May 6, 2013
VIA EDGAR TRANSMISSION
Mr. Terence O'Brien
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-7010
Re: | Toll Brothers, Inc. |
Form 10-K | |
Filed December 28, 2012 | |
File No. 1-9186 |
Dear Mr. O'Brien:
We have reviewed your letter of April 22, 2013 regarding the Toll Brothers, Inc. (the “Company”) Annual Report on Form 10-K for the fiscal year ended October 31, 2012 (the “Form 10-K”). To facilitate your review, we have organized our response to include each comment to which we are responding herein prior to the response to that comment. This document is being submitted via EDGAR.
We understand that your review and comments are intended to assist us in compliance with applicable disclosure requirements and to enhance the overall quality of the disclosure in our filings. We share these objectives and are responding to your comments with these goals in mind.
Form 10-K for the year ended October 31, 2012
General
1. | Please provide a written statement from the company acknowledging that: |
• | the company is responsible for the adequacy and accuracy of the disclosure in the filing; |
• | staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and |
• | the company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. |
Response:
The Company acknowledges that it is responsible for the adequacy and accuracy of the disclosure contained in the filing; that Securities and Exchange Commission (the “Commission”) staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and that the Company may not assert the Commission’s staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
Securities and Exchange Commission
May 6, 2013
Page 2
Management's Discussion and Analysis, page 22
Off-Balance Sheet Arrangements, page 30
2. | We have read your response to comment 2 in our letter dated March 25, 2013. We understand and agree it is important to provide the user with information that is useful and relevant to the current trends of your business. However, given that "current trends", especially within the homebuilding industry, likely encompass several periods and even several years, it is not clear to us that the expanded disclosure requested related to material impairments recognized only in fiscal 2011 was no longer meaningful for the fiscal 2012 report. As your next Form 10-K continues to cover the impacted period, please ensure that, therein and in other future filings as applicable, your disclosure related to material items is, in the aggregate, useful, relevant and fully responsive to prior concerns previously communicated to you. |
Response:
In future filings, we will ensure that our disclosure related to material items is, in the aggregate, useful, relevant and fully responsive to the staffs earlier comments.
Supplemental Guarantor Information, page F-45
3. | We have read your response to comment 3 in our letter dated March 25, 2013. We have the following comments related to your response and/or revised Rule 3-10 presentation: |
(a) On the balance sheet, please present the intercompany advances (receivable) asset account separately from the equity investment in consolidated entities account. Refer to Rule 3-10(i) of Regulation S-X.
Response:
As a general rule, we capitalize Toll Brothers Finance Corp. (the "Subsidiary Issuer") and our guarantor and non-guarantor subsidiaries with minimal investment. At October 31, 2012, the aggregate amount of investments and advances in consolidated entities was $4,921 million. Of this $4,921 million, only $4.8 million was our capital investments in our subsidiaries. We do not believe that the breakout of our investments in our consolidated subsidiaries of $4.8 million on a separate line item in our consolidating balance sheet is material and that it would provide the reader of the financial statements with any useful information.
(b) The guarantor subsidiaries and non-guarantor subsidiaries have intercompany liabilities for fiscal years 2012 and 2011, so it appears that interest expense would be incurred on those liabilities. If so, it is not clear that the full amount of corresponding interest expense is presented in the interest expense line item in the income statement, given that, for 2012, the guarantor interest expense is nil and the non-guarantor interest expense appears low relative to the liability. For 2011, the guarantor interest expense appears low and the non-guarantor interest expense is nil. Please explain or revise.
Response:
As a general rule, substantially all of our interest is capitalized to inventory and is amortized when the inventory is sold or disposed. The amortization of capitalized interest is included in cost of revenues. This accounting policy is included in Note 1, "Significant Accounting Policies, Inventory" on page F-8 of Form 10-K. The accounting policy states: "The Company capitalizes certain interest costs to qualified inventory during the development and construction period of its communities in accordance with ASC 835-20, “Capitalization of Interest” (“ASC 835-20”). Capitalized interest is
Securities and Exchange Commission
May 6, 2013
Page 3
charged to cost of revenues when the related inventory is delivered. Interest incurred on home building indebtedness in excess of qualified inventory, as defined in ASC 835-20, is charged to the Consolidated Statement of Operations in the period incurred."
Of the $125.8 million and $114.8 million of interest incurred in fiscal 2012 and 2011, respectively, $3.4 million and $1.2 million, respectively, were applicable to our ancillary businesses and included in other income - net, and in fiscal 2011, $1.5 million was expensed directly to the statement of operations. In Note 3, Inventory on page F-16 of Form 10-K, we provide a table that shows interest incurred, capitalized and expensed.
(c) On the income statement, it does not appear that interest expense should be presented as a component of operating income (loss), given Rule 5-03 of Regulation S-X. Please explain or revise.
In future filings, we will revise our presentation of interest expense to reflect interest expense below the operating income (loss) line on our statement of operations.
(d) On the cash flow statement, it appears that the transactions in which the guarantor and non-guarantor subsidiaries are either receiving or paying back intercompany advances are debt repayment transactions. If so, the classification should be as financing activities by the guarantor and non-guarantor subsidiaries, instead of as investing activities. Please explain or revise. Conversely, since Toll Brothers, Inc. and the Subsidiary Issuer are the lenders, when cash is advanced to the subsidiaries and repayments on those advances are received, then those transactions should be classified as investing activities for these entities. Please explain or revise.
Response:
In future filings, we will disclose the receiving or paying back of intercompany advances as financing activities by the guarantor and non-guarantor subsidiaries, and cash advanced to the guarantor and non-guarantor subsidiaries and repayments on those advances by Toll Brothers, Inc. and the Subsidiary Issuer as investing activities.
(e) On the cash flow statement, please explain why the "(Increase) decrease in intercompany amounts" is shown as an operating cash flow, whereas the "Investment in and advances to unconsolidated entities" is shown as an investing activity. Please explain the difference between these two line items and reconcile these amounts to the 2011 and 2012 balance sheets.
Response:
The (increase) decrease in intercompany amounts represents the change in the advances made to our subsidiaries that are included in our consolidated and consolidating financial statements. The amounts shown as investments in unconsolidated entities are funds invested in entities for which we do not have control and the financial statements are not included in our consolidated and consolidating financial statements but are accounted for using the equity method of accounting. Please see our response to Comment #3(d) above regarding the classification of the increase/decrease in intercompany amounts. As requested, the reconciliations of our investments in unconsolidated entities and consolidated entities for fiscal 2011 and 2012, are presented in Exhibit A to this letter.
Securities and Exchange Commission
May 6, 2013
Page 4
(f) Please clarify whether any component of the intercompany advances assets shown on the balance sheet are non-interest bearing. If so, please quantify the balance therefor and tell us how you determined that these non-interest bearing components constitute assets instead of capital transactions.
Response:
All intercompany advances are non-interest bearing. We do not consider any advances to our subsidiaries as capital transactions but temporary advances that will be repaid from the operations of the subsidiary.
(g) Please provide us a revised draft of your Rule 3-10 data for fiscals 2011 and 2012 assuming you have made the above changes, and include those changes made in your initial response.
Response:
As requested, the revised draft of our Rule 3-10 data, to be included in future filings, as of and for the years ended October 31, 2012 and 2011, reflecting the above referenced changes and the changes included in our letter dated April 5, 2013, is attached to this letter as Exhibit B.
* * *
We are grateful for your assistance in this matter. Please do not hesitate to call me at (215) 938-8045 with any questions or further comments you may have regarding this letter or if you wish to discuss our responses to the Comment Letter.
Yours truly,
/s/ Joseph R. Sicree
Joseph R. Sicree
Senior Vice President and
Chief Accounting officer
Securities and Exchange Commission
May 6, 2013
Exhibit A (Page 1)
Rollfoward of Investments in Consolidated Entities (amounts in thousands)
For the year ended October 31, 2012 | ||||||||||||||||
Toll Brothers, Inc. | Subsidiary Issuer | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | |||||||||||||
Investments in and advances to consolidated entities, beginning of year | $ | 2,694,419 | $ | 1,508,550 | $ | (727,258 | ) | $ | (477,322 | ) | ||||||
Income from consolidated entities | 112,981 | 26,835 | ||||||||||||||
Intercompany advances | 15,652 | 584,260 | (472,831 | ) | (155,174 | ) | ||||||||||
Investments in and advances to consolidated entities, end of year | $ | 2,823,052 | $ | 2,092,810 | $ | (1,173,254 | ) | $ | (632,496 | ) |
For the year ended October 31, 2011 | ||||||||||||||||
Toll Brothers, Inc. | Subsidiary Issuer | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | |||||||||||||
Investments in and advances to consolidated entities, beginning of year | $ | 2,578,195 | $ | 1,562,109 | $ | (871,125 | ) | $ | (315,074 | ) | ||||||
Loss from consolidated entities | (29,229 | ) | (5,374 | ) | ||||||||||||
Intercompany advances | 145,453 | (53,559 | ) | 149,241 | (162,248 | ) | ||||||||||
Investments in and advances to consolidated entities, end of year | $ | 2,694,419 | $ | 1,508,550 | $ | (727,258 | ) | $ | (477,322 | ) |
Securities and Exchange Commission
May 6, 2013
Exhibit A (Page 2)
Rollfoward of Investments in Unconsolidated Entities (amounts in thousands)
For the year ended October 31, 2012 | For the year ended October 31, 2011 | |||||||||||||||||||||||
Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Total | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Total | |||||||||||||||||||
Investments in and advances to unconsolidated entities, beginning of year | $ | 86,481 | $ | 39,874 | $ | 126,355 | $ | 116,247 | $ | 82,195 | $ | 198,442 | ||||||||||||
Recovery (Impairment of investments in unconsolidated entities | 2,311 | 2,311 | (15,170 | ) | (25,700 | ) | (40,870 | ) | ||||||||||||||||
Income from unconsolidated entities | 13,724 | 7,557 | 21,281 | 21,299 | 18,377 | 39,676 | ||||||||||||||||||
Distribution of earnings from unconsolidated entities | (5,258 | ) | (5,258 | ) | (12,747 | ) | 666 | (12,081 | ) | |||||||||||||||
Investments in unconsolidated entities | 3,637 | 213,523 | 217,160 | 70 | 62 | 132 | ||||||||||||||||||
Return of investments in unconsolidated entities | (32,659 | ) | (5,709 | ) | (38,368 | ) | (23,859 | ) | (19,450 | ) | (43,309 | ) | ||||||||||||
Non-cash items: | ||||||||||||||||||||||||
Transfer of inventory to investment in unconsolidated entities | 5,792 | 5,792 | — | |||||||||||||||||||||
Reclassification of deferred income from investment in unconsolidated entities to accrued liabilities | 2,943 | 2,943 | — | |||||||||||||||||||||
Unrealized loss on derivative held by equity investee | (875 | ) | (875 | ) | — | |||||||||||||||||||
Reduction in investment in unconsolidated entities due to reduction of letters of credit or accrued liabilities | (448 | ) | (448 | ) | (13,423 | ) | (13,423 | ) | ||||||||||||||||
Other non-cash transactions | (159 | ) | (117 | ) | (276 | ) | 641 | (2,853 | ) | (2,212 | ) | |||||||||||||
Investments in and advances to unconsolidated entities, end of year | $ | 70,145 | $ | 260,472 | $ | 330,617 | $ | 86,481 | $ | 39,874 | $ | 126,355 |
Securities and Exchange Commission
May 6, 2013
Exhibit B (Page 1)
Consolidating Balance Sheet at October 31, 2012 ($ in thousands):
Toll Brothers, Inc. | Subsidiary Issuer | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||
ASSETS | |||||||||||||||||
Cash and cash equivalents | — | — | 711,375 | 67,449 | — | 778,824 | |||||||||||
Marketable securities | 378,858 | 60,210 | 439,068 | ||||||||||||||
Restricted cash | 28,268 | 17,561 | 1,447 | 47,276 | |||||||||||||
Inventory | 3,527,677 | 233,510 | 3,761,187 | ||||||||||||||
Property, construction and office equipment, net | 106,963 | 3,008 | 109,971 | ||||||||||||||
Receivables, prepaid expenses and other assets | 134 | 15,130 | 77,175 | 68,300 | (16,181 | ) | 144,558 | ||||||||||
Mortgage loans held for sale | 86,386 | 86,386 | |||||||||||||||
Customer deposits held in escrow | 27,312 | 2,267 | 29,579 | ||||||||||||||
Investments in and advances to unconsolidated entities | 70,145 | 260,472 | 330,617 | ||||||||||||||
Investments in distressed loans | 37,169 | 37,169 | |||||||||||||||
Investments in foreclosed real estate | 58,353 | 58,353 | |||||||||||||||
Investments in and advances to consolidated entities | 2,823,052 | 2,092,810 | 4,740 | (4,920,602 | ) | — | |||||||||||
Deferred tax assets, net of valuation allowances | 358,056 | 358,056 | |||||||||||||||
3,209,510 | 2,107,940 | 4,921,806 | 878,571 | (4,936,783 | ) | 6,181,044 | |||||||||||
LIABILITIES AND EQUITY | |||||||||||||||||
Liabilities: | |||||||||||||||||
Loans payable | 69,393 | 30,424 | 99,817 | ||||||||||||||
Senior notes | 2,032,335 | 48,128 | 2,080,463 | ||||||||||||||
Mortgage company warehouse loan | 72,664 | 72,664 | |||||||||||||||
Customer deposits | 136,225 | 6,752 | 142,977 | ||||||||||||||
Accounts payable | 99,889 | 22 | 99,911 | ||||||||||||||
Accrued expenses | 27,476 | 341,233 | 119,244 | (11,603 | ) | 476,350 | |||||||||||
Advances from consolidated entities | 1,177,994 | 632,496 | (1,810,490 | ) | — | ||||||||||||
Income taxes payable | 82,991 | (2,000 | ) | 80,991 | |||||||||||||
Total liabilities | 82,991 | 2,059,811 | 1,824,734 | 859,602 | (1,773,965 | ) | 3,053,173 | ||||||||||
Equity: | |||||||||||||||||
Stockholders’ equity: | |||||||||||||||||
Common stock | 1,687 | 48 | 3,006 | (3,054 | ) | 1,687 | |||||||||||
Additional paid-in capital | 404,418 | 49,400 | 1,734 | (51,134 | ) | 404,418 | |||||||||||
Retained earnings | 2,721,397 | (1,271 | ) | 3,101,833 | 8,068 | (3,108,630 | ) | 2,721,397 | |||||||||
Treasury stock, at cost | (983 | ) | (983 | ) | |||||||||||||
Accumulated other comprehensive loss | (4,809 | ) | (10 | ) | (4,819 | ) | |||||||||||
Total stockholders’ equity | 3,126,519 | 48,129 | 3,097,072 | 12,798 | (3,162,818 | ) | 3,121,700 | ||||||||||
Noncontrolling interest | 6,171 | 6,171 | |||||||||||||||
Total equity | 3,126,519 | 48,129 | 3,097,072 | 18,969 | (3,162,818 | ) | 3,127,871 | ||||||||||
3,209,510 | 2,107,940 | 4,921,806 | 878,571 | (4,936,783 | ) | 6,181,044 |
Securities and Exchange Commission
May 6, 2013
Exhibit B (Page 2)
Consolidating Balance Sheet at October 31, 2011 ($ in thousands):
Toll Brothers, Inc. | Subsidiary Issuer | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||
ASSETS | |||||||||||||||||
Cash and cash equivalents | — | — | 775,300 | 131,040 | — | 906,340 | |||||||||||
Marketable securities | 233,572 | 233,572 | |||||||||||||||
Restricted cash | 19,084 | 676 | 19,760 | ||||||||||||||
Inventory | 2,911,211 | 505,512 | 3,416,723 | ||||||||||||||
Property, construction and office equipment, net | 77,001 | 22,711 | 99,712 | ||||||||||||||
Receivables, prepaid expenses and other assets | 6,768 | 74,980 | 26,067 | (2,239 | ) | 105,576 | |||||||||||
Mortgage loans held for sale | 63,175 | 63,175 | |||||||||||||||
Customer deposits held in escrow | 10,682 | 4,177 | 14,859 | ||||||||||||||
Investments in and advances to unconsolidated entities | 86,481 | 39,874 | 126,355 | ||||||||||||||
Investments in distressed loans | 63,235 | 63,235 | |||||||||||||||
Investments in foreclosed real estate | 5,939 | 5,939 | |||||||||||||||
Investments in and advances to consolidated entities | 2,694,419 | 1,508,550 | 4,737 | (4,207,706 | ) | — | |||||||||||
2,694,419 | 1,515,318 | 4,193,048 | 862,406 | (4,209,945 | ) | 5,055,246 | |||||||||||
LIABILITIES AND EQUITY | |||||||||||||||||
Liabilities: | |||||||||||||||||
Loans payable | 61,994 | 44,562 | 106,556 | ||||||||||||||
Senior notes | 1,490,972 | 1,490,972 | |||||||||||||||
Mortgage company warehouse loan | 57,409 | 57,409 | |||||||||||||||
Customer deposits | 71,388 | 12,436 | 83,824 | ||||||||||||||
Accounts payable | 96,645 | 172 | 96,817 | ||||||||||||||
Accrued expenses | 24,346 | 320,021 | 178,965 | (2,281 | ) | 521,051 | |||||||||||
Advances from consolidated entities | 731,995 | 477,322 | (1,209,317 | ) | — | ||||||||||||
Income taxes payable | 108,066 | (2,000 | ) | 106,066 | |||||||||||||
Total liabilities | 108,066 | 1,515,318 | 1,282,043 | 768,866 | (1,211,598 | ) | 2,462,695 | ||||||||||
Equity: | |||||||||||||||||
Stockholders’ equity: | |||||||||||||||||
Common stock | 1,687 | 3,054 | 2,003 | (5,057 | ) | 1,687 | |||||||||||
Additional paid-in capital | 400,382 | 1,366 | 2,734 | (4,100 | ) | 400,382 | |||||||||||
Retained earnings | 2,234,251 | 2,909,487 | 82,605 | (2,992,092 | ) | 2,234,251 | |||||||||||
Treasury stock, at cost | (47,065 | ) | (47,065 | ) | |||||||||||||
Accumulated other comprehensive loss | (2,902 | ) | (2,902 | ) | 2,902 | (2,902 | ) | ||||||||||
Total stockholders’ equity | 2,586,353 | — | 2,911,005 | 87,342 | (2,998,347 | ) | 2,586,353 | ||||||||||
Noncontrolling interest | 6,198 | 6,198 | |||||||||||||||
Total equity | 2,586,353 | — | 2,911,005 | 93,540 | (2,998,347 | ) | 2,592,551 | ||||||||||
2,694,419 | 1,515,318 | 4,193,048 | 862,406 | (4,209,945 | ) | 5,055,246 |
Securities and Exchange Commission
May 6, 2013
Exhibit B (Page 3)
Consolidating Statement of Operations for the fiscal year ended October 31, 2012 ($ in thousands):
Toll Brothers, Inc. | Subsidiary Issuer | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||
Revenues | 1,880,908 | 79,850 | (77,977 | ) | 1,882,781 | ||||||||||||
Cost of revenues | 1,523,074 | 22,736 | (13,715 | ) | 1,532,095 | ||||||||||||
Selling, general and administrative | 95 | 2,965 | 307,292 | 41,055 | (64,150 | ) | 287,257 | ||||||||||
95 | 2,965 | 1,830,366 | 63,791 | (77,865 | ) | 1,819,352 | |||||||||||
Income (loss) from operations | (95 | ) | (2,965 | ) | 50,542 | 16,059 | (112 | ) | 63,429 | ||||||||
Other: | |||||||||||||||||
Income from unconsolidated entities | 16,035 | 7,557 | 23,592 | ||||||||||||||
Other income - net | 56 | 19,569 | 3,795 | 2,501 | 25,921 | ||||||||||||
Intercompany interest income | 116,835 | (116,835 | ) | — | |||||||||||||
Interest expense | (115,141 | ) | (576 | ) | 115,717 | — | |||||||||||
Income from consolidated subsidiaries | 112,981 | 26,835 | (139,816 | ) | — | ||||||||||||
Income before income tax benefit (provision) | 112,942 | (1,271 | ) | 112,981 | 26,835 | (138,545 | ) | 112,942 | |||||||||
Income tax (benefit) provision | (374,204 | ) | 25,805 | 6,129 | (31,934 | ) | (374,204 | ) | |||||||||
Net income | 487,146 | (1,271 | ) | 87,176 | 20,706 | (106,611 | ) | 487,146 |
Consolidating Statement of Operations for the fiscal year ended October 31, 2011 ($ in thousands):
Toll Brothers, Inc. | Subsidiary Issuer | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||
Revenues | 1,445,148 | 105,364 | (74,631 | ) | 1,475,881 | ||||||||||||
Cost of revenues | 1,217,512 | 57,617 | (14,359 | ) | 1,260,770 | ||||||||||||
Selling, general and administrative | 137 | 1,345 | 270,605 | 42,131 | (52,863 | ) | 261,355 | ||||||||||
137 | 1,345 | 1,488,117 | 99,748 | (67,222 | ) | 1,522,125 | |||||||||||
Income (loss) from operations | (137 | ) | (1,345 | ) | (42,969 | ) | 5,616 | (7,409 | ) | (46,244 | ) | ||||||
Other: | |||||||||||||||||
Income from unconsolidated entities | 6,129 | (7,323 | ) | (1,194 | ) | ||||||||||||
Other income - net | 14,489 | (3,667 | ) | 12,581 | 23,403 | ||||||||||||
Intercompany interest income | 108,776 | (108,776 | ) | — | |||||||||||||
Interest expense | (103,604 | ) | (1,504 | ) | 103,604 | (1,504 | ) | ||||||||||
Expenses related to early retirement of debt | (3,827 | ) | (3,827 | ) | |||||||||||||
Income from consolidated subsidiaries | (29,229 | ) | (5,374 | ) | 34,603 | — | |||||||||||
Income before income tax benefit (provision) | (29,366 | ) | — | (29,229 | ) | (5,374 | ) | 34,603 | (29,366 | ) | |||||||
Income tax (benefit) provision | (69,161 | ) | (68,837 | ) | (12,656 | ) | 81,493 | (69,161 | ) | ||||||||
Net income | 39,795 | — | 39,608 | 7,282 | (46,890 | ) | 39,795 |
Securities and Exchange Commission
May 6, 2013
Exhibit B (Page 4)
Consolidating Statement of Cash Flows for the fiscal year ended October 31, 2012 ($ in thousands)
Toll Brothers, Inc. | Subsidiary Issuer | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||
Cash flow (used in) provided by operating activities: | |||||||||||||||||
Net income (loss) | 487,146 | (1,271 | ) | 87,176 | 20,706 | (106,611 | ) | 487,146 | |||||||||
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | |||||||||||||||||
Depreciation and amortization | 22 | 5,036 | 18,459 | 340 | (1,271 | ) | 22,586 | ||||||||||
Stock-based compensation | 15,575 | 15,575 | |||||||||||||||
Recovery of investment in unconsolidated entities | (2,311 | ) | (2,311 | ) | |||||||||||||
Excess tax benefits from stock-based compensation | (5,776 | ) | (5,776 | ) | |||||||||||||
Income from unconsolidated entities | (13,724 | ) | (7,557 | ) | (21,281 | ) | |||||||||||
Distributions of earnings from unconsolidated entities | 5,258 | 5,258 | |||||||||||||||
Income from consolidated subsidiaries | (112,981 | ) | (26,835 | ) | 139,816 | — | |||||||||||
Income from non-performing loan portfolios and foreclosed real estate | (12,444 | ) | (12,444 | ) | |||||||||||||
Deferred tax benefit | 41,810 | 41,810 | |||||||||||||||
Deferred tax valuation allowances | (394,718 | ) | (394,718 | ) | |||||||||||||
Inventory impairments and write-offs | 14,739 | 14,739 | |||||||||||||||
Change in fair value of mortgage loans receivable and derivative instruments | (670 | ) | (670 | ) | |||||||||||||
Gain on sale of marketable securities | (40 | ) | (40 | ) | |||||||||||||
Changes in operating assets and liabilities | |||||||||||||||||
Increase in inventory | (111,788 | ) | (84,160 | ) | (195,948 | ) | |||||||||||
Origination of mortgage loans | (651,618 | ) | (651,618 | ) | |||||||||||||
Sale of mortgage loans | 629,397 | 629,397 | |||||||||||||||
Decrease (increase) in restricted cash | (28,268 | ) | 1,523 | (771 | ) | (27,516 | ) | ||||||||||
(Increase) decrease in receivables, prepaid expenses and other assets | 1,483 | (1,331 | ) | (255,019 | ) | 219,833 | 1,112 | (33,922 | ) | ||||||||
Increase (decrease) in customer deposits | 48,157 | (3,774 | ) | 44,383 | |||||||||||||
(Decrease) increase in accounts payable and accrued expenses | (2,584 | ) | 3,130 | 5,363 | (59,493 | ) | (4,953 | ) | (58,537 | ) | |||||||
Decrease in current income taxes payable | (25,075 | ) | (25,075 | ) | |||||||||||||
Net cash (used in) provided by operating activities | (23,366 | ) | 5,564 | (229,042 | ) | 49,789 | 28,093 | (168,962 | ) | ||||||||
Cash flow used in investing activities: | |||||||||||||||||
Purchase of property and equipment — net | (13,706 | ) | (789 | ) | (14,495 | ) | |||||||||||
Purchase of marketable securities | (519,737 | ) | (60,221 | ) | (579,958 | ) | |||||||||||
Sale and redemption of marketable securities | 368,253 | 368,253 | |||||||||||||||
Investment in and advances to unconsolidated entities | (3,637 | ) | (213,523 | ) | (217,160 | ) | |||||||||||
Return of investments in unconsolidated entities | 32,659 | 5,709 | 38,368 | ||||||||||||||
Investment in non-performing loan portfolios and foreclosed real estate | (30,090 | ) | (30,090 | ) | |||||||||||||
Return of investments in non-performing loan portfolios and foreclosed real estate | 16,707 | 16,707 | |||||||||||||||
Acquisition of a business | (144,746 | ) | (144,746 | ) | |||||||||||||
Intercompany advances | (15,652 | ) | (584,260 | ) | 599,912 | — | |||||||||||
Net cash used in investing activities | (15,652 | ) | (584,260 | ) | (280,914 | ) | (282,207 | ) | 599,912 | (563,121 | ) | ||||||
Cash flow provide by (used in) financing activities: | |||||||||||||||||
Net proceeds from issuance of senior notes | 578,696 | 578,696 | |||||||||||||||
Proceeds from loans payable | 1,002,934 | 1,002,934 | |||||||||||||||
Principal payments of loans payable | (26,800 | ) | (989,281 | ) | (1,016,081 | ) | |||||||||||
Proceeds from stock-based benefit plans | 33,747 | 33,747 | |||||||||||||||
Excess tax benefits from stock-based compensation | 5,776 | 5,776 | |||||||||||||||
Purchase of treasury stock | (505 | ) | (505 | ) | |||||||||||||
Intercompany advances | 472,831 | 155,174 | (628,005 | ) | — | ||||||||||||
Net cash provided by (used in) financing activities | 39,018 | 578,696 | 446,031 | 168,827 | (628,005 | ) | 604,567 | ||||||||||
Net decrease in cash and cash equivalents | — | — | (63,925 | ) | (63,591 | ) | — | (127,516 | ) | ||||||||
Cash and cash equivalents, beginning of year | — | — | 775,300 | 131,040 | — | 906,340 | |||||||||||
Cash and cash equivalents, end of year | — | — | 711,375 | 67,449 | — | 778,824 |
Securities and Exchange Commission
May 6, 2013
Exhibit B (Page 5)
Consolidating Statement of Cash Flows for the fiscal year ended October 31, 2011 ($ in thousands):
Toll Brothers, Inc. | Subsidiary Issuer | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||
Cash flow (used in) provided by operating activities: | |||||||||||||||||
Net income (loss) | 39,795 | — | 39,608 | 7,282 | (46,890 | ) | 39,795 | ||||||||||
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | |||||||||||||||||
Depreciation and amortization | 3,210 | 19,343 | 589 | 23,142 | |||||||||||||
Stock-based compensation | 12,494 | 12,494 | |||||||||||||||
Impairment of investment in unconsolidated entities | 15,170 | 25,700 | 40,870 | ||||||||||||||
Income from unconsolidated entities | (21,299 | ) | (18,377 | ) | (39,676 | ) | |||||||||||
Distributions of earnings from unconsolidated entities | 12,747 | (666 | ) | 12,081 | |||||||||||||
Loss from consolidated subsidiaries | 29,229 | 5,374 | (34,603 | ) | — | ||||||||||||
Income from non-performing loan portfolios and foreclosed real estate | (5,113 | ) | (5,113 | ) | |||||||||||||
Deferred tax benefit | (18,188 | ) | (18,188 | ) | |||||||||||||
Deferred tax valuation allowances | 18,188 | 18,188 | |||||||||||||||
Inventory impairments and write-offs | 51,837 | 51,837 | |||||||||||||||
Change in fair value of mortgage loans receivable and derivative instruments | 475 | 475 | |||||||||||||||
Expenses related to early retirement of debt | 3,827 | 3,827 | |||||||||||||||
Changes in operating assets and liabilities | |||||||||||||||||
Increase in inventory | (89,869 | ) | (125,869 | ) | (215,738 | ) | |||||||||||
Origination of mortgage loans | (630,294 | ) | (630,294 | ) | |||||||||||||
Sale of mortgage loans | 659,610 | 659,610 | |||||||||||||||
Decrease (increase) in restricted cash | 41,822 | (676 | ) | 41,146 | |||||||||||||
(Increase) decrease in receivables, prepaid expenses and other assets | (146 | ) | (124,022 | ) | 111,903 | 743 | (11,522 | ) | |||||||||
Increase (decrease) in customer deposits | 1,677 | 11,498 | 13,175 | ||||||||||||||
(Decrease) increase in accounts payable and accrued expenses | 2,287 | (1,759 | ) | 80,257 | (111,272 | ) | 1,863 | (28,624 | ) | ||||||||
Decrease in income tax refund recoverable | 141,590 | 141,590 | |||||||||||||||
Decrease in current income taxes payable | (56,225 | ) | (56,225 | ) | |||||||||||||
Net cash (used in) provided by operating activities | 169,024 | 5,278 | 32,645 | (75,210 | ) | (78,887 | ) | 52,850 | |||||||||
Cash flow used in investing activities: | |||||||||||||||||
Purchase of property and equipment — net | (6,658 | ) | (2,895 | ) | (9,553 | ) | |||||||||||
Purchase of marketable securities | (452,864 | ) | (452,864 | ) | |||||||||||||
Sale and redemption of marketable securities | 408,831 | 408,831 | |||||||||||||||
Investment in and advances to unconsolidated entities | (70 | ) | (62 | ) | (132 | ) | |||||||||||
Return of investments in unconsolidated entities | 23,859 | 19,450 | 43,309 | ||||||||||||||
Investment in non-performing loan portfolios and foreclosed real estate | (66,867 | ) | (66,867 | ) | |||||||||||||
Return of investments in non-performing loan portfolios and foreclosed real estate | 2,806 | 2,806 | |||||||||||||||
Intercompany advances | (145,453 | ) | 53,559 | 91,894 | — | ||||||||||||
Net cash used in investing activities | (145,453 | ) | 53,559 | (26,902 | ) | (47,568 | ) | 91,894 | (74,470 | ) | |||||||
Cash flow provide by (used in) financing activities: | |||||||||||||||||
Proceeds from loans payable | 921,251 | 921,251 | |||||||||||||||
Principal payments of loans payable | (11,589 | ) | (941,032 | ) | (952,621 | ) | |||||||||||
Redemption of senior notes | (58,837 | ) | (58,837 | ) | |||||||||||||
Proceeds from stock-based benefit plans | 25,531 | 25,531 | |||||||||||||||
Purchase of treasury stock | (49,102 | ) | (49,102 | ) | |||||||||||||
Change in noncontrolling interest | 2,678 | 2,678 | |||||||||||||||
Intercompany advances | (149,241 | ) | 162,248 | (13,007 | ) | — | |||||||||||
Net cash provided by (used in) financing activities | (23,571 | ) | (58,837 | ) | (160,830 | ) | 145,145 | (13,007 | ) | (111,100 | ) | ||||||
Net decrease in cash and cash equivalents | — | — | (155,087 | ) | 22,367 | — | (132,720 | ) | |||||||||
Cash and cash equivalents, beginning of year | — | — | 930,387 | 108,673 | — | 1,039,060 | |||||||||||
Cash and cash equivalents, end of year | — | — | 775,300 | 131,040 | — | 906,340 |