e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
April 30, 2009
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or
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o
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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
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(I.R.S. Employer
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incorporation or
organization)
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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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(215) 938-8000
(Registrants telephone
number, including area code)
Not applicable
(Former name, former address and
former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No 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
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date:
At June 2, 2009, there were approximately
161,191,000 shares of Common Stock, $.01 par value,
outstanding.
TOLL
BROTHERS, INC. AND SUBSIDIARIES
TABLE OF
CONTENTS
STATEMENT
ON FORWARD-LOOKING INFORMATION
Certain information included in this report or in other
materials we have filed or will file with the Securities and
Exchange Commission (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 related to anticipated operating
results; financial resources; changes in revenues; changes in
profitability; changes in margins; changes in accounting
treatment; interest expense; inventory write-downs; effects of
home buyer cancellations; growth and expansion; anticipated
income to be realized from our investments in unconsolidated
entities; the ability to acquire land; the ability to gain
approvals and to open new communities; the ability to sell homes
and properties; the ability to deliver homes from backlog; the
ability to secure materials and subcontractors; the ability 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
Form 10-K
and 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.
These risks and uncertainties include: local, regional, national
and international economic conditions, including the current
economic turmoil and uncertainties in the U.S. and global
credit and financial markets; demand for homes; domestic and
international political events; uncertainties created by
terrorist attacks; effects of governmental regulation, including
effects from the Emergency Economic Stabilization Act, the
American Recovery and Reinvestment Act, and any pending or new
stimulus legislation and programs; the competitive environment
in which the Company operates; changes in consumer confidence;
volatility and fluctuations in interest rates; unemployment
rates; changes in home prices, foreclosure rates and sales
activity in the markets where the Company builds homes; the
availability and cost of land for future growth; excess
inventory and adverse market conditions that could result in
substantial inventory write-downs or write-downs in the value of
investments in unconsolidated entities; the ability to realize
our deferred tax assets; the availability of capital;
uncertainties, fluctuations and volatility in the capital and
securities markets; liquidity in the credit markets; changes in
tax laws and their interpretation; legal proceedings; the
availability of adequate insurance at reasonable cost; the
ability of customers to obtain adequate and affordable financing
for the purchase of homes; the ability of home buyers to sell
their existing homes; the ability of the participants in our
various joint ventures to honor their commitments; the
availability and cost of labor and building and construction
materials; the cost of oil, gas and other raw materials;
construction delays; and weather conditions.
The factors mentioned in this report or in other reports or
public statements made by us 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. If one or more of the assumptions
underlying our forward-looking statements proves incorrect, then
our actual results, performance or achievements could differ
materially from those expressed in, or implied by the
forward-looking statements contained in this report. Therefore,
we caution you not to place undue reliance on our
forward-looking statements. This statement is provided as
permitted by the Private Securities Litigation Reform Act of
1995.
Additional information concerning potential factors that we
believe could cause our actual results to differ materially from
expected and historical results is included in Item 1A
Risk Factors of our Annual Report on
Form 10-K
for the fiscal year ended October 31, 2008.
When this report uses the words we, us,
our, and the Company, they refer to Toll
Brothers, Inc. and its subsidiaries, unless the context
otherwise requires. Reference herein to fiscal 2009,
fiscal 2008, and fiscal 2007 refer to
our fiscal year ending October 31, 2009, and our fiscal
years ended October 31, 2008, and October 31, 2007,
respectively.
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. However, any further
disclosures made on related subjects in our subsequent reports
on
Forms 10-K,
10-Q and
8-K should
be consulted. On June 3, 2009, we issued a press release
and held a conference call to review the results of operations
for the six-month and three-month periods ended April 30,
2009 and to discuss the current state of our business. The
information contained in this report is the same information
given in the press release and on the conference call on
June 3, 2009, and we are not reconfirming or updating that
information in this
Form 10-Q.
1
PART I
FINANCIAL INFORMATION
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ITEM 1.
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FINANCIAL
STATEMENTS
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TOLL
BROTHERS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
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|
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April 30,
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October 31,
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2009
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2008
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(Unaudited)
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ASSETS
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Cash and cash equivalents
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$
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1,963,000
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$
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1,633,495
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Inventory
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3,711,685
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4,127,475
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Property, construction and office equipment, net
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78,584
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86,462
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Receivables, prepaid expenses and other assets
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96,307
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113,762
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Mortgage loans receivable
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47,193
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49,255
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Customer deposits held in escrow
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16,864
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18,913
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Investments in and advances to unconsolidated entities
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148,252
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151,771
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Deferred tax assets
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430,584
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405,703
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$
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6,492,469
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$
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6,586,836
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LIABILITIES AND STOCKHOLDERS EQUITY
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Liabilities:
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Loans payable
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$
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547,351
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$
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613,594
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Senior notes
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1,536,175
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1,143,445
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Senior subordinated notes
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343,000
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343,000
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Mortgage company warehouse loan
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34,479
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37,867
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Customer deposits
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102,534
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135,591
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Accounts payable
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97,146
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134,843
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Accrued expenses
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660,441
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738,596
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Income taxes payable
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84,948
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202,247
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|
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Total liabilities
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3,406,074
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3,349,183
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Minority interest
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5,283
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Stockholders equity:
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Preferred stock, none issued
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Common stock, 161,085 and 160,370 shares issued at
April 30, 2009 and October 31, 2008, respectively
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1,611
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1,604
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Additional paid-in capital
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297,763
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282,090
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Retained earnings
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2,781,595
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2,953,655
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Treasury stock, at cost 6 and 1 shares at
April 30, 2009 and October 31, 2008, respectively
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(123
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)
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(21
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)
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Accumulated other comprehensive loss
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266
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325
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Total stockholders equity
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3,081,112
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3,237,653
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$
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6,492,469
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$
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6,586,836
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|
|
|
|
|
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|
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See accompanying notes
2
TOLL
BROTHERS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
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Six Months Ended
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April 30,
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Three Months Ended April 30,
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2009
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2008
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2009
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2008
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(Unaudited)
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Revenues
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$
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807,350
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$
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1,660,326
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$
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398,327
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$
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817,997
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|
|
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Cost of revenues
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933,740
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1,710,475
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447,760
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842,426
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Selling, general and administrative
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167,109
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230,023
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|
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81,346
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|
|
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108,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,100,849
|
|
|
|
1,940,498
|
|
|
|
529,106
|
|
|
|
951,131
|
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|
|
|
|
|
|
|
|
|
|
|
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|
|
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Loss from operations
|
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|
(293,499
|
)
|
|
|
(280,172
|
)
|
|
|
(130,779
|
)
|
|
|
(133,134
|
)
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Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(Loss) income from unconsolidated entities
|
|
|
(4,616
|
)
|
|
|
(105,643
|
)
|
|
|
481
|
|
|
|
(81,557
|
)
|
Expenses related to early retirement of debt
|
|
|
(2,067
|
)
|
|
|
|
|
|
|
(2,067
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)
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|
|
|
|
Interest and other
|
|
|
21,717
|
|
|
|
79,849
|
|
|
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10,461
|
|
|
|
60,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Loss before income tax benefit
|
|
|
(278,465
|
)
|
|
|
(305,966
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)
|
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|
(121,904
|
)
|
|
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(154,011
|
)
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Income tax benefit
|
|
|
(106,405
|
)
|
|
|
(116,272
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)
|
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|
(38,739
|
)
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|
|
(60,274
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)
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|
|
|
|
|
|
|
|
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|
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|
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Net loss
|
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$
|
(172,060
|
)
|
|
$
|
(189,694
|
)
|
|
$
|
(83,165
|
)
|
|
$
|
(93,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic
|
|
$
|
(1.07
|
)
|
|
$
|
(1.20
|
)
|
|
$
|
(0.52
|
)
|
|
$
|
(0.59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Diluted
|
|
$
|
(1.07
|
)
|
|
$
|
(1.20
|
)
|
|
$
|
(0.52
|
)
|
|
$
|
(0.59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted average number of shares:
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Basic
|
|
|
160,917
|
|
|
|
158,217
|
|
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|
161,134
|
|
|
|
158,621
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|
Diluted
|
|
|
160,917
|
|
|
|
158,217
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|
|
|
161,134
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|
|
|
158,621
|
|
See accompanying notes
3
TOLL
BROTHERS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30,
|
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|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(172,060
|
)
|
|
$
|
(189,694
|
)
|
Adjustments to reconcile net loss to net
|
|
|
|
|
|
|
|
|
cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
12,084
|
|
|
|
14,082
|
|
Stock-based compensation
|
|
|
7,478
|
|
|
|
16,347
|
|
Excess tax benefits from stock-based compensation
|
|
|
(3,331
|
)
|
|
|
(8,378
|
)
|
Impairment of investment in unconsolidated entities
|
|
|
6,000
|
|
|
|
112,817
|
|
Income from unconsolidated entities
|
|
|
(1,384
|
)
|
|
|
(7,174
|
)
|
Distributions of earnings from unconsolidated entities
|
|
|
813
|
|
|
|
12,987
|
|
Deferred tax benefit
|
|
|
(24,881
|
)
|
|
|
(204,070
|
)
|
Inventory impairments
|
|
|
270,252
|
|
|
|
420,739
|
|
Write-off of unamortized debt issuance costs
|
|
|
692
|
|
|
|
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Decrease in inventory
|
|
|
154,402
|
|
|
|
314,617
|
|
Origination of mortgage loans
|
|
|
(246,678
|
)
|
|
|
(500,549
|
)
|
Sale of mortgage loans
|
|
|
248,741
|
|
|
|
526,240
|
|
Decrease in contracts receivable
|
|
|
|
|
|
|
41,237
|
|
Decrease in receivables, prepaid expenses and other assets
|
|
|
18,090
|
|
|
|
24,424
|
|
Decrease in customer deposits
|
|
|
(31,008
|
)
|
|
|
(51,109
|
)
|
Decrease in accounts payable and accrued expenses
|
|
|
(95,057
|
)
|
|
|
(138,969
|
)
|
(Decrease) increase in current income taxes payable
|
|
|
(112,773
|
)
|
|
|
464
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
31,380
|
|
|
|
384,011
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(2,202
|
)
|
|
|
(4,008
|
)
|
Purchases of marketable securities
|
|
|
|
|
|
|
(1,468,437
|
)
|
Sale of marketable securities
|
|
|
|
|
|
|
1,454,557
|
|
Investments in and advances to unconsolidated entities
|
|
|
(16,446
|
)
|
|
|
(37,322
|
)
|
Return of investments from unconsolidated entities
|
|
|
1,443
|
|
|
|
2,623
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(17,205
|
)
|
|
|
(52,587
|
)
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of senior notes
|
|
|
389,400
|
|
|
|
|
|
Proceeds from loans payable
|
|
|
272,151
|
|
|
|
557,545
|
|
Principal payments of loans payable
|
|
|
(353,162
|
)
|
|
|
(572,574
|
)
|
Proceeds from stock-based benefit plans
|
|
|
4,580
|
|
|
|
12,089
|
|
Excess tax benefits from stock-based compensation
|
|
|
3,331
|
|
|
|
8,378
|
|
Purchase of treasury stock
|
|
|
(970
|
)
|
|
|
(1,174
|
)
|
Change in minority interest
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
315,330
|
|
|
|
4,267
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
329,505
|
|
|
|
335,691
|
|
Cash and cash equivalents, beginning of period
|
|
|
1,633,495
|
|
|
|
900,337
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,963,000
|
|
|
$
|
1,236,028
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
4
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
1.
|
Significant
Accounting Policies
|
Basis
of Presentation
The accompanying unaudited condensed consolidated financial
statements include the accounts of Toll Brothers, Inc. (the
Company), a Delaware corporation, and its
majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Investments in
50% or less owned partnerships and affiliates are accounted for
using the equity method unless it is determined that the Company
has effective control of the entity, in which case the entity
would be consolidated.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission
(SEC) for interim financial information. The
October 31, 2008 balance sheet amounts and disclosures
included herein have been derived from the Companys
October 31, 2008 audited financial statements. Since the
accompanying condensed consolidated financial statements do not
include all the information and footnotes required by
U.S. generally accepted accounting principles for complete
financial statements, the Company suggests that they be read in
conjunction with the consolidated financial statements and notes
thereto included in its Annual Report on
Form 10-K
for the fiscal year ended October 31, 2008. In the opinion
of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments, which are of a
normal recurring nature, necessary to present fairly the
Companys financial position as of April 30, 2009, the
results of its operations for the six-month and three-month
periods ended April 30, 2009 and 2008, and its cash flows
for the six-month periods ended April 30, 2009 and 2008.
The results of operations for such interim periods are not
necessarily indicative of the results to be expected for the
full year.
Income
Taxes Valuation Allowance
Significant judgment is required in estimating valuation
allowances for deferred tax assets. In accordance with Statement
of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes
(SFAS 109), a valuation allowance is
established against a deferred tax asset if, based on the
available evidence, it is more likely than not that such asset
will not be realized. The realization of a deferred tax asset
ultimately depends on the existence of sufficient taxable income
in either the carryback or carryforward periods under tax law.
The Company periodically assesses the need for valuation
allowances for deferred tax assets based on SFAS 109s
more-likely-than-not realization threshold criteria. In the
Companys assessment, appropriate consideration is given to
all positive and negative evidence related to the realization of
the deferred tax assets. This assessment considers, among other
matters, the nature, frequency and severity of current and
cumulative income and losses, forecasts of future profitability,
the duration of statutory carryback or carryforward periods, its
experience with operating loss and tax credit carryforwards
being used before expiration, and tax planning alternatives.
The Companys assessment of the need for a valuation
allowance on its deferred tax assets includes assessing the
likely future tax consequences of events that have been
recognized in its consolidated financial statements or tax
returns. The Company bases its estimate of deferred tax assets
and liabilities on current tax laws and rates and, in certain
cases, on business plans and other expectations about future
outcomes. Changes in existing tax laws or rates could affect
actual tax results and future business results may affect the
amount of deferred tax liabilities or the valuation of deferred
tax assets over time. The Companys accounting for deferred
tax assets represents its best estimate of future events.
Due to uncertainties in the estimation process, particularly
with respect to changes in facts and circumstances in future
reporting periods (carryforward period assumptions), it is
reasonably possible that actual results could differ from the
estimates used in the Companys historical analyses. The
Companys assumptions require significant judgment because
the residential homebuilding industry is cyclical and is highly
sensitive to changes in economic conditions. The Companys
current assessment of the need for a valuation allowance is
primarily dependent upon its
5
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
utilization of taxable income in the carryback period and its
future projected income. If the Companys results of
operations are less than projected and there is insufficient
objectively verifiable evidence to support the likely
realization of its deferred tax assets, a valuation allowance
may be required to reduce or eliminate its deferred tax assets.
Recent
Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair
Value Measurements (SFAS 157).
SFAS 157 provides guidance for using fair value to measure
assets and liabilities. SFAS 157 also responds to
investors requests 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. The Company
adopted SFAS 157 with respect to financial instruments
effective for its fiscal year beginning November 1, 2008.
See Note 10, Fair Value Disclosures for
information concerning the adoption of SFAS 157. In
February 2008, the FASB issued FASB Staff Position
FAS 157-2
(FSP 157-2)
which delays the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually).
FSP 157-2
applies to, but is not limited to, long-lived assets (asset
groups) measured at fair value for an impairment assessment
(i.e., inventory impairment assessments).
FSP 157-2
defers the effective date for nonfinancial assets and
nonfinancial liabilities of SFAS 157 for the Company to
November 1, 2009. The Company is currently evaluating the
impact, if any, of SFAS 157 as it relates to nonfinancial
assets and nonfinancial liabilities on the Companys
consolidated financial position, results of operations and cash
flows.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities (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. The election, called the fair value
option, enables companies to reduce the volatility in
reported earnings caused by measuring related assets and
liabilities differently, and is simpler than using the complex
hedge-accounting requirements in SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities (SFAS 133) to achieve similar
results. The Company adopted SFAS 159 effective for its
fiscal year beginning November 1, 2008. See Note 10,
Fair Value Disclosures for information concerning
the adoption of SFAS 159.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an Amendment to ARB No. 51
(SFAS 160). Under the provisions of
SFAS 160, a noncontrolling interest in a subsidiary, or
minority interest, must be classified as equity and the amount
of consolidated net income (loss) specifically attributable to
the minority interest must be clearly identified in the
consolidated statement of operations. SFAS 160 also
requires consistency in the manner of reporting changes in the
parents ownership interest and requires fair value
measurement of any noncontrolling interest retained in a
deconsolidation. SFAS 160 will be effective for the
Companys fiscal year beginning November 1, 2009. The
Company is currently evaluating the impact of the adoption of
SFAS 160; however, it is not expected to have a material
impact on the Companys consolidated financial position,
results of operations and cash flows.
Reclassification
The Company has determined that the amount of recent land sales
revenues and costs are immaterial to its statement of operations
and, effective November 1, 2008, included the net amount of
income realized from these sales in Other: Interest and
other on the Companys Condensed Consolidated
Statements of Operations included in this
Form 10-Q.
In order to conform the Companys Condensed Consolidated
Statement of Operations for the six-month and three-month
periods ended April 30, 2008 to the presentation for the
six-month and three-month periods ended April 30, 2009,
income realized from land sales for the fiscal 2008 periods was
reclassified to Other:
6
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Interest and other on the Companys Condensed
Consolidated Statement of Operations included in this
Form 10-Q.
The following amounts have been reclassified from the fiscal
2008 presentation (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
|
April 30, 2008
|
|
|
April 30, 2008
|
|
|
Sales
|
|
$
|
1,316
|
|
|
$
|
793
|
|
Cost of revenues land sales
|
|
|
1,094
|
|
|
|
660
|
|
Cost of revenues interest on land sales
|
|
|
40
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
Reclassified to Other: Interest and other
|
|
$
|
182
|
|
|
$
|
95
|
|
|
|
|
|
|
|
|
|
|
The presentation of certain other prior year amounts have been
reclassified to conform to the fiscal 2009 presentation.
Inventory at April 30, 2009 and October 31, 2008
consisted of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
October 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Land controlled for future communities not owned
|
|
$
|
75,640
|
|
|
$
|
69,124
|
|
Land owned for future communities
|
|
|
755,966
|
|
|
|
819,005
|
|
Operating communities
|
|
|
2,880,079
|
|
|
|
3,239,346
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,711,685
|
|
|
$
|
4,127,475
|
|
|
|
|
|
|
|
|
|
|
Included in operating communities is: the cost of homes under
construction, land and land development costs, the carrying cost
of home sites in current and future phases of these communities
and the carrying cost of model homes.
The Company provided for inventory impairment charges and the
expensing of costs that it believed not to be recoverable in the
six-month and three-month periods ended April 30, 2009 and
2008 as shown in the table below (amounts in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
April 30,
|
|
|
Three Months Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Land controlled for future communities
|
|
$
|
10,092
|
|
|
$
|
79,714
|
|
|
$
|
2,775
|
|
|
$
|
7,229
|
|
Land owned for future communities
|
|
|
84,450
|
|
|
|
85,700
|
|
|
|
49,450
|
|
|
|
74,900
|
|
Operating communities
|
|
|
175,710
|
|
|
|
255,325
|
|
|
|
67,410
|
|
|
|
120,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
270,252
|
|
|
$
|
420,739
|
|
|
$
|
119,635
|
|
|
$
|
203,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating communities include communities offering homes for
sale, communities that have sold all available homesites but
have not completed delivery of the homes, communities that were
previously offering homes for sale but are temporarily closed
due to business conditions or non-availability of improved
homesites, and communities preparing to open for sale. The
Company reviews the profitability of each of its operating
communities during each fiscal quarter. For those communities
operating below certain profitability thresholds, or other
negative factors, such as a decline in market or economic
conditions in the market where the community is located, or high
cancellation rates and a significant increase in speculative
inventory in the community or in the market in general, exist,
the Company determines the estimated fair value of those
communities and whether the estimated fair value exceeds their
carrying value. The table below provides, for the periods
indicated, the number of operating communities that the Company
tested for potential impairment, the number of operating
communities in which the Company
7
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recognized impairment charges, and the amount of impairment
charges recognized, and, as of the end of the period indicated,
the fair value of those communities, net of impairment charges
($ amounts in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
Impaired Communities
|
|
|
|
|
|
|
|
|
|
Fair Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
Communities
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Net of
|
|
|
|
|
|
|
Communities
|
|
|
Communities
|
|
|
Impairment
|
|
|
Impairment
|
|
|
|
Tested
|
|
|
Impaired
|
|
|
Charges
|
|
|
Charges
|
|
|
Three Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
289
|
|
|
|
40
|
|
|
$
|
216.2
|
|
|
$
|
108.3
|
|
April 30,
|
|
|
288
|
|
|
|
36
|
|
|
$
|
181.8
|
|
|
|
67.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
Impaired Communities
|
|
|
|
|
|
|
|
|
|
Fair Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
Communities
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Net of
|
|
|
|
|
|
|
Communities
|
|
|
Communities
|
|
|
Impairment
|
|
|
Impairment
|
|
|
|
Tested
|
|
|
Impaired
|
|
|
Charges
|
|
|
Charges
|
|
|
Three Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
211
|
|
|
|
38
|
|
|
$
|
339.3
|
|
|
$
|
134.4
|
|
April 30,
|
|
|
297
|
|
|
|
46
|
|
|
$
|
406.0
|
|
|
|
120.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
255.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At April 30, 2009, the Company evaluated its land purchase
contracts to determine if any of the selling entities were
variable interest entities (VIEs) and, if they were,
whether the Company was the primary beneficiary of any of them.
Under these land purchase contracts, the Company does not
possess legal title to the land and its risk is generally
limited to deposits paid to the sellers; the creditors of the
sellers generally have no recourse against the Company. At
April 30, 2009, the Company had determined that it was the
primary beneficiary of one VIE related to a land purchase
contract and had recorded $5.6 million of inventory and
$5.3 million of accrued expenses. In addition, the Company
had determined that it was not the primary beneficiary of 16
VIEs related to land purchase contracts with an aggregate
purchase price of $173.0 million, on which it had made
aggregate deposits totaling $17.1 million.
The Company capitalizes certain interest costs to qualified
inventory during the development and construction period of its
communities in accordance with SFAS No. 34,
Capitalization of Interest Costs
(SFAS 34). Capitalized interest is charged to
cost of revenues when the related inventory is delivered.
Interest incurred on indebtedness in excess of qualified
inventory, as defined in SFAS 34, is charged to selling,
general and administrative expense in the period incurred. Due
to the decline in qualified inventory, interest incurred on
homebuilding indebtedness exceeded amounts eligible for
capitalization in the six-month and three-month periods of
fiscal 2009. Prior to November 1, 2008, qualified inventory
exceeded homebuilding indebtedness and all interest incurred was
capitalized. Interest amounts that exceeded amounts eligible for
capitalization were charged to selling, general and
administrative expense in the period incurred.
8
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Interest incurred, capitalized and expensed for the six-month
and three-month periods ended April 30, 2009 and 2008, was
as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30,
|
|
|
Three Months Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Interest capitalized, beginning of period
|
|
$
|
238,832
|
|
|
$
|
215,571
|
|
|
$
|
250,969
|
|
|
$
|
227,709
|
|
Interest incurred
|
|
|
56,291
|
|
|
|
63,681
|
|
|
|
28,006
|
|
|
|
30,576
|
|
Interest expensed to cost of revenues
|
|
|
(31,735
|
)
|
|
|
(44,124
|
)
|
|
|
(16,511
|
)
|
|
|
(23,157
|
)
|
Interest expensed to selling, general and administrative expense
|
|
|
(5,245
|
)
|
|
|
|
|
|
|
(4,433
|
)
|
|
|
|
|
Write-off against other income
|
|
|
(112
|
)
|
|
|
(34
|
)
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest capitalized, end of period
|
|
$
|
258,031
|
|
|
$
|
235,094
|
|
|
$
|
258,031
|
|
|
$
|
235,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 table directly above reflect the gross amount of
capitalized interest before allocation of any impairment charges
recognized.
|
|
3.
|
Investments
in and Advances to Unconsolidated Entities
|
Development
Joint Ventures
The Company has investments in, and advances to, a number of
joint ventures with unrelated parties to develop land
(Development Joint Ventures). Some of these
Development Joint Ventures develop land for the sole use of the
venture participants, including the Company, and others develop
land for sale to the joint venture participants and to unrelated
builders. The Company recognizes its share of earnings from the
sale of home sites by Development Joint Ventures to other
builders. With regard to home sites the Company purchases from
the Development Joint Ventures, the Company reduces its cost
basis in those home sites by its share of the earnings on the
home sites. At April 30, 2009, the Company had
approximately $63.4 million, net of impairment charges,
invested in or advanced to Development Joint Ventures. The
Company has a funding commitment of $3.5 million to one
Development Joint Venture, should an additional investment in
that venture be required.
At April 30, 2009, the Development Joint Ventures had
aggregate loan commitments of $1.07 billion and had
approximately $1.07 billion borrowed against these
commitments. With respect to loans obtained by some of the
Development Joint Ventures, the Company executed completion
guarantees and conditional repayment guarantees. The obligations
under such completion guarantees and conditional repayment
guarantees are several and not joint, and are limited to the
Companys pro-rata share of the loan obligations of each
such respective Development Joint Venture. At April 30,
2009, the maximum liability, if any, under such completion
guarantees and conditional repayment guarantees (net of amounts
that the Company has accrued) is estimated to be approximately
$50.3 million.
As of April 30, 2009, the Company had recognized cumulative
impairment charges in connection with its Development Joint
Ventures of $173.6 million. Some of these impairment
charges are attributable to investments in a certain Development
Joint Venture that the Company did not believe were fully
recoverable. The Company did not recognize impairment charges in
connection with its Development Joint Ventures in the six-month
and three-month periods ended April 30, 2009, but did
recognize $112.8 million and $85.0 million of
impairment charges in the six-month and three-month periods
ended April 30, 2008, respectively.
Two of the Development Joint Ventures have received notices of
default from their respective lending syndicates. In October
2008, the lending syndicate for one of the Development Joint
Ventures completed a foreclosure on the land owned by that
Development Joint Venture and filed a lawsuit against its
members, including the parent companies of the members, seeking
to recover damages under the completion guarantees. Each of the
9
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
completion guarantees delivered by the members of that
Development Joint Venture is several and not joint, therefore,
the liability of the Company is limited to the Companys
pro-rata share of any damages awarded under such completion
guarantees. In December 2008, the lending syndicate for the
second Development Joint Venture filed separate lawsuits against
the members of the Development Joint Venture and their parent
companies, seeking to recover damages under the completion
guarantees and damages allegedly caused by the ventures
failure to repay the lenders. The Company does not believe that
these alleged Development Joint Venture defaults and related
lawsuits will have a material impact on the Companys
results of operations, cash flows and financial condition.
Planned
Community Joint Venture
The Company is a participant in a joint venture with an
unrelated party to develop a single master planned community
(the Planned Community Joint Venture). The Company
and the other participant each contributed assets with an
agreed-upon
fair value of $48.0 million, including $3.0 million of
cash. At April 30, 2009, each participant had agreed to
contribute additional funds up to $12.4 million if
required. If a participant fails to make a required capital
contribution, the other participant may make the additional
contribution and diminish the non-contributing
participants ownership interest. At April 30, 2009,
the Company had an investment of $49.5 million in this
Planned Community Joint Venture.
Condominium
Joint Ventures
At April 30, 2009, the Company had $22.6 million of
investments in four joint ventures with unrelated parties to
develop luxury condominium projects, including for-sale
residential units and commercial space (Condominium Joint
Ventures). At April 30, 2009, the Condominium Joint
Ventures had aggregate loan commitments of $338.2 million,
against which approximately $242.7 million had been
borrowed. At April 30, 2009, the Company had guaranteed
$13.0 million of the loans and other liabilities of these
Condominium Joint Ventures.
One of these Condominium Joint Ventures is developing a
condominium project in two phases. Construction of the first
phase has been substantially completed and deliveries commenced
in May 2008; the Company has the right to withdraw from phase
two of the project upon the payment of a $30 million
termination fee to its partner. As of April 30, 2009, the
Company had recognized cumulative impairment charges against its
investments in the Condominium Joint Ventures, and its pro-rata
share of impairment charges recognized by these Condominium
Joint Ventures, in the aggregate amount of $63.9 million.
At April 30, 2009, the Company did not have any commitments
to make contributions to any Condominium Joint Venture in excess
of those that the Company already has accrued.
Trust
and Trust II
In fiscal 2005, the Company, together with the Pennsylvania
State Employees Retirement System (PASERS), formed
Toll Brothers Realty Trust II (Trust II)
to be in a position to take advantage of commercial real estate
opportunities. Trust II is owned 50% by the Company and 50%
by an affiliate of PASERS. At April 30, 2009, the Company
had an investment of $11.9 million in Trust II. In
addition, the Company and PASERS each entered into subscription
agreements which expire in September 2009, whereby each agreed
to invest additional capital in an amount not to exceed
$11.1 million if required by Trust II. Prior to the
formation of Trust II, the Company used Toll Brothers
Realty Trust (the Trust) to invest in commercial
real estate opportunities. The Trust is effectively owned
one-third by the Company; one-third by Robert I. Toll, Bruce E.
Toll (and members of his family), Zvi Barzilay (and members of
his family), Joel H. Rassman and other members of the
Companys current and former senior management; and
one-third by an affiliate of PASERS (collectively, the
Shareholders). At April 30, 2009, the
Companys investment in the Trust was $0.7 million.
The Company provides development, finance and management
services to the Trust and recognized fees under the terms of
various agreements in the amount of $1.1 million in each of
the six-month periods ended April 30, 2009 and 2008, and
$0.5 million in each of the three-month periods ended
April 30, 2009 and 2008. The Company believes that the
transactions between itself and the Trust were on terms no less
favorable than it would have agreed to with unrelated parties.
10
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
General
At April 30, 2009, the Company had $116.6 million
accrued for its commitments to Development Joint Ventures, the
Planned Community Joint Venture, Condominium Joint Ventures,
Trust II and the Trust. The Companys investments in
these entities are accounted for using the equity method.
Impairment charges related to these entities are included in
(Loss) income from unconsolidated entities in the
Companys Condensed Consolidated Statements of Operations.
Accrued expenses at April 30, 2009 and October 31,
2008 consisted of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
October 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Land, land development and construction
|
|
$
|
140,889
|
|
|
$
|
184,017
|
|
Compensation and employee benefits
|
|
|
87,405
|
|
|
|
93,529
|
|
Insurance and litigation
|
|
|
160,231
|
|
|
|
158,307
|
|
Commitments to unconsolidated entities
|
|
|
116,577
|
|
|
|
128,227
|
|
Warranty
|
|
|
54,463
|
|
|
|
57,292
|
|
Interest
|
|
|
38,858
|
|
|
|
38,624
|
|
Other
|
|
|
62,018
|
|
|
|
78,600
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
660,441
|
|
|
$
|
738,596
|
|
|
|
|
|
|
|
|
|
|
The Company accrues for expected warranty costs at the time each
home is closed and title and possession are transferred to the
home buyer. Costs are accrued based upon historical experience.
Changes in the warranty accrual for the six-month and
three-month periods ended April 30, 2009 and 2008 were as
follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Month Period
|
|
|
|
|
|
|
Ended April 30,
|
|
|
Three Month Period Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Balance, beginning of period
|
|
$
|
57,292
|
|
|
$
|
59,249
|
|
|
$
|
56,760
|
|
|
$
|
60,350
|
|
Additions homes closed during the period
|
|
|
4,568
|
|
|
|
11,320
|
|
|
|
2,462
|
|
|
|
5,763
|
|
Additions (reductions) to accruals for homes closed in prior
periods
|
|
|
289
|
|
|
|
1,710
|
|
|
|
(1,184
|
)
|
|
|
920
|
|
Charges incurred
|
|
|
(7,686
|
)
|
|
|
(11,463
|
)
|
|
|
(3,575
|
)
|
|
|
(6,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
54,463
|
|
|
$
|
60,816
|
|
|
$
|
54,463
|
|
|
$
|
60,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Senior
Notes and Senior Subordinated Notes
|
On April 13, 2009, the Company, through Toll Brothers
Finance Corp., its wholly-owned subsidiary, issued
$400 million of 8.91% Senior Notes due 2017 (the
Senior Notes). The Company received
$389.4 million of net proceeds from the issuance of the
Senior Notes. The Senior Notes are the unsecured obligations of
Toll Brothers Finance Corp. The payment of principal and
interest on the Senior Notes is fully and unconditionally
guaranteed, jointly and severally, by the Company and a majority
of its homebuilding subsidiaries (together with Toll Brothers
Finance Corp., the Senior Note Parties). The Senior
Notes rank equally in right of payment with all the Senior Note
Parties existing and future unsecured senior indebtedness,
including the Companys bank revolving credit facility. The
Senior Notes are structurally subordinated to the prior claims
of creditors, including trade creditors, of the subsidiaries of
the Company that are not guarantors of the Senior Notes. The
Senior Notes are redeemable in whole or in part at any time at
the option of the Company, at prices that vary based upon the
then-current rates of interest and the remaining original term
of the Senior Notes.
11
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On April 28, 2009, the Company announced that Toll Corp.,
its wholly-owned subsidiary, would call for redemption on
May 28, 2009 all of the remaining $193.0 million
outstanding principal amount of its
81/4% Senior
Subordinated Notes due February 2011 at a cash redemption price
of 100.0% of the principal amount plus accrued and unpaid
interest, and $100.0 million outstanding principal amount
of its 8.25% Senior Subordinated Notes due December 2011 at
a cash redemption price of 101.375% of the principal amount plus
accrued and unpaid interest. Upon completion of the partial
redemption of the 8.25% Senior Subordinated Notes due
December 2011, $50.0 million principal amount of these
notes will remain outstanding. In the six-month and three-month
periods ended April 30, 2009, the Company recognized a
charge of $2.1 million representing the write-off of
unamortized debt issuance costs associated with both series of
notes and the call premium on the 8.25% Senior Subordinated
Notes due December 2011.
A reconciliation of the change in the gross unrecognized tax
benefits for the six-month and three-month periods ended
April 30, 2009 and 2008 is as follows (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30,
|
|
|
Three Months Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Balance, beginning of period
|
|
$
|
320,679
|
|
|
$
|
364,300
|
|
|
$
|
285,750
|
|
|
$
|
312,777
|
|
Increase in benefit as a result of tax positions taken in prior
years
|
|
|
11,000
|
|
|
|
3,500
|
|
|
|
4,000
|
|
|
|
1,470
|
|
Increase in benefit as a result of tax positions taken in
current year
|
|
|
4,000
|
|
|
|
15,391
|
|
|
|
2,000
|
|
|
|
15,391
|
|
Decrease in benefit as a result of settlements
|
|
|
(19,898
|
)
|
|
|
(53,553
|
)
|
|
|
(969
|
)
|
|
|
|
|
Refund of previous settlement payments
|
|
|
6,435
|
|
|
|
|
|
|
|
6,435
|
|
|
|
|
|
Decrease in benefit as a result of lapse of statute of limitation
|
|
|
(25,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
297,216
|
|
|
$
|
329,638
|
|
|
$
|
297,216
|
|
|
$
|
329,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three-month period ended January 31, 2009, the
Company reached final settlement of its Internal Revenue Service
(IRS) tax audits for fiscal years 2003 through 2005,
State of California tax audits for fiscal years 2002 through
2006, and certain other amended filings. The state impact of any
amended federal returns remains subject to examination by
various states for a period of up to one year after formal
notification of such amendments to the states. The Company and
its subsidiaries have various state and other income tax returns
in the process of examination or administrative appeal. The
Company does not anticipate any material adjustments to its
financial statements resulting from tax examinations currently
in progress.
During the next twelve months, it is reasonably possible that
the amount of unrecognized tax benefits will decrease primarily
from expiration of tax statutes or settlements with taxing
jurisdictions, but the Company does not believe these reversals
will have a material impact on its financial statements. The
Companys unrecognized net tax benefits at April 30,
2009 were $178.3 million ($297.2 million before
recognition of tax benefit) and were included in Income
taxes payable on the Companys Condensed Consolidated
Balance Sheet at April 30, 2009. If these unrecognized tax
benefits reverse in the future, they would have a beneficial
impact on the Companys effective tax rate at that time.
Potential interest and penalties are recognized as a component
of the provision for income taxes, which is consistent with the
Companys historical accounting policy. During the
six-month periods ended April 30, 2009 and 2008, the
Company recognized in its tax provision, before reduction for
applicable taxes, interest and penalties of approximately
$11.0 million and $7.0 million, respectively. During
the three-month periods ended April 30, 2009 and 2008, the
Company recognized in its tax provision, before reduction for
applicable taxes, interest and penalties
12
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of approximately $4.0 million and $3.5 million,
respectively. At April 30, 2009 and October 31, 2008,
the Company had accrued interest and penalties, before reduction
of applicable taxes, of $114.8 million and
$142.2 million, respectively; these amounts were included
in Income taxes payable on the Companys
Condensed Consolidated Balance Sheets. The decrease in the
six-month period ended April 30, 2009 relates primarily to
the payment of interest on settled audits and the reversal of
interest accrued in prior years against potential tax
assessments no longer needed due to the expiration of the
applicable statute of limitations for federal tax purposes,
offset, in part, by additional interest accrued during the
period.
At April 30, 2009, the Companys net federal deferred
tax assets were $430.6 million. In accordance with the
provisions of SFAS 109, the Company assesses, on a
quarterly basis, its ability to realize its federal deferred tax
assets. Based on the more likely than not standard in
SFAS 109 and the weight of available evidence, the Company
does not believe a valuation allowance against its net federal
deferred tax assets is necessary. At the current federal tax
rate of 35%, the Company would require a combination of taxable
loss carrybacks and future income of approximately
$1.2 billion to realize the $430.6 million of net
federal deferred tax assets. Since much of the net federal
deferred tax assets were created through impairment charges
recognized for book purposes but not for tax purposes, the
Company may recover its net federal deferred tax assets through
a combination of: selling homes in impaired communities or
selling impaired land for amounts greater than the book carrying
value, thus realizing a gain for book purposes but not for tax
purposes; generating taxable income in the future and
recognizing, through disposition or other means, previously
recognized book impairment losses for tax purposes; or
recognizing in fiscal 2009, through disposition or other means,
previously recognized book impairment losses for tax purposes to
carry back such losses against fiscal 2007 taxable income. The
Company intends to generate tax losses in fiscal 2009, primarily
through the recognition for tax purposes of previously
recognized book impairments, using a majority of the
$462 million of its fiscal 2007 taxable income available
for carryback, and recover a portion of its net federal deferred
tax assets.
The Company is allowed to carry forward its taxable losses for
20 years and apply such taxable losses to future taxable
income to further realize its federal deferred tax assets. The
Company will continue to review its federal deferred tax assets
in accordance with SFAS 109.
For state tax purposes, due to past and projected losses in
certain jurisdictions where the Company does not have carryback
potential
and/or
cannot sufficiently forecast future taxable income, the Company
has recognized cumulative valuation allowances of
$43.5 million ($28.3 million, net of federal tax
benefit) as of April 30, 2009 against its state deferred
tax assets. In the six-month periods ended April 30, 2009
and 2008, the Company recognized impairment charges against its
state deferred tax assets of $6.6 million
($4.3 million, net of federal tax benefit) and
$13.0 million ($8.5 million, net of federal tax
benefit), respectively. In the three-month periods ended
April 30, 2009 and 2008, the Company recognized an
impairment charge against its state deferred tax assets of
$2.0 million ($1.3 million, net of federal tax
benefit) and $13.0 million ($8.5 million, net of
federal tax benefit), respectively. Future valuation allowances
in these jurisdictions may continue to be recognized if the
Company believes it will not generate sufficient future taxable
income to utilize these state deferred tax assets.
All accumulated other comprehensive loss at April 30, 2009
and 2008 was related to employee retirement plans.
13
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of other comprehensive loss in the six-month and
three-month periods ended April 30, 2009 and 2008 were as
follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
April 30,
|
|
|
Three Months Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net loss as reported
|
|
$
|
(172,060
|
)
|
|
$
|
(189,694
|
)
|
|
$
|
(83,165
|
)
|
|
$
|
(93,737
|
)
|
Changes in pension liability, net of tax provision
|
|
|
(59
|
)
|
|
|
(1,135
|
)
|
|
|
(29
|
)
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(172,119
|
)
|
|
$
|
(190,829
|
)
|
|
$
|
(83,194
|
)
|
|
$
|
(93,627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized a tax provision of $39,000 and $757,000
in the six-month periods ended April 30, 2009 and 2008,
respectively, related to the change in pension liability in
other comprehensive loss. The Company recognized a tax provision
of $20,000 and $73,000 in the three-month periods ended
April 30, 2009 and 2008, respectively, related to the
change in pension liability in other comprehensive loss.
|
|
8.
|
Employee
Retirement Plan
|
For the six-month and three-month periods ended April 30,
2009 and 2008, the Company recognized costs and made payments
related to its supplemental retirement plans as follows (amounts
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30,
|
|
|
Three Months Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Service cost
|
|
$
|
66
|
|
|
$
|
106
|
|
|
$
|
33
|
|
|
$
|
53
|
|
Interest cost
|
|
|
682
|
|
|
|
612
|
|
|
|
341
|
|
|
|
306
|
|
Amortization of initial benefit obligation
|
|
|
538
|
|
|
|
684
|
|
|
|
269
|
|
|
|
342
|
|
Amortization of unrecognized gains
|
|
|
(636
|
)
|
|
|
(320
|
)
|
|
|
(318
|
)
|
|
|
(160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
650
|
|
|
$
|
1,082
|
|
|
$
|
325
|
|
|
$
|
541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
$
|
62
|
|
|
$
|
63
|
|
|
$
|
29
|
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
Stock-Based
Benefit Plans
|
The fair value of each option award is estimated on the date of
grant using a lattice-based option valuation model that uses
assumptions noted in the following table. The lattice-based
option valuation model incorporates ranges of assumptions for
inputs; those ranges are disclosed in the table below. Expected
volatilities were based on implied volatilities from traded
options on the Companys stock, historical volatility of
the Companys stock and other factors. The expected lives
of options granted were derived from the historical exercise
patterns and anticipated future patterns and represent the
period of time that options granted are expected to be
outstanding; the range given below results from certain groups
of employees exhibiting different behavior. The risk-free rate
for periods within the contractual life of the option is based
on the U.S. Treasury yield curve in effect at the time of
grant.
14
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The weighted-average assumptions and the fair value used for
stock option grants for the six-month and three-month periods
ended April 30, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Expected volatility
|
|
46.74% - 50.36%
|
|
46.67% - 48.63%
|
Weighted-average volatility
|
|
48.06%
|
|
47.61%
|
Risk-free interest rate
|
|
1.24% - 1.90%
|
|
3.32% - 3.85%
|
Expected life (years)
|
|
4.29 - 8.52
|
|
4.29 - 8.32
|
Dividends
|
|
none
|
|
none
|
Weighted-average grant date fair value per share of options
granted
|
|
$8.60
|
|
$9.50
|
In the six-month period ended April 30, 2009, the Company
recognized $7.5 million of stock compensation expense and
$3.0 million of income tax benefit related to stock option
grants. In the six-month period ended April 30, 2008, the
Company recognized $16.0 million of stock compensation
expense and $6.4 million of income tax benefit related to
stock option grants.
In the three-month period ended April 30, 2009, the Company
recognized $1.8 million of stock compensation expense and
$0.7 million of income tax benefit related to stock option
grants. In the three-month period ended April 30, 2008, the
Company recognized $3.8 million of stock compensation
expense and $1.5 million of income tax benefit related to
stock option grants.
The Company expects to recognize approximately
$11.1 million of stock compensation expense and
$4.5 million of income tax benefit for fiscal 2009 related
to stock option grants. The Company recognized
$22.6 million of stock compensation expense and
$9.0 million of income tax benefit for fiscal 2008 related
to stock option grants.
On December 18, 2008, the Executive Compensation Committee
of the Companys Board of Directors approved the award of a
performance-based restricted stock unit (Performance-Based
RSU) relating to 200,000 shares of the Companys
common stock to Robert I. Toll. The Performance-Based RSU will
vest and Mr. Toll will be entitled to receive the
underlying shares if the average closing price of the
Companys common stock on the New York Stock Exchange
(NYSE), measured over any twenty consecutive trading
days ending on or prior to December 19, 2013, increases 30%
or more over $21.70, the closing price of the Companys
common stock on the NYSE on December 19, 2008; provided
Mr. Toll continues to be employed by the Company or serve
as a member of its Board of Directors until December 19,
2011. The Performance-Based RSU will also vest if Mr. Toll
dies, becomes disabled or the Company experiences a change of
control prior to satisfaction of the aforementioned performance
criteria. Using a lattice based option pricing model and
assuming an expected volatility of 48.14%, a risk-free interest
rate of 1.35%, and an expected life of 3.0 years, the
Company determined the aggregate value of the Performance-Based
RSU to be $3.6 million. In the six-month and three-month
periods ended April 30, 2009, the Company recognized
$438,000 and $304,000, respectively, of stock-based compensation
expense related to the Performance-Based RSU.
As part of the Companys cash conservation effort, it
issued restricted stock units (RSUs) relating to
62,052 shares of the Companys common stock to a
number of employees in lieu of a portion of the employees
bonuses and in lieu of a portion of one employees 2009
salary. These RSUs, although not subject to forfeiture, will
vest in annual installments over a four-year period, unless
accelerated due to death, disability or termination of
employment, as more fully described in the RSU award document.
Because the RSUs are non-forfeitable, the value of the RSUs were
determined to be equal to the number of shares of the
Companys common stock to be issued pursuant to the RSUs,
multiplied by $21.70, the closing price of the Companys
common stock on the NYSE on December 19, 2008, the date the
RSUs were awarded. The amount applicable to employee bonuses has
been charged to the Companys accrual for bonuses that it
made in fiscal 2008 and the amount applicable to salary
15
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
deferral ($130,000) was charged to selling, general and
administrative expense in the three-month period ended
January 31, 2009.
|
|
10.
|
Fair
Value Disclosures
|
Effective November 1, 2008, the Company adopted
SFAS 157 for its financial instruments measured at fair
value on a recurring basis. SFAS 157 provides a framework
for measuring fair value in generally accepted accounting
principles, expands disclosures about fair value measurements,
and establishes a fair value hierarchy which requires an entity
to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The fair value
hierarchy can be summarized as follows:
|
|
|
|
Level 1:
|
Fair value determined based on quoted prices in active markets
for identical assets or liabilities.
|
|
|
Level 2:
|
Fair value determined using significant observable inputs,
generally either quoted prices in active markets for similar
assets or liabilities or quoted prices in markets that are not
active.
|
|
|
Level 3:
|
Fair value determined using significant unobservable inputs,
such as pricing models, discounted cash flows, or similar
techniques.
|
Effective November 1, 2008, the Company adopted
SFAS 159 on a prospective basis for residential mortgage
loans it holds for sale. In accordance with the provisions of
SFAS 159, residential mortgage loans held for sale
originated subsequent to November 1, 2008 are measured at
fair value. Residential mortgage loans held for sale originated
prior to November 1, 2008 are carried at lower of cost or
market. The adoption of SFAS 159 for residential mortgage
loans held for sale improves the consistency of mortgage loan
valuation between the date the borrower locks in the interest
rate on the pending mortgage loan and the date of the mortgage
loan sale. In addition, the recognition of net origination costs
and fees associated with residential mortgage loans originated
on or after November 1, 2008 are no longer deferred until
the time of sale. There were no required cumulative adjustments
to retained earnings because the Company continued to account
for residential mortgage loans held for sale originated prior to
November 1, 2008 at the lower of cost or market. The
implementation of this standard did not have a material impact
on the Companys consolidated financial position, results
of operations or cash flows.
A summary of assets and (liabilities) at April 30, 2009
related to the Companys financial instruments, measured at
fair value on a recurring basis, is set forth below (amounts in
thousands).
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Fair
|
|
Financial Instrument
|
|
Hierarchy
|
|
|
Value
|
|
|
Cash Equivalents(a)
|
|
|
Level 1
|
|
|
$
|
1,918,739
|
|
Residential Mortgage Loans Held for Sale
|
|
|
Level 2
|
|
|
|
47,323
|
|
Forward Loan Commitments Residential Mortgage Loans
Held for Sale
|
|
|
Level 2
|
|
|
|
(33
|
)
|
Interest Rate Lock Commitments (IRLCs)
|
|
|
Level 2
|
|
|
|
(37
|
)
|
Forward Loan Commitments IRLCs
|
|
|
Level 2
|
|
|
|
41
|
|
|
|
|
(a) |
|
Primarily consists of money market funds that are invested in
short-term (maturities of 90 days or less) government
securities. |
As of April 30, 2009, the unpaid principal balance of
mortgage loans held for sale was less than the aggregate fair
value by $131,000 and, accordingly, this amount has been
recognized as a gain in current earnings and is included in
interest and other. Interest income on mortgage loans held for
sale is calculated based upon the stated interest rate of each
loan and is included in interest and other.
IRLCs represent individual borrower agreements that commit the
Company to lend at a specified price for a specified period as
long as there is no violation of any condition established in
the commitment contract. These commitments have varying degrees
of interest rate risk. The Company utilizes best-efforts forward
loan
16
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
commitments (Forward Commitments) to hedge the
interest risk of the IRLCs and residential mortgage loans held
for sale. Forward Commitments represent contracts with
third-party investors for the future delivery of loans whereby
the Company agrees to make delivery at a specified future date
at a specified price. The IRLCs and Forward Commitments are
considered derivative financial instruments under
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities
(SFAS 133), which requires derivative financial
instruments to be recorded at fair value. The Company estimates
the fair value of such commitments based on the estimated fair
value of the underlying mortgage loan and, in the case of IRLCs,
the probability that the mortgage loan will fund within the
terms of the IRLC. To manage the risk of nonperformance of
investors regarding the Forward Commitments, the Company
assesses the credit worthiness of the investors on a periodic
basis.
|
|
11.
|
Loss per
Share Information
|
Information pertaining to the calculation of loss per share for
the six-month and three-month periods ended April 30, 2009
and 2008 is as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30,
|
|
|
Three Months Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Basic weighted-average shares
|
|
|
160,917
|
|
|
|
158,217
|
|
|
|
161,134
|
|
|
|
158,621
|
|
Common stock equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares
|
|
|
160,917
|
|
|
|
158,217
|
|
|
|
161,134
|
|
|
|
158,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalents represent the dilutive effect of
outstanding in-the-money stock options using the treasury stock
method. For the six-month and three-month periods ended
April 30, 2009 and 2008, there were no incremental shares
attributed to outstanding options to purchase common stock
because the Company had a net loss in each of the periods and
any incremental shares would be anti-dilutive. Had the Company
had net income in the six-month periods ended April 30,
2009 and 2008, 4.2 million common stock equivalents would
have been included in the fiscal 2009 periods diluted
weighted-average shares and 6.4 million common stock
equivalents would have been included in the fiscal 2008
periods diluted weighted-average shares. Had the Company
had net income in the three-month periods ended April 30,
2009 and 2008, 3.9 million common stock equivalents would
have been included in the fiscal 2009 periods diluted
weighted-average shares and 6.5 million common stock
equivalents would have been included in the fiscal 2008
periods diluted weighted-average shares.
During the six-month and three-month periods ended
April 30, 2009 and 2008, the Company issued 762,000,
61,000, 1,772,000 and 270,000 shares, respectively, of its
common stock under its stock incentive plans and employee stock
purchase plan.
At April 30, 2009, the exercise price of approximately
8.9 million outstanding stock options was higher than the
average closing price of the Companys common stock on the
NYSE for the three-month period ended April 30, 2009. At
April 30, 2008, the exercise price of approximately
5.3 million outstanding stock options was higher than the
average closing price of the Companys common stock on the
NYSE for the three-month period ended April 30, 2008.
|
|
12.
|
Stock
Repurchase Program
|
In March 2003, the Companys Board of Directors authorized
the repurchase of up to 20 million shares of its common
stock, par value $.01, from time to time, in open market
transactions or otherwise, for the purpose of providing shares
for its various employee benefit plans. At April 30, 2009,
the Company was authorized to repurchase approximately
11.9 million shares.
17
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company is involved in various claims and litigation arising
principally in the ordinary course of business.
In January 2006, the Company received a request for information
pursuant to Section 308 of the Clean Water Act from Region
3 of the U.S. Environmental Protection Agency
(EPA) concerning storm water discharge practices in
connection with its homebuilding projects in the states that
comprise EPA Region 3. The Company provided information to the
EPA pursuant to the request. The U.S. Department of Justice
(DOJ) has now assumed responsibility for the
oversight of this matter and has advised that the Company has
violated regulatory requirements applicable to storm water
discharges and that it may seek injunctive relief
and/or civil
penalties. The Company is now engaged in settlement discussions
with representatives from the DOJ and the EPA.
In April 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 a purported class of purchasers of the
Companys common stock between December 9, 2004 and
November 8, 2005. In August 2007, an amended complaint was
filed adding additional directors and officers as defendants.
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 the
Companys stock. It further alleges that the individual
defendants sold shares for substantial gains during the class
period. The purported class is seeking compensatory damages,
counsel fees, and expert costs.
In November 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 purports to bring his claims on behalf of Toll
Brothers, Inc. and alleges that the director and officer
defendants breached their fiduciary duties to the Company and
its 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 the Company in the securities class action suit.
In addition, again purportedly on the Companys behalf, the
plaintiff seeks disgorgement of the defendants profits
from their stock sales.
On March 4, 2009, a second shareholder derivative action
was brought in federal district court in Philadelphia, PA. This
case has been brought against the eleven current members of the
Companys board of directors. The complaint alleges
breaches of fiduciary duty, waste of corporate assets, and
unjust enrichment during the period from February 2005 to
November 2006. The complaint further alleges that certain of the
defendants sold Company stock during this period while in
possession of the allegedly non-public, material information
about the role of speculative investors in the Companys
sales and plaintiff seeks disgorgement of profits from these
sales. The complaint also asserts a claim for equitable
indemnity for costs and expenses incurred by the Company in
connection with defending the securities class action discussed
above.
On April 1, 2009, a third shareholder derivative action was
filed, also in federal district court in Philadelphia, PA,
against the current members of the Companys board of
directors and Joseph R. Sicree, the Companys Chief
Accounting Officer. This Complaint is identical to the previous
shareholder complaint filed in Philadelphia.
The Companys Certificate of Incorporation and Bylaws
provide for indemnification of its directors and officers. The
Company has also entered into individual indemnification
agreements with each of its directors and executive officers.
Due to the high degree of judgment required in determining the
amount of potential loss related to the various claims and
litigation in which the Company is involved in, including those
noted above, and the inherent variability in predicting future
settlements and judicial decisions, the Company cannot estimate
a range of reasonably possible losses in excess of its accruals
for these matters. The Company believes that adequate provision
for resolution of all
18
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
claims and pending litigation has been made for probable losses
and the disposition of these matters will not have a material
adverse effect on the Companys results of operations and
liquidity or on its financial condition.
|
|
14.
|
Commitments
and Contingencies
|
Generally, the Companys option and purchase agreements to
acquire land parcels do not require the Company to purchase
those land parcels, although the Company may, in some cases,
forfeit any deposit balance outstanding if and when it
terminates an option and purchase agreement. If market
conditions are weak, approvals needed to develop the land are
uncertain or other factors exist that make the purchase
undesirable, the Company may not expect to acquire the land.
Whether an option and purchase agreement is legally terminated
or not, the Company reviews the amount recorded for the land
parcel subject to the option and purchase agreement to determine
if the amount is recoverable. While the Company may not have
formally terminated the option and purchase agreements for those
land parcels that it does not expect to acquire, it has written
off any non-refundable deposits and costs previously capitalized
to such land parcels in the periods that it determined such
costs were not recoverable. At April 30, 2009, the
aggregate purchase price of land parcels under option and
purchase agreements, excluding parcels under option that the
Company does not believe are recoverable or that it does not
expect to acquire, was approximately $573.7 million
(including $148.5 million of land to be acquired from
unconsolidated entities in which the Company has investments).
Of the $573.7 million aggregate purchase price of land
parcels subject to option and purchase agreements that the
Company expects to acquire, at April 30, 2009, it had
deposited $69.5 million on such parcels, was entitled to
receive a credit for prior investments in unconsolidated
entities of approximately $36.7 million and, if the Company
acquired all of these land parcels, would be required to pay an
additional $467.5 million. Of the additional
$467.5 million the Company would be required to pay, it had
recorded $124.2 million of this amount in accrued expenses
at April 30, 2009.
At April 30, 2009, the Company had investments in and
advances to a number of unconsolidated entities, was committed
to invest or advance additional funds and had guaranteed a
portion of the indebtedness
and/or loan
commitments of these entities. See Note 3,
Investments in and Advances to Unconsolidated
Entities for more information regarding the Companys
commitments to these entities.
At April 30, 2009, the Company had outstanding surety bonds
amounting to $420.9 million, primarily related to its
obligations to various governmental entities to construct
improvements in the Companys various communities. The
Company estimates that $137.2 million of work remains on
these improvements. The Company has an additional
$103.3 million of surety bonds outstanding that guarantee
other obligations of the Company. The Company does not believe
it is probable that any outstanding bonds will be drawn upon.
At April 30, 2009, the Company had outstanding agreements
of sale to deliver 1,581 homes with an aggregate sales value of
$944.3 million.
The Companys mortgage subsidiary provides mortgage
financing for a portion of the Companys home closings. For
those home buyers to whom the Companys mortgage subsidiary
provides mortgages, it 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, the Companys 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, the Companys
mortgage subsidiary agrees to sell the proposed mortgage loan to
one of several outside recognized mortgage financing
institutions (investors), which is willing to honor
the terms and conditions, including interest rate, committed to
the home buyer. The Company believes that these investors have
adequate financial resources to honor their commitments to its
mortgage subsidiary. At April 30, 2009, the Companys
mortgage subsidiary was committed to fund $411.5 million of
mortgage loans. Of these commitments, $119.8 million are
IRLCs. The Companys mortgage subsidiary has commitments
from investors to acquire $119.7 million of these IRLCs and
19
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$45.0 million of its mortgage loans receivable. The
Companys home buyers have not locked-in the
interest rate on the remaining $291.7 million.
Revenue and (loss) income before income taxes for each of the
Companys geographic segments for the six-month and three
month periods ended April 30, 2009 and 2008 were as follows
(amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30,
|
|
|
Three Months Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
$
|
283.0
|
|
|
$
|
466.0
|
|
|
$
|
139.8
|
|
|
$
|
239.2
|
|
Mid-Atlantic
|
|
|
234.8
|
|
|
|
453.9
|
|
|
|
104.3
|
|
|
|
203.6
|
|
South
|
|
|
128.9
|
|
|
|
294.0
|
|
|
|
73.7
|
|
|
|
155.2
|
|
West
|
|
|
160.7
|
|
|
|
446.4
|
|
|
|
80.5
|
|
|
|
220.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
807.4
|
|
|
$
|
1,660.3
|
|
|
$
|
398.3
|
|
|
$
|
818.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
$
|
(26.3
|
)
|
|
$
|
30.3
|
|
|
$
|
0.9
|
|
|
$
|
25.5
|
|
Mid-Atlantic
|
|
|
(17.6
|
)
|
|
|
(12.2
|
)
|
|
|
(13.3
|
)
|
|
|
(27.4
|
)
|
South
|
|
|
(32.1
|
)
|
|
|
(167.0
|
)
|
|
|
(5.7
|
)
|
|
|
(55.3
|
)
|
West
|
|
|
(146.4
|
)
|
|
|
(101.6
|
)
|
|
|
(73.8
|
)
|
|
|
(71.2
|
)
|
Corporate and other
|
|
|
(56.1
|
)
|
|
|
(55.5
|
)
|
|
|
(30.0
|
)
|
|
|
(25.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(278.5
|
)
|
|
$
|
(306.0
|
)
|
|
$
|
(121.9
|
)
|
|
$
|
(154.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other is comprised principally of
general corporate expenses such as the Offices of the Chief
Executive Officer and President, and the corporate finance,
accounting, audit, tax, human resources, risk management,
marketing and legal groups, offset in part by interest income
and income from the Companys ancillary businesses.
Total assets for each of the Companys geographic segments
at April 30, 2009 and October 31, 2008 are shown in
the table below (amounts in millions).
|
|
|
|
|
|
|
|
|
|
|
April 30, 2009
|
|
|
October 31, 2008
|
|
|
North
|
|
$
|
1,190.8
|
|
|
$
|
1,244.7
|
|
Mid-Atlantic
|
|
|
1,153.9
|
|
|
|
1,220.3
|
|
South
|
|
|
644.4
|
|
|
|
688.0
|
|
West
|
|
|
945.4
|
|
|
|
1,134.0
|
|
Corporate and other
|
|
|
2,558.0
|
|
|
|
2,299.8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,492.5
|
|
|
$
|
6,586.8
|
|
|
|
|
|
|
|
|
|
|
Corporate and other is comprised principally of cash
and cash equivalents, deferred tax assets and the assets of the
Companys manufacturing facilities and mortgage subsidiary.
20
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company provided for inventory impairment charges and the
expensing of costs that it believed not to be recoverable, and
write-downs of investments in unconsolidated entities that it
does not believe it will be able to recover (including the
Companys pro-rata share of impairment charges recognized
by the unconsolidated entities in which it has an investment)
for the six-month and three-month periods ended April 30,
2009 and 2008 as shown in the table below; the carrying value of
inventory and investments in unconsolidated entities for each of
the Companys geographic segments at April 30, 2009
and October 31, 2008 are also shown (amounts in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
|
Ended
|
|
|
Three Months Ended
|
|
|
|
April 30,
|
|
|
October 31,
|
|
|
April 30,
|
|
|
April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Inventory:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land controlled for future communities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
$
|
42.8
|
|
|
$
|
33.7
|
|
|
$
|
4.4
|
|
|
$
|
19.3
|
|
|
$
|
1.1
|
|
|
$
|
0.1
|
|
Mid-Atlantic
|
|
|
21.3
|
|
|
|
24.6
|
|
|
|
4.0
|
|
|
|
9.7
|
|
|
|
0.3
|
|
|
|
3.6
|
|
South
|
|
|
2.8
|
|
|
|
3.7
|
|
|
|
0.3
|
|
|
|
41.9
|
|
|
|
0.2
|
|
|
|
1.4
|
|
West
|
|
|
8.7
|
|
|
|
7.1
|
|
|
|
1.4
|
|
|
|
8.8
|
|
|
|
1.2
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75.6
|
|
|
|
69.1
|
|
|
|
10.1
|
|
|
|
79.7
|
|
|
|
2.8
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land owned for future communities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
210.8
|
|
|
|
217.9
|
|
|
|
25.6
|
|
|
|
5.3
|
|
|
|
5.6
|
|
|
|
4.0
|
|
Mid-Atlantic
|
|
|
373.4
|
|
|
|
382.2
|
|
|
|
10.3
|
|
|
|
46.2
|
|
|
|
5.2
|
|
|
|
46.2
|
|
South
|
|
|
52.7
|
|
|
|
52.7
|
|
|
|
|
|
|
|
33.5
|
|
|
|
|
|
|
|
24.0
|
|
West
|
|
|
119.1
|
|
|
|
166.2
|
|
|
|
48.6
|
|
|
|
0.7
|
|
|
|
38.6
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
756.0
|
|
|
|
819.0
|
|
|
|
84.5
|
|
|
|
85.7
|
|
|
|
49.4
|
|
|
|
74.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating communities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
858.7
|
|
|
|
952.9
|
|
|
|
21.5
|
|
|
|
39.2
|
|
|
|
8.0
|
|
|
|
21.9
|
|
Mid-Atlantic
|
|
|
775.6
|
|
|
|
858.8
|
|
|
|
22.1
|
|
|
|
23.4
|
|
|
|
14.4
|
|
|
|
6.8
|
|
South
|
|
|
522.7
|
|
|
|
560.4
|
|
|
|
32.9
|
|
|
|
105.4
|
|
|
|
8.3
|
|
|
|
39.2
|
|
West
|
|
|
723.1
|
|
|
|
867.3
|
|
|
|
99.2
|
|
|
|
87.3
|
|
|
|
36.7
|
|
|
|
53.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,880.1
|
|
|
|
3,239.4
|
|
|
|
175.7
|
|
|
|
255.3
|
|
|
|
67.4
|
|
|
|
121.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
3,711.7
|
|
|
$
|
4,127.5
|
|
|
$
|
270.3
|
|
|
$
|
420.7
|
|
|
$
|
119.6
|
|
|
$
|
203.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
$
|
22.6
|
|
|
$
|
26.8
|
|
|
$
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-Atlantic
|
|
|
12.7
|
|
|
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South
|
|
|
49.9
|
|
|
|
48.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West
|
|
|
63.1
|
|
|
|
64.8
|
|
|
|
|
|
|
$
|
112.8
|
|
|
|
|
|
|
$
|
85.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
148.3
|
|
|
$
|
151.8
|
|
|
$
|
6.0
|
|
|
$
|
112.8
|
|
|
|
|
|
|
$
|
85.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
16.
|
Supplemental
Disclosure to Statements of Cash Flows
|
The following are supplemental disclosures to the statements of
cash flows for the six months ended April 30, 2009 and 2008
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid, net of amount capitalized
|
|
$
|
4,206
|
|
|
$
|
6,704
|
|
Income taxes paid
|
|
$
|
75,155
|
|
|
$
|
87,332
|
|
Income tax refunds
|
|
$
|
43,939
|
|
|
|
|
|
Non-cash activity:
|
|
|
|
|
|
|
|
|
Reduction of investments in unconsolidated entities due to
reduction in letters of credit
|
|
$
|
6,343
|
|
|
$
|
5,804
|
|
Reclassification of accrued liabilities to loan payable
|
|
$
|
7,800
|
|
|
$
|
2,163
|
|
Cost of inventory acquired through seller financing
|
|
$
|
3,752
|
|
|
$
|
4,013
|
|
Land returned to seller subject to loan financing
|
|
|
|
|
|
$
|
7,750
|
|
Contribution of inventory to a consolidated joint venture
|
|
$
|
5,283
|
|
|
|
|
|
Miscellaneous increases to investments in unconsolidated entities
|
|
$
|
578
|
|
|
$
|
608
|
|
Adoption of FIN 48
|
|
|
|
|
|
$
|
47,460
|
|
Reclassification of inventory to property, construction and
office equipment
|
|
|
|
|
|
$
|
16,103
|
|
Income tax benefit related to exercise of employee stock options
|
|
$
|
4,487
|
|
|
$
|
2,980
|
|
Stock awards
|
|
$
|
27
|
|
|
$
|
26
|
|
|
|
17.
|
Supplemental
Guarantor Information
|
A 100% owned subsidiary of the Company, Toll Brothers Finance
Corp. (the Subsidiary Issuer), issued
$300 million of 6.875% Senior Notes due 2012 on
November 22, 2002; $250 million of 5.95% Senior
Notes due 2013 on September 3, 2003; $300 million of
4.95% Senior Notes due 2014 on March 16, 2004;
$300 million of 5.15% Senior Notes due 2015 on
June 2, 2005; and $400 million of 8.91% Senior
Notes due 2017 on April 13, 2009. The obligations of the
Subsidiary Issuer to pay principal, premiums, if any, and
interest is guaranteed jointly and severally on a senior basis
by the Company and substantially all of the Companys
100%-owned home building subsidiaries (the Guarantor
Subsidiaries). The guarantees are full and unconditional.
The Companys non-home building subsidiaries and several of
its home building subsidiaries (the Non-Guarantor
Subsidiaries) do not guarantee the debt. Separate
financial statements and other disclosures concerning the
Guarantor Subsidiaries are not presented because management has
determined that such disclosures would not be material to
financial investors. Prior to the senior debt issuances, the
Subsidiary Issuer did not have any operations.
Supplemental condensed consolidating financial information of
Toll Brothers, Inc., the Subsidiary Issuer, the Guarantor
Subsidiaries, the Non-Guarantor Subsidiaries and the
eliminations to arrive at Toll Brothers, Inc. on a consolidated
basis is presented below (amounts in thousands $).
22
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Balance Sheet at April 30, 2009 ($ in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
1,853,266
|
|
|
|
109,734
|
|
|
|
|
|
|
|
1,963,000
|
|
Inventory
|
|
|
|
|
|
|
|
|
|
|
3,416,114
|
|
|
|
295,571
|
|
|
|
|
|
|
|
3,711,685
|
|
Property, construction and office equipment, net
|
|
|
|
|
|
|
|
|
|
|
76,842
|
|
|
|
1,742
|
|
|
|
|
|
|
|
78,584
|
|
Receivables, prepaid expenses and other assets
|
|
|
70
|
|
|
|
5,931
|
|
|
|
63,987
|
|
|
|
27,639
|
|
|
|
(1,320
|
)
|
|
|
96,307
|
|
Mortgage loans receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,193
|
|
|
|
|
|
|
|
47,193
|
|
Customer deposits held in escrow
|
|
|
|
|
|
|
|
|
|
|
16,310
|
|
|
|
554
|
|
|
|
|
|
|
|
16,864
|
|
Investments in and advances to unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
102,431
|
|
|
|
45,821
|
|
|
|
|
|
|
|
148,252
|
|
Investments in and advances to consolidated entities
|
|
|
2,737,406
|
|
|
|
1,552,303
|
|
|
|
(1,028,443
|
)
|
|
|
(228,769
|
)
|
|
|
(3,032,497
|
)
|
|
|
|
|
Deferred tax assets
|
|
|
430,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
430,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,168,060
|
|
|
|
1,558,234
|
|
|
|
4,500,507
|
|
|
|
299,485
|
|
|
|
(3,033,817
|
)
|
|
|
6,492,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans payable
|
|
|
|
|
|
|
|
|
|
|
420,266
|
|
|
|
127,085
|
|
|
|
|
|
|
|
547,351
|
|
Senior notes
|
|
|
|
|
|
|
1,536,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,536,175
|
|
Senior subordinated notes
|
|
|
|
|
|
|
|
|
|
|
343,000
|
|
|
|
|
|
|
|
|
|
|
|
343,000
|
|
Mortgage company warehouse loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,479
|
|
|
|
|
|
|
|
34,479
|
|
Customer deposits
|
|
|
|
|
|
|
|
|
|
|
92,257
|
|
|
|
10,277
|
|
|
|
|
|
|
|
102,534
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
95,218
|
|
|
|
1,928
|
|
|
|
|
|
|
|
97,146
|
|
Accrued expenses
|
|
|
|
|
|
|
22,059
|
|
|
|
410,084
|
|
|
|
229,697
|
|
|
|
(1,399
|
)
|
|
|
660,441
|
|
Income taxes payable
|
|
|
86,948
|
|
|
|
|
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
84,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
86,948
|
|
|
|
1,558,234
|
|
|
|
1,360,825
|
|
|
|
401,466
|
|
|
|
(1,399
|
)
|
|
|
3,406,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
5,283
|
|
|
|
|
|
|
|
|
|
|
|
5,283
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1,611
|
|
|
|
|
|
|
|
|
|
|
|
2,003
|
|
|
|
(2,003
|
)
|
|
|
1,611
|
|
Additional paid-in capital
|
|
|
297,763
|
|
|
|
|
|
|
|
4,420
|
|
|
|
2,734
|
|
|
|
(7,154
|
)
|
|
|
297,763
|
|
Retained earnings
|
|
|
2,781,595
|
|
|
|
|
|
|
|
3,129,713
|
|
|
|
(106,718
|
)
|
|
|
(3,022,995
|
)
|
|
|
2,781,595
|
|
Treasury stock, at cost
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(123
|
)
|
Accumulated other comprehensive income
|
|
|
266
|
|
|
|
|
|
|
|
266
|
|
|
|
|
|
|
|
(266
|
)
|
|
|
266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,081,112
|
|
|
|
|
|
|
|
3,134,399
|
|
|
|
(101,981
|
)
|
|
|
(3,032,418
|
)
|
|
|
3,081,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,168,060
|
|
|
|
1,558,234
|
|
|
|
4,500,507
|
|
|
|
299,485
|
|
|
|
(3,033,817
|
)
|
|
|
6,492,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Balance Sheet at October 31, 2008 ($ in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
1,515,617
|
|
|
|
117,878
|
|
|
|
|
|
|
|
1,633,495
|
|
Inventory
|
|
|
|
|
|
|
|
|
|
|
3,727,937
|
|
|
|
399,538
|
|
|
|
|
|
|
|
4,127,475
|
|
Property, construction and office equipment, net
|
|
|
|
|
|
|
|
|
|
|
84,460
|
|
|
|
2,002
|
|
|
|
|
|
|
|
86,462
|
|
Receivables, prepaid expenses and other assets
|
|
|
39
|
|
|
|
3,549
|
|
|
|
63,228
|
|
|
|
48,462
|
|
|
|
(1,516
|
)
|
|
|
113,762
|
|
Mortgage loans receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,255
|
|
|
|
|
|
|
|
49,255
|
|
Customer deposits held in escrow
|
|
|
|
|
|
|
|
|
|
|
18,728
|
|
|
|
185
|
|
|
|
|
|
|
|
18,913
|
|
Investments in and advances to unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
105,828
|
|
|
|
45,943
|
|
|
|
|
|
|
|
151,771
|
|
Investments in and advances to consolidated entities
|
|
|
3,036,158
|
|
|
|
1,160,470
|
|
|
|
(764,163
|
)
|
|
|
(252,697
|
)
|
|
|
(3,179,768
|
)
|
|
|
|
|
Deferred tax assets
|
|
|
405,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
405,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,441,900
|
|
|
|
1,164,019
|
|
|
|
4,751,635
|
|
|
|
410,566
|
|
|
|
(3,181,284
|
)
|
|
|
6,586,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans payable
|
|
|
|
|
|
|
|
|
|
|
426,060
|
|
|
|
187,534
|
|
|
|
|
|
|
|
613,594
|
|
Senior notes
|
|
|
|
|
|
|
1,143,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,143,445
|
|
Senior subordinated notes
|
|
|
|
|
|
|
|
|
|
|
343,000
|
|
|
|
|
|
|
|
|
|
|
|
343,000
|
|
Mortgage company warehouse loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,867
|
|
|
|
|
|
|
|
37,867
|
|
Customer deposits
|
|
|
|
|
|
|
|
|
|
|
110,312
|
|
|
|
25,279
|
|
|
|
|
|
|
|
135,591
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
128,971
|
|
|
|
5,872
|
|
|
|
|
|
|
|
134,843
|
|
Accrued expenses
|
|
|
|
|
|
|
20,574
|
|
|
|
465,791
|
|
|
|
253,951
|
|
|
|
(1,720
|
)
|
|
|
738,596
|
|
Income taxes payable
|
|
|
204,247
|
|
|
|
|
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
202,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
204,247
|
|
|
|
1,164,019
|
|
|
|
1,474,134
|
|
|
|
508,503
|
|
|
|
(1,720
|
)
|
|
|
3,349,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1,604
|
|
|
|
|
|
|
|
|
|
|
|
2,003
|
|
|
|
(2,003
|
)
|
|
|
1,604
|
|
Additional paid-in capital
|
|
|
282,090
|
|
|
|
|
|
|
|
4,420
|
|
|
|
2,734
|
|
|
|
(7,154
|
)
|
|
|
282,090
|
|
Retained earnings
|
|
|
2,953,655
|
|
|
|
|
|
|
|
3,272,756
|
|
|
|
(102,674
|
)
|
|
|
(3,170,082
|
)
|
|
|
2,953,655
|
|
Treasury stock, at cost
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
Accumulated other comprehensive income
|
|
|
325
|
|
|
|
|
|
|
|
325
|
|
|
|
|
|
|
|
(325
|
)
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,237,653
|
|
|
|
|
|
|
|
3,277,501
|
|
|
|
(97,937
|
)
|
|
|
(3,179,564
|
)
|
|
|
3,237,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,441,900
|
|
|
|
1,164,019
|
|
|
|
4,,751,635
|
|
|
|
410,566
|
|
|
|
(3,181,284
|
)
|
|
|
6,586,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Operations for the six months ended
April 30, 2009 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
709,838
|
|
|
|
97,512
|
|
|
|
|
|
|
|
807,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
34,385
|
|
|
|
826,171
|
|
|
|
107,179
|
|
|
|
(33,995
|
)
|
|
|
933,740
|
|
Selling, general and administrative
|
|
|
22
|
|
|
|
970
|
|
|
|
165,947
|
|
|
|
11,165
|
|
|
|
(10,995
|
)
|
|
|
167,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(22
|
)
|
|
|
(35,355
|
)
|
|
|
(282,280
|
)
|
|
|
(20,832
|
)
|
|
|
44,990
|
|
|
|
(293,499
|
)
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
(4,616
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,616
|
)
|
Interest and other
|
|
|
|
|
|
|
35,355
|
|
|
|
10,520
|
|
|
|
12,661
|
|
|
|
(36,819
|
)
|
|
|
21,717
|
|
Expenses related to retirement of debt
|
|
|
|
|
|
|
|
|
|
|
(2,067
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,067
|
)
|
Loss from subsidiaries
|
|
|
(278,443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
278,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit
|
|
|
(278,465
|
)
|
|
|
|
|
|
|
(278,443
|
)
|
|
|
(8,171
|
)
|
|
|
286,614
|
|
|
|
(278,465
|
)
|
Income tax benefit
|
|
|
(106,405
|
)
|
|
|
|
|
|
|
(120,447
|
)
|
|
|
(3,101
|
)
|
|
|
123,548
|
|
|
|
(106,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(172,060
|
)
|
|
|
|
|
|
|
(157,996
|
)
|
|
|
(5,070
|
)
|
|
|
163,066
|
|
|
|
(172,060
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidating Statement of Operations for the six months ended
April 30, 2008 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
1,656,876
|
|
|
|
3,450
|
|
|
|
|
|
|
|
1,660,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues
|
|
|
|
|
|
|
32,725
|
|
|
|
1,706,910
|
|
|
|
3,928
|
|
|
|
(33,088
|
)
|
|
|
1,710,475
|
|
Selling, general and administrative
|
|
|
1
|
|
|
|
349
|
|
|
|
230,271
|
|
|
|
14,515
|
|
|
|
(15,113
|
)
|
|
|
230,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1
|
)
|
|
|
(33,074
|
)
|
|
|
(280,305
|
)
|
|
|
(14,993
|
)
|
|
|
(48,201
|
)
|
|
|
(280,172
|
)
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
(20,649
|
)
|
|
|
(84,994
|
)
|
|
|
|
|
|
|
(105,643
|
)
|
Interest and other income (loss)
|
|
|
|
|
|
|
33,074
|
|
|
|
(5,011
|
)
|
|
|
17,365
|
|
|
|
34,421
|
|
|
|
79,849
|
|
Loss from subsidiaries
|
|
|
(305,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
305,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(305,966
|
)
|
|
|
|
|
|
|
(305,965
|
)
|
|
|
(82,622
|
)
|
|
|
388,587
|
|
|
|
(305,966
|
)
|
Income tax benefit
|
|
|
(116,272
|
)
|
|
|
|
|
|
|
(124,542
|
)
|
|
|
(32,304
|
)
|
|
|
156,846
|
|
|
|
(116,272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(189,694
|
)
|
|
|
|
|
|
|
(181,423
|
)
|
|
|
(50,318
|
)
|
|
|
231,741
|
|
|
|
(189,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Operations for the three months ended
April 30, 2009 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
359,601
|
|
|
|
38,726
|
|
|
|
|
|
|
|
398,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
17,935
|
|
|
|
408,332
|
|
|
|
39,240
|
|
|
|
(17,747
|
)
|
|
|
447,760
|
|
Selling, general and administrative
|
|
|
16
|
|
|
|
512
|
|
|
|
80,701
|
|
|
|
5,602
|
|
|
|
(5,485
|
)
|
|
|
81,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(16
|
)
|
|
|
(18,447
|
)
|
|
|
(129,432
|
)
|
|
|
(6,116
|
)
|
|
|
23,232
|
|
|
|
(130,779
|
)
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
481
|
|
|
|
|
|
|
|
|
|
|
|
481
|
|
Interest and other
|
|
|
|
|
|
|
18,447
|
|
|
|
9,130
|
|
|
|
8,385
|
|
|
|
(25,501
|
)
|
|
|
10,461
|
|
Expenses related to retirement of debt
|
|
|
|
|
|
|
|
|
|
|
(2,067
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,067
|
)
|
Loss from subsidiaries
|
|
|
(121,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income tax benefit
|
|
|
(121,904
|
)
|
|
|
|
|
|
|
(121,888
|
)
|
|
|
2,269
|
|
|
|
119,619
|
|
|
|
(121,904
|
)
|
Income tax (benefit) provision
|
|
|
(38,739
|
)
|
|
|
|
|
|
|
(32,493
|
)
|
|
|
1,392
|
|
|
|
31,101
|
|
|
|
(38,739
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(83,165
|
)
|
|
|
|
|
|
|
(89,395
|
)
|
|
|
877
|
|
|
|
88,518
|
|
|
|
(83,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidating Statement of Operations for the three months ended
April 30, 2008 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
817,997
|
|
|
|
|
|
|
|
|
|
|
|
817,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues
|
|
|
|
|
|
|
15,990
|
|
|
|
842,091
|
|
|
|
471
|
|
|
|
(16,126
|
)
|
|
|
842,426
|
|
Selling, general and administrative
|
|
|
|
|
|
|
173
|
|
|
|
108,607
|
|
|
|
7,162
|
|
|
|
(7,237
|
)
|
|
|
108,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
|
|
|
|
(16,163
|
)
|
|
|
(132,701
|
)
|
|
|
(7,633
|
)
|
|
|
23,363
|
|
|
|
(133,134
|
)
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
3,437
|
|
|
|
(84,994
|
)
|
|
|
|
|
|
|
(81,557
|
)
|
Interest and other income (loss)
|
|
|
|
|
|
|
16,163
|
|
|
|
(24,747
|
)
|
|
|
8,198
|
|
|
|
61,066
|
|
|
|
60,680
|
|
Loss from subsidiaries
|
|
|
(154,011
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(154,011
|
)
|
|
|
|
|
|
|
(154,011
|
)
|
|
|
(84,429
|
)
|
|
|
238,440
|
|
|
|
(154,011
|
)
|
Income tax benefit
|
|
|
(60,274
|
)
|
|
|
|
|
|
|
(59,925
|
)
|
|
|
(33,027
|
)
|
|
|
92,952
|
|
|
|
(60,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(93,737
|
)
|
|
|
|
|
|
|
(94,086
|
)
|
|
|
(51,402
|
)
|
|
|
145,488
|
|
|
|
(93,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Cash Flows for the six months ended
April 30, 2009 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(172,060
|
)
|
|
|
|
|
|
|
(157,996
|
)
|
|
|
(5,070
|
)
|
|
|
163,066
|
|
|
|
(172,060
|
)
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
970
|
|
|
|
10,660
|
|
|
|
454
|
|
|
|
|
|
|
|
12,084
|
|
Stock-based compensation
|
|
|
7,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,478
|
|
Excess tax benefits from stock-based compensation
|
|
|
(3,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,331
|
)
|
Impairment of investment in unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
Income from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
(1,384
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,384
|
)
|
Distributions of earnings from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
813
|
|
|
|
|
|
|
|
|
|
|
|
813
|
|
Deferred tax benefit
|
|
|
(24,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,881
|
)
|
Inventory impairments
|
|
|
|
|
|
|
|
|
|
|
245,252
|
|
|
|
25,000
|
|
|
|
|
|
|
|
270,252
|
|
Write-off of unamortized debt issuance costs
|
|
|
|
|
|
|
|
|
|
|
692
|
|
|
|
|
|
|
|
|
|
|
|
692
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in inventory
|
|
|
|
|
|
|
|
|
|
|
73,760
|
|
|
|
80,642
|
|
|
|
|
|
|
|
154,402
|
|
Origination of mortgage loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(246,678
|
)
|
|
|
|
|
|
|
(246,678
|
)
|
Sale of mortgage loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
248,741
|
|
|
|
|
|
|
|
248,741
|
|
Decrease (increase) in receivables, prepaid expenses and other
assets
|
|
|
298,721
|
|
|
|
(391,855
|
)
|
|
|
277,911
|
|
|
|
(3,245
|
)
|
|
|
(163,442
|
)
|
|
|
18,090
|
|
Decrease in customer deposits
|
|
|
|
|
|
|
|
|
|
|
(15,637
|
)
|
|
|
(15,371
|
)
|
|
|
|
|
|
|
(31,008
|
)
|
(Decrease) increase in accounts payable and accrued expenses
|
|
|
(95
|
)
|
|
|
1,485
|
|
|
|
(69,910
|
)
|
|
|
(26,913
|
)
|
|
|
376
|
|
|
|
(95,057
|
)
|
Decrease in current income taxes payable
|
|
|
(112,773
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(112,773
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(6,941
|
)
|
|
|
(389,400
|
)
|
|
|
370,161
|
|
|
|
57,560
|
|
|
|
|
|
|
|
31,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
|
|
|
|
|
|
|
|
(2,008
|
)
|
|
|
(194
|
)
|
|
|
|
|
|
|
(2,202
|
)
|
Investments in and advances to
|
|
|
|
|
|
|
|
|
|
|
(16,446
|
)
|
|
|
|
|
|
|
|
|
|
|
(16,446
|
)
|
unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of investments from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
1,443
|
|
|
|
|
|
|
|
|
|
|
|
1,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
(17,011
|
)
|
|
|
(194
|
)
|
|
|
|
|
|
|
(17,205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of senior notes
|
|
|
|
|
|
|
389,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
389,400
|
|
Proceeds from loans payable
|
|
|
|
|
|
|
|
|
|
|
291
|
|
|
|
271,860
|
|
|
|
|
|
|
|
272,151
|
|
Principal payments of loans payable
|
|
|
|
|
|
|
|
|
|
|
(15,792
|
)
|
|
|
(337,370
|
)
|
|
|
|
|
|
|
(353,162
|
)
|
Proceeds from stock-based benefit plans
|
|
|
4,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,580
|
|
Excess tax benefits from stock-based compensation
|
|
|
3,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,331
|
|
Purchase of treasury stock
|
|
|
(970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
6,941
|
|
|
|
389,400
|
|
|
|
(15,501
|
)
|
|
|
(65,510
|
)
|
|
|
|
|
|
|
315,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
337,649
|
|
|
|
(8,144
|
)
|
|
|
|
|
|
|
329,505
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
|
|
|
|
|
1,515,617
|
|
|
|
117,878
|
|
|
|
|
|
|
|
1,633,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
|
|
|
|
|
|
|
|
|
1,853,266
|
|
|
|
109,734
|
|
|
|
|
|
|
|
1,963,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Cash Flows for the six months ended
April 30, 2008 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(189,694
|
)
|
|
|
|
|
|
|
(181,423
|
)
|
|
|
(50,318
|
)
|
|
|
231,741
|
|
|
|
(189,694
|
)
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
570
|
|
|
|
13,324
|
|
|
|
188
|
|
|
|
|
|
|
|
14,082
|
|
Stock-based compensation
|
|
|
16,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,347
|
|
Excess tax benefit from stock-based compensation
|
|
|
(8,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,378
|
)
|
Impairment of investment in unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
26,685
|
|
|
|
86,132
|
|
|
|
|
|
|
|
112,817
|
|
Income from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
(6,036
|
)
|
|
|
(1,138
|
)
|
|
|
|
|
|
|
(7,174
|
)
|
Distributions of earnings from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
12,987
|
|
|
|
|
|
|
|
|
|
|
|
12,987
|
|
Deferred tax provision
|
|
|
(204,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(204,070
|
)
|
Provision for inventory write-offs
|
|
|
|
|
|
|
|
|
|
|
420,739
|
|
|
|
|
|
|
|
|
|
|
|
420,739
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in inventory
|
|
|
|
|
|
|
|
|
|
|
353,278
|
|
|
|
(38,661
|
)
|
|
|
|
|
|
|
314,617
|
|
Origination of mortgage loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500,549
|
)
|
|
|
|
|
|
|
(500,549
|
)
|
Sale of mortgage loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
526,240
|
|
|
|
|
|
|
|
526,240
|
|
Decrease (increase) in contracts receivable
|
|
|
|
|
|
|
|
|
|
|
42,177
|
|
|
|
(940
|
)
|
|
|
|
|
|
|
41,237
|
|
Decrease (increase) in receivables, prepaid expenses and other
assets
|
|
|
369,053
|
|
|
|
175
|
|
|
|
(124,738
|
)
|
|
|
16,907
|
|
|
|
(236,973
|
)
|
|
|
24,424
|
|
(Decrease) increase in customer deposits
|
|
|
|
|
|
|
|
|
|
|
(53,030
|
)
|
|
|
1,921
|
|
|
|
|
|
|
|
(51,109
|
)
|
Decrease in accounts payable and accrued expenses
|
|
|
(3,015
|
)
|
|
|
(745
|
)
|
|
|
(96,239
|
)
|
|
|
(44,202
|
)
|
|
|
5,232
|
|
|
|
(138,969
|
)
|
Increase in current income taxes payable
|
|
|
464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(19,293
|
)
|
|
|
|
|
|
|
407,724
|
|
|
|
(4,420
|
)
|
|
|
|
|
|
|
384,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
|
|
|
|
|
|
|
|
(3,577
|
)
|
|
|
(431
|
)
|
|
|
|
|
|
|
(4,008
|
)
|
Purchase of marketable securities
|
|
|
|
|
|
|
|
|
|
|
(1,239,712
|
)
|
|
|
(228,725
|
)
|
|
|
|
|
|
|
(1,468,437
|
)
|
Sale of marketable securities
|
|
|
|
|
|
|
|
|
|
|
1,226,332
|
|
|
|
228,225
|
|
|
|
|
|
|
|
1,454,557
|
|
Investments in and advances to unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
(37,322
|
)
|
|
|
|
|
|
|
|
|
|
|
(37,322
|
)
|
Distributions of capital from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
2,623
|
|
|
|
|
|
|
|
|
|
|
|
2,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
(51,656
|
)
|
|
|
(931
|
)
|
|
|
|
|
|
|
(52,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from loans payable
|
|
|
|
|
|
|
|
|
|
|
743
|
|
|
|
556,802
|
|
|
|
|
|
|
|
557,545
|
|
Principal payments of loans payable
|
|
|
|
|
|
|
|
|
|
|
(31,817
|
)
|
|
|
(540,757
|
)
|
|
|
|
|
|
|
(572,574
|
)
|
Proceeds from stock-based benefit plans
|
|
|
12,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,089
|
|
Excess tax benefits from stock-based compensation
|
|
|
8,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,378
|
|
Purchase of treasury stock
|
|
|
(1,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,174
|
)
|
Change in minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
19,293
|
|
|
|
|
|
|
|
(31,074
|
)
|
|
|
16,048
|
|
|
|
|
|
|
|
4,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
324,994
|
|
|
|
10,697
|
|
|
|
|
|
|
|
335,691
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
|
|
|
|
|
783,891
|
|
|
|
116,446
|
|
|
|
|
|
|
|
900,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
|
|
|
|
|
|
|
|
|
1,108,885
|
|
|
|
127,143
|
|
|
|
|
|
|
|
1,236,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
ITEM 2.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (MD&A)
|
On June 3, 2009, we issued a press release and held a
conference call to review the results of operations for the
six-month and three-month periods ended April 30, 2009 and
to discuss the current state of our business. The information
contained in this report is the same information given in the
press release and on the conference call on June 3, 2009,
and we are not reconfirming or updating that information in this
Form 10-Q.
OVERVIEW
The slowdown that we have experienced since fiscal 2005 has
continued into the third quarter of fiscal 2009. The value of
net new contracts signed in fiscal 2008 was 78% lower than the
value of net new contracts signed in fiscal 2005, and, despite
some improvement since late March 2009 in potential homebuyers
visiting our communities and making refundable deposits to
purchase homes, the value of net new contracts signed in the
six-month and
three-month
periods ended April 30, 2009 was 88% and 86% lower,
respectively, than the value of net new contracts signed in the
comparable periods of fiscal 2005. Although cancellations appear
to be leveling off, we believe that prospective
home buyers concerns about job security and the
economy continue to inhibit traffic and the conversion of
deposits to contracts. 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 continue to 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 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
industry. 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
industry, 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
April 30, 2009, we had $1.96 billion of cash and cash
equivalents on hand and approximately $1.34 billion
available under our revolving credit facility which extends to
March 2011. On April 13, 2009, we sold $400 million of
8.91% senior notes due 2017 and received
$389.4 million of net proceeds from the sale. On
April 28, 2009, we announced that we would redeem an
aggregate of $293.0 million of senior subordinated notes
due 2011, which was completed on May 28, 2009. 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
29
builders to capital is already severely constrained. We envision
that there will be fewer and more selective lenders serving our
industry at that time and that those lenders likely will
gravitate to the homebuilding 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 and land
developers 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 or option and purchase
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.
In response to current market conditions, we have been
reevaluating and renegotiating or canceling many of our land
purchase contracts. As a result, we reduced our land position
from a high of approximately 91,200 home sites at April 30,
2006, to approximately 36,600 home sites at April 30, 2009,
of which we owned approximately 31,800. Of the 31,800 home sites
owned at April 30, 2009, significant improvements were
completed on approximately 13,200.
At April 30, 2009, we were selling from 240 communities
compared to 273 communities at October 31, 2008 and 300
communities at April 30, 2008. We expect to be selling from
approximately 225 communities at October 31, 2009.
Given the current business climate 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 the risks reported
elsewhere in our reports filed with the SEC and the preceding
uncertainties, based upon the deliveries made in the first six
months of fiscal 2009, our backlog at April 30, 2009 and
the pace of activity at our communities, we currently estimate
that we will deliver between 2,200 and 2,800 homes in fiscal
2009 at an average sales price of between $590,000 and $620,000
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, we expect our selling,
general and administrative expenses, exclusive of interest, to
be lower in total dollars in fiscal 2009 than in fiscal 2008,
but higher as a percentage of revenues in fiscal 2009 than in
fiscal 2008.
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.
30
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 or
more 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 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 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.
In the three-month period ended April 30, 2009, we reviewed
the fair value of 288 operating communities, determined that the
fair value of 36 of these communities was below our carrying
value, and recognized impairment charges of $67.4 million
on these communities. At April 30, 2009, the carrying value
of these communities, net of the impairment charges recognized,
was $181.8 million.
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.
31
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 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 April 30, 2009, we determined that we were the
primary beneficiary of one VIE related to a land purchase
contract and had recorded $5.6 million of inventory and
$5.3 million of accrued expenses related to this VIE.
Income
Taxes Valuation Allowance
Significant judgment is required in estimating valuation
allowances for deferred tax assets. In accordance with
SFAS No. 109, Accounting for Income Taxes
(SFAS 109), a valuation allowance is
established against a deferred tax asset if, based on the
available evidence, it is more likely than not that such asset
will not be realized. The realization of a deferred tax asset
ultimately depends on the existence of sufficient taxable income
in either the carryback or carryforward periods under tax law.
We periodically assess the need for valuation allowances for
deferred tax assets based on SFAS 109s
more-likely-than-not realization threshold criteria. In our
assessment, appropriate consideration is given to all positive
and negative evidence related to the realization of the deferred
tax assets. This assessment considers, among other matters, the
nature, frequency and magnitude of current and cumulative income
and losses, forecasts of future profitability, the duration of
statutory carryback or carryforward periods, our experience with
operating loss and tax credit carryforwards being used before
expiration, and tax planning alternatives.
Our assessment of the need for a valuation allowance on our
deferred tax assets includes assessing the likely future tax
consequences of events that have been recognized in our
consolidated financial statements or tax returns. We base our
estimate of deferred tax assets and liabilities on current tax
laws and rates and, in certain cases, on business plans and
other expectations about future outcomes. Changes in existing
tax laws or rates could affect our actual tax results and our
future business results may affect the amount of our deferred
tax liabilities or the valuation of our deferred tax assets over
time. Our accounting for deferred tax assets represents our best
estimate of future events.
Due to uncertainties in the estimation process, particularly
with respect to changes in facts and circumstances in future
reporting periods (carryforward period assumptions), it is
possible that actual results could differ from the estimates
used in our historical analyses. Our assumptions require
significant judgment because the residential homebuilding
industry is cyclical and is highly sensitive to changes in
economic conditions. Our current assessment of the need for a
valuation allowance is primarily dependent upon utilization of
taxable income in the carryback period and our future projected
income. If our results of operations are less than projected and
there is insufficient objectively positive verifiable evidence
to support the likely realization of our deferred tax assets, a
valuation allowance may be required to reduce or eliminate our
deferred tax assets.
At April 30, 2009, our net federal deferred tax assets were
$430.6 million. In accordance with the provisions of
SFAS 109, we assess, on a quarterly basis, our ability to
realize our federal deferred tax assets. Based on the more
likely than not standard in SFAS 109 and the weight of
available evidence, we do not believe a valuation allowance
against our net federal deferred tax assets was necessary. At
the current federal tax rate of 35%, we would require a
combination of taxable loss carrybacks and future income of
approximately $1.2 billion to realize the
$430.6 million
32
of net federal deferred tax assets. Since much of the net
federal deferred tax assets were created through impairment
charges recognized for book purposes but not for tax purposes,
we may recover our net federal deferred tax assets through a
combination of: selling homes in impaired communities or selling
impaired land for amounts greater than the book carrying value,
thus realizing a gain for book purposes but not for tax
purposes; generating taxable income in the future and
recognizing, through disposition or other means, previously
recognized book impairment losses for tax purposes; or
recognizing in fiscal 2009, through disposition or other means,
previously recognized book impairment losses for tax purposes to
carry back such losses against fiscal 2007 taxable income. We
intend to generate tax losses in fiscal 2009, primarily through
the recognition for tax purposes of previously recognized book
impairments to use a majority of the $462 million of our
fiscal 2007 taxable income available for carryback, and recover
a portion of our net federal deferred tax assets.
We are allowed to carry forward taxable losses for 20 years
and apply such taxable losses to future taxable income to
further realize our federal deferred tax assets. We will
continue to review our federal deferred tax assets in accordance
with SFAS 109.
For state tax purposes, due to past and projected losses in
certain jurisdictions where we do not have carryback potential
and/or
cannot sufficiently forecast future taxable income, we have
recognized a valuation allowance, net of a federal tax benefit,
of $24.1 million in fiscal 2008 and an additional
$4.2 million in the six-month period ended April 30,
2009. Future valuation allowances in these jurisdictions may
continue if we believe we will not generate sufficient future
taxable income to utilize these state deferred tax assets.
Revenue
and Cost Recognition
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), that are
included in this category of revenues and costs. During fiscal
2007 and 2008, 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.
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 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, 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.
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
33
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.
OFF-BALANCE
SHEET ARRANGEMENTS
The trends, uncertainties or other factors that have negatively
impacted our business and the industry in general and which are
discussed in the overview section of this MD&A have also
impacted the unconsolidated entities in which we have
investments. We review each of our investments in unconsolidated
entities on a quarterly basis to determine the recoverability of
our investment. We evaluate the recoverability of our investment
in unconsolidated entities using similar methodology that we use
to evaluate our inventories. This evaluation entails a detailed
cash flow analysis using many estimates including but not
limited to expected sales pace, expected sales prices, expected
incentives, costs incurred and anticipated, sufficiency of
financing and capital, competition, and market conditions. When
markets deteriorate and it is no longer probable that we can
recover our investment in a joint venture we impair our
investment. If a joint venture has its own loans or is
principally a joint venture to hold an option, such impairment
may result in the majority or all of our investment being
impaired. See Critical Accounting Policies
Inventory in this MD&A for more detailed disclosure
on our evaluation of inventory.
We have investments in and advances to various unconsolidated
entities. At April 30, 2009, we had investments in and
advances to these entities, net of impairment charges
recognized, of $148.3 million and were committed to invest
or advance $27.0 million (net of amounts accrued) of
additional funds to certain of these entities if they require
additional funding, At April 30, 2009, we had accrued
$116.6 million for our commitments to all of our
unconsolidated entities. In addition, we guarantee certain debt
of a number of these unconsolidated entities on a several and
pro-rata basis. At April 30, 2009, we guaranteed an
aggregate of approximately $63.3 million (net of amounts
that we have accrued) of debt relating to four joint ventures,
which had aggregate borrowings of approximately
$835.2 million.
In connection with certain land joint ventures to which we are a
party, we executed completion guarantees and conditional
repayment guarantees. The obligations under the completion
guarantees and conditional repayment guarantees are several and
not joint, and are limited to the Companys pro-rata share
of the loan obligations of the respective joint ventures. At
April 30, 2009, the maximum amount of the completion
guarantees and conditional repayment guarantees (net of amounts
that the Company has accrued) is estimated to be approximately
$50.3 million, if any liability is determined to be due
thereunder. The $50.3 million of these guarantees are
included in the $63.3 million of guarantees disclosed above.
Our investments in these entities are accounted for using the
equity method.
34
RESULTS
OF OPERATIONS
The following table sets forth, for the six-month and
three-month periods ended April 30, 2009 and 2008, a
comparison of certain statement of operations items ($ in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30,
|
|
|
Three Months Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Revenues
|
|
|
807.4
|
|
|
|
|
|
|
|
1,660.3
|
|
|
|
|
|
|
|
398.3
|
|
|
|
|
|
|
|
818.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
933.7
|
|
|
|
115.7
|
|
|
|
1,710.5
|
|
|
|
103.0
|
|
|
|
447.8
|
|
|
|
112.4
|
|
|
|
842.4
|
|
|
|
103.0
|
|
Selling, general and administrative
|
|
|
167.1
|
|
|
|
20.7
|
|
|
|
230.0
|
|
|
|
13.9
|
|
|
|
81.3
|
|
|
|
20.4
|
|
|
|
108.7
|
|
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,100.8
|
|
|
|
|
|
|
|
1,940.5
|
|
|
|
|
|
|
|
529.1
|
|
|
|
|
|
|
|
951.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(293.5
|
)
|
|
|
(36.4
|
)
|
|
|
(280.2
|
)
|
|
|
(16.9
|
)
|
|
|
(130.8
|
)
|
|
|
(32.8
|
)
|
|
|
(133.1
|
)
|
|
|
(16.3
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from unconsolidated entities
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
(105.6
|
)
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
(81.6
|
)
|
|
|
|
|
Interest and other
|
|
|
19.7
|
|
|
|
|
|
|
|
79.8
|
|
|
|
|
|
|
|
8.4
|
|
|
|
|
|
|
|
60.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit
|
|
|
(278.5
|
)
|
|
|
|
|
|
|
(306.0
|
)
|
|
|
|
|
|
|
(121.9
|
)
|
|
|
|
|
|
|
(154.0
|
)
|
|
|
|
|
Income tax benefit
|
|
|
(106.4
|
)
|
|
|
|
|
|
|
(116.3
|
)
|
|
|
|
|
|
|
(38.7
|
)
|
|
|
|
|
|
|
(60.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(172.1
|
)
|
|
|
|
|
|
|
(189.7
|
)
|
|
|
|
|
|
|
(83.2
|
)
|
|
|
|
|
|
|
(93.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Due to rounding, amounts may not add.
REVENUES
AND COSTS
In the six-month period ended April 30, 2009, we recognized
$807.4 million of revenues and a net loss of
$172.1 million, as compared to $1.66 billion of
revenues and a net loss of $189.7 million in the six-month
period ended April 30, 2008. In the six-month period ended
April 30, 2009, we recognized inventory and joint venture
impairment charges and write-offs of $276.3 million, as
compared to $533.6 million of inventory and joint venture
impairment charges and write-offs in the six-month period ended
April 30, 2008.
In the three-month period ended April 30, 2009, we
recognized $398.3 million of revenues and a net loss of
$83.2 million, as compared to $818.8 million of
revenues and a net loss of $93.7 million in the three-month
period ended April 30, 2008. In the three-month period
ended April 30, 2009, we recognized inventory impairment
charges and write-offs of $119.6 million, as compared to
$288.1 million of inventory and joint venture impairment
charges and write-offs in the three-month period ended
April 30, 2008.
Revenues for the six months ended April 30, 2009 were lower
than those for the comparable period of fiscal 2008 by
approximately $852.9 million, or 51%. This decrease was
attributable to a 46% decrease in the number of homes delivered,
a 9% decrease in the average price of the homes delivered and
$33.5 million of revenues in the fiscal 2008 period for
certain communities that were accounted for on the percentage of
completion method of accounting from which we did not have
percentage of completion revenues in the fiscal 2009 period. The
decrease in the number of homes delivered in the six-month
period ended April 30, 2009 was primarily due to a 48%
decline in backlog at October 31, 2008, as compared to our
backlog at October 31, 2007. The 9% decrease in the average
price of the homes delivered in the fiscal 2009 period, as
compared the fiscal 2008 period, was due to the impact of a
shift in product mix to lower priced product and less expensive
areas, and an increase in incentives given on homes closed in
the fiscal 2009 period, as compared to the fiscal 2008 period.
Average sales incentives given on homes delivered in the
six-month period of fiscal 2009 amounted to approximately
$82,000 per home, as compared to approximately $68,000 per home
in the fiscal 2008 period.
Revenues for the three months ended April 30, 2009 were
lower than those for the comparable period of fiscal 2008 by
approximately $419.7 million, or 51%. This decrease was
attributable to a 47% decrease in the number of
35
homes delivered, a 7% decrease in the average price of the homes
delivered and $17.7 million of revenues in the fiscal 2008
period for certain communities that were accounted for on the
percentage of completion method of accounting from which we did
not have percentage of completion revenues in the fiscal 2009
period. The decrease in the number of homes delivered in the
three-month period ended April 30, 2009 was primarily due
to a 48% decline in backlog at October 31, 2008, as
compared to our backlog at October 31, 2007. The 7%
decrease in the average price of the homes delivered in the
fiscal 2009 period, as compared the fiscal 2008 period, was due
to the impact of a shift in product mix to lower priced product
and less expensive areas, and an increase in incentives given on
homes closed in the fiscal 2009 period, as compared to the
fiscal 2008 period. Average sales incentives given on homes
delivered in the three-month period ended April 30, 2009
amounted to approximately $87,000 per home, as compared to
approximately $76,000 per home in the fiscal 2008 period.
The value of net new contracts signed was $426.2 million
(848 homes) in the six months ended April 30, 2009, a 51%
decrease compared to the value of contracts signed in the
six-month period ended April 30, 2008 of
$871.5 million (1,576 homes). The decrease in the six-month
period is attributable to a 46% decrease in the number of net
new contracts signed and a 9% decrease in the average value of
each contract. The value of net new contracts signed was
$298.3 million (582 homes) in the three months ended
April 30, 2009, a 40% decrease compared to the value of
contracts signed in the three-month period ended April 30,
2008 of $496.5 million (929 homes). The decrease in the
three month period is attributable to a 37% decrease in the
number of net new contracts signed and a 4% decrease in the
average value of each contract. We believe the decrease in the
number of net new contracts signed in the fiscal 2009 periods,
as compared to the fiscal 2008 periods, was attributable to the
decline in consumer confidence, the overall softening of demand
for new homes, the continuing decline in the economy, rising
unemployment rates, a heightened fear of future job loss, and
concerns on the part of prospective home buyers about the
downward direction of home prices and their ability to sell
their existing homes. We attribute the concern about the
direction of home prices to the large number of homes that are
or will be available due to foreclosures.
The decline in the average sales price of net contracts signed
in the six-month period ended April 30, 2009, as compared
to the comparable period of fiscal 2008, was due primarily to
higher sales incentives given to homebuyers in the fiscal 2009
period as compared to the comparable period of fiscal 2008, and
a shift in the number of contracts signed to less expensive
areas and/or
product in the fiscal 2009 period, as compared to the comparable
period of fiscal 2008, offset, in part, by the slightly lower
average value of contracts cancelled during the fiscal 2009
period, as compared to the fiscal 2008 period. The decline in
the average sales price of net contracts signed in the
three-month period ended April 30, 2009, as compared to the
fiscal 2008 period, was due primarily to higher sales incentives
given to homebuyers in the fiscal 2009 period as compared to the
fiscal 2008 period, and a shift in the number of contracts
signed to less expensive areas
and/or
product in the fiscal 2009 period, as compared to the fiscal
2008 period, offset, in part, by the slightly lower average
value of contracts cancelled during the fiscal 2009 period, as
compared to the fiscal 2008 period.
At April 30, 2009 and 2008, we were offering sales
incentives, on average, of $78,500 and $59,300, respectively.
The amount and type of incentive varies on a community by
community basis, and in some cases on a homesite by homesite
basis within a community. In addition, the amount of sales
incentives offered to a home buyer on a speculative home
that we have available will generally be higher than the amount
of sales incentives that we will offer on a to be built home.
In the six-month period ended April 30, 2009, home buyers
cancelled $235.2 million (318 homes) of signed contracts,
as compared to $432.0 million (565 homes) in the six-month
period ended April 30, 2008. In the three-month period
ended April 30, 2009, home buyers cancelled
$120.2 million (161 homes) of signed contracts, as compared
to $234.1 million (308 homes) in the three-month period
ended April 30, 2008.
Our backlog at April 30, 2009 of $944.3 million
decreased 55%, as compared to our backlog at April 30, 2008
of $2.08 billion. Backlog consists of homes under contract
but not yet delivered to our home buyers. The decrease in
backlog at April 30, 2009, as compared to the backlog at
April 30, 2008, was primarily attributable to the
continuing decline in the new home market which resulted in a
lower backlog at October 31, 2008, as compared to the
backlog at October 31, 2007, and the decrease in the value
and number of net new contracts signed in the six-month period
of fiscal 2009 as compared to the six-month period of fiscal
2008, offset, in part, by lower deliveries in the six-month
period of fiscal 2009, as compared to the six-month period of
fiscal 2008.
36
Cost of revenues as a percentage of home sales revenue was
115.7% in the six-month period ended April 30, 2009, as
compared to 103.0% in the six-month period ended April 30,
2008. In the six-month periods ended April 30, 2009 and
2008, we recognized inventory impairment charges and write-offs
of $270.3 million and $420.7 million, respectively.
Land, land development and home and home related construction
costs (home costs) were 78.3% of revenues in the
six-month period ended April 30, 2009, as compared to 75.0%
in the fiscal 2008 period. The increase in the home cost
percentage was due primarily to higher sales incentives on the
homes delivered and higher overhead costs per home due to the
decreased construction activity. Interest cost as a percentage
of revenues was 3.9% in the six-month period ended
April 30, 2009, as compared to 2.7% in the fiscal 2008
period. The higher interest cost percentage was due to inventory
generally being held for a longer period of time, as well as
fewer qualifying assets to which costs can be allocated
resulting in higher amounts of capitalized interest on the
available inventory.
Cost of revenues as a percentage of home sales revenue was
112.4% in the three-month period ended April 30, 2009, as
compared to 103.0% in the three-month period ended
April 30, 2008. In the three-month periods ended
April 30, 2009 and 2008, we recognized inventory impairment
charges and write-offs of $119.6 million and
$203.1 million, respectively. Home costs were 78.2% of
revenues in the three-month period ended April 30, 2009, as
compared to 75.2% in the fiscal 2008 period. The increase in the
home cost percentage was due primarily to higher sales
incentives on the homes delivered and higher overhead costs per
home due to the decreased construction activity. Interest cost
as a percentage of revenues was 4.2% in the three-month period
ended April 30, 2009, as compared to 2.8% in the fiscal
2008 period. The higher interest cost percentage was due to
inventory generally being held for a longer period of time, as
well as fewer qualifying assets to which costs can be allocated
resulting in higher amounts of capitalized interest on the
qualifying inventory.
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
(SG&A)
SG&A spending decreased by $62.9 million, or 27.4%, in
the six-month period ended April 30, 2009, as compared to
the six-month period ended April 30, 2008. As a percentage
of revenues, SG&A was 20.7% in the six-month period ended
April 30, 2009, as compared to 13.9% in the fiscal 2008
period. The reduction in spending was due primarily to reduced
compensation and related costs and reduced costs for
advertising, promotions and marketing offset, in part, by the
expensing of interest incurred not eligible to be capitalized in
the six-month period ended April 30, 2009 and the higher
amount of deferred marketing costs that were written off with
regard to closed communities in the fiscal 2009 period, as
compared to the fiscal 2008 period. Due to the decline in
qualified inventory, interest incurred on homebuilding
indebtedness exceeded amounts eligible for capitalization in the
six-month period of fiscal 2009. Prior to November 1, 2008,
qualified inventory exceeded homebuilding indebtedness and all
interest incurred was capitalized. Interest expensed to
SG&A in the six-month period ended April 30, 2009
amounted to $5.2 million or 0.7% of revenues. The write-off
of deferred marketing costs related to closed communities in the
six-month periods of fiscal 2009 and 2008 were $4.2 million
and $1.7 million, respectively.
SG&A spending decreased by $27.4 million, or 25.2%, in
the three-month period ended April 30, 2009, as compared to
the three-month period ended April 30, 2008. As a
percentage of revenues, SG&A was 20.4% in the three-month
period ended April 30, 2009, as compared to 13.3% in the
fiscal 2008 period. The reduction in spending was due primarily
to reduced compensation and related costs and reduced costs for
advertising, promotions and marketing offset, in part, by the
expensing of interest incurred not eligible to be capitalized in
the three-month period ended April 30, 2009 and the higher
amount of deferred marketing costs that were written off with
regard to closed communities in the fiscal 2009 period, as
compared to the fiscal 2008 period. Due to the decline in
qualified inventory, interest incurred on homebuilding
indebtedness exceeded amounts eligible for capitalization in the
three-month period of fiscal 2009. Prior to November 1,
2008, qualified inventory exceeded homebuilding indebtedness and
all interest incurred was capitalized. Interest expensed to
SG&A in the three-month period ended April 30, 2009
amounted to $4.4 million or 1.1% of revenues. The write-off
of deferred marketing costs related to closed communities in the
three-month periods of fiscal 2009 and 2008 were
$3.8 million and $0.7 million, respectively.
37
(LOSS)
INCOME 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. The trends,
uncertainties or other factors that have negatively impacted our
business and the industry in general and which are discussed in
the Overview section of this MD&A have also
impacted the unconsolidated entities in which we have
investments. Many of our joint ventures are land development
projects or high-rise/mid-rise construction projects and do not
generate revenues and earnings for a number of years during the
development of the property. Once development is complete, the
joint ventures will generally, over a relatively short period of
time, generate revenues and earnings until all the assets of the
entities are sold. Because there is not a steady flow of
revenues and earnings from these entities, the earnings
recognized from these entities will vary significantly from
quarter to quarter and year to year.
In the six months ended April 30, 2009, we recognized
$4.6 million of losses from unconsolidated entities, as
compared to $105.6 million of losses in the comparable
period of fiscal 2008. The loss in the six-month period ended
April 30, 2009 was attributable to a $6.0 million
impairment charge recognized on one of our investments in an
unconsolidated entity. The loss in the six-month period ended
April 30, 2008 was attributable to $112.8 million of
impairment charges recognized on two of our investments in
unconsolidated entities.
In the three months ended April 30, 2009, we recognized
$0.5 million of income from unconsolidated entities, as
compared to $81.6 million of losses in the fiscal 2008
period. The loss in the three-month period ended April 30,
2008 was attributable to $85.0 million of impairment
charges recognized on two of our investments in unconsolidated
entities.
INTEREST
AND OTHER INCOME
For the six months ended April 30, 2009 and 2008, interest
and other income was $19.7 million and $79.8 million,
respectively. The decrease in other income in the six-month
period ended April 30, 2009, as compared to fiscal 2008
period, was primarily due to a $40.2 million gain
recognized in the fiscal 2008 period on a condemnation judgement
in our favor, a $9.5 million decline in interest income in
the fiscal 2009 period, as compared to the fiscal 2008 period, a
$4.2 million decline in income from ancillary businesses
and management fee income in the fiscal 2009 period, as compared
to the fiscal 2008 period, a $3.9 million decline in
retained customer deposits in the fiscal 2009 period, as
compared to the fiscal 2008 period and the recognition of a
$2.1 million charge in connection with the redemption of
$293.0 million of our senior subordinated notes that was
announced in April 2009.
For the three months ended April 30, 2009 and 2008,
interest and other income was $8.4 million and
$60.7 million, respectively. The decrease in other income
in the three-month period ended April 30, 2009, as compared
to the fiscal 2008 period, was primarily due to: a
$40.2 million gain recognized in the fiscal 2008 period on
a condemnation judgement in our favor; a $5.2 million
decline in interest income in the fiscal 2009 period, as
compared to the fiscal 2008 period; a $1.7 million decline
in income from ancillary businesses and management fee income in
the fiscal 2009 period, as compared to the fiscal 2008 period; a
$3.2 million decline in retained customer deposits in the
fiscal 2009 period, as compared to the fiscal 2008 period; and
the recognition of a $2.1 million charge in the fiscal 2009
period in connection with the redemption of $293.0 million
of our senior subordinated notes that was announced in April
2009.
LOSS
BEFORE INCOME TAX BENEFIT
For the six-month periods ended April 30, 2009 and 2008, we
reported a loss before income tax benefit of $278.5 million
and $306.0 million, respectively. For the three-month
periods ended April 30, 2009 and 2008, we reported a loss
before income tax benefit of $121.9 million and
$154.0 million, respectively.
INCOME
TAXES
An income tax benefit was provided in the six-month periods
ended April 30, 2009 and 2008 at an effective rate of 38.2%
and 38.0%, respectively. The change in the effective tax rate
between the six-month period of fiscal 2009 and six-month period
of fiscal 2008 was due primarily to: the increase in the fiscal
2009 rate due to the reversal
38
of $15.0 million of interest, net of tax provision, accrued
in prior years against potential tax assessments, which was no
longer needed due to the expiration of the applicable statute of
limitations for federal tax purposes; a lower state tax rate in
the fiscal 2009 period, as compared to the fiscal 2008 period; a
decrease in the fiscal 2009 rate, as compared to the fiscal 2008
rate, due to an increase in interest accrued in the fiscal 2009
period, as compared to the fiscal 2008 period; a decrease in the
fiscal 2008 rate, as compared to the fiscal 2009 rate, due to
the higher valuation allowance recognized in the fiscal 2008
period, as compared to the fiscal 2009 period: interest accrued
in the fiscal 2009 period, as compared to the fiscal 2008
period; an increase in the fiscal 2008 rate due to tax free
income recognized in the fiscal 2008 period but not in the
fiscal 2009 period; and an increase in the fiscal 2008 rate due
to tax credits recognized in the fiscal 2008 period that were
not available in the fiscal 2009 period. The lower state tax
rate in the six-month period of fiscal 2009 was due to the
combination of a shift in the state tax jurisdictions where the
estimated losses occurred and the applicable state income tax
rates in those jurisdictions. A net valuation allowance of
$4.3 million and $8.5 million was provided in the
fiscal 2009 period and fiscal 2008 period, respectively. The
valuation allowance was due to our inability to carryforward
losses in certain state tax jurisdictions in which we operate.
The higher interest accrued in the six-month period of fiscal
2009, as compared to the fiscal 2008 period, relates primarily
to a difference in how interest was calculated by the IRS and us
on our settled audit.
An income tax benefit was provided in the three-month periods
ended April 30, 2009 and 2008 at an effective rate of 31.8%
and 39.1%, respectively. The change in the effective tax rate
between the three-month period of fiscal 2009 and the
three-month period of fiscal 2008 was due primarily to: the
decrease in the fiscal 2009 rate, as compared to the fiscal 2008
rate, due to a lower state tax rate in the fiscal 2009 period,
as compared to the fiscal 2008 period; the decrease in the
fiscal 2009 rate, as compared to the fiscal 2008 rate, due to an
increase in interest accrued in the fiscal 2009 period, compared
to the fiscal 2008 period; a decrease in the fiscal 2008 rate,
as compared to the fiscal 2009 rate, due to a higher valuation
allowance recognized in the fiscal 2008 period, as compared to
the fiscal 2009 period; an increase in the fiscal 2008 rate due
to tax free income recognized in the fiscal 2008 period but not
in the fiscal 2009 period; and an increase in the fiscal 2008
rate due to tax credits recognized in the fiscal 2008 period
that were not available to us in the fiscal 2009 period. The
lower state tax rate in the three-month period of fiscal 2009
was due to the combination of a shift in the state tax
jurisdictions where the estimated losses occurred and the
applicable state income tax rates in those jurisdictions. A net
valuation allowance of $1.3 million and $8.5 million
was provided in the fiscal 2009 period and fiscal 2008 period,
respectively. The valuation allowance was due to our inability
to carryforward losses in certain state tax jurisdictions in
which we operate.
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.
At April 30, 2009, we had $1.96 billion of cash on
hand. In April 2009, we called $293.0 million of senior
subordinated debt for redemption in May 2009, as further
described below. In the six-month period ended April 30,
2009, our cash and cash equivalents increased by
$329.5 million. Cash flow provided by operating activities
was $31.4 million. Cash provided by operating activities
was primarily generated by a reduction in inventory and the
receipt of an income tax refund on previously paid taxes,
offset, in part, by the payment of accounts payable and accrued
liabilities and income tax payments made for the settlement of
previously accrued tax audits. The decreases in inventory,
accounts payable and accrued liabilities were due primarily to
the decline in our business as previously discussed. We also
generated cash from financing activities of $315.3 million
in the six-month period ended April 30, 2009, principally
from the issuance of $400 million of senior notes in the
public debt markets (net proceeds amounted to
$389.4 million), stock-based benefit plans and the tax
benefits of stock-based compensation, offset, in part, by the
repayment of debt.
In the six-month period ended April 30, 2008, we generated
$335.7 million of cash, principally from operating
activities. In the fiscal 2008 period, cash flow from operating
activities was generated primarily from net income
39
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.
At April 30, 2009, the aggregate purchase price of land
parcels under option and purchase agreements was approximately
$573.7 million (including $148.5 million of land to be
acquired from joint ventures in which we have invested). Of the
$573.7 million of land purchase commitments, we had paid or
deposited $69.5 million, we will receive a credit for prior
investments in joint ventures of approximately
$36.7 million and, if we acquire all of these land parcels,
we will be required to pay $467.5 million. Of the
$467.5 million we would be required to pay, we recorded
$124.2 million of this amount in accrued expenses at
April 30, 2009. 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 to terminate
these contracts.
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 April 30, 2009, we owned or controlled through
options approximately 36,600 home sites, as compared to
approximately 39,800 at October 31, 2008, approximately
51,800 at April 30, 2008 and approximately 91,200 at
April 30, 2006, our peak in terms of home sites owned or
controlled through options. Of the 36,600 home sites owned or
controlled through options at April 30, 2009, we owned
approximately 31,800; of our owned home sites, significant
improvements were completed on approximately 13,200.
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 31 banks, which extends to
March 2011. At April 30, 2009, we had no outstanding
borrowings against the revolving credit facility but had letters
of credit of approximately $217.1 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 April 30, 2009, we were required to maintain a
minimum tangible net worth (as defined in the agreement) of
approximately $2.21 billion. At April 30, 2009, our
leverage ratio was approximately 0.20 to 1.00 and our tangible
net worth was approximately $3.06 billion.
On April 13, 2009, through our wholly-owned subsidy Toll
Brothers Finance Corp., we issued $400 million of
8.91% Senior Notes due 2017. We received
$389.4 million of net proceeds from the issuance of these
senior notes.
On April 28, 2009, we called for redemption on May 28,
2009 all of the remaining $193.0 million outstanding
principal amount of our
81/4% Senior
Subordinated Notes due February 2011 at a cash redemption price
of 100.0% of the principal amount plus accrued and unpaid
interest, and $100.0 million outstanding principal amount
of our 8.25% Senior Subordinated Notes due December 2011 at
a cash redemption price of 101.375% of the principal amount plus
accrued and unpaid interest. Upon completion of the partial
redemption of the 8.25% Senior Subordinated Notes due
December 2011, $50.0 million principal amount of these
notes will remain outstanding. In the six-month and three-month
periods ended April 30, 2009, we recognized a charge of
$2.1 million representing the write-off of unamortized debt
issuance costs associated with both series of notes and the call
premium on the 8.25% Senior Subordinated Notes due December 2011.
40
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.
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.
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.
GEOGRAPHIC
SEGMENTS
We operate in four geographic segments around the United States:
the North, consisting of Connecticut, Illinois, Massachusetts,
Michigan, Minnesota, New Jersey and New York; 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.
The following tables summarize information related to revenues,
net contracts signed, contract cancellations and sales
incentives provided on units delivered by geographic segment for
the six-month and three-month periods ended April 30, 2009
and 2008, and information related to backlog by geographic
segment at April 30, 2009 and 2008.
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30,
|
|
|
Three Months Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
North(a)
|
|
|
440
|
|
|
|
602
|
|
|
$
|
283.0
|
|
|
$
|
436.8
|
|
|
|
224
|
|
|
|
329
|
|
|
$
|
139.8
|
|
|
$
|
232.3
|
|
Mid-Atlantic
|
|
|
402
|
|
|
|
734
|
|
|
|
234.8
|
|
|
|
453.9
|
|
|
|
182
|
|
|
|
335
|
|
|
|
104.3
|
|
|
|
203.6
|
|
South(a)
|
|
|
239
|
|
|
|
573
|
|
|
|
128.9
|
|
|
|
289.7
|
|
|
|
132
|
|
|
|
291
|
|
|
|
73.7
|
|
|
|
144.4
|
|
West
|
|
|
232
|
|
|
|
511
|
|
|
|
160.7
|
|
|
|
446.4
|
|
|
|
110
|
|
|
|
257
|
|
|
|
80.5
|
|
|
|
220.0
|
|
Other(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,313
|
|
|
|
2,420
|
|
|
$
|
807.4
|
|
|
$
|
1,660.3
|
|
|
|
648
|
|
|
|
1,212
|
|
|
$
|
398.3
|
|
|
$
|
818.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
Gross
Contracts Signed:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30,
|
|
|
Three Months Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
North
|
|
|
319
|
|
|
|
494
|
|
|
$
|
169.9
|
|
|
$
|
316.5
|
|
|
|
203
|
|
|
|
272
|
|
|
$
|
104.3
|
|
|
$
|
162.5
|
|
Mid-Atlantic
|
|
|
358
|
|
|
|
665
|
|
|
|
199.0
|
|
|
|
391.0
|
|
|
|
238
|
|
|
|
398
|
|
|
|
131.7
|
|
|
|
230.2
|
|
South
|
|
|
269
|
|
|
|
544
|
|
|
|
129.7
|
|
|
|
271.3
|
|
|
|
157
|
|
|
|
302
|
|
|
|
74.0
|
|
|
|
143.8
|
|
West
|
|
|
220
|
|
|
|
438
|
|
|
|
162.7
|
|
|
|
324.7
|
|
|
|
145
|
|
|
|
265
|
|
|
|
108.5
|
|
|
|
194.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166
|
|
|
|
2,141
|
|
|
$
|
661.3
|
|
|
$
|
1,303.5
|
|
|
|
743
|
|
|
|
1,237
|
|
|
$
|
418.5
|
|
|
$
|
730.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracts
Cancelled:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30,
|
|
|
Three Months Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
North
|
|
|
126
|
|
|
|
156
|
|
|
$
|
105.3
|
|
|
$
|
116.0
|
|
|
|
64
|
|
|
|
112
|
|
|
$
|
54.4
|
|
|
$
|
86.5
|
|
Mid-Atlantic
|
|
|
64
|
|
|
|
94
|
|
|
|
47.8
|
|
|
|
65.9
|
|
|
|
27
|
|
|
|
51
|
|
|
|
20.2
|
|
|
|
35.6
|
|
South
|
|
|
70
|
|
|
|
129
|
|
|
|
40.2
|
|
|
|
67.0
|
|
|
|
36
|
|
|
|
66
|
|
|
|
21.0
|
|
|
|
28.9
|
|
West
|
|
|
58
|
|
|
|
186
|
|
|
|
41.9
|
|
|
|
183.1
|
|
|
|
34
|
|
|
|
79
|
|
|
|
24.6
|
|
|
|
83.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
318
|
|
|
|
565
|
|
|
$
|
235.2
|
|
|
$
|
432.0
|
|
|
|
161
|
|
|
|
308
|
|
|
$
|
120.2
|
|
|
$
|
234.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Contracts Signed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30,
|
|
|
Three Months Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
North
|
|
|
193
|
|
|
|
338
|
|
|
$
|
64.7
|
|
|
$
|
200.5
|
|
|
|
139
|
|
|
|
160
|
|
|
$
|
50.0
|
|
|
$
|
76.0
|
|
Mid-Atlantic
|
|
|
294
|
|
|
|
571
|
|
|
|
151.2
|
|
|
|
325.1
|
|
|
|
211
|
|
|
|
347
|
|
|
|
111.5
|
|
|
|
194.6
|
|
South
|
|
|
199
|
|
|
|
415
|
|
|
|
89.5
|
|
|
|
204.3
|
|
|
|
121
|
|
|
|
236
|
|
|
|
53.0
|
|
|
|
114.9
|
|
West
|
|
|
162
|
|
|
|
252
|
|
|
|
120.8
|
|
|
|
141.6
|
|
|
|
111
|
|
|
|
186
|
|
|
|
83.8
|
|
|
|
111.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
848
|
|
|
|
1,576
|
|
|
$
|
426.2
|
|
|
$
|
871.5
|
|
|
|
582
|
|
|
|
929
|
|
|
$
|
298.3
|
|
|
$
|
496.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
Cancellation Rates
(as
a percentage of gross contracts signed):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30,
|
|
|
Three Months Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Units
|
|
|
Units
|
|
|
Value
|
|
|
Value
|
|
|
Units
|
|
|
Units
|
|
|
Value
|
|
|
Value
|
|
|
North
|
|
|
39.5
|
%
|
|
|
31.6
|
%
|
|
|
61.9
|
%
|
|
|
36.6
|
%
|
|
|
31.5
|
%
|
|
|
41.2
|
%
|
|
|
52.1
|
%
|
|
|
53.2
|
%
|
Mid-Atlantic
|
|
|
17.9
|
%
|
|
|
14.1
|
%
|
|
|
24.0
|
%
|
|
|
16.9
|
%
|
|
|
11.3
|
%
|
|
|
12.8
|
%
|
|
|
15.3
|
%
|
|
|
15.5
|
%
|
South
|
|
|
26.0
|
%
|
|
|
23.7
|
%
|
|
|
31.0
|
%
|
|
|
24.7
|
%
|
|
|
22.9
|
%
|
|
|
21.9
|
%
|
|
|
28.4
|
%
|
|
|
20.1
|
%
|
West
|
|
|
26.4
|
%
|
|
|
42.5
|
%
|
|
|
25.8
|
%
|
|
|
56.4
|
%
|
|
|
23.4
|
%
|
|
|
29.8
|
%
|
|
|
22.7
|
%
|
|
|
42.8
|
%
|
Total
|
|
|
27.3
|
%
|
|
|
26.4
|
%
|
|
|
35.6
|
%
|
|
|
33.1
|
%
|
|
|
21.7
|
%
|
|
|
24.9
|
%
|
|
|
28.7
|
%
|
|
|
32.0
|
%
|
42
Backlog
at April 30 :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
North
|
|
|
623
|
|
|
|
1,175
|
|
|
$
|
344.2
|
|
|
$
|
818.8
|
|
Mid-Atlantic
|
|
|
450
|
|
|
|
810
|
|
|
|
278.7
|
|
|
|
547.9
|
|
South
|
|
|
314
|
|
|
|
635
|
|
|
|
165.7
|
|
|
|
352.6
|
|
West
|
|
|
194
|
|
|
|
415
|
|
|
|
155.7
|
|
|
|
362.7
|
|
Less revenue recognized on units remaining in backlog(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,581
|
|
|
|
3,035
|
|
|
$
|
944.3
|
|
|
$
|
2,077.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Excludes deliveries from projects accounted for using the
percentage of completion accounting method. |
Information regarding these deliveries in the six months and
three months ended April 30, 2009 and 2008 is as follows:
Percentage
of Completion Deliveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30
|
|
|
|
Six months
|
|
|
Three months
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
|
Units
|
|
|
(In millions)
|
|
|
Units
|
|
|
(In millions)
|
|
|
North
|
|
|
58
|
|
|
$
|
34.6
|
|
|
|
13
|
|
|
$
|
7.3
|
|
South
|
|
|
13
|
|
|
|
37.8
|
|
|
|
10
|
|
|
|
30.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
|
|
|
$
|
72.4
|
|
|
|
23
|
|
|
$
|
37.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
|
Amounts represent revenues recognized on projects accounted for
using the percentage of completion accounting method. 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. |
Sales
Incentives:
The value of sales incentives provided to home buyers on homes
closed during the six-month and three-month periods ended
April 30, 2009 and 2008 and their percentage of gross
revenues is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30,
|
|
|
|
|
|
|
|
|
|
% of Gross Revenues
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
North
|
|
$
|
16.5
|
|
|
$
|
15.5
|
|
|
|
5.5
|
%
|
|
|
3.4
|
%
|
Mid-Atlantic
|
|
|
40.4
|
|
|
|
47.7
|
|
|
|
14.7
|
%
|
|
|
9.5
|
%
|
South
|
|
|
17.0
|
|
|
|
38.7
|
|
|
|
11.6
|
%
|
|
|
11.8
|
%
|
West
|
|
|
33.6
|
|
|
|
61.7
|
|
|
|
17.3
|
%
|
|
|
12.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
107.5
|
|
|
$
|
163.6
|
|
|
|
11.7
|
%
|
|
|
9.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
|
|
|
|
|
|
|
|
% of Gross Revenues
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
North
|
|
$
|
9.4
|
|
|
$
|
8.9
|
|
|
|
6.3
|
%
|
|
|
3.7
|
%
|
Mid-Atlantic
|
|
|
19.5
|
|
|
|
24.4
|
|
|
|
15.7
|
%
|
|
|
10.7
|
%
|
South
|
|
|
10.1
|
|
|
|
20.0
|
|
|
|
12.1
|
%
|
|
|
12.2
|
%
|
West
|
|
|
17.5
|
|
|
|
39.3
|
|
|
|
17.9
|
%
|
|
|
15.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
56.5
|
|
|
$
|
92.6
|
|
|
|
12.4
|
%
|
|
|
10.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
and (Loss) Income Before Taxes:
The following table summarizes by geographic segments total
revenues and (loss) income before income taxes for each of the
six-month and three-month periods ended April 30, 2009 and
2008 (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30,
|
|
|
Three Months Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North(a)(b)
|
|
$
|
283.0
|
|
|
$
|
466.0
|
|
|
$
|
139.8
|
|
|
$
|
239.2
|
|
Mid-Atlantic
|
|
|
234.8
|
|
|
|
453.9
|
|
|
|
104.3
|
|
|
|
203.6
|
|
South(c)(d)
|
|
|
128.9
|
|
|
|
294.0
|
|
|
|
73.7
|
|
|
|
155.2
|
|
West
|
|
|
160.7
|
|
|
|
446.4
|
|
|
|
80.5
|
|
|
|
220.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
807.4
|
|
|
$
|
1,660.3
|
|
|
$
|
398.3
|
|
|
$
|
818.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
$
|
(26.3
|
)
|
|
$
|
30.3
|
|
|
$
|
0.9
|
|
|
$
|
25.5
|
|
Mid-Atlantic
|
|
|
(17.6
|
)
|
|
|
(12.2
|
)
|
|
|
(13.3
|
)
|
|
|
(27.4
|
)
|
South
|
|
|
(32.1
|
)
|
|
|
(167.0
|
)
|
|
|
(5.7
|
)
|
|
|
(55.3
|
)
|
West
|
|
|
(146.4
|
)
|
|
|
(101.6
|
)
|
|
|
(73.8
|
)
|
|
|
(71.2
|
)
|
Corporate and other
|
|
|
(56.1
|
)
|
|
|
(55.5
|
)
|
|
|
(30.0
|
)
|
|
|
(25.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(278.5
|
)
|
|
$
|
(306.0
|
)
|
|
$
|
(121.9
|
)
|
|
$
|
(154.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes percentage of completion revenues of $29.2 million
in the six months ended April 30, 2008. |
|
(b) |
|
Includes percentage of completion revenues of $6.9 million
in the three months ended April 30, 2008. |
|
(c) |
|
Includes percentage of completion revenues of $4.3 million
in the six months ended April 30, 2008. |
|
(d) |
|
Includes percentage of completion revenues of $10.8 million
in the three months ended April 30, 2008. |
North
Revenues in the six months and three months ended April 30,
2009 were lower than those for the comparable periods of 2008 by
$183.0 million and $99.5 million, or 39% and 42%,
respectively. The decrease in revenues for the six months ended
April 30, 2009, as compared to the six months ended
April 30, 2008, was attributable to a 27% decrease in the
number of homes delivered, an 11% decrease in the average price
of homes delivered and a decrease of $29.2 million in
percentage of completion revenues. The decrease in revenues for
the three-month period ended April 30, 2009, as compared to
the three-month period ended April 30, 2008, was
attributable to a 32% decrease in the number of homes delivered,
a 12% decrease in the average price of homes delivered and a
decrease of $6.9 million in percentage of completion
revenues. The decreases in the number of homes delivered in the
fiscal 2009 periods, as compared to the fiscal 2008 periods,
were primarily due to lower backlog at October 31, 2008, as
compared to October 31, 2007. The decline in backlog at
October 31, 2008, as compared to October 31, 2007, was
44
due primarily to a 50% decrease in the number of new contracts
signed in fiscal 2008 over fiscal 2007. The decreases in the
average price of homes delivered in the six months and three
months ended April 30, 2009, as compared to the fiscal 2008
periods, were primarily due to a shift in the number of
settlements to less expensive products
and/or
locations and higher sales incentives given on the homes
delivered in the fiscal 2009 periods, as compared to the fiscal
2008 periods.
The value of net new contracts signed in the six months ended
April 30, 2009 was $64.7 million, a 68% decline from
the $200.5 million of net new contracts signed in the six
months ended April 30, 2008. The number of net new
contracts signed and the average value of each net new contract
decreased 43% and 44%, respectively. The value of net new
contracts signed in the three months ended April 30, 2009
was $50.0 million, a 34% decline from the
$76.0 million of net new contracts signed during the three
months ended April 30, 2008. The decrease in the value of
net new contracts signed in the three months ended
April 30, 2009, as compared to the fiscal 2008 period was
primarily due to a decrease of 13% in the number of net new
contracts signed and a decrease of 24% in the average value of
each net new contract. The declines in the number of net new
contracts signed in the fiscal 2009 periods were primarily due
to the continued slowdown in the housing market. The decreases
in average sales price of net new contracts signed were
primarily attributable to a shift in the number of contracts
signed to less expensive areas
and/or
products in the fiscal 2009 periods, as compared to the fiscal
2008 periods, a higher average sales price on contacts cancelled
in the fiscal 2009 periods, as compared to the fiscal 2008
periods, and higher sales incentives given to homebuyers in the
fiscal 2009 periods, as compared to the fiscal 2008 periods.
We reported a $26.3 million loss before income taxes in the
six-month period ended April 30, 2009, as compared to
income before income taxes of $29.2 million in the
six-month period ended April 30, 2008. This decrease was
primarily due to a decline in revenues and higher cost of
revenues as a percentage of revenues in the fiscal 2009 period,
as compared to the fiscal 2008 period, and a $5.0 million
loss from unconsolidated entities in the six months ended
April 30, 2009, as compared to $5.8 of income in the six
months ended April 30, 2008, partially offset by lower
selling, general and administrative expenses in the six months
ended April 30, 2009. Cost of revenues before interest as a
percentage of revenues was 95.1% in the six months ended
April 30, 2009, as compared to 85.7% in the six months
ended April 30, 2008. The higher cost of revenues was
primarily the result of higher impairment charges as a
percentage of revenues in the fiscal 2009 period, as compared to
the fiscal 2008 period, increased sales incentives given to home
buyers on the homes delivered and a shift in product mix of
homes delivered to lower margin product or areas. As a
percentage of revenues, higher sales incentives increased cost
of revenues approximately 1.8% in the six months ended
April 30, 2009, as compared to the fiscal 2008 period. We
recognized inventory impairment charges of $51.5 million
and $63.8 million in the six months ended April 30,
2009 and 2008, respectively. The loss from unconsolidated
entities includes a $6.0 million impairment charge in the
fiscal 2009 period related to one of these unconsolidated
entities.
For three months ended April 30, 2009 and 2008, we reported
income before income taxes of $0.9 million and
$25.5 million, respectively. The decrease in income was the
result of lower revenues and higher cost of revenues as a
percentage of revenues in the three-month period ended
April 30, 2009, as compared to the three-month period ended
April 30, 2008, offset, in part, by lower selling, general
and administrative expenses in the three-month period ended
April 30, 2009. Cost of revenues before interest as a
percentage of revenues was 88.7% and 81.7% for the three months
ended April 30, 2009 and 2008, respectively. The higher
cost of revenues was primarily the result of increased sales
incentives given to home buyers on the homes delivered, a shift
in product mix of homes delivered to lower margin product or
areas and higher overhead costs per home due to the decreased
construction activity. As a percentage of revenues, higher sales
incentives increased cost of revenues approximately 2.3% in the
three months ended April 30, 2009, as compared to the
fiscal 2008 period. We recognized inventory impairment charges
of $14.7 million three months ended April 30, 2009, as
compared to $26.0 million in the fiscal 2008 period.
Mid-Atlantic
Revenues for the six months ended April 30, 2009 were lower
than those for the six months ended April 30, 2008 by
$219.1 million, or 48%. The decrease in revenues was
attributable to a 45% decrease in the number of homes delivered
and a 6% decrease in the average sales price of the homes
delivered. For the three months ended April 30, 2009,
revenues were lower than those for the fiscal 2008 period by
$99.3 million, or 49%, primarily due to a 46% decrease in
the number of homes delivered and a 6% decrease in the average
sales price of the homes
45
delivered. The decreases in the number of homes delivered were
primarily due to lower backlog at October 31, 2008, as
compared to October 31, 2007. The decrease in the backlog
of homes was primarily the result of a 32% decrease in the
number of net new contracts signed in fiscal 2008 over fiscal
2007 due to weak demand. The decreases in the average price of
the homes delivered in the fiscal 2009 periods, as compared to
the fiscal 2008 periods, were primarily related to higher sales
incentives given on the homes delivered in the fiscal 2009
periods, as compared to the fiscal 2008 periods.
The value of net new contracts signed during the six-month and
three-month periods ended April 30, 2009 decreased by
$173.9 million and $83.0 million, or 53% and 43%,
respectively, from the six-month and three-month periods ended
April 30, 2008. The declines in the six-month and
three-month periods of fiscal 2009, as compared to the fiscal
2008 periods, were due to 49% and 39% decreases in the number of
net new contacts signed, respectively, and 10% and 6% decreases
in the average value of each net new contract, respectively. The
declines in the number of net new contracts signed in the fiscal
2009 periods, as compared to the fiscal 2008 periods, were due
primarily to continued weak demand in the housing market. The
decreases in the average value of each net new contract were
primarily due to higher sales incentives in the fiscal 2009
periods, as compared to the fiscal 2008 periods, and a shift in
the number of contracts signed to less expensive areas
and/or
products in the fiscal 2009 periods, as compared to the fiscal
2008 periods.
We reported a loss before income taxes for the six-month and
three-month periods ended April 30, 2009 of
$17.6 million and $13.3 million, respectively, as
compared to a loss before income taxes for the fiscal 2008
periods of $12.2 million and $27.4 million,
respectively. The increase in the loss before income taxes for
the six-month period ended April 30, 2009, as compared to
the six-month period ended April 30, 2008, was due to
higher cost of revenues as a percentage of revenues, offset, in
part, by lower selling, general and administrative expenses in
the fiscal 2009 period, as compared to the fiscal 2008 period.
The higher cost of revenues was primarily the result of
increased sales incentives given to home buyers on the homes
delivered, partially offset by lower impairment charges
recognized in the six-month period ended April 30, 2009, as
compared to the six-month period ended April 30, 2008. The
higher sales incentives in the fiscal 2009 period increased cost
of revenues as a percentage of revenue by approximately 4.5%. We
recognized inventory impairment charges of $36.3 million
and $79.4 million for the six months ended April 30,
2009 and 2008, respectively.
The decrease in the loss before income taxes for the three
months ended April 30, 2009, as compared to the three-month
period ended April 30, 2008, was due to lower cost of
revenues as a percentage of revenues and lower selling, general
and administrative expenses, in the fiscal 2009 period, as
compared to the fiscal 2008 period. For the three months ended
April 30, 2009 and 2008, cost of revenues before interest
as a percentage of revenues was 98.5% and 102.8%, respectively.
The decrease in the fiscal 2009 percentage was primarily
the result of lower inventory impairment charges recognized,
offset, in part, by increased sales incentives given to home
buyers on homes delivered. We recognized inventory impairment
charges of $20.0 million and $56.6 million in the
three-month periods ended April 30, 2009 and 2008,
respectively. The higher sales incentives in the fiscal 2009
period increased cost of revenues as a percentage of revenue by
approximately 4.5%.
South
Revenues in the six months and three months ended April 30,
2009 were lower than those for the comparable periods of fiscal
2008 by $165.1 million and $81.5 million, or 56% and
53%, respectively. The decrease in revenues for the six months
ended April 30, 2009, as compared to the six months ended
April 30, 2008, was attributable to a 58% decrease in the
number of homes delivered and a decrease of $4.3 million in
percentage of completion revenues, offset, in part, by a 7%
increase in the average price of homes delivered. The decrease
in revenues for the three-month period ended April 30,
2009, as compared to the three-month period ended April 30,
2008, was attributable to a 55% decrease in the number of homes
delivered and a decrease of $10.8 million in percentage of
completion revenues, partially offset by, a 12% increase in the
average price of homes delivered. The decreases in the number of
homes delivered in the fiscal 2009 periods, as compared to the
fiscal 2008 periods, were primarily due to lower backlog at
October 31, 2008, as compared to October 31, 2007. The
decline in backlog at October 31, 2008, as compared to
October 31, 2007, was due primarily to a 21% decrease in
the number of new contracts signed in fiscal 2008 over fiscal
2007. The increases in the average price of homes delivered were
primarily attributable to a shift in Florida in the number of
home delivered to more expensive areas
and/or
products in the fiscal 2009 periods,
46
as compared to the fiscal 2008 periods. Excluding Florida, the
average price of homes delivered in the geographic segment
decreased by 4% in the fiscal 2009 periods, as compared to the
fiscal 2008 periods, primarily due to higher sales incentives
given on the homes delivered in the fiscal 2009 periods.
For the six months ended April 30, 2009, the value of net
new contracts signed was lower than the six months ended
April 30, 2008 by $114.8 million, or 56%. The decline
was due to a 52% decrease in the number of net new contracts
signed and a 9% decrease in the average value of each contract.
For the three months ended April 30, 2009, the value of net
new contacts signed decreased $61.9 million, or 54%, as
compared to the fiscal 2008 period. The declines were
attributable to a decease in the number of net new contracts
signed and the average value of each net new contract of 49% and
10%, respectively. The decreases in the number of net new
contracts signed were attributable to overall weak market
conditions. The decreases in the average sales price of net new
contracts signed were primarily due to a higher average sales
price on contacts cancelled in the fiscal 2009 periods, as
compared to the fiscal 2008 periods, and a shift in the number
of contracts signed to less expensive areas
and/or
products in the fiscal 2009 periods, as compared to the fiscal
2008 periods.
We reported a loss before income taxes for the six months and
three months ended April 30, 2009 of $32.1 million and
$5.7 million, respectively, as compared to a loss before
income taxes of $167.0 million and $55.3 million,
respectively, for the fiscal 2008 periods. The declines in
losses before income taxes in the fiscal 2009 periods were
primarily due to a lower cost of revenues as a percentage of
total revenues and lower selling, general and administrative
expenses in the fiscal 2009 periods, as compared to the fiscal
2008 periods. Cost of revenues before interest as a percentage
of revenues was 106.1% and 90.4% in the six month and three
month periods ended April 30, 2009, respectively, as
compared to 142.8% and 122.5%, respectively, in the comparable
periods of fiscal 2008. The decreased percentages in the fiscal
2009 periods were primarily due to the reduction in the amount
of inventory impairment charges recognized from
$180.8 million and $64.6 million in the six-month and
three-month periods ended April 30, 2008, respectively, to
$33.2 million and $8.5 million in the fiscal 2009
periods, respectively.
West
Revenues in the six-month period ended April 30, 2009 were
lower than those in the six-month period ended April 30,
2008 by $285.7 million, or 64%. The decrease in revenues
was attributable to a 55% decrease in the number of homes
delivered and a 21% decrease in the average sales price of the
homes delivered. For the three months ended April 30, 2009,
revenues were lower than those for the comparable period of
fiscal 2008 by $139.5 million, or 63%, primarily due to a
57% decrease in the number of homes delivered and a 14% decrease
in the average sales price of the homes delivered. The decreases
in the number of homes delivered was primarily attributable to
the lower number of homes in backlog at October 31, 2008,
as compared to October 31, 2007, which was the result of
the number of homes delivered in the fiscal 2008 periods
exceeding the number of net new signed contracts in the fiscal
2008 periods. The decreases in the average price of homes
delivered was primarily due to higher sales incentives and a
shift in the number of settlements to less expensive products
and/or
locations in the fiscal 2009 periods, as compared to the fiscal
2008 periods.
The value of net new contracts signed during the six months and
three months ended April 30, 2009 decreased by
$20.8 million and $27.2 million, or 15% and 24%,
respectively, from the six months and three months ended
April 30, 2008. The decline in the six-month period of
fiscal 2009, as compared to the six-month period of fiscal 2008,
was due to a 36% decrease in the number of net new contacts
signed, offset, in part, by a 33% increase in the average value
of each net new contract. The decrease in the three-month period
of fiscal 2009, as compared to the comparable period of fiscal
2008, was the result of a 40% decrease in the number of net new
contacts signed, partially offset by a 27% increase in the
average value of each net new contract. The decreases in the
number of net new contracts signed was primarily due to
depressed market conditions, offset, in part, by a decrease in
the number of contacts cancelled in the fiscal 2009 periods as
compared to the fiscal 2008 periods. The increases in the
average value of each net new contract signed were attributable
to decreases in the number and average value of contracts
cancelled in the fiscal 2009 periods as compared to the fiscal
2008 periods. Excluding the impact of contract cancellations,
the average value of each net new contract signed decreased 0.2%
in the six months ended April 30, 2009 and increased 2% in
the three months ended April 30, 2009, as compared to the
comparable periods of fiscal 2008.
47
We reported losses before income taxes of $146.4 million
and $73.8 million for the six-month and three-month period
ended April 30, 2009, respectively, as compared to losses
before income taxes of $101.4 million and
$71.2 million, respectively, in the six-month and
three-month periods ended April 30, 2008. The increased
losses in the fiscal 2009 periods were attributable to lower
revenues, higher cost of revenues in the fiscal 2009 periods, as
compared to the fiscal 2008 periods, partially, offset by
impairment charges of $112.8 million and $85.0 million
in the six months and three months ended April 30, 2008,
related to unconsolidated entities in which we have investments.
For the six months and three months ended April 30, 2009,
cost of revenues before interest as a percentage of revenues was
170.4% and 171.3%, respectively, as compared to 96.1% and
102.0%, in the comparable periods of fiscal 2008. The increases
in the fiscal 2009 percentages were primarily the result of
higher inventory impairment charges recognized and increased
sales incentives given to home buyers on homes delivered. We
recognized inventory impairment charges of $149.2 million
and $76.5 million in the six-month and three-month periods
ended April 30, 2009, respectively, as compared to
$96.8 million and $55.9 million in the six-month and
three-month periods ended April 30, 2008, respectively. The
higher sales incentives in six month and three months ended
April 30, 2009 increased cost of revenues as a percentage
of revenue by approximately 4.4% and 2.0%, respectively. This
geographic segment also benefited from the recognition of
$42.0 million of income in the six months and three months
ended April 30, 2008 attributable to net proceeds received
by us from a condemnation award.
Other
Other loss before income taxes for the six months ended
April 30, 2009 was $56.1 million, an increase of
$0.6 million from the $55.5 million loss before income
taxes reported for the six months ended April 30, 2008.
This increase was primarily the result of a $9.5 million
decline in interest income in the fiscal 2009 period, as
compared to the fiscal 2008 period, a $4.2 million decline
in income from ancillary businesses and management fee income in
the fiscal 2009 period, as compared to the fiscal 2008 period,
interest expense of $5.2 million in the fiscal 2009 period
due to interest on homebuilding indebtedness exceeding the
amount eligible for capitalization, and the recognition of a
$2.1 million charge in connection with the redemption of
$293.0 million of our senior subordinated notes that was
announced in April 2009, partially offset by, lower unallocated
general and administrative expenses of $18.7 million in the
fiscal 2009 period, as compared to the fiscal 2008 period.
For the three months ended April 30, 2009 and 2008, other
loss before income taxes was $30.0 million and
$25.6 million, respectively. The increase was primarily due
to a $5.2 million decline in interest income in the fiscal
2009 period, as compared to the fiscal 2008 period, a
$1.7 million decline in income from ancillary businesses
and management fee income in the fiscal 2009 period, as compared
to the fiscal 2008 period, interest expense of $4.4 million
in the fiscal 2009 period due to interest on homebuilding
indebtedness exceeding the amount eligible for capitalization,
and the recognition of a $2.1 million charge in connection
with the redemption of $293.0 million of our senior
subordinated notes that was announced in April 2009, offset, in
part, by lower unallocated general and administrative expenses
of $7.5 million in the fiscal 2009 period, as compared to
the fiscal 2008 period.
|
|
ITEM 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|