of income in fiscal
2007, and lower revenues in fiscal 2008, as compared to fiscal
2007, offset, in part by the recognition of a $9.0 million
charge for goodwill impairment in the first quarter of fiscal
2007, and lower selling, general and administrative costs and
lower costs of revenues as a percentage of revenues in fiscal
2008, as compared to fiscal 2007. The loss from unconsolidated
entities includes $57.9 million of impairment charges in
fiscal 2008 related to two of these unconsolidated entities. The
lower cost of revenues as a percentage of revenues in the year
ended October 31, 2008, as compared to the year ended
October 31, 2007, was primarily the result of lower
inventory impairment charges recognized in fiscal 2008. In
fiscal 2008, we recorded $112.5 million of inventory
impairments, as compared to $122.9 million in fiscal 2007.
Mid-Atlantic
Revenues in fiscal 2008 were lower than those in fiscal 2007 by
$459.6 million, or 34%. The decrease in revenues for the
year ended October 31, 2008 was attributable to a 32%
decrease in the number of homes delivered (primarily in Virginia
and Pennsylvania), and a 3% decrease in the average sales price
of the homes delivered. The decrease in the number of homes
delivered in fiscal 2008 was primarily due to a lower backlog at
October 31, 2007, as compared to October 31, 2006. The
decrease in the backlog of homes at October 31, 2007 was
primarily the result of a 23% decrease in the number of net new
contracts signed in fiscal 2007 over fiscal 2006. The decrease
in the average price of the homes delivered in fiscal 2008, as
compared to fiscal 2007, was primarily due to higher sales
incentives given in fiscal 2008, as compared to fiscal 2007.
The value of net new contracts signed during fiscal 2008 of
$564.2 million decreased 41% from the $950.4 million
of net new contracts signed in fiscal 2007. The decline was due
to a 32% decrease in the number of net new contracts signed and
a 13% decrease in the average value of each contract. The
decrease in the number of net new contracts signed was due
primarily to continued weak demand, partially offset by lower
cancellations for the year ended October 31, 2008, as
compared to the year ended October 31, 2007. The number of
contract cancellations decreased from 268 in fiscal 2007 to 205
in fiscal 2008. The decrease in the average value of each
contract was primarily attributable to higher sales incentives
given in fiscal 2008, as compared to fiscal 2007, and a shift in
the number of contracts signed to less expensive products in
Maryland and Virginia in fiscal 2008, as compared to fiscal 2007.
We reported a loss before income taxes of $10.9 million for
the year ended October 31, 2008, as compared to income
before income taxes of $206.4 million for the year ended
October 31, 2007. This decline was primarily due to a
decline in revenues and higher cost of revenues as a percentage
of revenues in fiscal 2008, as compared to fiscal 2007, offset,
in part, by lower selling, general and administrative expenses.
For fiscal 2008, cost of revenues before interest as a
percentage of revenues was 91.1%, as compared to 76.4% in fiscal
2007. The increase in the fiscal 2008 percentage was
primarily the result of the higher inventory impairment charges
recognized and increased sales incentives given to home buyers
on the homes delivered. We recognized inventory impairment
charges of $136.4 million in the year ended
October 31, 2008, as compared to $72.3 million in the
year ended October 31, 2007. As a percentage of revenues,
higher sales incentives increased cost of revenues approximately
3.6% in fiscal 2008, as compared to fiscal 2007.
36
South
Revenues for the year ended October 31, 2008 were lower
than those for the year ended October 31, 2007 by
$414.8 million, or 42%. The decrease in revenues was
attributable to a 33% decrease in the number of homes delivered,
a 10% decrease in the average selling price of the homes
delivered, and a reduction in percentage of completion revenues
of $44.1 million. The decrease in the number of homes
delivered was primarily attributable to our Florida operations,
where we had a lower number of homes in backlog at
October 31, 2007, as compared to October 31, 2006. The
decrease in the backlog of homes at October 31, 2007 for
the entire segment was primarily the result of a 36% decrease in
the number of net new contracts signed in fiscal 2007 over
fiscal 2006. The decrease in the average price of the homes
delivered in fiscal 2008, as compared to fiscal 2007, was due to
higher sales incentives given to home buyers and a greater
percentage of this segments settlements shifting to less
expensive areas, primarily in Florida.
The value of net new contracts signed in fiscal 2008 was
$326.1 million, a 29% decline from the $457.3 million
of net new contracts signed in fiscal 2007. The decline was due
to a 21% decrease in the number of net new contracts signed and
a 10% decrease in the average value of each contract. The
decrease in the number of net new contracts signed was
attributable to the overall continued weak market conditions in
North Carolina, South Carolina and Texas. In Florida, the number
of net new contracts signed in fiscal 2008 increased 62% as
compared to fiscal 2007. The increase in the number of net new
contracts signed in Florida was due primarily to the decrease in
the number of cancellations from 348 in fiscal 2007 to 118 in
fiscal 2008. The number of cancellations in this geographic
segment for the years ended October 31, 2008 and 2007 was
250 and 457, respectively. The decrease in the average value of
each contract signed in fiscal 2008, as compared to fiscal 2007,
for this geographic segment was primarily due to lower average
sales prices in Florida, which was the result of higher sales
incentives and a shift in the number of contracts signed to less
expensive areas and products in fiscal 2008, as compared to
fiscal 2007. In addition, the average value of each contract
signed in Florida for the year ended October 31, 2008 was
negatively impacted by cancellations at high-rise projects in
fiscal 2008, which carried a higher average value per cancelled
contract. The decreases in Floridas average value of each
contract signed were offset, in part, by an increase in the
average value of contracts signed in North Carolina, which was
primarily due to a shift in the number of contracts signed to
more expensive products in fiscal 2008, as compared to fiscal
2007.
We reported losses before income taxes for the years ended
October 31, 2008 and 2007, of $170.0 million and
$20.4 million, respectively. The increase in the loss was
primarily due to a decline in revenues and higher cost of
revenues as a percentage of revenues in fiscal 2008, as compared
to fiscal 2007, partially offset by lower selling, general and
administrative expenses in fiscal 2008, as compared to fiscal
2007. Cost of revenues before interest as a percentage of
revenues was 116.3% for the year ended October 31, 2008, as
compared to 92.3% in fiscal 2007. The increase in the fiscal
2008 percentage was primarily due to the higher inventory
impairment charges recognized as well as increased sales
incentives given to home buyers on the homes delivered during
fiscal 2008, as compared to fiscal 2007. For the years ended
October 31, 2008 and 2007, we recorded $200.1 million
and $151.4 million, respectively, of inventory impairments.
As a percentage of revenues, higher sales incentives increased
cost of revenues approximately 4.7% in fiscal 2008, as compared
to fiscal 2007.
West
Revenues in fiscal 2008 were lower than those in fiscal 2007 by
$459.6 million, or 37%. The decrease in revenues was
attributable to a 38% decrease in the number of homes delivered.
The decrease in the number of homes delivered was primarily
attributable to the lower number of homes in backlog at
October 31, 2007, as compared to October 31, 2006,
partially offset by a decrease in the number of contract
cancellations in fiscal 2008 as compared to fiscal 2007. The
decrease in the backlog of homes at October 31, 2007 was
primarily the result of a 51% decrease in the number of net new
contracts signed in fiscal 2007 over fiscal 2006.
The value of net new contracts signed during the year ended
October 31, 2008 was $305.1 million, a 47% decline,
from $573.0 million of the net new contracts signed during
the year ended October 31, 2007. The decline was due
primarily to a 20% decrease in the number of net new contracts
signed and a 33% decrease in the average value of each contract.
The decrease in the number of net new contracts signed was
primarily due to the continued depressed market conditions. In
fiscal 2008, there were 267 contract cancellations, as compared
to 608 in fiscal
37
2007. The decrease in the average value of each contract signed
was attributable to increases in sales incentives given in
fiscal 2008, as compared to fiscal 2007 and, in Arizona, in
fiscal 2008, the higher average value of the contracts
cancelled, which resulted in a significantly lower average value
of net new contracts signed in Arizona.
We reported losses before income taxes for the years ended
October 31, 2008 and 2007, of $190.5 million and
$87.9 million, respectively. The increase in the loss was
attributable to lower revenues and higher cost of revenues as a
percentage of revenues in fiscal 2008, as compared to fiscal
2007, and an increase in impairment charges related to
unconsolidated entities in which we have investments from
$59.2 million in fiscal 2007 to $141.3 million in
fiscal 2008. For the years ended October 31, 2008 and 2007,
cost of revenues before interest as a percentage of revenues was
100.1% and 93.4%, respectively. The increase in the fiscal
2008 percentages was primarily the result of increased
sales incentives given to home buyers on the homes delivered and
higher inventory impairment charges as a percentage of revenues,
partially, offset by the positive impact on the cost of sales
percentage on homes settled in fiscal 2008 from communities that
had reduced inventory values as a result of impairments
previously recognized. As a percentage of revenues, higher sales
incentives increased cost of revenues approximately 7.3% in
fiscal 2008, as compared to fiscal 2007. We recognized inventory
impairment charges of $196.0 million in fiscal 2008, as
compared to $273.0 million in fiscal 2007. This segment
benefited from the recognition of $40.2 million of income
in fiscal 2008 related to the receipt of proceeds from a
favorable condemnation judgment on property we controlled in
this segment.
Corporate
and Other
Corporate and Other realized a loss before income taxes for the
year ended October 31, 2008 of $96.3 million, an
increase of $17.7 million from the $78.6 million loss
before income taxes reported for the year ended October 31,
2007. This increase was primarily the result of a
$24.7 million gain realized from the sale of our cable TV
and broadband internet business and security business in fiscal
2007 and lower management fee income in fiscal 2008, as compared
to fiscal 2007, partially offset by higher interest income and
lower corporate general and administrative expenses in fiscal
2008, as compared to fiscal 2007.
FISCAL
2007 COMPARED TO FISCAL 2006
Revenues
and Costs Completed Contract
Revenues for fiscal 2007 were lower than those of fiscal 2006 by
approximately $1.45 billion, or 24.4%. The decrease was
attributable to a 22.3% decrease in the number of homes
delivered and a 2.7% decrease in the average price of the homes
delivered. The decrease in the number of homes delivered 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 40.6% decrease in the number of contracts signed
in fiscal 2006 versus fiscal 2005, and a decline of 27.6% in the
number of contracts signed in fiscal 2007 as compared to fiscal
2006. The decrease in the average price of the homes delivered
was due primarily to the increased sales incentives given to
buyers on the homes delivered in fiscal 2007 as compared to
fiscal 2006 offset in part by a slight change in the mix of
homes delivered to higher priced homes.
The value of contracts signed in fiscal 2007 was
$2.99 billion (4,413 homes). This represented a 32.2%
decrease compared to the value of contracts signed in fiscal
2006 of $4.40 billion (6,099 homes). The decrease was
attributable to a 27.6% decrease in the number of contracts
signed in fiscal 2007 as compared to fiscal 2006, and a 6.3%
decrease in the average value of each contract signed in fiscal
2007 as compared to fiscal 2006. We believe the decrease in the
number of contracts signed was 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. The value of contracts cancelled in
fiscal 2007 (including those signed in fiscal 2007 and those
signed in prior periods but not cancelled until fiscal
2007) as a percentage of the gross value of contracts
signed in fiscal 2007 was 27.9%, as compared to 17.8% in fiscal
2006.
We believe this slowdown was 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 mortgage loan
market. We attributed the reduction in demand to concerns on the
part of prospective home buyers about the direction of home
prices, due in part to the constant media attention with regard
to the potential of mortgage foreclosures, many home
builders
38
advertising price reductions and increased sales incentives, and
concerns by prospective home buyers about being able to sell
their existing homes. In addition, we believed speculators and
buyers who bought homes as an investment were no longer helping
to fuel demand. We tried to avoid selling homes to speculators,
and we generally did not build detached homes without having a
signed agreement of sale and receiving a substantial down
payment from a buyer. Nonetheless, we were impacted by an
overall increase in the supply of homes available for sale in
many markets, as speculators attempted to sell the homes they
previously purchased or cancelled contracts for homes under
construction, and as those builders that as part of their
business strategy were building homes in anticipation of
capturing additional sales in a demand-driven market, attempted
to reduce their inventories by lowering prices and adding
incentives. In addition, based on the high cancellation rates
reported by us and by other builders, non-speculative buyer
cancellations were also adding to the supply of homes in the
marketplace. The decline in the average sales price of new sales
contracts signed 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 incentives in
fiscal 2007, as compared to fiscal 2006.
At October 31, 2007, our backlog of homes under contract
accounted for under the completed contract method of accounting
was $2.82 billion (3,867 homes), 34.8% lower than the
$4.33 billion (6,141 homes) in backlog at October 31,
2006. The decrease in backlog at October 31, 2007, as
compared to the backlog at October 31, 2006, was 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 contracts signed in fiscal
2007, as compared to fiscal 2006, offset in part by the lower
number of deliveries in fiscal 2007, as compared to fiscal 2006.
Home costs as a percentage of revenue were 86.9% in fiscal 2007
as compared to 71.7% in fiscal 2006. The increase in the fiscal
2007 percentage was primarily the result of the higher
amount of inventory impairment charges recognized, increased
sales incentives given to home buyers on the homes delivered and
higher overhead costs per home delivered. In fiscal 2007 and
2006, we recognized inventory impairment charges of
$619.5 million and $152.0 million, respectively.
Fiscal 2007 cost of revenues as a percentage of revenues
increased by approximately 2.6% due to the increased sales
incentives and by 1% due to higher overhead costs per home.
Revenues
and Costs Percentage of Completion
We were developing several projects for which we recognized
revenues and costs using the percentage of completion method of
accounting. Revenues and costs of individual projects were
recognized on the individual projects aggregate value of
units for which home buyers had signed binding agreements of
sale and were based on the percentage of total estimated
construction costs that had been incurred. Total estimated
revenues and construction costs were reviewed periodically, and
any changes were applied to current and future periods. In
fiscal 2007 and 2006, we recognized $139.5 million and
$170.1 million of revenues, respectively, and
$109.0 million and $132.3 million of costs,
respectively, on these projects. In fiscal 2007, cost of
revenues as a percentage of revenues recognized of 78.1% was
slightly higher than the fiscal 2006 percentage of 77.8%.
The increase was due primarily to cost increases and a change in
the mix of revenues recognized in fiscal 2007 to more costly
projects. In fiscal 2007, we delivered $263.3 million (336
homes) in projects for which we are using the percentage of
completion method of accounting.
At October 31, 2007, our backlog of homes in communities
that we accounted for using the percentage of completion method
of accounting was $30.2 million (net of $55.2 million
of revenue recognized) compared to $154.3 million at
October 31, 2006 (net of $170.1 million of revenue
recognized). The decline in the backlog at October 31, 2007
was primarily the result of the recognition of revenues and a
decline in contracts signed.
Revenues
and Costs Land Sales
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 fiscal 2007 and 2006, land sales revenues were
$11.9 million and $8.2 million, respectively, and the
cost of land sales revenues was approximately 67.9% and 85.6% of
land sales revenues, respectively.
39
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 we determine interest expense 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 that used the percentage of completion method of
accounting, interest expense was determined based on the total
estimated interest for the project and the percentage of total
estimated construction costs that had been incurred. Any change
in the estimated interest expense for the project was applied to
current and future periods from the date the estimate was made.
Interest expense as a percentage of revenues was 2.2% in fiscal
2007, as compared to 2.0% in fiscal 2006.
Selling,
General and Administrative Expenses
(SG&A)
SG&A spending decreased by $56.7 million, or 10% in
fiscal 2007, as compared to fiscal 2006. The reduction in
spending was due primarily to cost reductions, offset in part by
the expenses resulting from the increased number of communities
from which we were operating during fiscal 2007, as compared to
fiscal 2006. At October 31, 2007, we had 315 selling
communities, a 5% increase over the 300 selling communities we
had at October 31, 2006.
Goodwill
Impairment
During fiscal 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 would not recover for a number of
years, we determined that the related goodwill was impaired. We
recognized a $9.0 million impairment charge in fiscal 2007.
After recognizing this charge, we did not have any goodwill
remaining from this acquisition.
(Loss)
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 period to period. In fiscal 2007, we
recognized $40.4 million of losses from unconsolidated
entities as compared to $48.4 million of earnings in fiscal
2006. The fiscal 2007 loss was attributable to
$59.2 million of impairment charges on two of our
investments in unconsolidated entities in our quarter ended
October 31, 2007.
Interest
and Other Income
In fiscal 2007, we recognized $115.1 million of interest
and other income, as compared to $52.7 million in fiscal
2006. The $62.5 million increase in fiscal 2007 was
primarily the result of the recognition into income of
$36.5 million of retained customer deposits in fiscal 2007,
as compared to $15.4 million in fiscal 2006, 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 an
$8.8 million increase in interest income in fiscal 2007, as
compared to 2006.
Income
Before Income Taxes
Income before taxes in fiscal 2007 was $70.7 million, a
decrease of 93.7% from the $1.13 billion earned in fiscal
2006.
40
Income
Taxes
Income taxes were provided at an effective rate of 49.6% in
fiscal 2007, as compared to 39.0% in fiscal 2006. The increase
in the effective tax rate in fiscal 2007, as compared to fiscal
2006 was due primarily to lower pretax income reported in fiscal
2007, as compared to fiscal 2006 and the greater impact of
individual components of the provision for income taxes on the
overall rate in fiscal 2007, as compared to the fiscal 2006
rate. The effective state income tax rate for fiscal 2007 was
21.4%, as compared to 7.0% in fiscal 2006. The increase in the
state tax rate was the result of the allocation of our income
and losses to the various taxing jurisdictions in which we
operate and the tax rates in those jurisdictions. In addition,
in fiscal 2007, we reported higher tax-free income, an increase
in our estimated interest provided on anticipated tax
assessments and a lower amount of expiring state tax provisions,
as compared to fiscal 2006. We also recognized $8.7 million
and $10.3 million of manufacturing and other tax credits in
fiscal 2007 and fiscal 2006, respectively. As a percentage of
income before taxes, the 2007 credits were significantly higher
then the fiscal 2006 percentage. See Note 7 to the
Notes to Consolidated Financial Statements,
Income Taxes, for additional information regarding
the change in the income tax rates and the impact on the
financial statements.
Geographic
Segments
We operate in four geographic segments around the United States:
the North, consisting of Connecticut, Illinois, Massachusetts,
Michigan, Minnesota, New Jersey, New York, Ohio and Rhode
Island; the Mid-Atlantic, consisting of Delaware, Maryland,
Pennsylvania, Virginia and West Virginia; the South, consisting
of Florida, Georgia, North Carolina, South Carolina, and Texas;
and the West, consisting of Arizona, California, Colorado and
Nevada. We stopped selling homes in Ohio in fiscal 2005 and
delivered our last home in that state in fiscal 2006. Our
operations in Ohio were immaterial to the North segment. We
acquired and opened for sale our first communities in Georgia in
fiscal 2007.
The following table summarizes by geographic segments total
revenues and income (loss) before income taxes for each of the
years ended October 31, 2007 and 2006 ($ amounts in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss)
|
|
|
|
Revenues
|
|
|
Before Income Taxes
|
|
|
|
2007 Units
|
|
|
2006 Units
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
North(a)
|
|
|
1,467
|
|
|
|
1,983
|
|
|
$
|
1,087.7
|
|
|
$
|
1,444.2
|
|
|
$
|
51.2
|
|
|
$
|
281.9
|
|
Mid-Atlantic(b)
|
|
|
2,137
|
|
|
|
2,697
|
|
|
|
1,340.6
|
|
|
|
1,777.9
|
|
|
|
206.4
|
|
|
|
491.8
|
|
South(c)
|
|
|
1,631
|
|
|
|
2,017
|
|
|
|
976.9
|
|
|
|
1,192.4
|
|
|
|
(20.4
|
)
|
|
|
161.8
|
|
West
|
|
|
1,452
|
|
|
|
1,904
|
|
|
|
1,241.8
|
|
|
|
1,709.0
|
|
|
|
(87.9
|
)
|
|
|
338.5
|
|
Corporate and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78.6
|
)
|
|
|
(147.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,687
|
|
|
|
8,601
|
|
|
$
|
4,647.0
|
|
|
$
|
6,123.5
|
|
|
$
|
70.7
|
|
|
$
|
1,126.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes percentage of completion revenues of $91.0 million
and $110.3 million in fiscal 2007 and 2006, respectively,
and land sales revenues of $3.5 million and
$0.4 million in fiscal 2007 and 2006, respectively. |
|
(b) |
|
Includes land sales revenues of $2.3 million and
$0.2 million in fiscal 2007 and 2006, respectively. |
|
(c) |
|
Includes percentage of completion revenues of $48.5 million
and $59.8 million in fiscal 2007 and 2006, respectively,
and land sales revenues of $6.1 million and
$7.4 million in fiscal 2007 and 2006, respectively. |
North
Revenues in fiscal 2007 were lower than those for fiscal 2006 by
$356.5 million, or 25%. The decrease in revenues was
attributable to a 26% decrease in the number of homes delivered
and a reduction in percentage of completion revenues of
$19.3 million, offset, in part, by a 1% increase in the
average price of the homes delivered. Approximately 75% of the
decrease in revenues related to the New Jersey suburban markets,
where the number of homes delivered decreased 37% and the
average price of the homes delivered decreased 6%. The decrease
in the number of homes delivered in fiscal 2007, as compared to
fiscal 2006, was primarily due to the lower backlog of homes at
October 31, 2006, as compared to October 31, 2005,
which was the result of a 27% decrease in the number
41
of new contracts signed in fiscal 2006 over fiscal 2005, and the
increased cancellation rates by home buyers in fiscal 2007, as
compared to the rates in fiscal 2006.
The value of new contracts signed in fiscal 2007 was
$1.03 billion, a 13% decline from the $1.18 billion of
contracts signed in fiscal 2006. The number of net new contracts
signed and the average value of each contract decreased 11% and
2%, respectively. The decline in new contracts signed in fiscal
2007 was primarily due to a slowdown in the housing market,
predominantly in Illinois, Michigan and the suburban New Jersey
markets. However, in New York and the urban markets of northern
New Jersey, net new signed contracts increased by
$108.4 million for the year ended October 31, 2007, as
compared to the same period in 2006. The contract cancellation
rates for fiscal 2007 and fiscal 2006 were 14.7% and 8.7%,
respectively.
Income before income taxes in fiscal 2007 was
$51.2 million, a decrease of $230.7 million from the
$281.9 million reported for fiscal 2006. This decrease was
due to less profit realized on the lower revenues in fiscal
2007, higher costs of revenues in fiscal 2007 as compared to
fiscal 2006, and a $16.0 million decrease in income
realized from unconsolidated entities in fiscal 2007 as compared
to fiscal 2006. Cost of revenues before interest as a percentage
of revenues was 86.3% in fiscal 2007 versus 74.3% in fiscal
2006. The increase in the fiscal 2007 percentage was
primarily the result of the higher inventory impairment charges
recognized, increased sales incentives given to home buyers on
the homes delivered and higher land and direct costs as a
percentage of the revenues from homes delivered. In fiscal 2007
and 2006, we recognized inventory impairment charges of
$122.9 million and $46.7 million, respectively. As a
percentage of revenues, the higher land and direct costs
increased cost of revenues approximately 2.0% and sales
incentives increased cost of revenues approximately 1.3%.
Mid-Atlantic
Revenues in fiscal 2007 were lower than those for fiscal 2006 by
$437.3 million, or 25%. The decrease in revenues was
attributable to a 21% decrease in the number of homes delivered
(primarily in Virginia), and a 5% decrease in the average sales
price of the homes delivered. The decrease in the number of
homes delivered was primarily due to the 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 net new contracts signed in
fiscal 2006 over fiscal 2005, due 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 year 2007, as
compared to fiscal 2006, was primarily related to a change in
the mix of communities delivering homes in Maryland to a lower
price point product.
The value of net new contracts signed during the year ended
October 31, 2007 of $950.4 million decreased 25% from
the net new contracts signed of $1.26 billion in the
comparable period of fiscal 2006. The decline was due primarily
to a 23% decrease in the number of net new contracts signed and
a 3% decrease in the average value of each contract. The decline
in the number of net new contracts signed was due primarily to
continued weak demand and an increase in contract cancellation
rates. The contract cancellation rates for the years ended
October 31, 2007 and 2006 were 15.1% and 13.3%,
respectively.
Income before income taxes in fiscal 2007 was
$206.4 million, a decrease of $285.4 million from the
$491.8 million reported for fiscal 2006. This decrease was
attributable to lower revenues and higher cost of revenues in
fiscal 2007, as compared to fiscal 2006. For the years ended
October 31, 2007 and 2006, cost of revenues before interest
as a percentage of revenues was 76.4% and 65.3%, respectively.
The increase in the fiscal 2007 percentage was primarily
the result of the higher amount of inventory impairment charges
recognized, increased sales incentives given to home buyers on
the homes delivered and higher land costs as a percentage of the
revenues from homes delivered. We recognized inventory
impairment charges of $72.3 million and $7.7 million
in fiscal 2007 and 2006, respectively. The higher sales
incentives and land costs increased cost of revenues as a
percentage of revenues approximately 3.4% and 1.8%, respectively.
South
Revenues in fiscal 2007 were lower than those of fiscal 2006 by
$215.5 million, or 18%. The decrease in revenues was
attributable to a 19% decrease in the number of homes delivered
and a reduction in percentage of completion revenues of
$11.3 million, partially offset by a 1% increase in the
average selling price of the homes
42
delivered. The decrease in the number of homes delivered in
fiscal 2007, as compared to fiscal 2006, was primarily
attributable to our Florida operations, where we had a lower
number of homes in backlog at October 31, 2006, as compared
to October 31, 2005 and increased cancellations rates by
home buyers in 2007 versus 2006.
For the year ended October 31, 2007, the value of net new
contracts signed was $457.3 million, as compared to
$800.3 million in the comparable period of fiscal 2006, a
decrease of 43%. The decline was due to decreases in the number
of net new contracts signed and the average value of each
contract of 36% and 11%, respectively. The decrease in the
number of net new contracts signed was attributable to weak
market conditions, especially in Florida, and a significantly
higher number of contract cancellations. In fiscal years 2007
and 2006, the cancellation rate in Florida was 60.7% and 28.2%,
respectively. For the entire region, the cancellation rate was
35.5% and 20.3% for the years ended October 31, 2007 and
2006, respectively. The decrease in the average sales price was
primarily due to a shift in the number of contracts to areas
with lower priced homes in fiscal 2007 compared to fiscal 2006.
We reported a loss before income taxes for the year ended
October 31, 2007 of $20.4 million, as compared to
income before taxes of $161.8 million in fiscal 2006. This
decrease was primarily due to a higher cost of revenues as a
percentage of total revenues in fiscal 2007, as compared to
fiscal 2006, partially offset by higher retained customer
deposits on contract cancellations. Cost of revenues before
interest as a percentage of revenues was 92.3% in fiscal 2007,
as compared to 77.5% in fiscal 2006. The increase in the fiscal
2007 percentage was primarily due to the higher amount of
inventory impairment charges recognized, increased sales
incentives given to home buyers on the homes delivered, offset,
in part, by lower overhead costs. In fiscal 2007 and 2006, we
recognized inventory impairment charges of $151.4 million
and $16.6 million, respectively. As a percentage of
revenues, higher sales incentives increased cost of revenues
approximately 3.9% while lower overhead costs decreased the
costs of revenues approximately 2.6%.
West
Revenues in fiscal 2007 were lower than those for fiscal 2006 by
$467.2 million, or 27%. The decrease in revenues was
attributable to declines in the number of homes delivered and in
the average price of homes delivered of 24% and 5%,
respectively. 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,
a significantly higher number of contract cancellations in
fiscal 2007 than in fiscal 2006 and higher sales incentives in
fiscal 2007 versus 2006.
The value of net new contracts signed in the year ended
October 31, 2007 of $573.0 million decreased 53% from
the net new contracts signed of $1.22 billion in fiscal
2006. The decline was primarily due to a 51% decrease in the
number of net new contracts signed in fiscal 2007 as compared to
fiscal 2006, which was attributable to weak demand and higher
than normal contract cancellations. The cancellation rate for
the year ended October 31, 2007 was 49.5%, as compared to
28.2% for the year ended October 31, 2006.
For fiscal 2007, we reported a loss before income taxes of
$87.9 million, compared to income before income taxes of
$338.5 million for fiscal 2006. This decrease was
attributable to lower revenues and higher cost of revenues in
fiscal 2007, as compared to fiscal 2006, and a
$59.2 million impairment charge in fiscal 2007 related to
two unconsolidated entities in which we have investments. For
the years ended October 31, 2007 and 2006, cost of revenues
before interest as a percentage of revenues was 93.4% and 72.8%,
respectively. The increase in the fiscal 2007 percentage
was primarily the result of the higher amount of inventory
impairment charges recognized and increased sales incentives
given to home buyers on the homes delivered. We recognized
inventory impairment charges of $273.0 million and
$81.0 million in fiscal 2007 and 2006, respectively. The
higher sales incentives increased cost of revenues as a
percentage of revenue approximately 2.3%.
Other
Other loss before income taxes for fiscal 2007 was
$78.6 million, a decrease of $68.8 million from the
$147.4 million loss before income taxes reported for fiscal
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.
43
CAPITAL
RESOURCES AND LIQUIDITY
Funding for our business has been provided principally by cash
flow from operating activities, before inventory additions,
unsecured bank borrowings and the public debt and equity
markets. Prior to fiscal 2008, we used our cash flow from
operating activities, before inventory additions, 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, invest in
unconsolidated entities, purchase our stock, and repay debt.
In fiscal 2008, our cash and cash equivalents increased by
$733.2 million to $1.63 billion. Cash flow from
operating activities was $826.8 million. Cash flow from
operating activities was generated primarily from income before
inventory and investment impairment losses, reductions in
inventory, and a decrease in contracts receivable related to
percentage of completion accounting, offset, in part, by a
decrease in accounts payable and accrued expenses (excluding
accruals of estimated liabilities to various joint ventures), a
decrease in customer deposits and an increase in deferred tax
assets. The decreased inventory, contracts receivable, accounts
payable and customer deposits were due primarily to the decline
in our business as previously discussed. We used
$64.6 million of cash flow in investing activities,
primarily for additional investments in unconsolidated entities.
In addition, we used $29.0 million of cash flow in
financing activities, primarily for the repayment of debt,
offset in part, by cash generated from stock-based benefit plans
and the tax benefits of stock-based compensation.
In fiscal 2007, we generated $267.8 million of cash,
including $330.5 million from operating activities and
$25.6 million from investing activities, offset, in part,
by the use of $88.2 million in financing activities. In the
fiscal 2007 period, net cash generated from operating activities
was primarily attributable to income before write-offs, offset,
in part, by a reduction in accounts payable and accrued
expenses, a reduction in customer deposits and an increase in
deferred tax assets.
At October 31, 2008, the aggregate purchase price of land
parcels under option and purchase agreements was approximately
$637.0 million (including $147.0 million of land to be
acquired from joint ventures in which we have invested). Of the
$637.0 million of land purchase commitments, we had paid or
deposited $70.8 million and had invested in or guaranteed
loans on behalf of our joint ventures of $113.4 million
which will be credited against the purchase price of the land.
The purchases of these land parcels are scheduled over the next
several years. We have additional land parcels under option that
have been excluded from the aforementioned aggregate purchase
amounts since we do not believe that we will complete the
purchase of these land parcels and no additional funds will be
required from us.
In general, our 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
those which we deliver. 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 the past
several years, due to the high cancellation rate of customer
contracts and the increase in the number of attached-home
communities from which we were operating (all of the units of
which are generally not sold prior to the commencement of
construction), the number of speculative homes in our inventory
increased significantly. Should our business remain at its
current level or decline from present levels, 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, as we complete the
improvements on the land we already own and as we sell and
deliver the speculative homes that are currently in inventory,
resulting in additional cash flow from operations. In addition,
we might continue to delay or curtail our acquisition of
additional land, as we have since the second half of fiscal
2006, which would further reduce our inventory levels and cash
needs. At October 31, 2008, we owned or controlled through
options approximately 39,800 home sites, as compared to
approximately 59,300 at October 31, 2007, and approximately
91,200 at April 30, 2006, the high point of our home sites
owned and controlled.
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 to investments
in and distributions of investments from unconsolidated entities
are contained in the Condensed Consolidated Statements of
Cash Flows under Cash flow from investing
activities.
44
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 32 banks, which extends to
March 2011. At October 31, 2008, we had no outstanding
borrowings against the revolving credit facility but had letters
of credit of approximately $236.8 million outstanding under
it. Under the terms of the Credit Facility, our maximum leverage
ratio (as defined in the agreement) may not exceed 2.00 to 1.00
and at October 31, 2008, we were required to maintain a
minimum tangible net worth (as defined in the agreement) of
approximately $2.25 billion. At October 31, 2008, our
leverage ratio was approximately 0.145 to 1.00, and our tangible
net worth was approximately $3.22 billion.
We believe that we will be able to continue to fund our current
operations and meet our contractual obligations through a
combination of existing cash resources and our existing sources
of credit. Due to the deterioration of the credit markets and
the uncertainties that exist in the economy and for home
builders in general, we cannot be certain that we will be able
to replace existing financing or find sources of additional
financing in the future.
CONTRACTUAL
OBLIGATIONS
The following table summarizes our estimated contractual payment
obligations at October 31, 2008 (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010 2011
|
|
|
2012 2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
Senior and senior subordinated notes(a)
|
|
$
|
94.1
|
|
|
$
|
369.3
|
|
|
$
|
811.0
|
|
|
$
|
628.1
|
|
|
$
|
1,902.5
|
|
Loans payable(a)
|
|
|
94.7
|
|
|
|
564.5
|
|
|
|
2.0
|
|
|
|
14.7
|
|
|
|
675.9
|
|
Mortgage company warehouse loan(a)
|
|
|
38.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38.8
|
|
Operating lease obligations
|
|
|
11.7
|
|
|
|
16.9
|
|
|
|
11.3
|
|
|
|
18.4
|
|
|
|
58.3
|
|
Purchase obligations(b)
|
|
|
299.8
|
|
|
|
360.4
|
|
|
|
86.2
|
|
|
|
58.1
|
|
|
|
804.5
|
|
Retirement plans(c)
|
|
|
5.8
|
|
|
|
3.9
|
|
|
|
10.6
|
|
|
|
34.8
|
|
|
|
55.1
|
|
Other
|
|
|
.7
|
|
|
|
1.4
|
|
|
|
1.4
|
|
|
|
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
545.6
|
|
|
$
|
1,316.4
|
|
|
$
|
922.5
|
|
|
$
|
754.1
|
|
|
$
|
3,538.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amounts include estimated annual interest payments until
maturity of the debt. Of the amounts indicated,
$1.49 billion of the senior and senior subordinated notes,
$613.6 million of loans payable, and $37.9 million of
the mortgage company warehouse loan were recorded on the
October 31, 2008 Consolidated Balance Sheet. |
|
(b) |
|
Amounts represent our expected acquisition of land under options
or purchase agreements and the estimated remaining amount of the
contractual obligation for land development agreements secured
by letters of credit and surety bonds. |
|
(c) |
|
Amounts represent our obligations under our 401(k), deferred
compensation and supplemental executive retirement plans. Of the
total amount indicated, $37.4 million has been recorded on
the October 31, 2008 Consolidated Balance Sheet. |
INFLATION
The long-term impact of inflation on us is manifested in
increased costs for land, land development, construction and
overhead. 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. Prior to the
current downturn in the economy and the decline in demand for
homes, the sales prices of our homes generally increased.
Because the sales price of each of our homes is fixed at the
time a buyer enters into a contract to purchase a home, and
because we generally contract to sell our homes before we begin
construction, any inflation of costs in excess of those
anticipated may 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. The slowdown in the homebuilding industry over the past
several years and the decline in the sales prices of our homes,
without a corresponding reduction in the costs, have had an
adverse impact on our profitability.
45
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, whether the
result of inflation or demand, may affect the ability of
prospective buyers to afford new homes.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We are exposed to market risk primarily due to fluctuations in
interest rates. We utilize both fixed-rate and variable-rate
debt. For fixed-rate debt, changes in interest rates generally
affect the fair market value of the debt instrument, but not our
earnings or cash flow. Conversely, for variable-rate debt,
changes in interest rates generally do not affect the fair
market value of the debt instrument but do affect our earnings
and cash flow. We do not have the obligation to prepay
fixed-rate debt prior to maturity, and, as a result, interest
rate risk and changes in fair market value should not have a
significant impact on such debt until we are required to
refinance such debt.
At October 31, 2008, our debt obligations, principal cash
flows by scheduled maturity, weighted-average interest rates,
and estimated fair value were as follows ($ amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-Rate Debt
|
|
|
Variable-Rate Debt(a)
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Fiscal Year of Maturity
|
|
Amount
|
|
|
Interest Rate
|
|
|
Amount
|
|
|
Interest Rate
|
|
|
2009
|
|
$
|
45,420
|
|
|
|
6.90
|
%
|
|
$
|
57,660
|
|
|
|
5.45
|
%
|
2010
|
|
|
19,822
|
|
|
|
6.18
|
%
|
|
|
168,332
|
|
|
|
4.88
|
%
|
2011
|
|
|
205,669
|
|
|
|
8.17
|
%
|
|
|
331,817
|
|
|
|
5.02
|
%
|
2012
|
|
|
150,038
|
|
|
|
8.25
|
%
|
|
|
150
|
|
|
|
1.75
|
%
|
2013
|
|
|
550,890
|
|
|
|
6.46
|
%
|
|
|
150
|
|
|
|
1.75
|
%
|
Thereafter
|
|
|
601,968
|
|
|
|
5.05
|
%
|
|
|
12,545
|
|
|
|
1.75
|
%
|
Discount
|
|
|
(6,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,567,252
|
|
|
|
6.32
|
%
|
|
$
|
570,654
|
|
|
|
4.95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at October 31, 2008
|
|
$
|
1,238,110
|
|
|
|
|
|
|
$
|
570,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Based upon the amount of variable-rate debt outstanding at
October 31, 2008, and holding the variable-rate debt
balance constant, each 1% increase in interest rates would
increase the interest incurred by us by approximately
$5.7 million per year. |
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Reference is made to the financial statements, listed in
Item 15(a)(1) and (2), which appear at pages F-1 through
F-43 of this report and which are incorporated herein by
reference.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
Not applicable
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of
a control system must reflect the fact that there are resource
constraints and the benefits of controls must be considered
relative to costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute
assurance that all
46
control issues and instances of fraud, if any, within our
company have been detected. Because of the inherent limitations
in a cost-effective control system, misstatements due to error
or fraud may occur and not be detected.
Our chief executive officer and chief financial officer, with
the assistance of management, evaluated the effectiveness of our
disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended) as of the
end of the period covered by this report (the Evaluation
Date). Based on that evaluation, our chief executive
officer and chief financial officer concluded that, as of the
Evaluation Date, our disclosure controls and procedures were
effective in providing reasonable assurance that information
required to be disclosed in our reports under the Exchange Act
is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commissions rules and forms, and that such information is
accumulated and communicated to management, including our chief
executive officer and chief financial officer, as appropriate to
allow timely decisions regarding required disclosure.
Managements
Annual Report on Internal Control Over Financial Reporting and
Attestation Report of the Independent Registered Public
Accounting Firm
Managements Annual Report on Internal Control Over
Financial Reporting and the report of our independent registered
public accounting firm on internal control over financial
reporting are incorporated herein from pages F-1 and F-2,
respectively.
Changes
in Internal Control Over Financial Reporting
There has not been any change in our internal control over
financial reporting during our quarter ended October 31,
2008 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
On December 11, 2008, the Executive Compensation Committee
of our Board of Directors adopted a form of restricted stock
unit award document under our Amended and Restated Stock
Incentive Plan for Employees (2007). This form document was
effective as of December 11, 2008 and will be used for
awards of restricted stock units under our Amended and Restated
Stock Incentive Plan for Employees (2007). The form of
restricted stock unit award document is filed as
Exhibit 10.19 to this Annual Report on
Form 10-K.
On December 18, 2008, the Executive Compensation Committee
of our Board of Directors approved the award of a
performance-based restricted stock unit relating to
200,000 shares of our common stock to Robert I. Toll, our
chairman and chief executive officer. The underlying shares will
be valued based on the closing price of our common stock on the
New York Stock Exchange on December 19, 2008. The
performance-based restricted stock unit will vest and
Mr. Toll will be entitled to receive the underlying shares
if the average closing price of our common stock on the New York
Stock Exchange, measured over any twenty consecutive trading
days ending on or prior to December 19, 2013, increases 30%
or more over the closing price of our common stock on the New
York Stock Exchange on December 19, 2008; provided
Mr. Toll continues to be employed by us or serve as a
member of our Board of Directors until December 19, 2011.
The performance-based restricted stock unit will also vest if
Mr. Toll dies, becomes disabled (as defined in our Amended
and Restated Stock Incentive Plan for Employees (2007)), or we
experience a change of control (as defined in our Amended and
Restated Stock Incentive Plan for Employees (2007)), prior to
satisfaction of the aforementioned performance criteria. The
performance-based restricted stock unit awarded to Mr. Toll
is awarded pursuant to our Amended and Restated Stock Incentive
Plan for Employees (2007). The restricted stock unit award
document is filed as Exhibit 10.20 to this Annual Report on
Form 10-K.
PART III
|
|
ITEM 10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF REGISTRANT
|
The information required by this item for executive officers is
set forth under the heading Executive Officers of the
Registrant in Part I, Item 4A of this report.
The other information required by this item will be included in
our Proxy Statement for the 2009 Annual Meeting of Stockholders
(the 2009 Proxy Statement) and is incorporated
herein by reference.
47
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this item will be included in the
2009 Proxy Statement and is incorporated herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Except as set forth below, the information required in this item
will be included in the 2009 Proxy Statement and is incorporated
herein by reference.
The following table provides information as of October 31,
2008 with respect to compensation plans (including individual
compensation arrangements) under which our equity securities are
authorized for issuance.
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities to
|
|
|
|
|
|
Number of Securities
|
|
|
|
be Issued Upon
|
|
|
Weighted-Average
|
|
|
Remaining Available For
|
|
|
|
Exercise
|
|
|
Exercise Price
|
|
|
Future Issuance Under
|
|
|
|
of Outstanding
|
|
|
of Outstanding
|
|
|
Equity Compensation
|
|
|
|
Options, Warrants
|
|
|
Options, Warrants
|
|
|
Plans (Excluding Securities
|
|
Plan Category
|
|
and Rights
|
|
|
and Rights
|
|
|
Reflected in Column(a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
Equity compensation plans approved by security holders
|
|
|
19,854
|
|
|
$
|
12.64
|
|
|
|
10,371
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
19,854
|
|
|
$
|
12.64
|
|
|
|
10,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
The information required in this item will be included in the
2009 Proxy Statement and is incorporated herein by reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required in this item will be included in the
2009 Proxy Statement and is incorporated herein by reference.
48
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
|
|
(a)
|
Financial
Statements and Financial Statement Schedules
|
|
|
|
|
|
Page
|
|
1. Financial Statements
|
|
|
Managements Annual Report on Internal Control Over
Financial Reporting
|
|
F-1
|
Reports of Independent Registered Public Accounting Firm
|
|
F-2
|
Consolidated Statements of Operations for the Years Ended
October 31, 2008, 2007 and 2006
|
|
F-4
|
Consolidated Balance Sheets as of October 31, 2008 and 2007
|
|
F-5
|
Consolidated Statements of Changes in Stockholders Equity
for the Years Ended October 31, 2008, 2007 and 2006
|
|
F-6
|
Consolidated Statements of Cash Flows for the Years Ended
October 31, 2008, 2007 and 2006
|
|
F-7
|
Notes to Consolidated Financial Statements
|
|
F-8
|
Summary Consolidated Quarterly Financial Data (unaudited)
|
|
F-43
|
|
|
2.
|
Financial
Statement Schedules
|
None
Financial statement schedules have been omitted because they are
either not applicable or the required information is included in
the financial statements or notes hereto.
The following exhibits are included with this report or
incorporated herein by reference:
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
|
|
|
3
|
.1
|
|
Second Restated Certificate of Incorporation of the Registrant,
dated September 8, 2005, is hereby incorporated by
reference to Exhibit 3.1 of the Registrants
Form 10-Q
for the quarter ended July 31, 2005.
|
|
|
|
3
|
.2
|
|
By-laws of the Registrant, as Amended and Restated June 11,
2008, are hereby incorporated by reference to Exhibit 3.1
of the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
June 13, 2008.
|
|
|
|
3
|
.3
|
|
Certificate of Amendment of Certificate of Designations,
Preferences and Rights of Series A Junior Participating
Preferred Stock of the Registrant is hereby incorporated by
reference to Exhibit 3.1 to the Registrants Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
June 18, 2007.
|
|
|
|
4
|
.1
|
|
Specimen Stock Certificate is hereby incorporated by reference
to Exhibit 4.1 of the Registrants
Form 10-K
for the fiscal year ended October 31, 1991.
|
|
|
|
4
|
.2
|
|
Indenture dated as of January 25, 2001, among Toll Corp.,
as issuer, the Registrant, as guarantor, and Bank One
Trust Company, NA, as Trustee, including form of guarantee,
is hereby incorporated by reference to Exhibit 4.1 of the
Registrants
Form 10-Q
for the quarter ended January 31, 2001.
|
|
|
|
4
|
.3
|
|
Indenture dated as of November 22, 2002 among Toll Brothers
Finance Corp., as issuer, the Registrant, as guarantor, and Bank
One Trust Company, NA, as Trustee, including form of
guarantee, is hereby incorporated by reference to
Exhibit 4.1 of the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
November 27, 2002.
|
|
|
|
4
|
.4
|
|
First Supplemental Indenture dated as of May 1, 2003 by and
among the parties listed on Schedule A thereto, and Bank
One Trust Company, National Association, as Trustee, is
hereby incorporated by reference to Exhibit 4.4 of the
Registrants Registration Statement on
Form S-4/A
filed with the Securities and Exchange Commission on
June 16, 2003, File Nos.
333-103931,
333-103931-01,
333-103931-02,
333-103931-03
and
333-103931-04.
|
|
|
49
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
|
|
|
4
|
.5
|
|
Second Supplemental Indenture dated as of November 3, 2003
by and among the parties listed on Schedule A thereto, and
Bank One Trust Company, National Association, as Trustee,
is hereby incorporated by reference to Exhibit 4.5 of the
Registrants Registration Statement on
Form S-4/A
filed with the Securities and Exchange Commission on
November 5, 2003, File Nos.
333-109604,
333-109604-01,
333-109604-02,
333-109604-03
and
333-109604-04.
|
|
|
|
4
|
.6
|
|
Third Supplemental Indenture dated as of January 26, 2004
by and among the parties listed on Schedule A thereto, and
J.P. Morgan Trust Company, National Association, as
successor Trustee, is hereby incorporated by reference to
Exhibit 4.1 of the Registrants
Form 10-Q
for the quarter ended January 31, 2004.
|
|
|
|
4
|
.7
|
|
Fourth Supplemental Indenture dated as of March 1, 2004 by
and among the parties listed on Schedule A thereto, and
J.P. Morgan Trust Company, National Association, as
successor Trustee, is hereby incorporated by reference to
Exhibit 4.2 of the Registrants
Form 10-Q
for the quarter ended January 31, 2004.
|
|
|
|
4
|
.8
|
|
Fifth Supplemental Indenture dated as of September 20, 2004
by and among the parties listed on Schedule A thereto, and
J.P. Morgan Trust Company, National Association, as
successor Trustee, is hereby incorporated by reference to
Exhibit 4.9 of the Registrants
Form 10-K
for the fiscal year ended October 31, 2004.
|
|
|
|
4
|
.9
|
|
Sixth Supplemental Indenture dated as of October 28, 2004
by and among the parties listed on Schedule A thereto, and
J.P. Morgan Trust Company, National Association, as
successor Trustee, is hereby incorporated by reference to
Exhibit 4.10 of the Registrants
Form 10-K
for the fiscal year ended October 31, 2004.
|
|
|
|
4
|
.10
|
|
Seventh Supplemental Indenture dated as of October 31, 2004
by and among the parties listed on Schedule A thereto, and
J.P. Morgan Trust Company, National Association, as
successor Trustee, is hereby incorporated by reference to
Exhibit 4.11 of the Registrants
Form 10-K
for the fiscal year ended October 31, 2004.
|
|
|
|
4
|
.11
|
|
Eighth Supplemental Indenture dated as of January 31, 2005
by and among the parties listed on Schedule A thereto, and
J.P. Morgan Trust Company, National Association, as
successor Trustee, is hereby incorporated by reference to
Exhibit 4.1 of the Registrants
Form 10-Q
for the quarter ended April 30, 2005.
|
|
|
|
4
|
.12
|
|
Ninth Supplemental Indenture dated as of June 6, 2005 by
and among the parties listed on Schedule A thereto, and
J.P. Morgan Trust Company, National Association, as
successor Trustee, is hereby incorporated by reference to
Exhibit 4.1 of the Registrants
Form 10-Q
for the quarter ended July 31, 2005.
|
|
|
|
4
|
.13
|
|
Tenth Supplemental Indenture dated as of August 1, 2005 by
and among the parties listed on Schedule A thereto, and
J.P. Morgan Trust Company, National Association, as
successor Trustee, is hereby incorporated by reference to
Exhibit 4.13 of the Registrants Registration
Statement on
Form S-4
filed with the Securities and Exchange Commission on
September 29, 2005, File Nos.
333-128683,
333-128683-01,
333-128683-02,
333-128683-03
and
333-128683-04.
|
|
|
|
4
|
.14
|
|
Eleventh Supplemental Indenture dated as of January 31,
2006 by and among the parties listed on Schedule I thereto,
and J.P. Morgan Trust Company, National Association,
as successor Trustee, is hereby incorporated by reference to
Exhibit 4.1 of the Registrants
Form 10-Q
for the quarter ended April 30, 2006.
|
|
|
|
4
|
.15
|
|
Twelfth Supplemental Indenture dated as of April 30, 2006
by and among the parties listed on Schedule I thereto, and
J.P. Morgan Trust Company, National Association, as
successor Trustee, is hereby incorporated by reference to
Exhibit 4.1 of the Registrants
Form 10-Q
for the quarter ended July 31, 2006.
|
|
|
|
4
|
.16
|
|
Thirteenth Supplemental Indenture dated as of July 31, 2006
by and among the parties listed on Schedule I thereto, and
J.P. Morgan Trust Company, National Association, as
successor Trustee, is hereby incorporated by reference to
Exhibit 4.16 of the Registrants
Form 10-K
for the year ended October 31, 2006.
|
|
|
50
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
|
|
|
4
|
.17
|
|
Fourteenth Supplemental Indenture dated as October 31, 2006
by and among the parties listed on Schedule I thereto, and
The Bank of New York Trust Company, N.A. as successor
Trustee, is hereby incorporated by reference to Exhibit 4.1
of the Registrants
Form 10-Q
for the quarter ended April 30, 2007.
|
|
|
|
4
|
.18
|
|
Fifteenth Supplemental Indenture dated as of June 25, 2007
by and among the parties listed on Schedule I thereto, and
The Bank of New York Trust Company, N.A. as successor
Trustee, is hereby incorporated by reference to Exhibit 4.1
of the Registrants
Form 10-Q
for the quarter ended July 31, 2007.
|
|
|
|
4
|
.19
|
|
Sixteenth Supplemental Indenture dated as of June 27, 2007
by and among the parties listed on Schedule I thereto, and
The Bank of New York Trust Company, N.A. as successor
Trustee, is hereby incorporated by reference to Exhibit 4.2
of the Registrants
Form 10-Q
for the quarter ended July 31, 2007.
|
|
|
|
4
|
.20
|
|
Seventeenth Supplemental Indenture dated as of January 31,
2008, by and among the parties listed on Schedule A
thereto, and The Bank of New York Trust Company, N.A. as
successor Trustee, is hereby incorporated by reference to
Exhibit 4.1 of the Registrants
Form 10-Q
for the quarter ended July 31, 2008.
|
|
|
|
4
|
.21
|
|
Form of Indenture for Senior Debt Securities is hereby
incorporated by reference to Exhibit 4.10 of the
Registrants Registration Statement on
Form S-3
filed with the Securities and Exchange Commission on
October 29, 2008.
|
|
|
|
4
|
.22
|
|
Form of Indenture for Subordinated Debt Securities is hereby
incorporated by reference to Exhibit 4.11 of the
Registrants Registration Statement on
Form S-3
filed with the Securities and Exchange Commission on
October 29, 2008.
|
|
|
|
4
|
.23
|
|
Joint Resolution Adopted by the Board of Directors of Toll Corp.
and the Shelf Terms Committee of Toll Brothers, Inc. dated as of
January 23, 2001, relating to $200,000,000 principal amount
of
81/4% Senior
Subordinated Notes of Toll Corp. due 2011, guaranteed on a
Senior Subordinated basis by the Registrant is hereby
incorporated by reference to Exhibit 4.1 of the
Registrants
Form 8-K
filed with the Securities and Exchange Commission on
January 24, 2001.
|
|
|
|
4
|
.24
|
|
Authorizing Resolutions, dated as of November 27, 2001,
relating to $150,000,000 principal amount of 8.25% Senior
Subordinated Notes of Toll Corp. due 2011, guaranteed on a
Senior Subordinated basis by the Registrant is hereby
incorporated by reference to Exhibit 4 of the
Registrants
Form 8-K
filed with the Securities and Exchange Commission on
December 6, 2001.
|
|
|
|
4
|
.25
|
|
Authorizing Resolutions, dated as of November 15, 2002,
relating to $300,000,000 principal amount of 6.875% Senior
Notes of Toll Brothers Finance Corp. due 2012, guaranteed on a
Senior basis by the Registrant and certain subsidiaries of the
Registrant is hereby incorporated by reference to
Exhibit 4.2 of the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
November 27, 2002.
|
|
|
|
4
|
.26
|
|
Authorizing Resolutions, dated as of September 3, 2003,
relating to $250,000,000 principal amount of 5.95% Senior
Notes of Toll Brothers Finance Corp. due 2013, guaranteed on a
Senior basis by the Registrant and certain subsidiaries of the
Registrant is hereby incorporated by reference to
Exhibit 4.1 of the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
September 29, 2003.
|
|
|
|
4
|
.27
|
|
Authorizing Resolutions, dated as of March 9, 2004,
relating to $300,000,000 principal amount of 4.95% Senior
Notes of Toll Brothers Finance Corp. due 2014, guaranteed on a
Senior basis by the Registrant and certain subsidiaries of the
Registrant is hereby incorporated by reference to
Exhibit 4.1 of the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
April 1, 2004.
|
|
|
|
4
|
.28
|
|
Authorizing Resolutions, dated as of May 26, 2005, relating
to $300,000,000 principal amount of 5.15% Senior Notes of
Toll Brothers Finance Corp. due 2015, guaranteed on a Senior
basis by the Registrant and certain subsidiaries of the
Registrant is hereby incorporated by reference to
Exhibit 4.1 of the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
June 8, 2005.
|
|
|
|
4
|
.29
|
|
Registration Rights Agreement dated as of November 22, 2002
by and among Toll Brothers Finance Corp., the Registrant,
Salomon Smith Barney Inc., Banc of America Securities LLC and
Banc One Capital Markets, Inc. and each of the other initial
purchasers named on Schedule A attached thereto is hereby
incorporated by reference to Exhibit 4.3 of the
Registrants
Form 10-Q
for the quarter ended January 31, 2003.
|
|
|
51
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
|
|
|
4
|
.30
|
|
Registration Rights Agreement dated as of September 3, 2003
by and among Toll Brothers Finance Corp., the Registrant and
Citigroup Global Markets, Inc. is hereby incorporated by
reference to Exhibit 4.2 of the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
September 29, 2003.
|
|
|
|
4
|
.31
|
|
Registration Rights Agreement dated as of March 16, 2004 by
and among Toll Brothers Finance Corp., the Registrant and
Citigroup Global Markets Inc. and each of the other initial
purchasers named on Schedule A attached thereto is hereby
incorporated by reference to Exhibit 4.2 of the
Registrants
Form 8-K
filed with the Securities and Exchange Commission on
April 1, 2004.
|
|
|
|
4
|
.32
|
|
Registration Rights Agreement dated as of June 2, 2005 by
and among Toll Brothers Finance Corp., the Registrant and
Citigroup Global Markets Inc. and each of the other initial
purchasers named on Schedule A attached thereto is hereby
incorporated by reference to Exhibit 4.2 of the
Registrants
Form 8-K
filed with the Securities and Exchange Commission on
June 8, 2005.
|
|
|
|
4
|
.33
|
|
Rights Agreement dated as of June 13, 2007, by and between
the Registrant and American Stock Transfer &
Trust Company, as Rights Agent, is hereby incorporated by
reference to Exhibit 4.1 to the Registrants Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
June 18, 2007.
|
|
|
|
4
|
.34
|
|
Toll Brothers, Inc. Employee Stock Purchase Plan (amended and
restated effective January 1, 2008), is hereby incorporated
by reference to Exhibit 4.31 of the Registrants
Form 10-K
for the year ended October 31, 2007.
|
|
|
|
10
|
.1
|
|
Amended and Restated Credit Agreement by and among First
Huntingdon Finance Corp., the Registrant and the lenders which
are parties thereto dated March 17, 2006, is hereby
incorporated by reference to Exhibit 10.1 of the
Registrants
Form 10-Q
for the quarter ended April 30, 2006.
|
|
|
|
10
|
.2*
|
|
Toll Brothers, Inc. Key Executives and Non-Employee Directors
Stock Option Plan (1993) is hereby incorporated by
reference to Exhibit 10.1 of the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
May 25, 1994.
|
|
|
|
10
|
.3*
|
|
Amendment to the Toll Brothers, Inc. Key Executives and
Non-Employee Directors Stock Option Plan (1993) is hereby
incorporated by reference to Exhibit 10.2 of the
Registrants
Form 10-Q
for the quarter ended April 30, 1995.
|
|
|
|
10
|
.4*
|
|
Amendment to the Toll Brothers, Inc. Key Executives and
Non-Employee Directors Stock Option Plan (1993) effective
June 14, 2001 is hereby incorporated by reference to
Exhibit 10.2 of the Registrants
Form 10-Q
for the quarter ended July 31, 2001.
|
|
|
|
10
|
.5*
|
|
Amendment to the Toll Brothers, Inc. Key Executives and
Non-Employee Directors Stock Option Plan (1993) effective
December 12, 2007 is hereby incorporated by reference to
Exhibit 10.5 of the Registrants
Form 10-K
for the year ended October 31, 2007.
|
|
|
|
10
|
.6*
|
|
Toll Brothers, Inc. Stock Option and Incentive Stock Plan
(1995) is hereby incorporated by reference to
Exhibit 10.1 of the Registrants
Form 10-Q
for the quarter ended April 30, 1995.
|
|
|
|
10
|
.7*
|
|
Amendment to the Toll Brothers, Inc. Stock Option and Incentive
Stock Plan (1995) dated May 29, 1996 is hereby
incorporated by reference to Exhibit 10.9 the
Registrants
Form 10-K
for the fiscal year ended October 31, 1996.
|
|
|
|
10
|
.8*
|
|
Amendment to the Toll Brothers, Inc. Stock Option and Incentive
Stock Plan (1995) effective March 22, 2001 is hereby
incorporated by reference to Exhibit 10.3 of the
Registrants
Form 10-Q
for the quarter ended July 31, 2001.
|
|
|
|
10
|
.9*
|
|
Amendment to the Toll Brothers, Inc. Stock Option and Incentive
Stock Plan (1995) effective December 12, 2007 is
hereby incorporated by reference to Exhibit 10.9 of the
Registrants
Form 10-K
for the year ended October 31, 2007.
|
|
|
|
10
|
.10*
|
|
Toll Brothers, Inc. Stock Incentive Plan (1998) is hereby
incorporated by reference to Exhibit 4 of the
Registrants Registration Statement on
Form S-8
filed with the Securities and Exchange Commission on
June 25, 1998, File
No. 333-57645.
|
|
|
|
10
|
.11*
|
|
Amendment to the Toll Brothers, Inc. Stock Incentive Plan
(1998) effective March 22, 2001 is hereby incorporated
by reference to Exhibit 10.4 of the Registrants
Form 10-Q
for the quarter ended July 31, 2001.
|
|
|
52
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
|
|
|
10
|
.12*
|
|
Amendment to the Toll Brothers, Inc. Stock Incentive Plan
(1998) effective December 12, 2007 is hereby
incorporated by reference to Exhibit 10.4 of the
Registrants
Form 8-K
filed with the Securities and Exchange Commission on
March 18, 2008.
|
|
|
|
10
|
.13*
|
|
Stock Award to Robert I. Toll pursuant to the Toll Brothers,
Inc. Stock Incentive Plan (1998) is hereby incorporated by
reference to Exhibit 10.3 of the Registrants
Form 10-Q
for the quarter ended January 31, 2007.
|
|
|
|
10
|
.14*
|
|
Toll Brothers, Inc. Amended and Restated Stock Incentive Plan
for Employees (2007) (amended and restated as of
September 17, 2008) is hereby incorporated by reference to
Exhibit 4.1 of the Registrants Amendment No. 1
to Toll Brothers, Inc.s Registration Statement on
Form S-8
(No. 333-143367)
filed with the Securities and Exchange Commission on
October 29, 2008.
|
|
|
|
10
|
.15*
|
|
Toll Brothers, Inc. Amended and Restated Stock Incentive Plan
for Non-Employee Directors (2007) (amended and restated as of
September 17, 2008) is hereby incorporated by
reference to Exhibit 4.1 of the Registrants Amendment
No. 1 to Toll Brothers, Inc.s Registration Statement
on
Form S-8
(No. 333-144230)
filed with the Securities and Exchange Commission on
October 29, 2008.
|
|
|
|
10
|
.16*
|
|
Form of Non-Qualified Stock Option Grant pursuant to the Toll
Brothers, Inc. Stock Incentive Plan for Employees (2007) is
hereby incorporated by reference to Exhibit 10.1 of the
Registrants
Form 8-K
filed with the Securities and Exchange Commission on
December 19, 2007.
|
|
|
|
10
|
.17*
|
|
Form of Addendum to Non-Qualified Stock Option Grant pursuant to
the Toll Brothers, Inc. Stock Incentive Plan for Employees
(2007) is hereby incorporated by reference to
Exhibit 10.3 of the Registrants
Form 10-Q
for the quarter ended July 31, 2007.
|
|
|
|
10
|
.18*
|
|
Form of Stock Award Grant pursuant to the Toll Brothers, Inc.
Stock Incentive Plan for Employees (2007) is hereby
incorporated by reference to Exhibit 10.4 of the
Registrants
Form 10-Q
for the quarter ended July 31, 2007.
|
|
|
|
10
|
.19*
|
|
Form of Restricted Stock Unit Award pursuant to the Toll
Brothers, Inc. Amended and Restated Stock Incentive Plan for
Employees (2007) is filed herewith.
|
|
|
|
10
|
.20*
|
|
Restricted Stock Unit Award to Robert I. Toll pursuant to the
Toll Brothers, Inc. Amended and Restated Stock Incentive Plan
for Employees (2007) is filed herewith.
|
|
|
|
10
|
.21*
|
|
Form of Non-Qualified Stock Option Grant pursuant to the Toll
Brothers, Inc. Stock Incentive Plan for Non-Employee Directors
(2007) is hereby incorporated by reference to
Exhibit 10.2 of the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
December 19, 2007.
|
|
|
|
10
|
.22*
|
|
Form of Addendum to Non-Qualified Stock Option Grant pursuant to
the Toll Brothers, Inc. Stock Incentive Plan for Non-Employee
Directors (2007) is hereby incorporated by reference to
Exhibit 10.6 of the Registrants
Form 10-Q
for the quarter ended July 31, 2007.
|
|
|
|
10
|
.23*
|
|
Form of Stock Award Grant pursuant to the Toll Brothers, Inc.
Stock Incentive Plan for Non-Employee Directors (2007) is
hereby incorporated by reference to Exhibit 10.7 of the
Registrants
Form 10-Q
for the quarter ended July 31, 2007.
|
|
|
|
10
|
.24*
|
|
Toll Brothers, Inc. CEO Cash Bonus Plan is hereby incorporated
by reference to Addendum A to the Registrants definitive
proxy statement on Schedule 14A for the Toll Brothers, Inc.
2008 Annual Meeting of Stockholders held on March 12, 2008.
|
|
|
|
10
|
.25*
|
|
Toll Brothers, Inc. Cash Bonus Plan, as amended, is hereby
incorporated by reference to Exhibit 10.1 of the
Registrants
Form 8-K
filed with the Securities and Exchange Commission on
April 4, 2005.
|
|
|
|
10
|
.26*
|
|
Amendment to the Toll Brothers, Inc. Cash Bonus Plan, dated
December 7, 2005, is hereby incorporated by reference to
Exhibit 10.1 of the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
December 9, 2005.
|
|
|
|
10
|
.27*
|
|
Amendment to the Toll Brothers, Inc. Cash Bonus Plan, dated
December 15, 2006, is hereby incorporated by reference to
Exhibit 10.1 of the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
December 19, 2006.
|
|
|
|
10
|
.28*
|
|
Amendment to the Toll Brothers, Inc. Cash Bonus Plan, dated
March 14, 2007 is hereby incorporated by reference to
Exhibit 10.32 of the Registrants
Form 10-K
for the year ended October 31, 2007.
|
|
|
53
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
|
|
|
10
|
.29*
|
|
Toll Brothers, Inc. Executive Officer Cash Bonus Plan, as
amended, is hereby incorporated by reference to
Exhibit 10.2 of the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
April 4, 2005.
|
|
|
|
10
|
.30*
|
|
Executive Officer Cash Bonus Plan Performance Goals for each of
Messrs. Zvi Barzilay and Joel H. Rassman for the
Registrants 2006 fiscal year is hereby incorporated by
reference to Exhibit 10.1 of the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
December 19, 2005.
|
|
|
|
10
|
.31*
|
|
Executive Officer Cash Bonus Plan Performance Goals for each of
Messrs. Zvi Barzilay and Joel H. Rassman for the
Registrants 2007 fiscal year is hereby incorporated by
reference to Exhibit 10.2 of the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
December 19, 2006.
|
|
|
|
10
|
.32*
|
|
Executive Officer Cash Bonus Plan Performance Goals for each of
Messrs. Zvi Barzilay and Joel H. Rassman for the
Registrants 2008 fiscal year is hereby incorporated by
reference to Exhibit 10.2 of the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
December 28, 2007.
|
|
|
|
10
|
.33*
|
|
Toll Brothers, Inc. Supplemental Executive Retirement Plan
(amended and restated effective as of December 12, 2007) is
hereby incorporated by reference to Exhibit 10.1 of the
Registrants
Form 8-K
filed with the Securities and Exchange Commission on
February 7, 2008.
|
|
|
|
10
|
.34*
|
|
Stock Redemption Agreement between the Registrant and
Robert I. Toll, dated October 28, 1995, is hereby
incorporated by reference to Exhibit 10.7 of the
Registrants
Form 10-K
for the fiscal year ended October 31, 1995.
|
|
|
|
10
|
.35*
|
|
Agreement dated May 1, 2005 to Abolish Stock
Redemption Agreement between the Registrant and Robert I.
Toll, dated October 28, 1995, is hereby incorporated by
reference to Exhibit 10.1 of the Registrants
Form 8-K
filed with the Securities and Exchange Commission on May 3,
2005.
|
|
|
|
10
|
.36*
|
|
Stock Redemption Agreement between the Registrant and Bruce
E. Toll, dated October 28, 1995, is hereby incorporated by
reference to Exhibit 10.8 of the Registrants
Form 10-K
for the fiscal year ended October 31, 1995.
|
|
|
|
10
|
.37*
|
|
Agreement dated May 1, 2005 to Abolish Stock
Redemption Agreement between the Registrant and Bruce E.
Toll, dated October 28, 1995, is hereby incorporated by
reference to Exhibit 10.2 of the Registrants
Form 8-K
filed with the Securities and Exchange Commission on May 3,
2005.
|
|
|
|
10
|
.38*
|
|
Agreement dated March 5, 1998 between the Registrant and
Bruce E. Toll regarding Mr. Tolls resignation and
related matters is hereby incorporated by reference to
Exhibit 10.2 to the Registrants
Form 10-Q
for the quarter ended April 30, 1998.
|
|
|
|
10
|
.39*
|
|
Consulting and Non-Competition Agreement dated March 5,
1998 between the Registrant and Bruce E. Toll is hereby
incorporated by reference to Exhibit 10.3 to the
Registrants
Form 10-Q
for the quarter ended April 30, 1998.
|
|
|
|
10
|
.40*
|
|
Amendment to the Agreement dated March 5, 1998 between the
Registrant and Bruce E. Toll and to the Consulting and
Non-Competition Agreement dated March 5, 1998 between the
Registrant and Bruce E. Toll is hereby incorporated by reference
to Exhibit 10.1 of the Registrants
Form 10-Q
for the quarter ended July 31, 2000.
|
|
|
|
10
|
.41*
|
|
Advisory and Non-Competition Agreement between the Registrant
and Bruce E. Toll, dated as of November 1, 2004, is hereby
incorporated by reference to Exhibit 10.1 of the
Registrants
Form 8-K
filed with the Securities and Exchange Commission on
February 4, 2005.
|
|
|
|
10
|
.42*
|
|
Amendment dated as of June 13, 2007 to the Advisory and
Non-Competition Agreement, dated as of November 1, 2004,
between the Registrant and Bruce E. Toll is hereby incorporated
by reference to Exhibit 10.1 to the Registrants
Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
June 18, 2007.
|
|
|
|
10
|
.43*
|
|
Amendment dated as of November 24, 2008 to the Advisory and
Non-Competition Agreement, dated as of November 1, 2004,
between the Registrant and Bruce E. Toll is filed herewith.
|
|
|
|
10
|
.44*
|
|
Agreement between the Registrant and Joel H. Rassman, dated
June 30, 1988, is hereby incorporated by reference to
Exhibit 10.8 of Toll Corp.s Registration Statement on
Form S-1/A
filed with the Securities and Exchange Commission on
September 9, 1988, File
No. 33-23162.
|
|
|
54
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
|
|
|
10
|
.45*
|
|
Toll Bros., Inc. Non-Qualified Deferred Compensation Plan,
amended and restated as of November 1, 2008, is filed
herewith.
|
|
|
|
12
|
|
|
Statement re: Computation of Ratios of Earnings to Fixed Charges.
|
|
|
|
21
|
|
|
Subsidiaries of the Registrant.
|
|
|
|
23
|
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
|
|
31
|
.1
|
|
Certification of Robert I. Toll pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
31
|
.2
|
|
Certification of Joel H. Rassman pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
32
|
.1
|
|
Certification of Robert I. Toll pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
32
|
.2
|
|
Certification of Joel H. Rassman pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
* |
|
This exhibit is a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this report. |
55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Township of Horsham,
Commonwealth of Pennsylvania on December 19, 2008.
TOLL BROTHERS, INC.
Robert I. Toll
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Robert
I. Toll
Robert
I. Toll
|
|
Chairman of the Board of Directors and Chief Executive Officer
(Principal Executive Officer)
|
|
December 19, 2008
|
|
|
|
|
|
/s/ Bruce
E. Toll
Bruce
E. Toll
|
|
Vice Chairman of the Board and Director
|
|
December 19, 2008
|
|
|
|
|
|
/s/ Zvi
Barzilay
Zvi
Barzilay
|
|
President, Chief Operating
Officer and Director
|
|
December 19, 2008
|
|
|
|
|
|
/s/ Joel
H. Rassman
Joel
H. Rassman
|
|
Executive Vice President, Treasurer, Chief Financial Officer and
Director (Principal Financial Officer)
|
|
December 19, 2008
|
|
|
|
|
|
/s/ Joseph
R. Sicree
Joseph
R. Sicree
|
|
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
|
|
December 19, 2008
|
|
|
|
|
|
/s/ Robert
S. Blank
Robert
S. Blank
|
|
Director
|
|
December 19, 2008
|
|
|
|
|
|
/s/ Edward
G. Boehne
Edward
G. Boehne
|
|
Director
|
|
December 19, 2008
|
|
|
|
|
|
/s/ Richard
J. Braemer
Richard
J. Braemer
|
|
Director
|
|
December 19, 2008
|
|
|
|
|
|
/s/ Roger
S. Hillas
Roger
S. Hillas
|
|
Director
|
|
December 19, 2008
|
|
|
|
|
|
/s/ Carl
B. Marbach
Carl
B. Marbach
|
|
Director
|
|
December 19, 2008
|
|
|
|
|
|
/s/ Stephen
A. Novick
Stephen
A. Novick
|
|
Director
|
|
December 19, 2008
|
|
|
|
|
|
/s/ Paul
E. Shapiro
Paul
E. Shapiro
|
|
Director
|
|
December 19, 2008
|
56
Managements
Annual Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in the Securities Exchange Act
Rule 13a-15(f).
Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting
includes those policies and procedures that: (i) pertain to
the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a
material effect on the financial statements. Because of its
inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Under the supervision and with the participation of our
management, including our principal executive officer and our
principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the framework in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this
evaluation under the framework in Internal
Control Integrated Framework, our management
concluded that our internal control over financial reporting was
effective as of October 31, 2008.
Toll Brothers, Inc.s independent registered public
accounting firm, Ernst & Young LLP, has issued an
attestation report, which is included herein, on the
effectiveness of Toll Brothers, Inc.s internal control
over financial reporting.
F-1
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Toll Brothers,
Inc.
We have audited Toll Brothers, Inc.s internal control over
financial reporting as of October 31, 2008, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Toll Brothers,
Inc.s management is responsible for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Annual Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion
on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Toll Brothers, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of October 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Toll Brothers, Inc. and
subsidiaries as of October 31, 2008 and 2007, and the
related consolidated statements of operations, changes in
stockholders equity, and cash flows for each of the three
years in the period ended October 31, 2008 of Toll
Brothers, Inc. and subsidiaries and our report dated
December 18, 2008 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
December 18, 2008
F-2
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Toll Brothers,
Inc.
We have audited the accompanying consolidated balance sheets of
Toll Brothers, Inc. and subsidiaries as of October 31, 2008
and 2007, and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended October 31, 2008. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Toll Brothers, Inc. and subsidiaries at
October 31, 2008 and 2007, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended October 31, 2008, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 7 to the consolidated financial
statements, the Company adopted the provisions of FASB
Interpretation No. 48 on November 1, 2007.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Toll
Brothers, Inc.s internal control over financial reporting
as of October 31, 2008, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated December 18, 2008 expressed
an unqualified opinion thereon.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
December 18, 2008
F-3
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Completed contract
|
|
$
|
3,106,293
|
|
|
$
|
4,495,600
|
|
|
$
|
5,945,169
|
|
Percentage of completion
|
|
|
41,873
|
|
|
|
139,493
|
|
|
|
170,111
|
|
Land sales
|
|
|
10,047
|
|
|
|
11,886
|
|
|
|
8,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,158,213
|
|
|
|
4,646,979
|
|
|
|
6,123,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Completed contract
|
|
|
2,995,718
|
|
|
|
3,905,907
|
|
|
|
4,263,200
|
|
Percentage of completion
|
|
|
36,221
|
|
|
|
108,954
|
|
|
|
132,268
|
|
Land sales
|
|
|
4,818
|
|
|
|
8,069
|
|
|
|
6,997
|
|
Interest
|
|
|
88,861
|
|
|
|
102,447
|
|
|
|
121,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,125,618
|
|
|
|
4,125,377
|
|
|
|
4,524,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
429,894
|
|
|
|
516,729
|
|
|
|
573,404
|
|
Goodwill impairment
|
|
|
3,233
|
|
|
|
8,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(400,532
|
)
|
|
|
(4,100
|
)
|
|
|
1,025,591
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from unconsolidated entities
|
|
|
(186,393
|
)
|
|
|
(40,353
|
)
|
|
|
48,361
|
|
Interest and other income
|
|
|
120,138
|
|
|
|
115,133
|
|
|
|
52,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(466,787
|
)
|
|
|
70,680
|
|
|
|
1,126,616
|
|
Income tax (benefit) provision
|
|
|
(168,977
|
)
|
|
|
35,029
|
|
|
|
439,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(297,810
|
)
|
|
$
|
35,651
|
|
|
$
|
687,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.88
|
)
|
|
$
|
0.23
|
|
|
$
|
4.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.88
|
)
|
|
$
|
0.22
|
|
|
$
|
4.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
158,730
|
|
|
|
155,318
|
|
|
|
154,300
|
|
Diluted
|
|
|
158,730
|
|
|
|
164,166
|
|
|
|
164,852
|
|
See accompanying notes.
F-4
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Amounts in thousands)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
1,633,495
|
|
|
$
|
900,337
|
|
Inventory
|
|
|
4,127,475
|
|
|
|
5,572,655
|
|
Property, construction and office equipment, net
|
|
|
86,462
|
|
|
|
84,265
|
|
Receivables, prepaid expenses and other assets
|
|
|
113,762
|
|
|
|
135,910
|
|
Contracts receivable
|
|
|
|
|
|
|
46,525
|
|
Mortgage loans receivable
|
|
|
49,255
|
|
|
|
93,189
|
|
Customer deposits held in escrow
|
|
|
18,913
|
|
|
|
34,367
|
|
Investments in and advances to unconsolidated entities
|
|
|
151,771
|
|
|
|
183,171
|
|
Deferred tax assets, net
|
|
|
405,703
|
|
|
|
169,897
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,586,836
|
|
|
$
|
7,220,316
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Liabilities:
|
|
|
|
|
|
|
|
|
Loans payable
|
|
$
|
613,594
|
|
|
$
|
696,814
|
|
Senior notes
|
|
|
1,143,445
|
|
|
|
1,142,306
|
|
Senior subordinated notes
|
|
|
343,000
|
|
|
|
350,000
|
|
Mortgage company warehouse loan
|
|
|
37,867
|
|
|
|
76,730
|
|
Customer deposits
|
|
|
135,591
|
|
|
|
260,155
|
|
Accounts payable
|
|
|
134,843
|
|
|
|
236,877
|
|
Accrued expenses
|
|
|
738,596
|
|
|
|
724,229
|
|
Income taxes payable
|
|
|
202,247
|
|
|
|
197,960
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,349,183
|
|
|
|
3,685,071
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
|
|
|
|
8,011
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, none issued
|
|
|
|
|
|
|
|
|
Common stock, 160,370 and 157,028 issued at October 31,
2008 and 2007
|
|
|
1,604
|
|
|
|
1,570
|
|
Additional paid-in capital
|
|
|
282,090
|
|
|
|
227,561
|
|
Retained earnings
|
|
|
2,953,655
|
|
|
|
3,298,925
|
|
Treasury stock, at cost 1 and 20 held at
October 31, 2008 and 2007
|
|
|
(21
|
)
|
|
|
(425
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
325
|
|
|
|
(397
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,237,653
|
|
|
|
3,527,234
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,586,836
|
|
|
$
|
7,220,316
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
$
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
Balance, November 1, 2005
|
|
|
154,943
|
|
|
$
|
1,563
|
|
|
$
|
242,546
|
|
|
$
|
2,576,061
|
|
|
$
|
(56,599
|
)
|
|
|
|
|
|
$
|
2,763,571
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
687,213
|
|
|
|
|
|
|
|
|
|
|
|
687,213
|
|
Purchase of treasury stock
|
|
|
(3,632
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109,845
|
)
|
|
|
|
|
|
|
(109,845
|
)
|
Exercise of stock options
|
|
|
2,181
|
|
|
|
|
|
|
|
(48,576
|
)
|
|
|
|
|
|
|
81,925
|
|
|
|
|
|
|
|
33,349
|
|
Executive bonus award
|
|
|
296
|
|
|
|
|
|
|
|
(125
|
)
|
|
|
|
|
|
|
11,051
|
|
|
|
|
|
|
|
10,926
|
|
Employee benefit plan issuances
|
|
|
110
|
|
|
|
|
|
|
|
(123
|
)
|
|
|
|
|
|
|
3,727
|
|
|
|
|
|
|
|
3,604
|
|
Issuance of restricted stock
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
47
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
26,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,748
|
|
Amortization of unearned
compensation
|
|
|
|
|
|
|
|
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2006
|
|
|
153,899
|
|
|
|
1,563
|
|
|
|
220,783
|
|
|
|
3,263,274
|
|
|
|
(69,694
|
)
|
|
|
|
|
|
|
3,415,926
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,651
|
|
|
|
|
|
|
|
|
|
|
|
35,651
|
|
Purchase of treasury stock
|
|
|
(67
|
)
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
(1,818
|
)
|
|
|
|
|
|
|
(1,817
|
)
|
Exercise of stock options
|
|
|
2,714
|
|
|
|
7
|
|
|
|
(19,649
|
)
|
|
|
|
|
|
|
57,357
|
|
|
|
|
|
|
|
37,715
|
|
Executive bonus award
|
|
|
242
|
|
|
|
|
|
|
|
1,178
|
|
|
|
|
|
|
|
7,601
|
|
|
|
|
|
|
|
8,779
|
|
Employee benefit plan issuances
|
|
|
134
|
|
|
|
|
|
|
|
653
|
|
|
|
|
|
|
|
3,229
|
|
|
|
|
|
|
|
3,882
|
|
Issuance of restricted stock
|
|
|
86
|
|
|
|
|
|
|
|
(3,125
|
)
|
|
|
|
|
|
|
2,900
|
|
|
|
|
|
|
|
(225
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
26,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,964
|
|
Amortization of unearned
compensation
|
|
|
|
|
|
|
|
|
|
|
756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
756
|
|
Impact of adoption of SFAS 158,
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(397
|
)
|
|
|
(397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2007
|
|
|
157,008
|
|
|
|
1,570
|
|
|
|
227,561
|
|
|
|
3,298,925
|
|
|
|
(425
|
)
|
|
|
(397
|
)
|
|
|
3,527,234
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(297,810
|
)
|
|
|
|
|
|
|
|
|
|
|
(297,810
|
)
|
Purchase of treasury stock
|
|
|
(94
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,994
|
)
|
|
|
|
|
|
|
(1,995
|
)
|
Exercise of stock options
|
|
|
3,423
|
|
|
|
34
|
|
|
|
30,612
|
|
|
|
|
|
|
|
2,398
|
|
|
|
|
|
|
|
33,044
|
|
Impact of adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,460
|
)
|
|
|
|
|
|
|
|
|
|
|
(47,460
|
)
|
Employee benefit plan issuances
|
|
|
31
|
|
|
|
1
|
|
|
|
662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
663
|
|
Issuance of restricted stock
|
|
|
1
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
22,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,559
|
|
Amortization of unearned compensation
|
|
|
|
|
|
|
|
|
|
|
670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
670
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
722
|
|
|
|
722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2008
|
|
|
160,369
|
|
|
$
|
1,604
|
|
|
$
|
282,090
|
|
|
$
|
2,953,655
|
|
|
$
|
(21
|
)
|
|
$
|
325
|
|
|
$
|
3,237,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-6
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(297,810
|
)
|
|
$
|
35,651
|
|
|
$
|
687,213
|
|
Adjustments to reconcile net (loss) income to net cash
provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory impairments
|
|
|
644,991
|
|
|
|
619,516
|
|
|
|
152,045
|
|
Impairments of investments in unconsolidated entities
|
|
|
200,652
|
|
|
|
59,242
|
|
|
|
|
|
Earnings from unconsolidated entities
|
|
|
(14,259
|
)
|
|
|
(18,889
|
)
|
|
|
(48,361
|
)
|
Distributions of earnings from unconsolidated entities
|
|
|
41,937
|
|
|
|
23,545
|
|
|
|
10,534
|
|
Depreciation and amortization
|
|
|
28,333
|
|
|
|
29,949
|
|
|
|
30,357
|
|
Amortization of initial benefit obligation
|
|
|
|
|
|
|
1,291
|
|
|
|
1,957
|
|
Stock-based compensation
|
|
|
23,255
|
|
|
|
27,463
|
|
|
|
27,082
|
|
Excess tax benefits from stock-based compensation
|
|
|
(25,780
|
)
|
|
|
(15,915
|
)
|
|
|
(16,110
|
)
|
Deferred tax (benefit) provision
|
|
|
(235,806
|
)
|
|
|
(289,203
|
)
|
|
|
8,773
|
|
Gain on sale of businesses
|
|
|
|
|
|
|
(24,643
|
)
|
|
|
|
|
Goodwill impairment charge
|
|
|
3,233
|
|
|
|
8,973
|
|
|
|
|
|
Deconsolidation of majority owned joint venture
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, net of assets and
liabilities acquired Decrease (increase) in inventory
|
|
|
662,769
|
|
|
|
(18,274
|
)
|
|
|
(877,746
|
)
|
Origination of mortgage loans
|
|
|
(896,365
|
)
|
|
|
(1,412,629
|
)
|
|
|
(1,022,663
|
)
|
Sale of mortgage loans
|
|
|
940,299
|
|
|
|
1,449,766
|
|
|
|
992,196
|
|
Decrease (increase) in contract receivables
|
|
|
46,525
|
|
|
|
123,586
|
|
|
|
(170,111
|
)
|
Decrease in receivables, prepaid expenses and other assets
|
|
|
18,738
|
|
|
|
9,929
|
|
|
|
22,345
|
|
Decrease in customer deposits
|
|
|
(109,110
|
)
|
|
|
(84,683
|
)
|
|
|
(36,530
|
)
|
(Decrease) increase in accounts payable and accrued expenses
|
|
|
(194,427
|
)
|
|
|
(195,594
|
)
|
|
|
51,885
|
|
(Decrease) increase in current income taxes payable
|
|
|
(10,348
|
)
|
|
|
1,388
|
|
|
|
63,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
826,796
|
|
|
|
330,469
|
|
|
|
(124,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment-net
|
|
|
(8,158
|
)
|
|
|
(14,975
|
)
|
|
|
(41,740
|
)
|
Proceeds from sale of ancillary businesses
|
|
|
|
|
|
|
32,299
|
|
|
|
|
|
Purchase of marketable securities
|
|
|
(1,468,440
|
)
|
|
|
(5,769,805
|
)
|
|
|
(2,844,810
|
)
|
Sale of marketable securities
|
|
|
1,463,487
|
|
|
|
5,769,805
|
|
|
|
2,844,810
|
|
Investment in and advances to unconsolidated entities
|
|
|
(54,787
|
)
|
|
|
(34,530
|
)
|
|
|
(122,190
|
)
|
Return of investments in unconsolidated entities
|
|
|
3,268
|
|
|
|
42,790
|
|
|
|
53,806
|
|
Acquisition of interest in unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
(44,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(64,630
|
)
|
|
|
25,584
|
|
|
|
(154,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from loans payable
|
|
|
994,833
|
|
|
|
1,507,865
|
|
|
|
1,614,087
|
|
Principal payments of loans payable
|
|
|
(1,058,612
|
)
|
|
|
(1,632,785
|
)
|
|
|
(1,316,950
|
)
|
Redemption of senior subordinated notes
|
|
|
(7,000
|
)
|
|
|
|
|
|
|
|
|
Proceeds from stock-based benefit plans
|
|
|
17,982
|
|
|
|
20,475
|
|
|
|
15,103
|
|
Proceeds from restricted stock award
|
|
|
|
|
|
|
1,800
|
|
|
|
|
|
Excess tax benefits from stock-based compensation
|
|
|
25,780
|
|
|
|
15,915
|
|
|
|
16,110
|
|
Purchase of treasury stock
|
|
|
(1,994
|
)
|
|
|
(1,818
|
)
|
|
|
(109,845
|
)
|
Change in minority interest
|
|
|
3
|
|
|
|
308
|
|
|
|
3,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(29,008
|
)
|
|
|
(88,240
|
)
|
|
|
222,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
733,158
|
|
|
|
267,813
|
|
|
|
(56,695
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
900,337
|
|
|
|
632,524
|
|
|
|
689,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,633,495
|
|
|
$
|
900,337
|
|
|
$
|
632,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-7
Notes to
Consolidated Financial Statements
|
|
1.
|
Significant
Accounting Policies
|
Basis
of Presentation
The accompanying 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.
Use of
Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Cash
and Cash Equivalents
Liquid investments or investments with original maturities of
three months or less are classified as cash equivalents. The
carrying value of these investments approximates their fair
value.
Inventory
Inventory is stated at the lower of cost or fair value, as
determined 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
also include interest, real estate taxes and direct overhead
related to development and construction, which are capitalized
to inventory during the period beginning with the commencement
of development and ending with the completion of construction.
For those communities that have been temporarily closed, no
additional interest is allocated to a communitys inventory
until it re-opens and other carrying costs are expensed as
incurred. Once a parcel of land has been approved for
development and the Company opens the community, it may take
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. The Companys master planned communities,
consisting of several smaller communities, may take up to ten
years or more to complete. Because of the downturn in the
Companys business, the aforementioned estimated community
lives will likely be significantly longer. Because the
Companys inventory is considered a long-lived asset under
U.S. generally accepted accounting principles, it is
required, under SFAS 144, to regularly review the carrying
value of each community and write down the value of those
communities for which it believes 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. Estimated 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 in which the impairment is determined. In
estimating the future undiscounted cash flow of a community, the
Company uses 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 on competition
within the market, including the number of home sites available
and pricing and incentives being offered in other communities
owned by the Company 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,
F-8
Notes to
Consolidated Financial
Statements (Continued)
sales price, building cost or 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: The Company evaluates all
land held for future communities or future sections of current
communities, whether owned or under contract, to determine
whether or not the Company expects 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 the approvals. Concessions may include cash
payments to fund improvements 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, the Company
decides (a) as to land under contract to be purchased,
whether the contract will likely be terminated or renegotiated,
and (b) as to land owned, whether the land will likely be
developed as contemplated or in an alternative manner, or should
be sold. The Company then further determines whether costs that
have been capitalized to the community are recoverable or should
be written off. The write-off is charged to cost of revenues in
the period in which the need for the write-off is determined.
The estimates used in the determination of the estimated cash
flows and fair value of both current and future communities are
based on factors known to the Company at the time such estimates
are made and its expectations of future operations and economic
conditions. Should the estimates or expectations used in
determining estimated fair value deteriorate in the future, the
Company may be required to recognize additional impairment
charges and write-offs related to current and future communities.
Variable Interest Entities: The Company has a
significant number of land purchase contracts and several
investments in unconsolidated entities which it evaluates 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 FASB
Interpretation No. 46R (collectively referred to as
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, the Company performs 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.
Property,
Construction and Office Equipment
Property, construction and office equipment are recorded at cost
and are stated net of accumulated depreciation of
$134.0 million and $116.6 million at October 31,
2008 and 2007, respectively. Depreciation is recorded using the
straight-line method over the estimated useful lives of the
assets.
Mortgage
Loans Receivable
Mortgage loans, classified as held for sale, include the value
of mortgage loans funded to borrowers plus the deferral of
expenses directly associated with the loans less any points
collected at closing. The carrying value of these loans
approximates their fair value.
Investments
in and Advances to Unconsolidated Entities
The Company is a party to several joint ventures with
independent third parties to develop and sell land that was
owned by its joint venture partners. The Company recognizes its
proportionate share of the earnings from the
F-9
Notes to
Consolidated Financial
Statements (Continued)
sale of home sites to other builders. The Company does not
recognize earnings from the home sites it purchases from these
ventures, but reduces its cost basis in the home sites by its
share of the earnings from those home sites.
The Company is also a party to several other joint ventures,
effectively owns one-third of the Toll Brothers Realty
Trust Group (Trust) and owns 50% of Toll
Brothers Realty Trust Group II
(Trust II). The Company recognizes its
proportionate share of the earnings of these entities.
Treasury
Stock
Treasury stock is recorded at cost. Issuance of treasury stock
is accounted for on a
first-in,
first-out basis. Differences between the cost of treasury stock
and the re-issuance proceeds are charged to additional paid-in
capital.
Revenue
and Cost Recognition
Home Sales-Completed Contract Method: The
construction time of the Companys homes is generally less
than one year, although some homes 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, the Company has several high-rise/mid-rise projects
which do not qualify for percentage of completion accounting in
accordance with SFAS No. 66, Accounting for
Sales of Real Estate (SFAS 66), which are
included in this category of revenues and costs.
For the Companys standard attached and detached-homes,
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.
For high-rise/mid-rise projects that do not qualify for
percentage of completion accounting, land, land development,
construction and related costs, both incurred and estimated to
be incurred in the future, are generally amortized to the cost
of units closed based upon an estimated relative sales value of
the units closed to the total estimated sales value. Any changes
resulting from a change in the estimated total costs or revenues
of the project are allocated to the remaining units to be
delivered.
Forfeited customer deposits are recognized in other income in
the period in which the Company determines that the customer
will not complete the purchase of the home and when the Company
determines that it has the right to retain the deposit.
Home Sales-Percentage of Completion
Method: During the past two years, the Company
completed construction on four projects for which it used the
percentage of completion accounting method to recognize revenues
and costs; the remaining units in these projects will be
accounted for using the completed contract method of accounting.
Based upon the current accounting rules and interpretations, the
Company does not believe that any of its current or future
communities qualify for percentage of completion accounting.
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
F-10
Notes to
Consolidated Financial
Statements (Continued)
incurred. Total estimated revenues and costs are reviewed
periodically, and any change is applied to current and future
periods.
Forfeited customer deposits are recognized as a reduction in the
amount of revenues reversed in the period in which the Company
determines that the customer will not complete the purchase of
the home and when the Company determines that it has the right
to retain the deposit.
Sales Incentives: In order to promote sales of
its homes, the Company grants its home buyers sales incentives
from time to time. These incentives will vary by type of
incentive and by amount on a
community-by-community
and
home-by-home
basis. Incentives that impact the value of the home or the sales
price paid, such as special or additional options are generally
reflected as a reduction in sales revenues. Incentives that the
Company pays to an outside party, such as paying some or all of
a home buyers closing costs are recorded as an additional
cost of revenues. Incentives are recognized at the time the home
is delivered to the home buyer and the Company receives the
sales proceeds.
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. The Company
recognizes its pro-rata share of land sales revenues and cost of
land sales revenues to entities in which the Company has a 50%
or less interest based upon the ownership percentage
attributable to the non-Company partners. Any profit not
recognized in a transaction reduces the Companys
investment in the entity or is recorded as an accrued expense on
its consolidated balance sheets.
Advertising
Costs
The Company expenses advertising costs as incurred. Advertising
costs were $23.1 million, $36.3 million and
$36.0 million for the years ended October 31, 2008,
2007 and 2006, respectively.
Warranty
Costs
The Company provides all of its home buyers with a limited
warranty as to workmanship and mechanical equipment. The Company
also provides many of its home buyers with a limited ten-year
warranty as to structural integrity. The Company accrues for
expected warranty costs at the time each home is closed and
title and possession have been transferred to the buyer. Costs
are accrued based upon historical experience.
Insurance
Costs
The Company accrues for the expected costs associated with the
deductibles and self-insured amounts under its various insurance
policies.
Stock-Based
Compensation
The Company expenses all stock-based compensation as a cost that
is reflected in the financial statements in accordance with
SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS 123R). See Note 9,
Stock-Based Benefit Plans, for information regarding
expensing of stock options and stock awards in fiscal 2008, 2007
and 2006.
Income
Taxes
The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes
(SFAS 109). Deferred tax assets and liabilities
are recorded based on temporary differences between the amounts
reported for financial reporting purposes and the amounts
deductible for income tax purposes. In accordance with the
provisions of SFAS 109, the Company assesses, on a
quarterly basis, the realizability of its deferred tax assets. A
valuation allowance must be established when, based upon
available evidence, it is more likely than not that all or a
portion of the deferred tax assets will not be realized.
Realization of the deferred tax assets is dependent upon taxable
income in prior years available for carryback, estimates of
future income, tax planning strategies and reversal of existing
temporary differences.
F-11
Notes to
Consolidated Financial
Statements (Continued)
Provisions for federal and state income taxes are calculated on
reported pretax earnings based on current tax law and also
include, in the applicable period, the cumulative effect of any
changes in tax rates from those used previously in determining
deferred tax assets and liabilities. Such provisions differ from
the amounts currently receivable or payable because certain
items of income and expense are recognized for financial
reporting purposes in different periods than for income tax
purposes. Significant judgment is required in determining income
tax provisions and evaluating tax positions. The Company
establishes reserves for income taxes when, despite the belief
that its tax positions are fully supportable, it believes that
its positions may be challenged and disallowed by various tax
authorities. The consolidated tax provision and related accruals
include the impact of such reasonably estimable disallowances as
deemed appropriate. To the extent that the probable tax outcome
of these matters changes, such changes in estimates will impact
the income tax provision in the period in which such
determination is made.
On November 1, 2007, the Company adopted the provisions of
FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48). The
adoption of FIN 48 did not have a material impact on the
Companys financial position. See Note 7, Income
Taxes, for information concerning the adoption of
FIN 48.
Segment
Reporting
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, establishes standards
for the manner in which public enterprises report information
about operating segments. The Company has determined that its
home building operations primarily involve four reportable
geographic segments: North,
Mid-Atlantic,
South and West. The states comprising each geographic segment
are as follows:
|
|
|
North:
|
|
Connecticut, Illinois, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Rhode Island
|
Mid-Atlantic:
|
|
Delaware, Maryland, Pennsylvania, Virginia and West Virginia
|
South:
|
|
Florida, Georgia, North Carolina, South Carolina and Texas
|
West:
|
|
Arizona, California, Colorado and Nevada
|
The Company began operations in Georgia in the fourth quarter of
fiscal 2007. The Company stopped selling homes in Ohio in fiscal
2005 and delivered its last home there in fiscal 2006. The
Company stopped selling homes in Rhode Island in the first
quarter of fiscal 2008 and delivered its last home there in
fiscal 2008. The operations in Ohio and Rhode Island were
immaterial to the North geographic segment.
Acquisitions
In January 2004, the Company entered into a joint venture in
which it had a 50% interest with an unrelated party to develop
Maxwell Place, a luxury condominium community of approximately
800 units in Hoboken, New Jersey. In November 2005,
the Company acquired its partners 50% equity ownership
interest in this entity. As a result of the acquisition, the
Company now owns 100% of the entity and the entity has been
included as a consolidated subsidiary of the Company since the
acquisition date. The Companys investment in and
subsequent purchase of the partners interest in the joint
venture was not material to the financial position of the
Company.
New
Accounting Pronouncements
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 also responds to
investors request for 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
with respect to financial instruments will be effective for the
Companys fiscal year beginning November 1, 2008.
SFAS 157 with respect to inventory valuations will be
effective for the Companys fiscal year beginning
November 1, 2009. The Company is currently reviewing the
effect SFAS 157 will have on its financial statements;
however, it is not expected that the valuation of financial
instruments will have a material impact on the Companys
consolidated financial position, results of operations or cash
flows.
F-12
Notes to
Consolidated Financial
Statements (Continued)
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities, Including an Amendment of FASB Statement
No. 115 (SFAS 159). SFAS 159
permits entities to choose to measure certain financial assets
and liabilities at fair value. Unrealized gains and losses on
items for which the fair value option has been elected will be
reported in earnings. SFAS 159 will be effective for the
Companys fiscal year beginning November 1, 2008. The
Company is currently evaluating the impact of the adoption of
SFAS 159; however, it is not expected to have a material
impact on the Companys consolidated financial position,
results of operations or cash flows.
Reclassification
Certain prior year amounts have been reclassified to conform to
the fiscal 2008 presentation.
Inventory at October 31, 2008 and 2007 consisted of the
following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Land and land development costs
|
|
$
|
1,299,825
|
|
|
$
|
1,749,652
|
|
Construction in progress completed contract
|
|
|
2,214,829
|
|
|
|
3,109,243
|
|
Construction in progress percentage of completion
|
|
|
|
|
|
|
62,677
|
|
Sample homes and sales offices
|
|
|
370,871
|
|
|
|
357,322
|
|
Land deposits and costs of future development
|
|
|
223,412
|
|
|
|
274,799
|
|
Other
|
|
|
18,538
|
|
|
|
18,962
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,127,475
|
|
|
$
|
5,572,655
|
|
|
|
|
|
|
|
|
|
|
Construction in progress includes the cost of homes under
construction, land and land development costs and the carrying
cost of home sites 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 traditional homes or when the related
inventory is charged to cost of revenues under percentage of
completion accounting. Interest incurred, capitalized and
expensed for each of the fiscal years ended October 31,
2008, 2007 and 2006, was as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Interest capitalized, beginning of year
|
|
$
|
215,571
|
|
|
$
|
181,465
|
|
|
$
|
162,672
|
|
Interest incurred
|
|
|
116,340
|
|
|
|
136,758
|
|
|
|
135,166
|
|
Capitalized interest in inventory acquired
|
|
|
|
|
|
|
|
|
|
|
6,100
|
|
Interest expensed to cost of sales
|
|
|
(88,861
|
)
|
|
|
(102,447
|
)
|
|
|
(121,993
|
)
|
Write-off against other
|
|
|
(439
|
)
|
|
|
(205
|
)
|
|
|
(480
|
)
|
Capitalized interest applicable to inventory transferred to
joint venture
|
|
|
(3,779
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest capitalized, end of year
|
|
$
|
238,832
|
|
|
$
|
215,571
|
|
|
$
|
181,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory impairment charges are recognized against all
inventory costs of a community, such as land, land improvements,
cost of home construction and capitalized interest. The amounts
included in the above table reflect the gross amount of
capitalized interest before allocation of any impairment charges
recognized.
F-13
Notes to
Consolidated Financial
Statements (Continued)
Interest included in cost of revenues for each of the fiscal
years ended October 31, 2008, 2007 and 2006, was as follows
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Completed contract
|
|
$
|
86,466
|
|
|
$
|
97,246
|
|
|
$
|
116,405
|
|
Percentage of completion
|
|
|
1,400
|
|
|
|
4,797
|
|
|
|
4,552
|
|
Land sales
|
|
|
995
|
|
|
|
404
|
|
|
|
1,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
88,861
|
|
|
$
|
102,447
|
|
|
$
|
121,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized inventory impairment charges and the
expensing of costs that it believed not to be recoverable for
each of the fiscal years ended October 31, 2008, 2007 and
2006, as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Land controlled for future communities
|
|
$
|
101,466
|
|
|
$
|
37,920
|
|
|
$
|
90,925
|
|
Operating communities and land owned
|
|
|
543,525
|
|
|
|
581,596
|
|
|
|
61,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
644,991
|
|
|
$
|
619,516
|
|
|
$
|
152,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below provides, as of the date indicated, the number
of operating communities in which the Company recognized
impairment charges, the fair value of those communities, net of
impairment charges and the amount of impairment charges
recognized ($ amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Fair Value of
|
|
|
|
|
|
|
|
|
Fair Value of
|
|
|
|
|
|
|
|
|
|
Communities,
|
|
|
|
|
|
|
|
|
Communities,
|
|
|
|
|
|