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
July 31,
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 August 31, 2009, there were approximately
161,315,000 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; joint ventures
in which we are involved; 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; legal proceedings to which we are a
party; potential exposure relating to construction defect,
product liability and home warranty issues and the possible
impact of any claims relating thereto; 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 we operate; 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 we build 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; the outcome of various legal proceedings; the
availability of adequate insurance at reasonable cost; the
impact of construction defect, product liability and home
warranty claims, including the adequacy of self-insurance
accruals, the applicability and sufficiency of our insurance
coverage, and the insurance coverage and ability to pay of other
responsible parties relating to such claims; 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 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 August 27, 2009, we issued a press release
and held a conference call to review the results of operations
for the nine-month and three-month periods ended July 31,
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
August 27, 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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July 31,
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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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1,657,567
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|
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$
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1,633,495
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Inventory
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3,475,433
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4,127,475
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Property, construction and office equipment, net
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74,420
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86,462
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Receivables, prepaid expenses and other assets
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83,201
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113,762
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Mortgage loans receivable
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51,149
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49,255
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Customer deposits held in escrow
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19,474
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18,913
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Investments in and advances to unconsolidated entities
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144,555
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151,771
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Income tax refund receivable
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61,626
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Deferred tax assets
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151,700
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405,703
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$
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5,719,125
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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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515,534
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$
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613,594
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Senior notes
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1,536,691
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1,143,445
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Senior subordinated notes
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47,872
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343,000
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Mortgage company warehouse loan
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33,290
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37,867
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Customer deposits
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97,809
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135,591
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Accounts payable
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85,773
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134,843
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Accrued expenses
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626,267
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738,596
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Income taxes payable
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157,850
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202,247
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Total liabilities
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3,101,086
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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, 161,266 and 160,370 shares issued at
July 31, 2009 and October 31, 2008, respectively
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1,613
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1,604
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Additional paid-in capital
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301,788
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282,090
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Retained earnings
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2,309,264
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2,953,655
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Treasury stock, at cost 8 and 1 shares at
July 31, 2009 and October 31, 2008, respectively
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(145
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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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236
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325
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Total stockholders equity
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2,612,756
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3,237,653
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$
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5,719,125
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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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Nine Months Ended
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July 31,
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Three Months Ended July 31,
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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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$
|
1,268,725
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$
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2,457,037
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$
|
461,375
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|
$
|
796,711
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|
|
|
|
|
|
|
|
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|
|
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|
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|
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Cost of revenues
|
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1,445,288
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2,449,401
|
|
|
|
511,548
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|
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|
738,926
|
|
Selling, general and administrative expenses
|
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|
235,726
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|
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333,127
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|
|
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68,617
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|
|
|
103,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,681,014
|
|
|
|
2,782,528
|
|
|
|
580,165
|
|
|
|
842,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Loss from operations
|
|
|
(412,289
|
)
|
|
|
(325,491
|
)
|
|
|
(118,790
|
)
|
|
|
(45,319
|
)
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Loss from unconsolidated entities
|
|
|
(8,355
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)
|
|
|
(135,756
|
)
|
|
|
(3,739
|
)
|
|
|
(30,113
|
)
|
Expenses related to early retirement of debt
|
|
|
(2,067
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)
|
|
|
|
|
|
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|
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|
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Interest and other
|
|
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32,982
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|
|
|
100,486
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|
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11,265
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|
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20,637
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|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
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Loss before income taxes
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(389,729
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)
|
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(360,761
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)
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(111,264
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)
|
|
|
(54,795
|
)
|
Income tax provision (benefit)
|
|
|
254,662
|
|
|
|
(141,772
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)
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361,067
|
|
|
|
(25,500
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)
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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Net loss
|
|
$
|
(644,391
|
)
|
|
$
|
(218,989
|
)
|
|
$
|
(472,331
|
)
|
|
$
|
(29,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net loss per share:
|
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|
|
|
|
|
|
|
|
|
|
|
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Basic
|
|
$
|
(4.00
|
)
|
|
$
|
(1.38
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)
|
|
$
|
(2.93
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)
|
|
$
|
(0.18
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)
|
|
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|
|
|
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Diluted
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|
$
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(4.00
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)
|
|
$
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(1.38
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)
|
|
$
|
(2.93
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)
|
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted average number of shares:
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|
|
|
|
|
|
|
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|
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|
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Basic
|
|
|
161,026
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|
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|
158,398
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|
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|
161,245
|
|
|
|
158,761
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|
Diluted
|
|
|
161,026
|
|
|
|
158,398
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|
|
|
161,245
|
|
|
|
158,761
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|
See accompanying notes
3
TOLL
BROTHERS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(644,391
|
)
|
|
$
|
(218,989
|
)
|
Adjustments to reconcile net loss to net
cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18,353
|
|
|
|
21,062
|
|
Stock-based compensation
|
|
|
9,678
|
|
|
|
19,884
|
|
Excess tax benefits from stock-based compensation
|
|
|
(3,570
|
)
|
|
|
(8,543
|
)
|
Impairment of investments in unconsolidated entities
|
|
|
11,300
|
|
|
|
146,251
|
|
Income from unconsolidated entities
|
|
|
(2,945
|
)
|
|
|
(10,495
|
)
|
Distributions of earnings from unconsolidated entities
|
|
|
813
|
|
|
|
41,669
|
|
Deferred tax benefit
|
|
|
(189,677
|
)
|
|
|
(215,891
|
)
|
Deferred tax valuation allowances
|
|
|
443,680
|
|
|
|
22,638
|
|
Inventory impairments
|
|
|
379,928
|
|
|
|
526,729
|
|
Write-off of unamortized debt issuance costs
|
|
|
692
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease in inventory
|
|
|
264,283
|
|
|
|
499,515
|
|
Origination of mortgage loans
|
|
|
(426,372
|
)
|
|
|
(720,917
|
)
|
Sale of mortgage loans
|
|
|
424,478
|
|
|
|
764,389
|
|
Decrease in contracts receivable
|
|
|
|
|
|
|
41,853
|
|
Increase in income tax refund receivable
|
|
|
(61,626
|
)
|
|
|
|
|
Decrease in receivables, prepaid expenses and other assets
|
|
|
30,262
|
|
|
|
23,040
|
|
Decrease in customer deposits
|
|
|
(38,343
|
)
|
|
|
(76,030
|
)
|
Decrease in accounts payable and accrued expenses
|
|
|
(120,253
|
)
|
|
|
(158,665
|
)
|
Decrease in current income taxes payable
|
|
|
(39,319
|
)
|
|
|
(36,638
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
56,971
|
|
|
|
660,862
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(2,496
|
)
|
|
|
(3,554
|
)
|
Purchases of marketable securities
|
|
|
|
|
|
|
(1,468,440
|
)
|
Sale of marketable securities
|
|
|
|
|
|
|
1,458,887
|
|
Investments in and advances to unconsolidated entities
|
|
|
(20,220
|
)
|
|
|
(46,900
|
)
|
Return of investments from unconsolidated entities
|
|
|
1,443
|
|
|
|
2,623
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(21,273
|
)
|
|
|
(57,384
|
)
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of senior notes
|
|
|
389,400
|
|
|
|
|
|
Proceeds from loans payable
|
|
|
450,816
|
|
|
|
801,558
|
|
Redemption and repurchase of senior subordinated notes
|
|
|
(295,128
|
)
|
|
|
|
|
Principal payments of loans payable
|
|
|
(565,168
|
)
|
|
|
(823,127
|
)
|
Proceeds from stock-based benefit plans
|
|
|
6,128
|
|
|
|
13,044
|
|
Excess tax benefits from stock-based compensation
|
|
|
3,570
|
|
|
|
8,543
|
|
Purchase of treasury stock
|
|
|
(1,244
|
)
|
|
|
(1,476
|
)
|
Change in minority interest
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(11,626
|
)
|
|
|
(1,455
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
24,072
|
|
|
|
602,023
|
|
Cash and cash equivalents, beginning of period
|
|
|
1,633,495
|
|
|
|
900,337
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,657,567
|
|
|
$
|
1,502,360
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
4
TOLL
BROTHERS, INC. AND SUBSIDIARIES
(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 July 31, 2009, the
results of its operations for the nine-month and three-month
periods ended July 31, 2009 and 2008, and its cash flows
for the nine-month periods ended July 31, 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 criterion. 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.
In accordance with SFAS 109, the Company assesses whether a
valuation allowance should be established based on its
determination of whether it is more likely than not
that some or all of the deferred tax assets will not be
realized. 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 using
the guidance provided by SFAS 109.
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
5
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
judgment because the residential homebuilding industry is
cyclical and is highly sensitive to changes in economic
conditions. 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 would 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
(FSP)
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 related 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.
In June 2008, the FASB issued FSP Emerging Issues Task Force
03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities. Under
this FSP, unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents are
considered participating securities and, therefore, are included
in computing earnings per share pursuant to the two-class
method. The two-class method determines earnings per share for
each class of common stock and participating securities
according to dividends or dividend equivalents and their
respective participation rights in undistributed earnings. This
FSP is effective for the Companys fiscal year beginning
November 1, 2009 and requires retrospective application.
The adoption of this FSP it is not expected to have a material
impact on the Companys reported earnings per share.
In April 2009, the FASB issued FSP
No. FAS 107-1
and Accounting Principles Board (APB) Opinion
No. 28-1,
Interim Disclosures about Fair Value of Financial
Instruments
(FSP 107-1).
FSP 107-1
amends
6
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, and APB Opinion No. 28,
Interim Financial Reporting, to require disclosures
about the fair value of financial instruments during interim
reporting periods.
FSP 107-1
is effective for interim and annual periods ending after
June 15, 2009. The Company has included the required
disclosures into this Quarterly Report on
Form 10-Q
for the quarter ended July 31, 2009. The adoption of
FSP 107-1
did not have a material impact on the Companys
consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events (SFAS 165).
SFAS 165 provides guidance regarding general standards of
accounting for, and disclosures of, events that occur after the
date of the balance sheet, but before financial statements are
issued or are available to be issued. SFAS 165 sets forth:
(i) the period after the date of the balance sheet during
which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or
disclosure in the financial statements, (ii) the
circumstances under which an entity should recognize events or
transactions occurring after the date of the balance sheet in
its financial statements, and (iii) the disclosures that an
entity should make about events or transactions that occurred
after the date of the balance sheet. SFAS 165 is effective
for interim periods ending after June 15, 2009. The Company
has evaluated subsequent events occurring after July 31,
2009 through the time of filing this
Form 10-Q
and has made appropriate disclosures pursuant to SFAS 165.
In June 2009, the FASB issued SFAS No. 166,
Accounting for Transfers of Financial Assets
an amendment of FASB Statement No. 140
(SFAS 166). SFAS 166 eliminates the
concept of a qualifying special-purpose entity, creates more
stringent conditions for reporting a transfer of a portion of a
financial asset as a sale, clarifies other sale-accounting
criteria, and changes the initial measurement of a
transferors interest in transferred financial assets.
SFAS 166 is applicable for annual periods beginning after
November 15, 2009 and interim periods therein and
thereafter. SFAS 166 will be effective for the
Companys fiscal year beginning November 1, 2010. The
Company is currently assessing the impact, if any, of
SFAS 166 on its consolidated financial statements.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R)
(SFAS 167). SFAS 167 eliminates FASB
Interpretation 46(R)s exceptions to consolidating
qualifying special-purpose entities, contains new criteria for
determining the primary beneficiary of a variable interest
entity, and increases the frequency of required reassessments to
determine whether a company is the primary beneficiary of a
variable interest entity. SFAS 167 is effective for annual
reporting periods beginning after November 15, 2009.
Earlier application is prohibited. SFAS 167 will be
effective for the Companys fiscal year beginning
November 1, 2010. The Company is currently assessing the
impact, if any, of SFAS 167 on its consolidated financial
statements.
In June 2009, the FASB issued SFAS No. 168, The
FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles a
replacement of FASB Statement No. 162
(SFAS 168) as the single source of
authoritative nongovernmental U.S. GAAP. SFAS 168 does
not change current U.S. GAAP, but is intended to simplify
user access to all authoritative U.S. GAAP by providing all
authoritative literature related to a particular topic in one
place. All existing accounting standard documents will be
superseded and all other accounting literature not included in
SFAS 168 will be considered nonauthoritative. SFAS 168
is effective for interim and annual periods ending after
September 15, 2009. SFAS 168 is effective for the
Companys fiscal 2009 annual reporting period and will not
have an impact on the Companys financial condition or
results of operations. The Company is currently evaluating the
impact to its financial reporting process of providing
SFAS 168 references in its public filings.
7
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reclassification
The Company has determined that the amount of recent land sales
revenues and costs is immaterial to its statements 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 nine-month and three-month
periods ended July 31, 2008 to the presentation for the
nine-month and three-month periods ended July 31, 2009,
income realized from land sales for the fiscal 2008 periods was
reclassified to Other: 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 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Three Months Ended
|
|
|
|
July 31, 2008
|
|
|
July 31, 2008
|
|
|
Sales
|
|
$
|
2,275
|
|
|
$
|
959
|
|
Cost of revenues land sales
|
|
|
1,910
|
|
|
|
816
|
|
Cost of revenues interest on land sales
|
|
|
128
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
Reclassified to other: Interest and other
|
|
$
|
237
|
|
|
$
|
55
|
|
|
|
|
|
|
|
|
|
|
The presentation of certain other prior period amounts have been
reclassified to conform to the fiscal 2009 presentation.
Inventory at July 31, 2009 and October 31, 2008
consisted of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
October 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Land controlled for future communities
|
|
$
|
53,029
|
|
|
$
|
69,124
|
|
Land owned for future communities
|
|
|
755,819
|
|
|
|
819,005
|
|
Operating communities
|
|
|
2,666,585
|
|
|
|
3,239,346
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,475,433
|
|
|
$
|
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
nine-month and three-month periods ended July 31, 2009 and
2008 as shown in the table below (amounts in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Three Months Ended
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Land controlled for future communities
|
|
$
|
24,364
|
|
|
$
|
89,374
|
|
|
$
|
14,272
|
|
|
$
|
9,660
|
|
Land owned for future communities
|
|
|
133,033
|
|
|
|
122,100
|
|
|
|
48,583
|
|
|
|
36,400
|
|
Operating communities
|
|
|
222,531
|
|
|
|
315,255
|
|
|
|
46,821
|
|
|
|
59,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
379,928
|
|
|
$
|
526,729
|
|
|
$
|
109,676
|
|
|
$
|
105,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 where 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 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).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Communities
|
|
|
|
|
|
|
|
|
|
Fair Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
Communities
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Net of
|
|
|
|
|
|
|
Communities
|
|
|
Number of
|
|
|
Impairment
|
|
|
Impairment
|
|
|
|
Tested
|
|
|
Communities
|
|
|
Charges
|
|
|
Charges
|
|
|
Three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31
|
|
|
289
|
|
|
|
40
|
|
|
$
|
216.2
|
|
|
$
|
108.3
|
|
April 30
|
|
|
288
|
|
|
|
36
|
|
|
$
|
181.8
|
|
|
|
67.4
|
|
July 31
|
|
|
288
|
|
|
|
14
|
|
|
$
|
67.7
|
|
|
|
46.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
222.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31
|
|
|
211
|
|
|
|
36
|
|
|
$
|
328.2
|
|
|
$
|
134.3
|
|
April 30
|
|
|
297
|
|
|
|
39
|
|
|
$
|
272.2
|
|
|
|
121.0
|
|
July 31
|
|
|
296
|
|
|
|
18
|
|
|
$
|
144.5
|
|
|
|
59.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
315.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At July 31, 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
July 31, 2009, the Company had determined that it was the
primary beneficiary of one VIE related to a land purchase
contract and had recorded $11.7 million of inventory and
$6.4 million of accrued expenses. In addition, the Company
had determined that it was not the primary beneficiary of 15
VIEs related to land purchase contracts with an aggregate
purchase price of $148.8 million, on which it had made
aggregate deposits totaling $6.7 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 homebuilding indebtedness in excess of
qualified inventory, as defined in SFAS 34, is charged to
selling, general and administrative expense in the period
incurred. In the six-month and three-month periods ended
April 30, 2009, the Company expensed interest of
$5.2 million and $4.4 million, respectively, directly
to SG&A. During the three-month period ended July 31,
2009, the Company reviewed the methodology it applied in
identifying qualified inventory used in the calculation of
capitalized interest, and determined that the amount of
qualified inventory was
9
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
higher than the Company had previously identified and that a
portion of the interest previously expensed directly to
SG&A in the six-month and three-month periods ended
April 30, 2009 should have been capitalized. As a result of
this review, the Company reversed and capitalized
$4.6 million of previously expensed interest, thereby
reducing SG&A by $4.6 million in the three-month
period ended July 31, 2009; however, due to the decline in
qualified inventory during the three-month period ended
July 31, 2009, interest incurred on homebuilding
indebtedness exceeded amounts required to be capitalized in the
three-month period by $1.2 million. This excess interest
was charged to SG&A in the period. Prior to
November 1, 2008, qualified inventory exceeded homebuilding
indebtedness and all interest incurred was capitalized. Interest
incurred, capitalized and expensed for the nine-month and
three-month periods ended July 31, 2009 and 2008, was as
follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Interest capitalized, beginning of period
|
|
$
|
238,832
|
|
|
$
|
215,571
|
|
|
$
|
258,031
|
|
|
$
|
235,094
|
|
Interest incurred
|
|
|
87,527
|
|
|
|
93,205
|
|
|
|
31,236
|
|
|
|
29,524
|
|
Interest expensed to cost of revenues
|
|
|
(55,138
|
)
|
|
|
(67,166
|
)
|
|
|
(23,403
|
)
|
|
|
(23,082
|
)
|
Interest expensed to selling, general and administrative expense
|
|
|
(1,792
|
)
|
|
|
|
|
|
|
3,453
|
|
|
|
|
|
Write-off against other income
|
|
|
(1,729
|
)
|
|
|
(174
|
)
|
|
|
(1,617
|
)
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest capitalized, end of period
|
|
$
|
267,700
|
|
|
$
|
241,436
|
|
|
$
|
267,700
|
|
|
$
|
241,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 without allocation of any impairment
charges recognized. The Company estimates that, had inventory
impairment charges been allocated on a pro rata basis to the
individual components of inventory, capitalized interest at
July 31, 2009 and 2008 would have been reduced by
approximately $60.5 million and $42.8 million,
respectively.
|
|
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 July 31, 2009, the Company had approximately
$58.5 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 July 31, 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 July 31,
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.
10
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of July 31, 2009, the Company had recognized cumulative
impairment charges in connection with its current Development
Joint Ventures of $178.9 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 recognized impairment charges in
connection with its Development Joint Ventures of
$5.3 million in the nine-month and three-month periods
ended July 31, 2009, and $141.3 million and
$28.4 million of impairment charges in the nine-month and
three-month periods ended July 31, 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
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 July 31, 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 July 31, 2009,
the Company had an investment of $49.2 million in this
Planned Community Joint Venture.
Condominium
Joint Ventures
At July 31, 2009, the Company had $24.0 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 July 31, 2009, the Condominium Joint
Ventures had aggregate loan commitments of $320.8 million,
against which approximately $241.4 million had been
borrowed. At July 31, 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 July 31, 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 July 31, 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 July 31, 2009, the Company
had an investment of $11.9 million in Trust II. In
addition, the Company and PASERS each
11
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 July 31, 2009, the
Companys investment in the Trust was $0.9 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 $1.6 million in each of
the nine-month periods ended July 31, 2009 and 2008, and
$0.5 million in each of the three-month periods ended
July 31, 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.
General
At July 31, 2009, the Company had $112.6 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 from unconsolidated entities in the
Companys Condensed Consolidated Statements of Operations.
Accrued expenses at July 31, 2009 and October 31, 2008
consisted of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
October 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Land, land development and construction
|
|
$
|
136,045
|
|
|
$
|
184,017
|
|
Compensation and employee benefits
|
|
|
77,745
|
|
|
|
93,529
|
|
Insurance and litigation
|
|
|
159,099
|
|
|
|
158,307
|
|
Commitments to unconsolidated entities
|
|
|
112,590
|
|
|
|
128,227
|
|
Warranty
|
|
|
53,437
|
|
|
|
57,292
|
|
Interest
|
|
|
36,064
|
|
|
|
38,624
|
|
Other
|
|
|
51,287
|
|
|
|
78,600
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
626,267
|
|
|
$
|
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 nine-month and
three-month periods ended July 31, 2009 and 2008 were as
follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Balance, beginning of period
|
|
$
|
57,292
|
|
|
$
|
59,249
|
|
|
$
|
54,463
|
|
|
$
|
60,816
|
|
Additions homes closed during the period
|
|
|
7,450
|
|
|
|
18,039
|
|
|
|
2,882
|
|
|
|
6,719
|
|
Additions adjustments to accruals for homes closed
in prior periods
|
|
|
988
|
|
|
|
2,184
|
|
|
|
699
|
|
|
|
474
|
|
Charges incurred
|
|
|
(12,293
|
)
|
|
|
(17,331
|
)
|
|
|
(4,607
|
)
|
|
|
(5,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
53,437
|
|
|
$
|
62,141
|
|
|
$
|
53,437
|
|
|
$
|
62,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
Senior
Notes, Senior Subordinated Notes and Mortgage Warehouse
Line
|
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
8.91% Senior Notes). The Company received
$389.4 million of net proceeds from the issuance of the
8.91% Senior Notes. The 8.91% Senior Notes are the
unsecured obligations of Toll Brothers Finance Corp. The payment
of principal and interest on the 8.91% 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
8.91% Senior Note Parties). The
8.91% Senior Notes rank equally in right of payment with
all the 8.91% Senior Note Parties existing and future
unsecured senior indebtedness, including the Companys bank
revolving credit facility. The 8.91% 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 8.91% Senior Notes. The
8.91% 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 8.91% Senior Notes.
During the three months ended July 31, 2009, the Company
redeemed all of the remaining $193.0 million outstanding
principal amount of its Toll Corp.
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 Toll Corp. 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. In addition,
during the three months ended July 31, 2009, the Company
purchased an additional $2.1 million of its Toll Corp.
8.25% Senior Subordinated Notes due December 2011 through
open-market purchases. At July 31, 2009, $47.9 million
of the 8.25% Senior Subordinated Notes due December 2011,
were outstanding. In the nine-month period ended July 31,
2009 and three-month period 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.
On August 13, 2009, TBI Mortgage Company (TBI
Mortgage), the Companys wholly-owned mortgage
subsidiary, entered into a Master Repurchase Agreement with
Comerica Bank, as agent and representative of itself as a buyer
and the other buyers named therein (the Repurchase
Agreement). The Repurchase Agreement replaced TBI
Mortgages warehouse credit facility which was set to
expire on August 13, 2009. The purpose of the Repurchase
Agreement is to finance the origination of mortgage loans by TBI
Mortgage and is accounted for as a secured borrowing under
SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of
Liabilities. The Repurchase Agreement provides for loan
purchases up to $75 million, subject to certain sublimits.
In addition, the Repurchase Agreement provides for an accordion
feature under which TBI Mortgage may request that the aggregate
commitments under the Repurchase Agreement be increased to an
amount up to $100 million. The Repurchase Agreement expires
on July 29, 2010.
At July 31, 2009, the aggregate estimated fair value of the
Companys $515.5 million of loans payable, based upon
the interest rates that the Company believes were available to
it for loans with similar terms and remaining maturities, was
approximately $513.3 million. At July 31, 2009, the
aggregate estimated fair value of the Companys
$1.58 billion of senior notes and senior subordinated
notes, based upon their indicated market prices, was
approximately $1.56 billion. The Company believes that the
carrying value of its $33.3 million mortgage warehouse loan
outstanding at July 31, 2009 approximates its fair value.
13
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the Companys effective tax rate from
the federal statutory rate for the nine-month and three-month
periods ended July 31, 2009 and 2008 is as follows ($
amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Federal tax benefit at statutory rate
|
|
|
(136,405
|
)
|
|
|
(35.0
|
)
|
|
|
(126,266
|
)
|
|
|
(35.0
|
)
|
|
|
(38,942
|
)
|
|
|
(35.0
|
)
|
|
|
(19,178
|
)
|
|
|
(35.0
|
)
|
State taxes net of federal benefit
|
|
|
(11,400
|
)
|
|
|
(2.9
|
)
|
|
|
(20,284
|
)
|
|
|
(5.6
|
)
|
|
|
(3,978
|
)
|
|
|
(3.6
|
)
|
|
|
(3,739
|
)
|
|
|
(6.8
|
)
|
Reversal of tax provisions due to expiration of statutes and
settlements
|
|
|
(59,150
|
)
|
|
|
(15.2
|
)
|
|
|
(9,100
|
)
|
|
|
(2.5
|
)
|
|
|
(44,150
|
)
|
|
|
(39.7
|
)
|
|
|
(9,100
|
)
|
|
|
(16.6
|
)
|
Accrued interest on anticipated tax assessments
|
|
|
6,828
|
|
|
|
1.8
|
|
|
|
6,090
|
|
|
|
1.7
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
2,030
|
|
|
|
3.7
|
|
Valuation allowance federal
|
|
|
416,760
|
|
|
|
106.9
|
|
|
|
|
|
|
|
|
|
|
|
416,760
|
|
|
|
374.6
|
|
|
|
|
|
|
|
|
|
Valuation allowance state
|
|
|
26,920
|
|
|
|
6.9
|
|
|
|
13,000
|
|
|
|
3.6
|
|
|
|
22,638
|
|
|
|
20.3
|
|
|
|
4,550
|
|
|
|
8.3
|
|
Non-taxable income
|
|
|
|
|
|
|
|
|
|
|
(3,729
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(535
|
)
|
|
|
(1.0
|
)
|
Tax credits
|
|
|
|
|
|
|
|
|
|
|
(1,575
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
11,109
|
|
|
|
2.8
|
|
|
|
92
|
|
|
|
|
|
|
|
8,768
|
|
|
|
7.9
|
|
|
|
472
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax provision (benefit)
|
|
|
254,662
|
|
|
|
65.3
|
|
|
|
(141,772
|
)
|
|
|
(39.3
|
)
|
|
|
361,067
|
|
|
|
324.5
|
|
|
|
(25,500
|
)
|
|
|
(46.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the change in the gross unrecognized tax
benefits for the nine-month and three-month periods ended
July 31, 2009 and 2008 is as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Balance, beginning of period
|
|
$
|
320,679
|
|
|
$
|
364,300
|
|
|
$
|
297,216
|
|
|
$
|
329,638
|
|
Increase in benefit as a result of tax positions taken in prior
years
|
|
|
11,000
|
|
|
|
15,314
|
|
|
|
|
|
|
|
11,814
|
|
Increase in benefit as a result of tax positions taken in
current year
|
|
|
6,000
|
|
|
|
15,391
|
|
|
|
2,000
|
|
|
|
|
|
Decrease in benefit as a result of settlements
|
|
|
(138,329
|
)
|
|
|
(82,293
|
)
|
|
|
(124,866
|
)
|
|
|
(28,740
|
)
|
Decrease in benefit as a result of lapse of statute of limitation
|
|
|
(41,500
|
)
|
|
|
|
|
|
|
(16,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
157,850
|
|
|
$
|
312,712
|
|
|
$
|
157,850
|
|
|
$
|
312,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine-month period ended July 31, 2009, the
Company reached final settlement of its federal tax returns for
fiscal years through 2006, State of California tax returns for
fiscal years through 2006, and State of New Jersey and
State of Arizona tax returns for fiscal years through 2007. The
final settlement with the State of New Jersey and State of
Arizona for fiscal years through 2007 occurred during the
three-month period ended July 31, 2009. The federal and
state settlements resulted in a reduction in the Companys
unrecognized tax benefits. The state impact of any amended
federal return 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 Companys and its
subsidiaries fiscal 2007 and 2008 federal income tax
returns and various state and other income tax returns are in
the process of examination or administrative appeal.
The Companys unrecognized net tax benefits are included in
Income taxes payable on the Companys Condensed
Consolidated Balance Sheets. The Companys unrecognized tax
benefits at July 31, 2009 were $157.9 million. If
these unrecognized tax benefits reverse in the future, they
would have a beneficial impact on the Companys effective
tax rate at that time. During the next twelve months, it is
reasonably possible that the amount of unrecognized tax benefits
will change. The anticipated changes will be principally due to
the expiration
14
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of tax statutes, settlements with taxing jurisdictions,
increases due to new tax positions taken and the accrual of
estimated interest and penalties.
Potential interest and penalties are recognized as a component
of the provision for income taxes. During the nine-month periods
ended July 31, 2009 and 2008, the Company recognized in its
tax provision, before reduction for applicable taxes, estimated
interest and penalties of approximately $11.0 million and
$10.5 million, respectively. During the three-month periods
ended July 31, 2009 and 2008, the Company recognized in its
tax provision, before reduction for applicable taxes, estimated
interest and penalties of approximately $0.0 million and
$3.5 million, respectively. At July 31, 2009 and
October 31, 2008, the Company had accrued interest and
penalties, before reduction of applicable taxes, of
$50.3 million and $150.5 million, respectively; these
amounts were included in Income taxes payable on the
Companys Condensed Consolidated Balance Sheets. The
decrease in the nine-month period ended July 31, 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 federal and state statute of limitations or
the settlement with state tax authorities, offset, in part, by
additional interest accrued during the period.
The Company recorded significant federal deferred tax assets in
fiscal 2007, fiscal 2008 and in the nine-month period ended
July 31, 2009. These federal deferred tax assets were
generated primarily by inventory impairments and impairments of
investments in and advances to unconsolidated entities. At
July 31, 2009, the Companys net federal deferred tax
assets, before valuation allowance, were $568.5 million. At
July 31, 2009, in accordance with SFAS 109, the
Company assessed whether a valuation allowance should be
established based on its determination of whether it is
more likely than not that some portion or all of the
deferred tax assets will not be realized. The Company believes
that the continued downturn in the housing market, the
uncertainty as to its length and magnitude, and the
Companys continued recognition of impairment charges, are
significant evidence of the need for a valuation allowance
against its net federal deferred tax assets. During the
three-month period ended July 31, 2009, the Company
recorded a valuation allowance of $416.8 million against
its federal deferred tax assets. At July 31, 2009, the
Companys net federal deferred tax asset, after valuation
allowance, was $151.7 million. For federal income tax
purposes, the Company can carry back tax losses incurred in
fiscal 2009 against $462 million of taxable income it
reported in fiscal 2007. The Company expects to generate tax
losses in fiscal 2009, primarily through the recognition for tax
purposes of previously recognized book impairments, applying the
fiscal 2009 losses to its fiscal 2007 taxable income available
for carry back, and recovering $151.7 million of net
federal deferred tax assets. The Company expects that the refund
resulting from carry back of the fiscal 2009 tax losses will be
received in fiscal 2010.
The Company is allowed to carry forward tax losses for
20 years and apply such tax losses to future taxable income
to realize federal deferred tax assets. As of July 31,
2009, the Company has not generated tax losses to carry forward.
In addition, the Company will be able to reverse its previously
recognized valuation allowances during any future period for
which it reports income. 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
$78.3 million ($50.9 million, net of federal tax
benefit) as of July 31, 2009 against its state deferred tax
assets. In the nine-month periods ended July 31, 2009 and
2008, the Company recognized valuation allowances against its
state deferred tax assets of $41.4 million
($26.9 million, net of federal tax benefit) and
$20.0 million ($13.0 million, net of federal tax
benefit), respectively. In the three-month periods ended
July 31, 2009 and 2008, the Company recognized a valuation
allowance against its state deferred tax assets of
$34.8 million ($22.6 million, net of federal tax
benefit) and $7.0 million ($4.6 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.
15
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
All accumulated other comprehensive loss at July 31, 2009
and October 31, 2008 was related to employee retirement
plans.
The components of other comprehensive loss in the nine-month and
three-month periods ended July 31, 2009 and 2008 were as
follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net loss as reported
|
|
$
|
(644,391
|
)
|
|
$
|
(218,989
|
)
|
|
$
|
(472,331
|
)
|
|
$
|
(29,295
|
)
|
Changes in pension liability, net of tax (benefit) provision
|
|
|
(89
|
)
|
|
|
(1,026
|
)
|
|
|
(30
|
)
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(644,480
|
)
|
|
$
|
(220,015
|
)
|
|
$
|
(472,361
|
)
|
|
$
|
(29,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized a tax benefit of $59,000 and $684,000 in
the nine-month periods ended July 31, 2009 and 2008,
respectively, a tax benefit of $20,000 in the three-month period
ended July 31, 2009, and a tax provision of $73,000 in the
three-month period ended July 31, 2008, each related to the
change in pension liability in other comprehensive loss.
|
|
8.
|
Employee
Retirement Plan
|
For the nine-month and three-month periods ended July 31,
2009 and 2008, the Company recognized costs and made payments
related to its supplemental retirement plans as follows (amounts
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Service cost
|
|
$
|
99
|
|
|
$
|
157
|
|
|
$
|
33
|
|
|
$
|
52
|
|
Interest cost
|
|
|
1,024
|
|
|
|
918
|
|
|
|
341
|
|
|
|
306
|
|
Amortization of initial benefit obligation
|
|
|
807
|
|
|
|
1,027
|
|
|
|
269
|
|
|
|
343
|
|
Amortization of unrecognized gains
|
|
|
(954
|
)
|
|
|
(480
|
)
|
|
|
(318
|
)
|
|
|
(160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
976
|
|
|
$
|
1,622
|
|
|
$
|
325
|
|
|
$
|
541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
$
|
96
|
|
|
$
|
92
|
|
|
$
|
33
|
|
|
$
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
16
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 nine-month and three-month periods
ended July 31, 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 nine-month period ended July 31, 2009, the Company
recognized $9.3 million of stock compensation expense and
$3.7 million of income tax benefit related to stock option
grants. In the nine-month period ended July 31, 2008, the
Company recognized $19.4 million of stock compensation
expense and $7.7 million of income tax benefit related to
stock option grants.
In the three-month period ended July 31, 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 July 31, 2008, the
Company recognized $3.4 million of stock compensation
expense and $1.3 million of income tax benefit related to
stock option grants.
The Company expects to recognize approximately
$11.1 million of stock compensation expense and
$4.4 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 nine-month and three-month
periods ended July 31, 2009, the Company recognized
$742,000 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 deferral
($130,000) was charged to selling, general and administrative
expense in the three-month period ended January 31, 2009.
17
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
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 July 31, 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
|
|
|
Residential Mortgage Loans Held for Sale
|
|
|
Level 2
|
|
|
$
|
51,142
|
|
Forward Loan Commitments Residential Mortgage Loans
Held for Sale
|
|
|
Level 2
|
|
|
$
|
(55
|
)
|
Interest Rate Lock Commitments (IRLCs)
|
|
|
Level 2
|
|
|
$
|
(278
|
)
|
Forward Loan Commitments IRLCs
|
|
|
Level 2
|
|
|
$
|
278
|
|
At July 31, 2009, the carrying value of cash and cash
equivalents approximates fair value.
As of July 31, 2009, the unpaid principal balance of
mortgage loans held for sale was approximately equal to the
aggregate fair value. Differences between the unpaid balance and
the fair value of these loans are recognized as a gain or loss
in current earnings and 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 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 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
18
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 nine-month and three-month periods ended July 31, 2009
and 2008 is as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Three Months Ended
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Basic weighted average shares
|
|
|
161,026
|
|
|
|
158,398
|
|
|
|
161,245
|
|
|
|
158,761
|
|
Common stock equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
|
|
|
161,026
|
|
|
|
158,398
|
|
|
|
161,245
|
|
|
|
158,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalents represent the dilutive effect of
outstanding
in-the-money
stock options using the treasury stock method. For the
nine-month and three-month periods ended July 31, 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 nine-month
periods ended July 31, 2009 and 2008, 4.1 million
common stock equivalents would have been included in the fiscal
2009 periods diluted weighted-average shares and
6.2 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 July 31, 2009 and 2008,
3.9 million common stock equivalents would have been
included in the fiscal 2009 periods diluted
weighted-average shares and 6.0 million common stock
equivalents would have been included in the fiscal 2008
periods diluted weighted-average shares.
During the nine-month periods ended July 31, 2009 and 2008,
the Company issued 908,000 and 1,857,000 shares,
respectively, of its common stock under its stock incentive
plans and employee stock purchase plan. During the three-month
periods ended July 31, 2009 and 2008, the Company issued
145,000 and 85,000 shares, respectively, of its common
stock under its stock incentive plans and employee stock
purchase plan.
At July 31, 2009, the exercise price of approximately
8.7 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 July 31, 2009. At
July 31, 2008, the exercise price of approximately
5.4 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 July 31, 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 July 31, 2009,
the Company was authorized to repurchase approximately
11.9 million shares.
|
|
13.
|
Shareholder
Rights Plan
|
On June 17, 2009, the Company adopted a shareholder rights
plan (the Rights Plan) to help preserve the value of
the Companys deferred tax assets, by reducing the risk of
limitation of net operating loss carryforwards and certain other
tax benefits under Section 382 of the Internal Revenue Code.
In connection with the Rights Plan, the Company declared a
dividend of one right for each share of common stock outstanding
as of the close of business on July 17, 2009. Under the
Rights Plan, any stockholder or group that acquires beneficial
ownership of 4.95 percent or more of Toll Brothers
outstanding stock (an acquiring person)
19
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
without the approval of the Companys Board of Directors,
could be subject to significant dilution in its holdings.
Existing stockholders holding 4.95 percent or more of the
Companys common stock will not be considered acquiring
persons unless they acquire additional shares, subject to
certain exceptions described in the Rights Plan. In addition, at
its discretion, the Companys Board of Directors may exempt
certain transactions and certain persons whose acquisition of
securities is determined not to jeopardize the Companys
net deferred tax assets.
The rights will expire on July 16, 2019 or earlier if
(i) the Companys Board of Directors determines the
Rights Plan is no longer needed to preserve the deferred tax
assets due to the implementation of legislative changes,
(ii) the Board of Directors determines, at the beginning of
a specified period, that no tax benefits may be carried forward,
(iii) the Rights Plan is not approved by the Companys
stockholders by June 17, 2010, or (iv) certain other
events occur as described in the Rights Plan. Upon approval of
the Rights Plan by the Companys stockholders, the
Companys Board of Directors intends to take action to
redeem the Companys pre-existing shareholder rights plan,
which was adopted in 2007.
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
20
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 and on July 14,
2009, the two cases were consolidated.
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 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.
|
|
15.
|
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 July 31, 2009, the aggregate
purchase price of land parcels under option and purchase
agreements, excluding parcels under option that the Company does
not expect to acquire, was approximately $540.0 million
(including $148.5 million of land to be acquired from
unconsolidated entities in which the Company has investments).
Of the $540.0 million aggregate purchase price of land
parcels subject to option and purchase agreements that the
Company expects to acquire, at July 31, 2009, it had
deposited $63.9 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 $439.4 million. Of the additional
$439.4 million the Company would be required to pay, it had
recorded $120.5 million of this amount in accrued expenses
at July 31, 2009. The Company has additional land parcels
under option that have been excluded from the aforementioned
aggregate purchase amounts since it does not believe that it
will complete the purchase of these land parcels and no
additional funds will be required from the Company to terminate
these contracts.
At July 31, 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 July 31, 2009, the Company had outstanding surety bonds
amounting to $404.3 million, primarily related to its
obligations to various governmental entities to construct
improvements in the Companys various communities. The
Company estimates that $119.2 million of work remains on
these improvements. The Company has an additional
$80.6 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.
21
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At July 31, 2009, the Company had outstanding agreements of
sale to deliver 1,626 homes with an aggregate sales value of
$930.7 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 July 31, 2009, the Companys
mortgage subsidiary was committed to fund $439.8 million of
mortgage loans. Of these commitments, $109.8 million are
IRLCs. The Companys mortgage subsidiary has commitments
from investors to acquire $109.8 million of these IRLCs and
$50.4 million of its mortgage loans receivable. The
Companys home buyers have not locked-in the
interest rate on the remaining $330.0 million.
As of July 31, 2009, the Company has confirmed the presence
of defective Chinese-made drywall in a small number of its West
Florida homes, which were delivered between June 2006 and
November 2007. The anticipated cost of the remediation of these
homes is included in the amounts that the Company has previously
accrued. The Company is inspecting homes, gathering information
from its drywall subcontractors and suppliers, and continuing to
investigate this issue. The Company is currently unable to
reasonably estimate its total possible loss or exposure relating
to Chinese-made drywall in its homes.
Revenue and (loss) income before income taxes for each of the
Companys geographic segments for the nine-month and
three-month periods ended July 31, 2009 and 2008 were as
follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
$
|
428.4
|
|
|
$
|
693.4
|
|
|
$
|
145.5
|
|
|
$
|
227.4
|
|
Mid-Atlantic
|
|
|
364.5
|
|
|
|
668.3
|
|
|
|
129.7
|
|
|
|
214.4
|
|
South
|
|
|
212.0
|
|
|
|
438.4
|
|
|
|
83.1
|
|
|
|
144.4
|
|
West
|
|
|
263.8
|
|
|
|
656.9
|
|
|
|
103.1
|
|
|
|
210.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,268.7
|
|
|
$
|
2,457.0
|
|
|
$
|
461.4
|
|
|
$
|
796.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
$
|
(71.5
|
)
|
|
$
|
54.3
|
|
|
$
|
(45.2
|
)
|
|
$
|
24.0
|
|
Mid-Atlantic
|
|
|
(23.5
|
)
|
|
|
(28.3
|
)
|
|
|
(5.9
|
)
|
|
|
(16.0
|
)
|
South
|
|
|
(43.6
|
)
|
|
|
(161.8
|
)
|
|
|
(11.5
|
)
|
|
|
5.1
|
|
West
|
|
|
(181.9
|
)
|
|
|
(149.6
|
)
|
|
|
(35.5
|
)
|
|
|
(48.0
|
)
|
Corporate and other
|
|
|
(69.2
|
)
|
|
|
(75.4
|
)
|
|
|
(13.2
|
)
|
|
|
(19.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(389.7
|
)
|
|
$
|
(360.8
|
)
|
|
$
|
(111.3
|
)
|
|
$
|
(54.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 July 31, 2009 and October 31, 2008 are shown in the
table below (amounts in millions).
|
|
|
|
|
|
|
|
|
|
|
July 31, 2009
|
|
|
October 31, 2008
|
|
|
North
|
|
$
|
1,113.5
|
|
|
$
|
1,244.7
|
|
Mid-Atlantic
|
|
|
1,116.0
|
|
|
|
1,220.3
|
|
South
|
|
|
603.3
|
|
|
|
688.0
|
|
West
|
|
|
875.3
|
|
|
|
1,134.0
|
|
Corporate and other
|
|
|
2,011.0
|
|
|
|
2,299.8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,719.1
|
|
|
$
|
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.
23
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 nine-month and three-month periods ended July 31,
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 July 31, 2009 and
October 31, 2008 are also shown (amounts in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
|
Impairments
|
|
|
|
July 31,
|
|
|
October 31,
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Inventory:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land controlled for future communities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
$
|
29.5
|
|
|
$
|
33.7
|
|
|
$
|
13.5
|
|
|
$
|
21.6
|
|
|
$
|
9.1
|
|
|
$
|
2.3
|
|
Mid-Atlantic
|
|
|
11.8
|
|
|
|
24.6
|
|
|
|
7.5
|
|
|
|
10.1
|
|
|
|
3.4
|
|
|
|
0.4
|
|
South
|
|
|
2.8
|
|
|
|
3.7
|
|
|
|
0.3
|
|
|
|
41.9
|
|
|
|
0.1
|
|
|
|
0.0
|
|
West
|
|
|
8.9
|
|
|
|
7.1
|
|
|
|
3.1
|
|
|
|
15.8
|
|
|
|
1.7
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53.0
|
|
|
|
69.1
|
|
|
|
24.4
|
|
|
|
89.4
|
|
|
|
14.3
|
|
|
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land owned for future communities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
211.3
|
|
|
|
217.9
|
|
|
|
41.6
|
|
|
|
6.2
|
|
|
|
16.0
|
|
|
|
0.9
|
|
Mid-Atlantic
|
|
|
368.3
|
|
|
|
382.2
|
|
|
|
17.6
|
|
|
|
67.7
|
|
|
|
7.4
|
|
|
|
21.5
|
|
South
|
|
|
62.1
|
|
|
|
52.7
|
|
|
|
1.2
|
|
|
|
33.5
|
|
|
|
1.2
|
|
|
|
|
|
West
|
|
|
114.1
|
|
|
|
166.2
|
|
|
|
72.6
|
|
|
|
14.7
|
|
|
|
24.0
|
|
|
|
14.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
755.8
|
|
|
|
819.0
|
|
|
|
133.0
|
|
|
|
122.1
|
|
|
|
48.6
|
|
|
|
36.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating communities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
800.7
|
|
|
|
952.9
|
|
|
|
49.7
|
|
|
|
45.7
|
|
|
|
28.2
|
|
|
|
6.5
|
|
Mid-Atlantic
|
|
|
703.5
|
|
|
|
858.8
|
|
|
|
24.0
|
|
|
|
45.3
|
|
|
|
2.0
|
|
|
|
21.9
|
|
South
|
|
|
480.2
|
|
|
|
560.4
|
|
|
|
44.4
|
|
|
|
111.1
|
|
|
|
11.4
|
|
|
|
5.7
|
|
West
|
|
|
682.2
|
|
|
|
867.3
|
|
|
|
104.4
|
|
|
|
113.1
|
|
|
|
5.2
|
|
|
|
25.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,666.6
|
|
|
|
3,239.4
|
|
|
|
222.5
|
|
|
|
315.2
|
|
|
|
46.8
|
|
|
|
59.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,475.4
|
|
|
$
|
4,127.5
|
|
|
$
|
379.9
|
|
|
$
|
526.7
|
|
|
$
|
109.7
|
|
|
$
|
106.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
$
|
24.0
|
|
|
$
|
26.8
|
|
|
$
|
6.0
|
|
|
$
|
5.0
|
|
|
|
|
|
|
$
|
5.0
|
|
South
|
|
|
49.6
|
|
|
|
48.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West
|
|
|
58.2
|
|
|
|
64.8
|
|
|
|
5.3
|
|
|
|
141.3
|
|
|
$
|
5.3
|
|
|
|
28.4
|
|
Corporate
|
|
|
12.8
|
|
|
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
144.6
|
|
|
$
|
151.8
|
|
|
$
|
11.3
|
|
|
$
|
146.3
|
|
|
$
|
5.3
|
|
|
$
|
33.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
17.
|
Supplemental
Disclosure to Statements of Cash Flows
|
The following are supplemental disclosures to the statements of
cash flows for the nine months ended July 31, 2009 and 2008
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid, net of amount capitalized
|
|
$
|
8,407
|
|
|
$
|
8,978
|
|
Income taxes paid
|
|
$
|
145,530
|
|
|
$
|
88,117
|
|
Income tax refunds
|
|
$
|
43,958
|
|
|
|
|
|
Non-cash activity:
|
|
|
|
|
|
|
|
|
Reduction of investments in unconsolidated entities due to
reduction in letters of credit
|
|
$
|
8,707
|
|
|
$
|
8,661
|
|
Reclassification of investment in unconsolidated entities to
loan payable
|
|
|
|
|
|
$
|
2,109
|
|
(Decrease) increase in investment in unconsolidated entities due
to accrual of commitments
|
|
$
|
(8,199
|
)
|
|
$
|
101,430
|
|
Reclassification of accrued liabilities to loan payable
|
|
$
|
7,800
|
|
|
$
|
2,163
|
|
Cost of inventory acquired through seller financing
|
|
$
|
3,555
|
|
|
$
|
7,344
|
|
Cost of inventory accrued under specific performance contracts
|
|
$
|
14,889
|
|
|
|
|
|
Cost of other inventory acquired
|
|
$
|
1,779
|
|
|
|
|
|
Land returned to seller subject to loan financing
|
|
|
|
|
|
$
|
7,750
|
|
Contribution of inventory to a consolidated joint venture
|
|
$
|
5,283
|
|
|
|
|
|
Income tax benefit related to exercise of employee stock options
|
|
$
|
5,019
|
|
|
$
|
11,630
|
|
Adoption of FIN 48
|
|
|
|
|
|
$
|
47,460
|
|
Reclassification of inventory to property, construction and
office equipment
|
|
|
|
|
|
$
|
16,103
|
|
Miscellaneous increases (decreases) to investments in
unconsolidated entities
|
|
$
|
81
|
|
|
$
|
(951
|
)
|
Stock awards
|
|
$
|
27
|
|
|
$
|
26
|
|
|
|
18.
|
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 $).
25
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Balance Sheet at July 31, 2009 ($ in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
1,547,411
|
|
|
|
110,156
|
|
|
|
|
|
|
|
1,657,567
|
|
Inventory
|
|
|
|
|
|
|
|
|
|
|
3,206,968
|
|
|
|
268,465
|
|
|
|
|
|
|
|
3,475,433
|
|
Property, construction and office equipment, net
|
|
|
|
|
|
|
|
|
|
|
72,885
|
|
|
|
1,535
|
|
|
|
|
|
|
|
74,420
|
|
Receivables, prepaid expenses and other assets
|
|
|
60
|
|
|
|
6,164
|
|
|
|
63,799
|
|
|
|
14,745
|
|
|
|
(1,567
|
)
|
|
|
83,201
|
|
Mortgage loans receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,149
|
|
|
|
|
|
|
|
51,149
|
|
Customer deposits held in escrow
|
|
|
|
|
|
|
|
|
|
|
18,533
|
|
|
|
941
|
|
|
|
|
|
|
|
19,474
|
|
Income tax refund receivable
|
|
|
61,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,626
|
|
Investments in and advances to unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
103,912
|
|
|
|
40,643
|
|
|
|
|
|
|
|
144,555
|
|
Investments in and advances to consolidated entities
|
|
|
2,559,220
|
|
|
|
1,559,909
|
|
|
|
(1,188,153
|
)
|
|
|
(233,738
|
)
|
|
|
(2,697,238
|
)
|
|
|
|
|
Deferred tax assets
|
|
|
151,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,772,606
|
|
|
|
1,566,073
|
|
|
|
3,825,355
|
|
|
|
253,896
|
|
|
|
(2,698,805
|
)
|
|
|
5,719,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans payable
|
|
|
|
|
|
|
|
|
|
|
416,731
|
|
|
|
98,803
|
|
|
|
|
|
|
|
515,534
|
|
Senior notes
|
|
|
|
|
|
|
1,536,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,536,691
|
|
Senior subordinated notes
|
|
|
|
|
|
|
|
|
|
|
47,872
|
|
|
|
|
|
|
|
|
|
|
|
47,872
|
|
Mortgage company warehouse loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,290
|
|
|
|
|
|
|
|
33,290
|
|
Customer deposits
|
|
|
|
|
|
|
|
|
|
|
91,927
|
|
|
|
5,882
|
|
|
|
|
|
|
|
97,809
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
83,801
|
|
|
|
1,972
|
|
|
|
|
|
|
|
85,773
|
|
Accrued expenses
|
|
|
|
|
|
|
29,382
|
|
|
|
381,255
|
|
|
|
217,329
|
|
|
|
(1,699
|
)
|
|
|
626,267
|
|
Income taxes payable
|
|
|
159,850
|
|
|
|
|
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
157,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
159,850
|
|
|
|
1,566,073
|
|
|
|
1,021,586
|
|
|
|
355,276
|
|
|
|
(1,699
|
)
|
|
|
3,101,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
5,283
|
|
|
|
|
|
|
|
|
|
|
|
5,283
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1,613
|
|
|
|
|
|
|
|
|
|
|
|
2,003
|
|
|
|
(2,003
|
)
|
|
|
1,613
|
|
Additional paid-in capital
|
|
|
301,788
|
|
|
|
|
|
|
|
4,420
|
|
|
|
2,734
|
|
|
|
(7,154
|
)
|
|
|
301,788
|
|
Retained earnings
|
|
|
2,309,264
|
|
|
|
|
|
|
|
2,793,830
|
|
|
|
(106,117
|
)
|
|
|
(2,687,713
|
)
|
|
|
2,309,264
|
|
Treasury stock, at cost
|
|
|
(145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(145
|
)
|
Accumulated other comprehensive income
|
|
|
236
|
|
|
|
|
|
|
|
236
|
|
|
|
|
|
|
|
(236
|
)
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,612,756
|
|
|
|
|
|
|
|
2,798,486
|
|
|
|
(101,380
|
)
|
|
|
(2,697,106
|
)
|
|
|
2,612,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,772,606
|
|
|
|
1,566,073
|
|
|
|
3,825,355
|
|
|
|
253,896
|
|
|
|
(2,698,805
|
)
|
|
|
5,719,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Operations for the nine months ended
July 31, 2009 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
1,139,724
|
|
|
|
129,001
|
|
|
|
|
|
|
|
1,268,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
59,745
|
|
|
|
1,304,526
|
|
|
|
139,984
|
|
|
|
(58,967
|
)
|
|
|
1,445,288
|
|
Selling, general and administrative
|
|
|
37
|
|
|
|
1,781
|
|
|
|
233,982
|
|
|
|
17,011
|
|
|
|
(17,085
|
)
|
|
|
235,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(37
|
)
|
|
|
(61,526
|
)
|
|
|
(398,784
|
)
|
|
|
(27,994
|
)
|
|
|
76,052
|
|
|
|
(412,289
|
)
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
(3,055
|
)
|
|
|
(5,300
|
)
|
|
|
|
|
|
|
(8,355
|
)
|
Interest and other
|
|
|
|
|
|
|
61,526
|
|
|
|
12,147
|
|
|
|
20,482
|
|
|
|
(63,240
|
)
|
|
|
30,915
|
|
Loss from subsidiaries
|
|
|
(389,692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
389,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit
|
|
|
(389,729
|
)
|
|
|
|
|
|
|
(389,692
|
)
|
|
|
(12,812
|
)
|
|
|
402,504
|
|
|
|
(389,729
|
)
|
Income tax benefit
|
|
|
254,662
|
|
|
|
|
|
|
|
104,187
|
|
|
|
(8,343
|
)
|
|
|
(95,844
|
)
|
|
|
254,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(644,391
|
)
|
|
|
|
|
|
|
(493,879
|
)
|
|
|
(4,469
|
)
|
|
|
498,348
|
|
|
|
(644,391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidating Statement of Operations for the three months ended
July 31, 2009 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
429,886
|
|
|
|
31,489
|
|
|
|
|
|
|
|
461,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
25,360
|
|
|
|
478,355
|
|
|
|
32,805
|
|
|
|
(24,972
|
)
|
|
|
511,548
|
|
Selling, general and administrative
|
|
|
15
|
|
|
|
811
|
|
|
|
68,035
|
|
|
|
5,846
|
|
|
|
(6,090
|
)
|
|
|
68,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(15
|
)
|
|
|
(26,171
|
)
|
|
|
(116,504
|
)
|
|
|
(7,162
|
)
|
|
|
31,062
|
|
|
|
(118,790
|
)
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
1,561
|
|
|
|
(5,300
|
)
|
|
|
|
|
|
|
(3,739
|
)
|
Interest and other
|
|
|
|
|
|
|
26,171
|
|
|
|
3,694
|
|
|
|
7,821
|
|
|
|
(26,421
|
)
|
|
|
11,265
|
|
Earnings from subsidiaries
|
|
|
(111,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit
|
|
|
(111,264
|
)
|
|
|
|
|
|
|
(111,249
|
)
|
|
|
(4,641
|
)
|
|
|
115,890
|
|
|
|
(111,264
|
)
|
Income tax benefit
|
|
|
361,067
|
|
|
|
|
|
|
|
224,634
|
|
|
|
(5,242
|
)
|
|
|
(219,392
|
)
|
|
|
361,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(472,331
|
)
|
|
|
|
|
|
|
(335,883
|
)
|
|
|
601
|
|
|
|
335,282
|
|
|
|
(472,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Operations for the nine months ended
July 31, 2008 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
2,452,670
|
|
|
|
4,367
|
|
|
|
|
|
|
|
2,457,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues
|
|
|
|
|
|
|
49,460
|
|
|
|
2,443,636
|
|
|
|
5,507
|
|
|
|
(49,202
|
)
|
|
|
2,449,401
|
|
Selling, general and administrative
|
|
|
1
|
|
|
|
525
|
|
|
|
333,908
|
|
|
|
21,922
|
|
|
|
(23,229
|
)
|
|
|
333,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1
|
)
|
|
|
(49,985
|
)
|
|
|
(324,874
|
)
|
|
|
(23,062
|
)
|
|
|
72,431
|
|
|
|
(325,491
|
)
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
(50,762
|
)
|
|
|
(84,994
|
)
|
|
|
|
|
|
|
(135,756
|
)
|
Interest and other
|
|
|
|
|
|
|
49,985
|
|
|
|
13,281
|
|
|
|
25,602
|
|
|
|
11,618
|
|
|
|
100,486
|
|
Loss from subsidiaries
|
|
|
(360,760
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
360,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(360,761
|
)
|
|
|
|
|
|
|
(362,355
|
)
|
|
|
(82,454
|
)
|
|
|
444,809
|
|
|
|
(360,761
|
)
|
Income tax benefit
|
|
|
(141,772
|
)
|
|
|
|
|
|
|
(167,883
|
)
|
|
|
(33,487
|
)
|
|
|
201,370
|
|
|
|
(141,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(218,989
|
)
|
|
|
|
|
|
|
(194,472
|
)
|
|
|
(48,967
|
)
|
|
|
243,439
|
|
|
|
(218,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidating Statement of Operations for the three months ended
July 31, 2008 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
795,794
|
|
|
|
917
|
|
|
|
|
|
|
|
796,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues
|
|
|
|
|
|
|
16,735
|
|
|
|
736,726
|
|
|
|
1,579
|
|
|
|
(16,114
|
)
|
|
|
738,926
|
|
Selling, general and administrative
|
|
|
|
|
|
|
176
|
|
|
|
103,637
|
|
|
|
7,407
|
|
|
|
(8,116
|
)
|
|
|
103,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
|
|
|
|
(16,911
|
)
|
|
|
(44,569
|
)
|
|
|
(8,069
|
)
|
|
|
24,230
|
|
|
|
(45,319
|
)
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
(30,113
|
)
|
|
|
|
|
|
|
|
|
|
|
(30,113
|
)
|
Interest and other
|
|
|
|
|
|
|
16,911
|
|
|
|
18,292
|
|
|
|
8,237
|
|
|
|
(22,803
|
)
|
|
|
20,637
|
|
Loss from subsidiaries
|
|
|
(54,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(54,795
|
)
|
|
|
|
|
|
|
(56,390
|
)
|
|
|
168
|
|
|
|
56,222
|
|
|
|
(54,795
|
)
|
Income tax benefit
|
|
|
(25,500
|
)
|
|
|
|
|
|
|
(43,341
|
)
|
|
|
(1,183
|
)
|
|
|
44,524
|
|
|
|
(25,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(29,295
|
)
|
|
|
|
|
|
|
(13,049
|
)
|
|
|
1,351
|
|
|
|
11,698
|
|
|
|
(29,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Cash Flows for the nine months ended
July 31, 2009 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(644,391
|
)
|
|
|
|
|
|
|
(493,879
|
)
|
|
|
(4,469
|
)
|
|
|
498,348
|
|
|
|
(644,391
|
)
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
21
|
|
|
|
1,751
|
|
|
|
15,911
|
|
|
|
670
|
|
|
|
|
|
|
|
18,353
|
|
Stock-based compensation
|
|
|
9,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,678
|
|
Excess tax benefits from stock-based compensation
|
|
|
(3,570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,570
|
)
|
Impairment of investment in unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
|
5,300
|
|
|
|
|
|
|
|
11,300
|
|
Loss (income) from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
2,355
|
|
|
|
(5,300
|
)
|
|
|
|
|
|
|
(2,945
|
)
|
Distributions of earnings from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
813
|
|
|
|
|
|
|
|
|
|
|
|
813
|
|
Deferred tax provision
|
|
|
(189,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(189,677
|
)
|
Deferred tax valuation allowances
|
|
|
443,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
443,680
|
|
Inventory impairments
|
|
|
|
|
|
|
|
|
|
|
344,628
|
|
|
|
35,300
|
|
|
|
|
|
|
|
379,928
|
|
Write-off of unamortized debt issuance costs
|
|
|
|
|
|
|
|
|
|
|
692
|
|
|
|
|
|
|
|
|
|
|
|
692
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in inventory
|
|
|
|
|
|
|
|
|
|
|
166,835
|
|
|
|
97,448
|
|
|
|
|
|
|
|
264,283
|
|
Origination of mortgage loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(426,372
|
)
|
|
|
|
|
|
|
(426,372
|
)
|
Sale of mortgage loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
424,478
|
|
|
|
|
|
|
|
424,478
|
|
Decrease in contracts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax refund receivable
|
|
|
(61,626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,626
|
)
|
Decrease (increase) in receivables, prepaid expenses and other
assets
|
|
|
476,897
|
|
|
|
(399,959
|
)
|
|
|
431,984
|
|
|
|
19,797
|
|
|
|
(498,457
|
)
|
|
|
30,262
|
|
Decrease in customer deposits
|
|
|
|
|
|
|
|
|
|
|
(18,190
|
)
|
|
|
(20,153
|
)
|
|
|
|
|
|
|
(38,343
|
)
|
(Decrease) increase in accounts payable and accrued expenses
|
|
|
(147
|
)
|
|
|
8,808
|
|
|
|
(89,786
|
)
|
|
|
(39,237
|
)
|
|
|
109
|
|
|
|
(120,253
|
)
|
Decrease in current income taxes payable
|
|
|
(39,319
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,319
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(8,454
|
)
|
|
|
(389,400
|
)
|
|
|
367,363
|
|
|
|
87,462
|
|
|
|
|
|
|
|
56,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
|
|
|
|
|
|
|
|
(2,293
|
)
|
|
|
(203
|
)
|
|
|
|
|
|
|
(2,496
|
)
|
Purchases of marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in and advances to unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
(20,220
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,220
|
)
|
Return of investments from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
1,443
|
|
|
|
|
|
|
|
|
|
|
|
1,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
(21,070
|
)
|
|
|
(203
|
)
|
|
|
|
|
|
|
(21,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of senior notes
|
|
|
|
|
|
|
389,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
389,400
|
|
Proceeds from loans payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450,816
|
|
|
|
|
|
|
|
450,816
|
|
Redemption and repurchase of senior subordinated notes
|
|
|
|
|
|
|
|
|
|
|
(295,128
|
)
|
|
|
|
|
|
|
|
|
|
|
(295,128
|
)
|
Principal payments of loans payable
|
|
|
|
|
|
|
|
|
|
|
(19,371
|
)
|
|
|
(545,797
|
)
|
|
|
|
|
|
|
(565,168
|
)
|
Proceeds from stock-based benefit plans
|
|
|
6,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,128
|
|
Excess tax benefits from stock-based compensation
|
|
|
3,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,570
|
|
Purchase of treasury stock
|
|
|
(1,244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,244
|
)
|
Change in minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
8,454
|
|
|
|
389,400
|
|
|
|
(314,499
|
)
|
|
|
(94,981
|
)
|
|
|
|
|
|
|
(11,626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
31,794
|
|
|
|
(7,722
|
)
|
|
|
|
|
|
|
24,072
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
|
|
|
|
|
1,515,617
|
|
|
|
117,878
|
|
|
|
|
|
|
|
1,633,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
|
|
|
|
|
|
|
|
|
1,547,411
|
|
|
|
(110,156
|
)
|
|
|
|
|
|
|
1,657,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
TOLL
BROTHERS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Cash Flows for the nine months ended
July 31, 2008 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Brothers,
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(218,989
|
)
|
|
|
|
|
|
|
(194,472
|
)
|
|
|
(48,967
|
)
|
|
|
243,439
|
|
|
|
(218,989
|
)
|
Adjustments to reconcile net loss to net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
854
|
|
|
|
19,628
|
|
|
|
580
|
|
|
|
|
|
|
|
21,062
|
|
Stock-based compensation
|
|
|
19,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,884
|
|
Excess tax benefit from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock-based compensation
|
|
|
(8,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,543
|
)
|
Impairment of investments in unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
61,251
|
|
|
|
85,000
|
|
|
|
|
|
|
|
146,251
|
|
(Income) loss from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
(11,608
|
)
|
|
|
113
|
|
|
|
|
|
|
|
(10,495
|
)
|
Distributions of earnings from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
41,669
|
|
|
|
|
|
|
|
|
|
|
|
41,669
|
|
Deferred tax benefit
|
|
|
(215,891
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(215,891
|
)
|
Deferred tax valuation allowances
|
|
|
22,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,638
|
|
Inventory write-offs
|
|
|
|
|
|
|
|
|
|
|
526,729
|
|
|
|
|
|
|
|
|
|
|
|
526,729
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in inventory
|
|
|
|
|
|
|
|
|
|
|
556,710
|
|
|
|
(57,195
|
)
|
|
|
|
|
|
|
499,515
|
|
Origination of mortgage loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(720,917
|
)
|
|
|
|
|
|
|
(720,917
|
)
|
Sale of mortgage loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
764,389
|
|
|
|
|
|
|
|
764,389
|
|
Decrease (increase) in contracts receivable
|
|
|
|
|
|
|
|
|
|
|
42,793
|
|
|
|
(940
|
)
|
|
|
|
|
|
|
41,853
|
|
Decrease (increase) in receivables, prepaid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses and other assets
|
|
|
420,260
|
|
|
|
1,478
|
|
|
|
(171,962
|
)
|
|
|
21,825
|
|
|
|
(248,561
|
)
|
|
|
23,040
|
|
(Decrease) increase in customer deposits
|
|
|
|
|
|
|
|
|
|
|
(78,975
|
)
|
|
|
2,945
|
|
|
|
|
|
|
|
(76,030
|
)
|
Decrease in accounts payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and accrued expenses
|
|
|
(2,832
|
)
|
|
|
(2,332
|
)
|
|
|
(116,345
|
)
|
|
|
(42,278
|
)
|
|
|
5,122
|
|
|
|
(158,665
|
)
|
Decrease in current income taxes payable
|
|
|
(36,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(20,111
|
)
|
|
|
|
|
|
|
675,418
|
|
|
|
5,555
|
|
|
|
|
|
|
|
660,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
|
|
|
|
|
|
|
|
(3,122
|
)
|
|
|
(432
|
)
|
|
|
|
|
|
|
(3,554
|
)
|
Purchase of marketable securities
|
|
|
|
|
|
|
|
|
|
|
(1,239,715
|
)
|
|
|
(228,725
|
)
|
|
|
|
|
|
|
(1,468,440
|
)
|
Sale of marketable securities
|
|
|
|
|
|
|
|
|
|
|
1,230,162
|
|
|
|
228,725
|
|
|
|
|
|
|
|
1,458,887
|
|
Investments in and advances to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
(42,964
|
)
|
|
|
(3,936
|
)
|
|
|
|
|
|
|
(46,900
|
)
|
Distributions of investments in unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
2,623
|
|
|
|
|
|
|
|
|
|
|
|
2,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
(53,016
|
)
|
|
|
(4,368
|
)
|
|
|
|
|
|
|
(57,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from loans payable
|
|
|
|
|
|
|
|
|
|
|
435
|
|
|
|
801,123
|
|
|
|
|
|
|
|
801,558
|
|
Principal payments of loans payable
|
|
|
|
|
|
|
|
|
|
|
(39,509
|
)
|
|
|
(783,618
|
)
|
|
|
|
|
|
|
(823,127
|
)
|
Proceeds from stock-based benefit plans
|
|
|
13,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,044
|
|
Excess tax benefit from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock-based compensation
|
|
|
8,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,543
|
|
Purchase of treasury stock
|
|
|
(1,476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,476
|
)
|
Change in minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
20,111
|
|
|
|
|
|
|
|
(39,074
|
)
|
|
|
17,508
|
|
|
|
|
|
|
|
(1,455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
583,328
|
|
|
|
18,695
|
|
|
|
|
|
|
|
602,023
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
|
|
|
|
|
783,891
|
|
|
|
116,446
|
|
|
|
|
|
|
|
900,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
|
|
|
|
|
|
|
|
|
1,367,219
|
|
|
|
135,141
|
|
|
|
|
|
|
|
1,502,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
ITEM 2.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (MD&A)
|
On August 27, 2009, we issued a press release and held a
conference call to review the results of operations for the
nine-month and three-month periods ended July 31, 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 August 27,
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
continued through the third quarter of fiscal 2009. The
slowdown, which we believe started with a decline in consumer
confidence, an overall softening of demand for new homes and an
oversupply of homes available for sale, has been exacerbated by,
among other things, a decline in the overall economy, increasing
unemployment, fear of job loss, a significant decline in the
securities markets, a 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.
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 nine-month and three-month periods ended
July 31, 2009 was 35% and 5% lower, respectively, than the
value of net new contracts signed in the comparable periods of
fiscal 2008. Net new contracts signed in the nine months and
three months ended July 31, 2009 were $873.9 million
(1,685 homes) and $447.7 million (837 homes), respectively.
Net new contracts signed in the nine months and three months
ended July 31, 2008 were $1.34 billion (2,388 homes)
and $469.9 million (812 homes), respectively. The number of
net new contracts signed in the three months ended July 31,
2009 was 3% higher than the number of net new contracts signed
in the three months ended July 31, 2008. Compared to our
fiscal quarter ended April 30, 2009, net new contracts
signed in our fiscal quarter ended July 31, 2009 increased
by 50% in total value and by 44% in the number of net new
contracts signed. The increase in the number of net new
contracts signed in the third quarter of fiscal 2009, as
compared to the fiscal 2008 period, marks the first time in over
three years that we have reported an increase in the number of
net new contracts signed on a
year-over-year
basis. In addition, in the three months ended July 31,
2009, our contract cancellation rate (the number of current
quarter contracts cancelled divided by the number of gross
contracts signed in the quarter) was 8.5%, as compared to 19.4%
in the three months ended July 31, 2008 and 21.7% in the
three months ended April 30, 2009. While our fiscal year
2009
third-quarter
results reflect continuing challenging housing market
conditions, we do see signs for optimism. We believe declining
cancellations and more solid demand indicate that the housing
market is stabilizing.
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, many of which are
among the largest and, we believe, most reliable in the
industry. We believe that regional and community banks continue
to recognize the long term value in creating relationships with
high quality, affluent customers such as our home buyers, and
these banks continue to provide such customers with financing.
Some of the major banks that had previously exited the market
appear to be cautiously re-entering it, but are not as
aggressive as they once were. Nevertheless, tightened 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
32
continue to secure mortgages, due to their typically lower
loan-to-value
ratios and attractive credit profiles as compared to the average
home buyer.
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, our 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
July 31, 2009, we had $1.66 billion of cash and cash
equivalents on hand and approximately $1.35 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. During the
three-month period ended July 31, 2009, we redeemed
$293.0 million of senior subordinated notes due 2011 and
purchased $2.1 million of these notes on the open market.
We believe we have the resources available to fund attractive
opportunities, should they arise.
When our industry recovers, we believe that we will see reduced
competition from the small and mid-sized private builders who
are our primary competitors in the luxury market. We believe
that the access of these private builders to capital 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 35,400 home sites at July 31, 2009,
of which we owned approximately 30,800. Of the 30,800 home sites
owned at July 31, 2009, significant improvements were
completed on approximately 12,300. In addition, we intend to
sell certain parcels of land that we have identified as
non-strategic. At July 31, 2009, we were selling from 215
communities compared to 273 communities at October 31, 2008
and 290 communities at July 31, 2008. We expect to be
selling from approximately 205 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
33
difficult to provide guidance. Subject to the risks reported
elsewhere in our reports filed with the SEC and the preceding
uncertainties, based upon fiscal year 2009 deliveries to date,
our backlog at July 31, 2009 and the pace of activity at
our communities, we currently estimate that we will deliver
between 475 and 725 homes in the
three-month
period ended October 31, 2009 at an average sales price of
between $550,000 and $575,000 per home. We believe that, as a
result of sales incentives given to our home buyers and slower
delivery paces per community, our cost of sales as a percentage
of revenues, before impairment charges and write-downs, will be
higher in the fourth quarter of fiscal 2009 than in the
comparable period of fiscal 2008. Additionally, based on lower
projected revenues in the fourth quarter of fiscal 2009, as
compared to the fiscal 2008 period, we expect our selling,
general and administrative expenses to be lower in total dollars
in the fourth quarter of fiscal 2009 than in the fiscal 2008
period, but higher as a percentage of revenues in the fourth
quarter of fiscal 2009 than in the fiscal 2008 period.
CONTRACTS
AND BACKLOG
The value of net new contracts signed was $873.9 million
(1,685 homes) in the nine months ended July 31, 2009, a
34.9% decrease compared to the value of contracts signed in the
nine-month period ended July 31, 2008 of $1.34 billion
(2,388 homes). The decrease in the nine-month period is
attributable to a 29.4% decrease in the number of net new
contracts signed and a 7.7% decrease in the average value of
each contract. The value of net new contracts signed was
$447.7 million (837 homes) in the three months ended
July 31, 2009, a 4.7% decrease compared to the value of net
new contracts signed in the three-month period ended
July 31, 2008 of $469.9 million (812 homes). The
decrease in the three-month period is attributable to a 7.6%
decrease in the average value of each contract signed, offset,
in part, by a 3.1% increase in the number of net new contracts
signed. The increase in the number of net new contracts signed
in the three-month period of fiscal 2009, as compared to the
fiscal 2008 period, was primarily due to the increased demand
for our homes and the decline in the number of contracts
cancelled in the fiscal 2009 period, as compared to the fiscal
2008 period.
We continue to believe that the decrease in the number of net
new contracts signed in the nine-month period of fiscal 2009, as
compared to the fiscal 2008 period, was attributable to the
continued slowdown that we have experienced since fiscal 2005.
(See Overview above for an expanded discussion
related to the decrease in the number of net new contracts
signed and the slowdown in our business.)
The decline in the average sales price of net new contracts
signed in the nine-month period ended July 31, 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 fiscal 2008 period, a
shift in the number of net new contracts signed to less
expensive areas
and/or
product in the fiscal 2009 period, as compared to fiscal 2008
period, and a 1.2% higher 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 new contracts
signed in the three-month period ended July 31, 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, 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, and a 16.2% higher average value of contracts
cancelled during the fiscal 2009 period, as compared to the
fiscal 2008 period.
At July 31, 2009, we were offering sales incentives, on
average, of $84,000 or 12.6% of the sales value of the home, as
compared to, on average, $57,000 or 8.5% of the sales value of
the home at July 31, 2008. 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 nine-month period ended July 31, 2009, home buyers
cancelled $290.1 million (396 homes) of signed contracts,
as compared to $550.3 million (760 homes) in the nine-month
period ended July 31, 2008. As a percentage of the number
of gross contracts signed in the nine-month periods ended
July 31, 2009 and 2008, home buyers cancelled 19.0% and
24.1%, respectively, and 24.9% and 29.1%, respectively of the
value of gross contracts signed. In the three-month period ended
July 31, 2009, home buyers cancelled $54.9 million (78
homes) of signed contracts, as compared to $118.2 million
(195 homes) in the three-month period ended July 31, 2008.
As a percentage of the number of gross contracts signed in the
three-month periods ended July 31, 2009 and 2008, home
34
buyers cancelled 8.5% and 19.4%, respectively, and 10.9% and
20.1%, respectively, of the value of gross contracts signed.
Our backlog at July 31, 2009 of $930.7 million (1,626
homes) decreased 46.8%, as compared to our backlog at
July 31, 2008 of $1.75 billion (2,592 homes). Backlog
consists of homes under contract but not yet delivered to our
home buyers. The decrease in backlog at July 31, 2009, as
compared to the backlog at July 31, 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 nine-month period of fiscal 2009 as compared to the
nine-month period of fiscal 2008, offset, in part, by lower
deliveries in the nine-month period of fiscal 2009, as compared
to the nine-month period of 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.
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 July 31, 2009, we reviewed
the fair value of 288 operating communities, determined that the
fair value of 14 of these communities was below our carrying
value, and recognized impairment charges of $46.8 million
on these communities. At July 31, 2009, the carrying value
of these communities, net of the impairment charges recognized,
was $67.7 million.
35
Future Communities: We evaluate all land held
for future communities or future sections of current
communities, whether owned or under contract, to determine
whether or not we expect to proceed with the development of the
land as originally contemplated. This evaluation encompasses the
same types of estimates used for current communities described
above, as well as an evaluation of the regulatory environment in
which the land is located and the estimated probability of
obtaining the necessary approvals, the estimated time and cost
it will take to obtain the approvals and the possible
concessions that will be required to be given in order to obtain
the approvals. Concessions may include cash payments to fund
improvements to public places such as parks and streets,
dedication of a portion of the property for use by the public or
as open space or a reduction in the density or size of the homes
to be built. Based upon this review, we decide (a) as to
land under contract to be purchased, whether the contract will
likely be terminated or renegotiated, and (b) as to land we
own, whether the land will likely be developed as contemplated
or in an alternative manner, or should be sold. We then further
determine whether costs that have been capitalized to the
community are recoverable or should be written off. The
write-off is charged to cost of revenues in the period in which
the need for the write-off is determined.
The estimates used in the determination of the estimated cash
flows and fair value of both current and future communities are
based on factors known to us at the time such estimates are made
and our expectations of future operations and economic
conditions. Should the estimates or expectations used in
determining estimated fair value deteriorate in the future, we
may be required to recognize additional impairment charges and
write-offs related to current and future communities.
Variable Interest Entities: We have 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 July 31, 2009, we determined that we were the
primary beneficiary of one VIE related to a land purchase
contract and had recorded $11.7 million of inventory and
$6.4 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
36
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. 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 would be required to
reduce or eliminate our deferred tax assets.
We generated significant federal deferred tax assets in fiscal
2007, fiscal 2008 and the in the nine-month period ended
July 31, 2009. These federal deferred tax assets were
generated primarily by inventory impairments and impairments of
investments in and advances to unconsolidated entities. At
July 31, 2009, our net federal deferred tax asset, before
valuation allowance, was $568.5 million. At July 31,
2009, in accordance with SFAS 109, we assessed whether a
valuation allowance should be established based on our
determination of whether it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. We believe that the continued downturn in the housing
market, the uncertainty as to its length and magnitude, and our
continued recognition of impairment charges, are significant
evidence of the need for a valuation allowance against our net
federal deferred tax assets. During the three-month period ended
July 31, 2009, we recorded a valuation allowance of
$416.8 million against our federal deferred tax asset. At
July 31, 2009, our net federal deferred tax asset, after
valuation allowance, was $151.7 million. For federal income
tax purposes, we can carry back tax losses incurred in fiscal
2009 against $462 million of taxable income reported in
fiscal 2007. We expect to generate tax losses in fiscal 2009,
primarily through the recognition for tax purposes of previously
recognized book impairments, applying the fiscal 2009 losses to
our fiscal 2007 taxable income available for carry back, and
recovering $151.7 million of net federal deferred tax
assets. We expect that the refund resulting from the carry back
of the fiscal 2009 tax losses will be received in fiscal 2010.
We are allowed to carry forward tax losses for 20 years and
apply such tax losses to future taxable income to realize
federal deferred tax assets. As of July 31, 2009, we have
not generated taxable losses to carry forward. In addition, we
will be able to reverse previously recognized valuation
allowances during any future period in which we report income.
We will continue to review our federal deferred tax assets in
accordance with SFAS 109.
For state tax purposes, due to past losses and projected future
losses in certain jurisdictions where we do not have carryback
potential
and/or
cannot sufficiently forecast future taxable income, we
recognized cumulative valuation allowances of $78.3 million
($50.9 million, net of federal tax benefit) as of
July 31, 2009 against our state deferred tax assets. In the
nine-month periods ended July 31, 2009 and 2008, we
recognized valuation allowances against our state deferred tax
assets of $41.4 million ($26.9 million, net of federal
tax benefit) and $20.0 million ($13.0 million, net of
federal tax benefit), respectively. In the three-month periods
ended July 31, 2009 and 2008, we recognized a valuation
allowance against our state deferred tax assets of
$34.8 million ($22.6 million, net of federal tax
benefit) and $7.0 million ($4.6 million, net of
federal tax benefit), respectively. Future valuation allowances
in these jurisdictions may continue to be recognized 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
37
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 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 July 31, 2009, we had investments in and
advances to these entities, net of impairment charges
recognized, of $144.6 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 July 31, 2009, we had accrued
$112.6 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 July 31, 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
$842.7 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
38
respective joint ventures. At July 31, 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
$63.3 million of guarantees disclosed above.
Our investments in these entities are accounted for using the
equity method.
RESULTS
OF OPERATIONS
The following table sets forth, for the nine-month and
three-month periods ended July 31, 2009 and 2008, a
comparison of certain statement of operations items ($ in
millions):
|
|
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|
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|
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|
|
|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
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|
Three Months Ended July 31,
|
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2009
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|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
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|
|
$
|
|
|
%
|
|
|
Revenues
|
|
|
1,268.7
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|
|
|
|
|
|
|
2,457.0
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|
|
|
|
|
|
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461.4
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|
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|
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796.7
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|
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|
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|
|
|
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Cost of revenues
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|
|
1,445.3
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|
|
|
113.9
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|
|
|
2,449.4
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|
|
|
99.7
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|
|
|
511.5
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|
|
|
110.9
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|
|
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738.9
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|
|
|
92.7
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|
Selling, general and administrative
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235.7
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|
|
18.6
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|
|
|
333.1
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|
13.6
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|
|
68.6
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|
|
14.9
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|
|
|
103.1
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|
|
12.9
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|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
1,681.0
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|
|
|
|
|
|
2,782.5
|
|
|
|
|
|
|
|
580.2
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|
|
|
|
|
|
|
842.0
|
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|
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|
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|
|
|
|
|
|
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Loss from operations
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|
|
(412.3
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)
|
|
|
(32.5
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)
|
|
|
(325.5
|
)
|
|
|
(13.2
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)
|
|
|
(118.8
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)
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|
|
(25.7
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)
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|
|
(45.3
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)
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|
(5.7
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)
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Other:
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Loss from unconsolidated entities
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|
|
(8.4
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)
|
|
|
|
|
|
|
(135.8
|
)
|
|
|
|
|
|
|
(3.7
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)
|
|
|
|
|
|
|
(30.1
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)
|
|
|
|
|
Expenses related to early retirement of debt
|
|
|
(2.1
|
)
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|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other
|
|
|
33.0
|
|
|
|
|
|
|
|
100.5
|
|
|
|
|
|
|
|
11.3
|
|
|
|
|
|
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|
20.6
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(389.7
|
)
|
|
|
|
|
|
|
(360.8
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)
|
|
|
|
|
|
|
(111.3
|
)
|
|
|
|
|
|
|
(54.8
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)
|
|
|
|
|
Income tax provision (benefit)
|
|
|
254.7
|
|
|
|
|
|
|
|
(141.8
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)
|
|
|
|
|
|
|
361.1
|
|
|
|
|
|
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|
(25.5
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)
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|
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|
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Net loss
|
|
|
(644.4
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)
|
|
|
|
|
|
|
(219.0
|
)
|
|
|
|
|
|
|
(472.3
|
)
|
|
|
|
|
|
|
(29.3
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)
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|
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|
|
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|
Note: Due to rounding, amounts may not add.
REVENUES
AND COST OF REVENUES
In the nine-month period ended July 31, 2009, we recognized
$1.27 billion of revenues and a net loss of
$644.4 million, as compared to $2.46 billion of
revenues and a net loss of $219.0 million in the nine-month
period ended July 31, 2008. In the nine-month period ended
July 31, 2009, we recognized inventory and joint venture
impairment charges and write-offs of $391.2 million, as
compared to $673.0 million of inventory and joint venture
impairment charges and write-offs in the nine-month period ended
July 31, 2008. In addition, in the nine months ended
July 31, 2009, we recognized $443.7 million of
valuation allowances against our federal and state deferred tax
assets, as compared to $13.0 million of valuation
allowances against our state deferred tax assets in the
nine-month period ended July 31, 2008. (See Critical
Accounting Policies: Income Taxes Valuation
Allowance above for an expanded discussion related to the
valuation allowances recognized.)
In the three-month period ended July 31, 2009, we
recognized $461.4 million of revenues and a net loss of
$472.3 million, as compared to $796.7 million of
revenues and a net loss of $29.3 million in the three-month
period ended July 31, 2008. In the three-month period ended
July 31, 2009, we recognized inventory and joint-venture
impairment charges and write-offs of $115.0 million, as
compared to $139.4 million of inventory and joint venture
impairment charges and write-offs in the three-month period
ended July 31, 2008. In addition, in the three months ended
July 31, 2009, we recognized $439.4 million of
valuation allowances against our federal and state deferred tax
assets, as compared to $4.6 million of valuation allowances
against our state deferred tax assets in the three-
39
month period ended July 31, 2008. (See Critical
Accounting Policies: Income Taxes Valuation
Allowance above for an expanded discussion related to the
valuation allowances recognized.)
Revenues for the nine months ended July 31, 2009, excluding
$39.1 million of revenues recognized under the percentage
of completion accounting method recognized in the fiscal 2008
period, were lower than those for the fiscal 2008 period by
approximately $1.15 billion, or 47.5%. This decrease was
attributable to a 42.5% decrease in the number of homes
delivered and an 8.7% decrease in the average price of the homes
delivered. The decrease in the number of homes delivered in the
nine-month period ended July 31, 2009 was primarily due to
a 48.2% decline in our backlog at October 31, 2008, as
compared to our backlog at October 31, 2007, and a 29.4%
decrease in the number of net new contracts signed in the
nine-month period of fiscal 2009, as compared to the fiscal 2008
period.
The 8.7% 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 nine-month period of fiscal 2009 amounted to
approximately $90,000 per home or 13.0% of the price of the
home, as compared to approximately $70,000 per home, or 9.6% of
the price of the home, in the fiscal 2008 period.
Revenues for the three months ended July 31, 2009,
excluding $5.6 million of revenues recognized under the
percentage of completion accounting method recognized in the
fiscal 2008 period, were lower than those for the comparable
period of fiscal 2008 by approximately $329.7 million, or
41.7%. This decrease was attributable to a 36.3% decrease in the
number of homes delivered and an 8.4% decrease in the average
price of the homes delivered. The decrease in the number of
homes delivered in the three-month period ended July 31,
2009 was primarily due to a 55% decline in backlog at
April 30, 2009, as compared to our backlog at
April 30, 2008. The 8.4% 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 July 31, 2009 amounted to approximately $103,000 per
home or 15.1% of the price of the home delivered, as compared to
approximately $76,000 per home, 10.7% of the price of the home,
in the fiscal 2008 period.
Cost of revenues as a percentage of home sales revenue was
113.9% in the nine-month period ended July 31, 2009, as
compared to 99.7% in the nine-month period ended July 31,
2008. In the nine-month periods ended July 31, 2009 and
2008, we recognized inventory impairment charges and write-offs
of $379.9 million and $526.7 million, respectively.
Land, land development and home and home related construction
costs, including interest, (home costs) were 84.0%
of revenues in the nine-month period ended July 31, 2009,
as compared to 78.2% in the fiscal 2008 period. The increase in
the home costs percentage was due primarily to higher sales
incentives on the homes delivered, higher interest costs and a
change in the mix of product delivered. Sales incentives as a
percentage of revenues was 14.9% in the nine-month period ended
July 31, 2009, and 10.5% in the nine-month period ended
July 31, 2008. Interest cost as a percentage of revenues
was 4.3% in the nine-month period ended July 31, 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 and fewer qualifying assets to which
interest can be allocated, resulting in higher amounts of
capitalized interest allocated to qualifying inventory.
Cost of revenues as a percentage of home sales revenue was
110.9% in the three-month period ended July 31, 2009, as
compared to 92.7% in the three-month period ended July 31,
2008. In the three-month periods ended July 31, 2009 and
2008, we recognized inventory impairment charges and write-offs
of $109.7 million and $106.0 million, respectively.
Home costs were 87.1% of revenues in the three-month period
ended July 31, 2009, as compared to 79.4% in the fiscal
2008 period. The increase in the home costs percentage was due
primarily to higher sales incentives on the homes delivered,
higher interest costs and a change in the mix of product
delivered. Sales incentives as a percentage of revenues was
17.7% in the three-month period ended July 31, 2009, and
11.9% in the three-month period ended July 31, 2008.
Interest cost as a percentage of revenues was 5.1% in the
three-month period ended July 31, 2009, as compared to 2.9%
in the fiscal 2008 period. The higher interest cost percentage
was due to inventory generally being held for a longer period of
time and fewer qualifying assets to which interest can be
allocated, resulting in higher amounts of capitalized interest
allocated to qualifying inventory.
40
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
(SG&A)
SG&A spending decreased by $97.4 million, or 29.2%, in
the nine-month period ended July 31, 2009, as compared to
the nine-month period ended July 31, 2008. As a percentage
of revenues, SG&A was 18.6% in the nine-month period ended
July 31, 2009, as compared to 13.6% 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 nine-month period ended, 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
nine-month
period of fiscal 2009 by $1.8 million which was expensed to
SG&A in the fiscal 2009 period. Prior to November 1,
2008, qualified inventory exceeded homebuilding indebtedness and
all interest incurred was capitalized. The write-off of deferred
marketing costs related to closed communities in the nine-month
periods of fiscal 2009 and 2008 were $4.9 million and
$1.7 million, respectively.
SG&A spending decreased by $34.5 million, or 33.4%, in
the three-month period ended July 31, 2009, as compared to
the three-month period ended July 31, 2008. As a percentage
of revenues, SG&A was 14.9% in the three-month period ended
July 31, 2009, as compared to 12.9% in the fiscal 2008
period. The reduction in spending was due primarily to reduced
compensation and related costs, reduced costs for advertising,
promotions and marketing and the reversal of previously expensed
interest (see paragraph below), offset, in part, by 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. The write-off of deferred
marketing costs related to closed communities in the three-month
periods of fiscal 2009 and 2008 were $0.7 million and
$0.0 million, respectively.
In the six-month and three-month periods ended April 30,
2009, we expensed interest directly to SG&A of
$5.2 million and $4.4 million, respectively. During
the three-month period ended July 31, 2009, we reviewed the
methodology we applied in identifying qualified inventory used
in the calculation of capitalized interest, and determined that
the amount of qualified inventory was higher than we had
previously identified and that a portion of the amounts of
interest previously expensed directly to SG&A in the
six-month and three-month periods ended April 30, 2009
should be capitalized. As a result of this review, we reversed
$4.6 million of previously expensed interest, thereby
reducing SG&A by $4.6 million in the three-month
period ended July 31, 2009. However, due to the decline in
qualified inventory during the three-month period ended
July 31, 2009, interest incurred on homebuilding
indebtedness exceeded amounts required to be capitalized in the
three-month period of fiscal 2009 by $1.2 million.
This excess interest was charged to SG&A in the fiscal 2009
period.
LOSS 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
entity are sold. Because there is not a steady flow of revenues
and earnings from these entities, the earnings recognized from
these entities will vary significantly from quarter to quarter
and year to year.
In the nine months ended July 31, 2009, we recognized
$8.4 million of losses from unconsolidated entities, as
compared to $135.8 million of losses in the comparable
period of fiscal 2008. The loss in the nine-month period ended
July 31, 2009 was attributable to $11.3 million of
impairment charges recognized on our investments in
unconsolidated entities. The loss in the nine-month period ended
July 31, 2008 was attributable to $146.3 million of
impairment charges recognized on our investments in
unconsolidated entities.
In the three months ended July 31, 2009, we recognized
$3.7 million of losses from unconsolidated entities, as
compared to $30.1 million of losses in the fiscal 2008
period. The losses in the three-month period ended July 31,
2009 and 2008 were attributable to $5.3 million and
$33.4 million, respectively, of impairment charges
recognized on our investments in unconsolidated entities.
41
INTEREST
AND OTHER INCOME
For the nine months ended July 31, 2009 and 2008, interest
and other income was $33.0 million and $100.5 million,
respectively. The decrease in other income in the nine-month
period ended July 31, 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 $16.2 million decline in interest income in
the fiscal 2009 period, as compared to the fiscal 2008 period, a
$3.8 million decline in income from ancillary businesses
and management fee income in the fiscal 2009 period, as compared
to the fiscal 2008 period, a $7.5 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.
For the three months ended July 31, 2009 and 2008, interest
and other income was $11.3 million and $20.6 million,
respectively. The decrease in other income in the three-month
period ended July 31, 2009, as compared to the fiscal 2008
period, was primarily due to a $6.8 million decline in
interest income in the fiscal 2009 period, as compared to the
fiscal 2008 period, and a $3.6 million decline in retained
customer deposits in the fiscal 2009 period, as compared to the
fiscal 2008 period, offset, in part, by an increase in income
from ancillary businesses and management fee income in the
fiscal 2009 period, as compared to the fiscal 2008 period.
LOSS
BEFORE INCOME TAXES
For the nine-month periods ended July 31, 2009 and 2008, we
reported a loss before income tax provision (benefit) of
$389.7 million and $360.8 million, respectively. For
the three-month periods ended July 31, 2009 and 2008, we
reported a loss before income tax benefit of $111.3 million
and $54.8 million, respectively.
INCOME
TAXES
In the nine-month and three-month periods ended July 31,
2009, we recognized a provision for taxes of $254.7 million
and $361.1 million, respectively. Excluding the valuation
allowances against our federal and state deferred tax assets in
each of the nine-month and three-month periods ended
July 31, 2009 and 2008, as discussed in the
Critical Accounting Policies Income
Taxes Valuation Allowance in this
MD&A, we recognized a tax benefit in the nine-month period
ended July 31, 2009 of $189.0 million at an effective
rate of 48.5% and $78.3 million at an effective rate of
70.4% in the three-month period ended July 31, 2009. In the
nine-month and three-month periods ended July 31, 2008, we
recognized a tax benefit, net of state valuation allowances, at
effective rates of 42.9% and 54.8%, respectively.
The difference in the effective tax rate for the nine-month and
three-month periods of fiscal 2009, as compared to the fiscal
2008 periods, excluding the federal and state deferred tax asset
valuation allowances we recognized, was primarily due to: an
increase in the reversal in the fiscal 2009 periods, as compared
to fiscal 2008 periods of state tax provision, net of federal
tax provision, accrued in prior years against potential tax
assessments, which were no longer needed due to our settlement
of various federal and state audits and the expiration of the
applicable statute of limitations for federal and state tax
purposes; a lower blended state tax rate in the fiscal 2009
periods, as compared to the fiscal 2008 periods due to the
combination of a shift in the state tax jurisdictions where the
losses occurred and the applicable state income tax rates in
those jurisdictions; and an increase in the fiscal 2008 rates
due to tax free income recognized in the fiscal 2008 periods but
not in the fiscal 2009 periods. (See Critical Accounting
Policies: Income Taxes Valuation Allowance
above for an expanded discussion related to the valuation
allowances recognized.)
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.
42
At July 31, 2009, we had $1.66 billion of cash on
hand. Cash flow provided by operating activities was
$57.0 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 used $21.3 million of
cash in our investing activities in the nine-month period ended
July 31, 2009, primarily for investments made in our
unconsolidated entities. We also used $11.6 million of cash
in financing activities in the nine-month period ended
July 31, 2009, principally for the repayment and redemption
of $860.3 million of debt (primarily our senior
subordinated debt and mortgage company warehouse loan), offset,
in part, by the issuance of $400 million of senior notes in
the public debt markets (net proceeds amounted to
$389.4 million), $450.8 million of other borrowings
(primarily from our mortgage company warehouse loan),
stock-based benefit plans and the tax benefits of stock-based
compensation.
In the nine-month period ended July 31, 2008, we generated
$602.0 million of cash, principally from operating
activities. In the fiscal 2008 period, cash flow from operating
activities was generated primarily from net income before
inventory and investment impairment losses, reductions in
inventory, and a decrease in contracts receivable related to
percentage of completion accounting, offset, in part, by a
decrease in accounts payable and accrued expenses (excluding
accruals of estimated liabilities to various joint ventures), a
decrease in customer deposits and an increase in deferred tax
assets. The decreased inventory, contracts receivable, accounts
payable and customer deposits were due primarily to the decline
in our business as previously discussed.
At July 31, 2009, the aggregate purchase price of land
parcels under option and purchase agreements was approximately
$540.0 million (including $148.5 million of land to be
acquired from joint ventures in which we have invested). Of the
$540.0 million of land purchase commitments, we had paid or
deposited $63.9 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 $439.4 million. Of the
$439.4 million we would be required to pay, we recorded
$120.5 million of this amount in accrued expenses at
July 31, 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 July 31, 2009, we owned or controlled through
options approximately 35,400 home sites, as compared to
approximately 39,800 at October 31, 2008, approximately
48,500 at July 31, 2008 and approximately 91,200 at
April 30, 2006, our peak in terms of home sites owned or
controlled through options. Of the 35,400 home sites owned or
controlled through options at July 31, 2009, we owned
approximately 30,800; of our owned home sites, significant
improvements were completed on approximately 12,300.
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 30 banks, which extends to
March 2011. At July 31, 2009, we had no outstanding
borrowings against the revolving credit facility but had letters
of credit of approximately $203.7 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 July 31, 2009, we were required to maintain a
43
minimum tangible net worth (as defined in the agreement) of
approximately $1.94 billion. At July 31, 2009, our
leverage ratio was approximately 0.23 to 1.00 and our tangible
net worth was approximately $2.59 billion.
On April 13, 2009, through our wholly-owned subsidiary 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.
During the three-month period ended July 31, 2009, we
redeemed 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. In addition, we purchased an
additional $2.1 million principal amount of our
8.25% Senior Subordinated Notes due December 2011 through
open market purchases. At July 31, 2009, $47.9 million
of our 8.25% Senior Subordinated Notes due December 2011
were outstanding. In the nine-month period ended July 31,
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.
On August 13, 2009, TBI Mortgage Company, our wholly-owned
mortgage subsidiary, entered into a Master Repurchase Agreement
with Comerica Bank, as agent and representative of itself as a
buyer and the other buyers named therein. The agreement replaced
TBI Mortgage Companys warehouse credit facility which was
set to expire on August 13, 2009. The purpose of the
agreement is to finance the origination of mortgage loans by TBI
Mortgage Company. The agreement provides for loan purchases up
to $75 million, subject to certain sublimits. In addition,
the agreement provides for an accordion feature under which TBI
Mortgage Company may request that the aggregate commitments
under the agreement be increased to an amount up to
$100 million. The agreement expires on July 29, 2010.
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.
44
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,
gross contracts signed, contract cancellations, net contracts
signed and sales incentives provided on units delivered by
geographic segment for the nine-month and three-month periods
ended July 31, 2009 and 2008, and information related to
backlog by geographic segment at July 31, 2009 and 2008.
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
North(a)
|
|
|
690
|
|
|
|
941
|
|
|
$
|
428.4
|
|
|
$
|
658.6
|
|
|
|
250
|
|
|
|
339
|
|
|
$
|
145.5
|
|
|
$
|
221.8
|
|
Mid-Atlantic
|
|
|
630
|
|
|
|
1,094
|
|
|
|
364.5
|
|
|
|
668.3
|
|
|
|
228
|
|
|
|
360
|
|
|
|
129.7
|
|
|
|
214.4
|
|
South(a)
|
|
|
391
|
|
|
|
868
|
|
|
|
212.0
|
|
|
|
434.1
|
|
|
|
152
|
|
|
|
295
|
|
|
|
83.1
|
|
|
|
144.4
|
|
West
|
|
|
394
|
|
|
|
761
|
|
|
|
263.8
|
|
|
|
656.9
|
|
|
|
162
|
|
|
|
250
|
|
|
|
103.1
|
|
|
|
210.5
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,105
|
|
|
|
3,664
|
|
|
$
|
1,268.7
|
|
|
$
|
2,457.0
|
|
|
|
792
|
|
|
|
1,244
|
|
|
$
|
461.4
|
|
|
$
|
796.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Contracts Signed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
North
|
|
|
604
|
|
|
|
764
|
|
|
$
|
314.5
|
|
|
$
|
473.9
|
|
|
|
285
|
|
|
|
270
|
|
|
$
|
144.5
|
|
|
$
|
157.3
|
|
Mid-Atlantic
|
|
|
640
|
|
|
|
995
|
|
|
|
353.2
|
|
|
|
570.2
|
|
|
|
282
|
|
|
|
330
|
|
|
|
154.3
|
|
|
|
179.2
|
|
South
|
|
|
435
|
|
|
|
753
|
|
|
|
215.9
|
|
|
|
377.6
|
|
|
|
166
|
|
|
|
209
|
|
|
|
86.2
|
|
|
|
106.2
|
|
West
|
|
|
402
|
|
|
|
636
|
|
|
|
280.3
|
|
|
|
470.0
|
|
|
|
182
|
|
|
|
198
|
|
|
|
117.6
|
|
|
|
145.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,081
|
|
|
|
3,148
|
|
|
$
|
1,163.9
|
|
|
$
|
1,891.7
|
|
|
|
915
|
|
|
|
1,007
|
|
|
$
|
502.6
|
|
|
$
|
588.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracts
Cancelled:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
North
|
|
|
165
|
|
|
|
176
|
|
|
$
|
130.2
|
|
|
$
|
125.2
|
|
|
|
39
|
|
|
|
20
|
|
|
$
|
24.9
|
|
|
$
|
9.2
|
|
Mid-Atlantic
|
|
|
87
|
|
|
|
150
|
|
|
|
64.0
|
|
|
|
101.7
|
|
|
|
23
|
|
|
|
56
|
|
|
|
16.2
|
|
|
|
35.7
|
|
South
|
|
|
76
|
|
|
|
206
|
|
|
|
45.2
|
|
|
|
101.9
|
|
|
|
6
|
|
|
|
77
|
|
|
|
5.0
|
|
|
|
34.9
|
|
West
|
|
|
68
|
|
|
|
228
|
|
|
|
50.7
|
|
|
|
221.5
|
|
|
|
10
|
|
|
|
42
|
|
|
|
8.8
|
|
|
|
38.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
396
|
|
|
|
760
|
|
|
$
|
290.1
|
|
|
$
|
550.3
|
|
|
|
78
|
|
|
|
195
|
|
|
$
|
54.9
|
|
|
$
|
118.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
Net New
Contracts Signed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
North
|
|
|
439
|
|
|
|
588
|
|
|
$
|
184.3
|
|
|
$
|
348.7
|
|
|
|
246
|
|
|
|
250
|
|
|
$
|
119.6
|
|
|
$
|
148.1
|
|
Mid-Atlantic
|
|
|
553
|
|
|
|
845
|
|
|
|
289.3
|
|
|
|
468.5
|
|
|
|
259
|
|
|
|
274
|
|
|
|
138.1
|
|
|
|
143.5
|
|
South
|
|
|
359
|
|
|
|
547
|
|
|
|
170.7
|
|
|
|
275.7
|
|
|
|
160
|
|
|
|
132
|
|
|
|
81.2
|
|
|
|
71.3
|
|
West
|
|
|
334
|
|
|
|
408
|
|
|
|
229.6
|
|
|
|
248.5
|
|
|
|
172
|
|
|
|
156
|
|
|
|
108.8
|
|
|
|
107.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,685
|
|
|
|
2,388
|
|
|
$
|
873.9
|
|
|
$
|
1,341.4
|
|
|
|
837
|
|
|
|
812
|
|
|
$
|
447.7
|
|
|
$
|
469.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
Cancellation Rates
(as
a percentage of gross contracts signed):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Units
|
|
|
Units
|
|
|
Value
|
|
|
Value
|
|
|
Units
|
|
|
Units
|
|
|
Value
|
|
|
Value
|
|
|
North
|
|
|
27.3
|
%
|
|
|
23.0
|
%
|
|
|
41.4
|
%
|
|
|
26.4
|
%
|
|
|
13.7
|
%
|
|
|
7.4
|
%
|
|
|
17.3
|
%
|
|
|
5.8
|
%
|
Mid-Atlantic
|
|
|
13.6
|
%
|
|
|
15.1
|
%
|
|
|
18.1
|
%
|
|
|
17.8
|
%
|
|
|
8.2
|
%
|
|
|
17.0
|
%
|
|
|
10.5
|
%
|
|
|
19.9
|
%
|
South
|
|
|
17.5
|
%
|
|
|
27.4
|
%
|
|
|
20.9
|
%
|
|
|
27.0
|
%
|
|
|
3.6
|
%
|
|
|
36.8
|
%
|
|
|
5.8
|
%
|
|
|
32.8
|
%
|
West
|
|
|
16.9
|
%
|
|
|
35.8
|
%
|
|
|
18.1
|
%
|
|
|
47.1
|
%
|
|
|
5.5
|
%
|
|
|
21.2
|
%
|
|
|
7.5
|
%
|
|
|
26.4
|
%
|
Total
|
|
|
19.0
|
%
|
|
|
24.1
|
%
|
|
|
24.9
|
%
|
|
|
29.1
|
%
|
|
|
8.5
|
%
|
|
|
19.4
|
%
|
|
|
10.9
|
%
|
|
|
20.1
|
%
|
Backlog
at July 31 :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Units
|
|
|
Units
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
North
|
|
|
619
|
|
|
|
1,075
|
|
|
$
|
318.5
|
|
|
$
|
738.9
|
|
Mid-Atlantic
|
|
|
481
|
|
|
|
724
|
|
|
|
287.1
|
|
|
|
477.0
|
|
South
|
|
|
322
|
|
|
|
472
|
|
|
|
163.8
|
|
|
|
279.5
|
|
West
|
|
|
204
|
|
|
|
321
|
|
|
|
161.3
|
|
|
|
259.2
|
|
Less revenue recognized on units remaining in backlog(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,626
|
|
|
|
2,592
|
|
|
$
|
930.7
|
|
|
$
|
1,750.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Excludes deliveries from projects accounted for using the
percentage of completion accounting method. Information
regarding these deliveries in the nine months and three months
ended July 31, 2008 is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31
|
|
|
|
Nine Months
|
|
|
Three Months
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
|
Units
|
|
|
(In millions)
|
|
|
Units
|
|
|
(In millions)
|
|
|
North
|
|
|
69
|
|
|
$
|
40.9
|
|
|
|
11
|
|
|
$
|
6.2
|
|
South
|
|
|
13
|
|
|
|
37.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
|
$
|
78.7
|
|
|
|
11
|
|
|
$
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
46
Sales
Incentives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31,
|
|
|
Three Months Ended July 31,
|
|
|
|
|
|
|
|
|
|
% of Gross Revenues(a)
|
|
|
|
|
|
|
|
|
% of Gross Revenues(a)
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|