[GRAPHIC OMITTED] WolfBlock(SM)
1650 Arch Street, 22nd Floor, Philadelphia, Pennsylvania 19103-2097
Tel: (215) 977-2000 [_] Fax: (215) 977-2740 [_] www.WolfBlock.com
Pamela A. Morone
Direct Dial: (215) 977-2055
Direct Fax: (215) 405-2955
E-mail: pmorone@wolfblock.com
November 17, 2005
VIA EDGAR AND OVERNIGHT DELIVERY
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Pamela A. Long
Assistant Director
Division of Corporation Finance
United States Securities and Exchange Commission
100 F Street, NE
Mail Stop 7010
Washington, D.C. 20549-7010
RE: TOLL BROTHERS FINANCE CORP.
REGISTRATION STATEMENT ON FORM S-4
FILED SEPTEMBER 29, 2005
FILE NO. 333-128683
TOLL BROTHERS, INC.
FORM 10-K FOR FISCAL YEAR ENDED OCTOBER 31, 2004
FILED JANUARY 13, 2005
FILE NO. 1-9186
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Dear Ms. Long:
We are counsel to Toll Brothers, Inc. (the "Company"). This letter sets
forth the responses provided by the Company to the comments in your letter to
the Company, dated October 28, 2005. The comments in your letter relate to Toll
Brothers Finance Corp.'s Registration Statement on Form S-4 (the "Registration
Statement") and the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 2004, as identified in the caption above. On behalf of the
Company and its 100 % owned subsidiaries, Toll Brothers Finance Corp. and the
additional registrants included on the Registration Statement, we are filing
Amendment No. 1 (the "Amendment") to the above-referenced Registration Statement
and in accordance with your comment letter, we also are providing you
supplementally with four copies of each of (i) the revised prospectus, which has
been filed as part of the Amendment (the "Revised Prospectus"), which has been
marked to indicate all changes and (ii) this letter which is keyed to your
comments and which has been marked, where applicable, to indicate the respective
page numbers of the revised prospectus where we have responded to your comments.
As set forth in more detail below, the Company does not believe an amendment to
its Annual Report on Form 10-K for its fiscal year ended October 31, 2004 (the
"2004 10-K") is necessary in that the Company believes that the revisions to the
Company's disclosures required in response to the Commission's comments noted
herein would not be considered material by investors. As Mark K. Kessler of this
firm previously discussed with Brigitte Lippmann, the Company will, however,
revise its disclosures consistent with your comments and the responses below in
its Annual Report on Form 10-K for its fiscal year ended October 31, 2005, which
report is expected to be filed in late December 2005 or early January 2006.
Pamela A. Long
November 17, 2005
Page 2
GENERAL COMMENTS
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Comment No. 1
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Provide us with an executed supplemental letter that:
(1) states that you are registering the exchange offer in
reliance upon the relevant Exxon Capital no-action letters; and
(2) includes the representations substantially in the form set
forth in the Morgan Stanley and Shearman & Sterling no-action letters.
The accompanying letter, dated November 17, 2005, from the Company is being
provided in response to this comment.
Comment No. 2
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As currently represented, the offer could be open for less than the 20 business
days due to the 5:00 p.m. expiration time instead of an expiration time of
midnight on what ultimately may be the twentieth business day following
commencement. See Question and Answer Eight in Exchange Act Release No. 16623
(March 5, 1980). Please confirm that the offer will be open at least through
midnight on the twentieth business day. See Rule 14d-1(g)(3).
This will confirm that the exchange offer will be kept open for at least 20 full
business days.
Comment No. 3
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Please update all information in the prospectus to the most recent practicable
date.
This will confirm that the Company will update all information in the prospectus
to the most recent practicable date.
Pamela A. Long
November 17, 2005
Page 3
GUARANTOR FINANCIAL INFORMATION
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Comment No. 4
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The guarantor financial information you have provided in Note 14 to your Form
10-K for the year ended October 31, 2004 does not provide the disclosures
required by Rule 3-10 with regard to the $300 million of 5.15% Senior Notes due
2015 that is being registered with this Form S-4. Please revise your financial
statements to provide such information and specifically disclose, if true, that
the guarantor subsidiaries are 100% owned and have provided full and
unconditional, joint and several guarantees as they relate to the $300 million
5.14% Senior Notes. You may include your revised financial statements in an
amendment to your Form 10-K or alternatively in a Form 8-K.
The 5.15% Senior Notes due 2015 (the "5.15% Notes") were issued by Toll Brothers
Finance Corp. in June 2005, subsequent to the filing of the 2004 10-K. In the
Company's Quarterly Report on Form 10-Q for its fiscal quarter ended July 31,
2005, the Company discloses in Note 4 to the financial statements included
therein that the 5.15% Senior Notes due 2015 were guaranteed jointly and
severally on a senior basis by the Company and substantially all of the
Company's homebuilding subsidiaries and that the guarantees are full and
unconditional. In Note 14 to the financial statements included therein, the
Company confirms that all of Toll Brothers Finance Corp.'s outstanding senior
notes, including the 5.15% Notes, are guaranteed jointly and severally on a
senior basis by the Company and substantially all of the Company's homebuilding
subsidiaries and that the guarantees are full and unconditional. Note 14 further
confirms that such subsidiaries are wholly-owned by the Company. In response to
this comment, while the Company believes "wholly-owned" and "100% owned" are
synonymous, the Company will in future filings modify the terminology in this
disclosure to reflect the fact that the guarantor subsidiaries are 100% owned.
Comment No. 5
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Confirm to us supplementally that all of your guarantor subsidiaries for your
5.15% Senior Notes due 2015 have been included in Toll Brothers, Inc's audited
financial statements for at least nine months. If any guarantor subsidiary has
not been included in the audited financial statements for such period, address
the need to provide separate financial statements of such guarantor subsidiaries
in accordance with Rule 3-10(g) of Regulation S-X.
The Company confirms that all of the guarantor subsidiaries of the 5.15% Notes
were included in the Company's audited financial statements as of October 31,
2004, except certain of the guarantor subsidiaries that were formed subsequent
to October 31, 2004; these subsidiaries were not included in the Company's
audited financial statements for its fiscal year ended October 31, 2004, but
have been included in the unaudited financial statements for the Company's
fiscal quarter ended July 31, 2005. Because the aggregate net book value of
these newly formed subsidiary guarantors is less than 20% of the principal
amount of the securities being registered, the Company respectfully submits that
separate financial statements for these subsidiaries are not required to be
provided under Rule 3-10(g)(ii) of Regulation S-X.
Pamela A. Long
November 17, 2005
Page 4
SUMMARY--RANKING, PAGE 9
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Comment No. 6
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Please quantify and state, as of the most recent practicable date, the total
amount of debt that is senior, equal and junior to these notes, listing the
total amount for each type separately.
With regard to debt that is senior to the 5.15% Notes, page seven of the
prospectus to the Registration Statement indicates that the 5.15% Notes will be
(a) structurally subordinated to the prior claims of creditors, including trade
creditors, of the Company's subsidiaries that are not guarantors of the senior
notes, the aggregate amount of which claims was approximately $170.4 million as
of July 31, 2005 and (b) effectively subordinated to the secured indebtedness of
the guarantors of the 5.15% Notes, the aggregate amount of such indebtedness at
July 31, 2005 was approximately $147.7 million. The Company confirms that it has
no other debt senior to the 5.15% Notes.
Page eight of the prospectus to the Registration Statement further confirms that
the 5.15% Notes rank equally with all of the Company's unsecured and
unsubordinated indebtedness, including, without limitation, Toll Brothers
Finance Corp.'s 6.875% Senior Notes due 2012, 5.95% Senior Notes due 2013, and
4.95% Senior Notes due 2014, and any indebtedness arising from the Company's
guarantee of First Huntingdon Finance Corp.'s $1.2 billion unsecured revolving
credit facility. In response to this comment, the Company has revised its
disclosure on page eight of the Revised Prospectus to indicate the amounts
outstanding of the above-referenced senior notes, and has further quantified, as
of the most recent practicable date, the total amount of all other indebtedness
which ranks equally with the 5.15% Notes.
Lastly, the 5.15% Notes will rank senior to Toll Corp.'s senior subordinated
notes. In response to this comment, the Company has revised its disclosure to
indicate the amounts outstanding of Toll Corp.'s senior subordinated notes. See
page eight of the Revised Prospectus.
RISK FACTORS, PAGE 14
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OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT . . . , PAGE 14
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Comment No. 7
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Supplementally confirm to us that you are in compliance with the restrictions in
your debt instruments as of the latest practicable date. If you are not, please
disclose any non-compliance and appurtenant risks here.
The Company confirms that, at July 31, 2005, the Company was in compliance with
the restrictions in its debt instruments. In addition, as of the date of this
letter, the Company believes it is in compliance with such restrictions.
Pamela A. Long
November 17, 2005
Page 5
DESPITE OUR CURRENT INDEBTEDNESS LEVELS . . . , PAGE 15
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Comment No. 8
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Quantify the amount of additional debt you may incur.
As of July 31, 2005, the Company and the guarantor subsidiaries could incur
approximately $6.9 billion of additional indebtedness. In response to this
comment, the Company has revised its disclosure to include this information. See
page 15 of the Revised Prospectus.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT, PAGE 30
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Comment No. 9
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We note your disclosure in the first paragraph under the bullet points
concerning oral notice. Please advise us as to how oral notice is reasonably
calculated to reach registered holders of the outstanding notes or otherwise
satisfies the requirements of Rule 14e-1(d).
As set forth in the disclosure cited above, in the event the Company elects to
extend the period of time the exchange offer is kept open, it will provide the
exchange agent with oral or written notice of such election. In such event, the
Company would issue a press release or otherwise make a timely public
announcement of the extension no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date. Such
release or announcement would inform registered holders of the outstanding 5.15%
Notes of the extension in accordance with the requirements of Rule 14e-1(d).
PROCEDURES FOR TENDERING OLD NOTES, PAGE 30
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Comment No. 10
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We note your disclosure on page 32 concerning the registrant's right to waive
ineligibility requirements of holders who seek to tender old notes in the
exchange offer. Please advise us how this fits within the current Exxon Capital
line of letters. We may have further comment based on your response.
The Company has revised its disclosure on page 33 of the Revised Prospectus to
clarify that the ineligibility of any tendering holder can only be waived in
accordance with applicable law, regulation or interpretation of the staff of the
SEC. The Company believes that this revision clarifies that the Company will not
waive ineligibility requirements of any holder to the extent such waiver would
be inconsistent with the Exxon Capital line of letters.
Pamela A. Long
November 17, 2005
Page 6
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES; PAGE 34
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Comment No. 11
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Please revise to state that the issuer will issue the new notes promptly after
expiration rather than after acceptance. See Exchange Act Rule 14e-1(c).
The Company has revised its disclosure accordingly. See page 35 of the Revised
Prospectus.
Comment No. 12
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We note the disclosure on page 35 indicating that you will return any old notes
not accepted for exchange "as promptly as practicable" after expiration of the
exchange offer. Rule 14e-1(c) requires that you exchange the notes or return the
old notes "promptly" upon expiration or termination of the offer, as applicable.
Please revise.
The Company has revised its disclosure accordingly. See page 35 of the Revised
Prospectus.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER, PAGE 35
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Comment No. 13
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All offer conditions, except those related to the receipt of government
regulatory approvals necessary to consummate the offer, if any, must be
satisfied or waived at or before the expiration of the offer, not merely before
acceptance of the outstanding notes for exchange. Please revise the language
that precedes the bullets accordingly.
The first paragraph of this section (see page 35 of the Revised Prospectus)
makes clear that the conditions may be asserted ". . . at any time before
acceptance of the old notes for exchange or the exchange of the exchange notes
... .." While the Company has committed to issuing or causing the exchange notes
to be issued "promptly" after the expiration date, an intervening court action
or proceeding, change in law or similar occurrence could cause the Company to
assert one of these conditions subsequent to the expiration of the offer but
prior to the completion of the exchange. Accordingly, it is respectfully
submitted that a modification of the language referenced in this comment is not
appropriate.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES, PAGE 52
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Comment No. 14
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Please delete the statement in the first sentence of the first paragraph that
the descriptions are provided "solely as a matter of convenience," as it may
suggest to investors that they can not rely on this disclosure in making their
investment decision.
Pamela A. Long
November 17, 2005
Page 7
The Company has deleted the above-referenced statement and has revised its
disclosure to indicate that the descriptions of the operations and procedures of
DTC set forth in the Revised Prospectus are based on materials made available by
DTC. See page 53 of the Revised Prospectus.
EXHIBITS 5.1 AND 5.2--LEGAL OPINIONS
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Comment No. 15
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You cannot assume that "corporate actions will be timely completed in the manner
presently proposed and the terms of such issuance will otherwise be in
compliance with law." This appears to assume away the legal matter underlying
the opinion. Please delete.
The Company has filed amended Exhibits 5.1 and 5.2 deleting this language in
response to this comment.
Comment No. 16
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Where counsel refers to the Delaware General Corporation Law, counsel should
confirm supplementally that it means all statutes, including the rules and
regulations underlying those provisions, Supreme Court and Chancery Court
decisions and provisions of the Delaware Constitution that affect the
interpretation of the General Corporation Law. Counsel should file this
correspondence on EDGAR, as it will be a part of the Commission's official file
regarding this registration statement. Please see Section VIII.A.14 of our
November 14, 2000 Current Issues Outline if you need more information.
In response to this comment, we and the Company's General Counsel, Don H. Liu,
are supplementally filing the requested letters concurrently herewith.
Comment No. 17
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Please file signed, dated legal opinions prior to requesting effectiveness.
The Company confirms that signed, dated legal opinions will be filed prior to
its requesting effectiveness.
Pamela A. Long
November 17, 2005
Page 8
FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 2004
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CRITICAL ACCOUNTING POLICIES, PAGE 16
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Comment No. 18
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You indicate in Note 11 - Commitments and Contingencies that at October 31,
2004, the Company had agreements to purchase land for future development with an
aggregate purchase price of approximately $2.0 billion, of which $137.4 million
had been paid or deposited. We also note, as indicated in Note 2 -Inventory in
your Form 10-Q for the quarter ended July 31, 2005 that you had recorded $73.3
million and $15.4 million at July 31, 2005 and October 31, 2004 of land purchase
contracts as inventory pursuant to the requirements of FIN 46. Given the
significance of these off-balance sheet financing arrangements, provide a
critical accounting policy that highlights the significant terms of these
contracts, specifically addressing why certain contracts require that you
recognize the land under such contracts and the related liability on your
balance sheet. In addition, you should:
o address whether your analysis requires you to make
material assumptions and if so provide a discussion
of each material assumption that you are required to
make,
o address whether there is any significant differences
in the terms of your options versus agreements to
purchase land, and
o address whether, if you were required to recognize
material amounts of land under these contracts and
their related liability on your balance sheet, what
impact this accounting would have with regard to your
material debt covenants.
The Company's agreements to purchase land are purchase contracts entered into in
the ordinary course of business; they are not off-balance sheet financing
arrangements. As more fully disclosed in the 2004 10-K under "Item 1.
Business--Land Policy," many of the Company's option or purchase agreements are
entered into on a non-recourse basis and it generally has the right to cancel
these agreements for various reasons. Because of these features, the Company's
risk of loss is generally limited to the non-recovery of the costs expended to
obtain governmental approvals and, in some cases, the forfeiture of the
Company's deposit. In addition, the $73.3 million of land purchase contracts at
July 31, 2005 are also not off-balance sheet arrangements; the Company recorded
these contracts as land in accordance with FIN 46 based on the expectation that
it will be required to absorb the majority of the expected losses of the
Variable Interest Entity as required by FIN 46. Based on the foregoing, the
Company believes its current disclosure to be adequate. The Company will,
however, review and update, if needed, the disclosures regarding FIN 46 in
future filings. Further, if the Company's off-balance sheet arrangements become
significant, the Company will develop and provide a critical accounting policy
addressing the issues identified above.
Pamela A. Long
November 17, 2005
Page 9
OFF-BALANCE SHEET ARRANGEMENTS, PAGE 17
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Comment No. 19
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Please clarify the importance to the company of the off-balance sheet
arrangements in respect of your liquidity, capital resources, market risk
support, credit risk support or other benefits. See Item 303(a)(4)(i)(B) of
Regulation S-K.
The Company does not believe that its off-balance sheet arrangements have or are
reasonably likely to have a current or future effect on the Company's financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors. In that regard, the Company, in the last paragraph of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Off-Balance Sheet Arrangements" in the 2004 10-K, states that: "Our
total commitment to these entities is not material to our financial condition."
In future filings, the Company will, to the extent material, clarify the
importance to the Company of its off-balance sheet arrangements in respect of
its liquidity, capital resources, market risk support, credit risk support or
other benefits.
Comment No. 20
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Please disclose the amounts of revenues, expenses and cash flows of the company
arising from such arrangements and the other information required by Item
303(a)(4)(i)(C) of Regulation S-K.
As indicated above, the Company does not believe that its off-balance sheet
arrangements have or are reasonably likely to have a current or future effect on
the Company's financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors. Accordingly, the Company respectfully
submits that it is not required to provide this disclosure. In future filings,
the Company will expand the disclosure regarding the materiality of these
arrangements to indicate they are not material to its business. If in the future
these arrangements become material to the Company's business, the Company will
provide the disclosures required by Item 303(a)(4)(i)(C).
Pamela A. Long
November 17, 2005
Page 10
EQUITY EARNINGS IN CONSOLIDATED ENTITIES, PAGE 20
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Comment No. 21
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Clarify why earnings from your unconsolidated entities vary significantly from
year to year.
Many of the Company's unconsolidated entities are land development projects or
high-rise construction/condominium conversion projects and do not generate any
revenues and earnings for a number of years during development of the property.
Once development is complete, the entities will, over a relatively short period
of time, generate revenues and earnings until all the assets are sold. Because
there is not a steady flow of revenues and earnings from these entities, the
earnings will vary significantly from year to year. In order to assist investors
in understanding the impact earnings from these entities have on the Company's
income statement, the Company provides guidance as to the expected earnings from
these entities for the subsequent year. The Company will expand its disclosure
in future filings to further clarify why earnings from its unconsolidated
entities vary significantly from year to year.
CAPITAL RESOURCES AND LIQUIDITY
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Comment No. 22
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We do not understand how any discussion of cash flows from operating activities,
before inventory additions, is a meaningful measure of your liquidity. In this
regard, we note that notwithstanding the fact that you have several years'
supply of home sites such that you do not need to buy home sites immediately to
replace the ones delivered, we note (i) that such home sites required the
expenditure of cash in prior periods and (ii) you will continue to utilize cash
to acquire home sites and incur inventory costs related to your homebuilding
operations if you intend to continue such operations into the future. Please
revise to delete such discussion or provide a comprehensive discussion of the
material limitations of this non-GAAP measure of your liquidity.
The Company believes that its disclosure is consistent with GAAP. In most
industries, inventory is turned over several times a year. Because of the nature
of the Company's business, it purchases land that may remain in inventory for a
period of four to ten years, depending on the size of the tract of land. In
addition, the Company's revenues have grown at a compound annual growth rate in
excess of 20% over the last 10 years and in fiscal 2005 grew approximately 50%
above fiscal 2004. Because investors must evaluate the Company's cash flow in
light of the business in which the Company is engaged, the Company believes that
a strong indication of the strength of the business is the amount of cash
generated from operations before inventory growth. The Company has disclosed
that due to the size of its backlog, if the current demand for homes declines,
it would complete homes previously sold and not commence construction of as many
new ones, thus generating cash. The Company further discloses in the last
paragraph of "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Capital Resources and Liquidity" that it believes it has
adequate funds from available sources to fund future growth and meet its
contractual obligations. The Company believes that its discussion of cash flows
from operating activities, before inventory additions, together with its cash
flows disclosure in its financial statements, provide meaningful cash flow
information both before and after inventory considerations because of the
unusual issues presented by inventory in the Company's business.
Pamela A. Long
November 17, 2005
Page 11
Comment No. 23
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We also note your discussion of liquidity must be made in the context of your
cash flows from operating, investing and financing activities. While
presentation of cash flows from operating activities is useful, this information
should be considered in the framework of your statements of cash flows which
reflects management's decisions as to the use of these cash flows and the
external sources of capital used. As such, please expand your liquidity
discussion to provide a comprehensive discussion of your cash flows from the
three major categories of the statements of cash flows from period to period.
The Company respectfully submits that its cash flow from investing and financing
activities is readily apparent from the face of the Company's financial
statements and from its current disclosures. The most significant financing
activities in the Company's Consolidated Statements of Cash Flows, i.e., the
issuance of senior notes and retirement of outstanding publicly held debt
securities, are discussed in the 2004 10-K in "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Capital Resources and
Liquidity." The most significant investing activity in the Company's
Consolidated Statements of Cash Flows, i.e., the Company's investments in and
advances to unconsolidated entities, is outlined in "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Off-Balance Sheet
Arrangements" and in Note 10 to the financial statements filed with the 2004
10-K. Notwithstanding the foregoing, if the Company's investing and financing
activities reach a level of complexity such that a comprehensive discussion of
them would be meaningful to investors, the Company will in future filings expand
its liquidity discussion to provide a comprehensive discussion of cash flows
from all three categories.
Comment No. 24
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We note that a majority, if not all, of your debt instruments contain financial
covenants. As such, please include a discussion of your material financial debt
covenants, including the actual ratio amounts for the most recent period
presented, unless management believes that the likelihood of default is remote.
In addition, discuss the potential impact of any material limitations these
covenants impose on your company. Address how these limitations may impact your
financial condition and operating performance. Refer to Sections IV.B and IV.C
of the SEC Interpretive Release No. 33-8350 dated December 19, 2003 and Section
501.03 of the Financial Reporting Codification for additional guidance.
The only financial covenants with which the Company is required to comply are
contained in its revolving credit agreement. Those financial covenants which are
material to the Company are outlined in Note 3 to the Company's financial
statements included in the 2004 10-K. The disclosure therein contains the ratios
with which the Company must comply and the actual ratios as of fiscal year end.
Because the Company's actual ratios are considerably better than the ratios the
Company is required to maintain, these covenants have not imposed, and are not
expected to impose, any material limitations on the Company and have not
materially impacted, and are not expected to materially impact, the financial
condition or operating performance of the Company. Accordingly, the Company
believes its current disclosure to be adequate.
Pamela A. Long
November 17, 2005
Page 12
Comment No. 25
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Also, we note your discussion regarding the $1.14 billion loan capacity related
to First Huntingdon Finance Corp.'s credit agreement. Please confirm to us that
the amount related to the unused borrowing capacity under this agreement would
not violate any of your existing debt covenants, or provide such disclosure.
The Company confirms that utilization of the unused borrowing capacity under
First Huntingdon Finance Corp.'s credit agreement would not violate any of the
Company's existing debt covenants.
CONTRACTUAL OBLIGATIONS, PAGE 24
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Comment No. 26
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Include your interest commitments under your interest-bearing debt in this
table, or provide textual discussion of this obligation below the table. If you
provide a textual discussion, the discussion should quantify the interest
payments using the same time frames stipulated in the table. In addition,
address your funding obligation under your pension plans. Refer to footnote 46
to Release 33-8350 "Interpretation: Commission Guidance Regarding Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's interest commitments under its interest-bearing debt at October
31, 2004 was as follows (amounts in millions):
2005 $ 105.1
2006-2007 179.7
2008-2009 171.1
Thereafter 231.9
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Total 687.8
The Company's table of contractual obligations table will include this
information in future filings.
The Company's contractual obligations table in its 2004 10-K indicates the
actual cash obligations the Company has with respect to its 401(k), deferred
compensation and supplemental executive retirement plans. The Company believes
that this disclosure adequately addresses its funding obligations with respect
to post-employment benefits.
Pamela A. Long
November 17, 2005
Page 13
EXECUTIVE COMPENSATION, PAGE 26
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Comment No. 27
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In future filings, please describe more fully the terms of the Mr. Rassman's
employment agreement, Bruce Toll's consulting agreement, the bonus and other
compensation plans for the executive officers and directors.
The Company believes that the material terms of Mr. Rassman's employment
agreement, Bruce Toll's consulting agreement, the bonus and other compensation
plans for the executive officers and directors are appropriately described in
its proxy statement for its 2005 annual meeting, which descriptions are
incorporated by reference into the 2004 10-K.
Comment No. 28
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Please tell us supplementally whether the company pays for the personal use of
aircraft by the executive officers.
The Company confirms that it does not pay for the personal use of aircraft by
its executive officers.
CERTAIN TRANSACTIONS, PAGE 26
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Comment No. 29
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Please tell us supplementally more details about the following:
o the services the company provides to other businesses
controlled by the Tolls and quantify the amount paid to
the company;
o the aggregate costs incurred by the company on behalf of
the Trust during the last fiscal year; and
o describe the management, assets, and any conflicts of
interest relating to the Trust.
File these agreements as exhibits to your amended Form 10-K or tell us where
these exhibits are filed.
From time to time the Company will provide a limited amount of accounting, tax
and human resource services to the Tolls and companies owned or controlled by
them. Robert I. Toll and Bruce E. Toll maintain accounts with the Company to
prepay for any services that are provided to them and their companies. In fiscal
2004, the Company provided services with an aggregate value of approximately
$41,000 to the Tolls, all of which was paid for from such accounts. These
transactions are reviewed and monitored by the Company's Audit Committee.
Pamela A. Long
November 17, 2005
Page 14
The Trust currently owns and operates several office buildings, an 806-unit
apartment complex in Virginia, and is developing a 635-unit apartment complex in
New Jersey. Oversight of the day-to-day operations of the Trust's properties is
provided by specific employees of the Company whose costs are reimbursed to the
Company by the Trust. The aggregate cost incurred by the Company on behalf of
the Trust during fiscal 2004 was approximately $1,028,000, all of which was
reimbursed by the Trust. The Company also provides certain management,
construction, administrative and accounting services to the Trust for which it
received fee income in the amount of $1.7 million in fiscal 2004. The Company
does not believe that there are any conflicts of interest relating to the Trust
as the Trust is in the business of developing and selling commercial and
residential rental properties, while the Company is in the business of
developing and selling residential homes.
The Company has not previously filed, and respectfully submits that it is not
required to file, the foregoing agreements as such agreements are not material
contracts within the meaning of Item 601(b)(10) of Regulation S-K.
CONSOLIDATED STATEMENTS OF INCOME, PAGE F-2
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Comment No. 30
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Please note that it is not appropriate to include equity in earnings within
revenues. In this regard, we note that equity in earnings are not revenues and
should therefore not be classified as revenues or included in any caption that
includes revenues. Present your equity in earnings from unconsolidated
partnerships affiliates as a separate line item within your statement of
earnings. If your investees are integral to your operations, you may present
your investee earnings within operating income. Refer to Rule 5-03.13 of
Regulation S-X.
The Company will, in future filings, present "equity in earnings of
unconsolidated entities" as a separate line item below total expenses.
CONSOLIDATED STATEMENTS OF CASH FLOWS, PAGE F-4
- -----------------------------------------------
Comment No. 31
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We note that pursuant to paragraphs 16b and 22b of SFAS 95, dividends received
(i.e. returns on investments) should be classified as cash inflows from
operating activities and receipts from returns of investments should be
classified as cash inflows from investing activities. Please revise your
financial statements to classify the distributions you received from your equity
investees as inflows of cash from your operating activities or demonstrate that
the distributions you received were returns of your investment. If revisions to
your financial statements are necessary, ensure that you include the appropriate
APB 20 disclosures.
Pamela A. Long
November 17, 2005
Page 15
The Company has historically classified the distributions from unconsolidated
entities as cash flow from investing activities. Distributions from
unconsolidated entities that were distributions of income for each of the last
three fiscal years were as follows (amounts in thousands):
---------------------------- -----------------------
Fiscal Year Income Amount
---------------------------- -----------------------
2002 $1,483
---------------------------- -----------------------
2003 1,347
---------------------------- -----------------------
2004 12,083
---------------------------- -----------------------
The Company will in future filings reclassify these amounts as cash flow from
operating activities and will include appropriate APB 20 disclosures.
Comment No. 32
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Please clarify why the $20,288, $9,643 and $6,855 of noncash stock bonus awards
as discussed in Note 13 - Supplemental Disclosure to Statements of Cash Flows on
page 18 is not presented in your statement of cash flows as an adjustment to
reconcile net income to net cash provided by (used in) operating activities.
The amounts paid in Company stock related to bonus awards are reflected in the
Consolidated Statements of Cash Flow to the extent these amounts are treated as
non-cash. The payment of the bonus award is added back to the change in accounts
payable and accrued liabilities in the Consolidated Statements of Cash Flows.
The table below reconciles the change in the accounts payable/accrued expenses
and reflects the add back of the stock bonus award payment (amounts in
thousands):
2004 2003 2002
------------------------------------
Balance, end of year $ 756,174 $ 498,674 $ 407,666
Add (subtract)
Balance, beginning of year (498,674) (407,666) (362,641)
Stock bonus award payment 20,288 9,643 6,853
Contribution to employee retirement
of treasury stock 1,301 1,180 883
Adoption of supplemental
retirement program - projected
initial benefit obligation (13,702)
Liability included in accrued
expenses assumed on acquisition
of inventory (7,360)
------------------------------------
Increase in accounts payable and
accrued expenses $ 265,387 $ 94,471 $ 52,761
====================================
Pamela A. Long
November 17, 2005
Page 16
Comment No. 33
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Please reconcile your disclosure in Note 7-- Stock-Based Benefit Plans -- Bonus
Award Shares which indicates that the Company recognized compensation expense in
2004, 2003 and 2002 of $30.4 million, $20.3 million and $9.6 million,
respectively to your disclosure in on page F-18 which indicates your non-cash
activity related to your stock bonus awards was $20,288, $9,643 and $6,855 for
those periods.
The Company accrues for bonus awards in the year that they are earned, not in
the year that they are paid. Because payment of these bonuses occurred during
the fiscal year following the fiscal year in which the bonuses were earned, the
non-cash activity related to the Company's stock bonus awards reflects payment
by the Company of bonus awards accrued during the prior fiscal year. For
example, the bonus award amounts accrued in fiscal years 2003 and 2002 ($20.3
million and $9.6 million, respectively) were paid in fiscal 2004 and 2003,
respectively, and are reflected in the Company's Consolidated Statements of Cash
Flows for the latter periods. The bonus award amount accrued in fiscal year 2004
(i.e., $30.4 million) was paid during fiscal 2005 and will be reflected in the
Company's Consolidated Statements of Cash Flows in its financial statements to
be filed with its Annual Report on Form 10-K for its fiscal year ended October
31, 2005.
Comment No. 34
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As indicated on page 14, we note that your holders of stock options are
permitted to use their common stock that they own to pay for the exercise of
their stock options. In this regard, we also note that the proceeds from
stock-based benefit plans as reflected in your cash flows from investing
activities is less than the increase in your stockholders' equity. Please expand
your disclosures to discuss the noncash component of this activity or tell us
why such disclosure is not required pursuant to SFAS 95.
Pamela A. Long
November 17, 2005
Page 17
The Company believes that the information provided in the Consolidated
Statements of Cash Flows and Note 13 to its financial statements includes the
information needed for an investor to roll-forward the beginning equity balance
to the ending equity balance. The table below is being provided to you
supplementally by the Company to illustrate the roll-forward for each of the
fiscal years included in the 2004 10-K (amounts in thousands):
2004 2003 2002
---------------------------------------
Beginning equity $1,476,628 $1,129,509 $ 912,583
Net income 409,111 259,820 219,887
Proceeds from the issuance of stock 86,241
Proceeds from stock-based
benefit plans 14,725 10,478 12,997
Purchase of treasury stock (20,241) (25,565) (31,087)
Income tax benefit related to options 18,175 5,320 7,394
Stock bonus awards 20,288 9,643 6,855
Contribution to employee
retirement plan 1,301 1,180 883
Rounding 2 (3)
---------------------------------------
Ending balance $1,919,987 $1,476,628 $1,129,509
=======================================
The value of stock used to exercise options were as follows (amounts in
thousands):
Fiscal Year
2002 $2,601
2003 858
2004 2,599
The shares surrendered do not impact the Company's Consolidated Balance Sheet or
Statements of Cash Flows. The Company believes the inclusion of the value of
shares surrendered in the cash flow data would likely cause confusion to
investors if they were to attempt to roll-forward the equity as demonstrated
above. Because of the confusion that would likely result from the inclusion of
this information and the immaterial amounts involved, the Company believes the
exclusion of these amounts from its disclosure in the supplemental cash flow
data is appropriate and that the existing disclosure is adequate. In future
filings, the Company will review its disclosures regarding stock options and
stock swaps and, if material, include appropriate disclosures.
Comment No. 35
- --------------
Provide the disclosures required by paragraph 2(e) of SFAS 148 in your Summary
of Significant Accounting Policies footnote.
The Company believes that it provides the disclosures required by SFAS 148 or
that such information can be reasonably calculated from the information
provided. In Note 1 to its financial statements, "Significant Accounting
Policies--New Accounting Pronouncements," the Company indicates that all
financial disclosures required by SFAS 148 are included in the notes to the
financial statements. Note 7 further indicates that the Company accounts for its
stock option plans according to Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and, accordingly, does not recognize
compensation costs upon issuance or exercise of stock options. The Company
provides net income, basic net income per share and diluted net income per share
on an "as reported" and on a "pro forma" (i.e., as if the fair value-based
method described in SFAS No. 123 had been adopted) basis. Based on this
information, an investor can subtract the "pro forma" net income from the "as
reported" net income to determine the stock-based employee compensation cost,
net of related tax effects. The Company will modify these disclosures in future
filings in accordance with accounting pronouncements regarding employee stock
compensation.
Pamela A. Long
November 17, 2005
Page 18
INVENTORY, PAGE F-8
- -------------------
Comment No. 36
- --------------
Your accounting policy on page F-8 indicates that capitalized interest costs are
reflected in interest expense when the related sale is recorded. As indicated by
paragraph 20 of SFAS 34, since interest cost is an integral part of the cost of
acquiring a qualifying asset, its disposition shall be the same as that of other
components of asset cost. Therefore, all interest capitalized should be included
in cost of sales when the related inventory is sold. Revise to reclassify your
interest expense related to direct land acquisition, land development and home
construction costs accordingly.
The Company will, in future filings, include in cost of sales all interest
capitalized when the related inventory is sold.
ACCRUED EXPENSES, PAGE F-10
- ---------------------------
Comment No. 37
- --------------
Disclose three years of your warranty costs. Although this item is a balance
sheet item, the impact of warranty costs you accrue effects your statement of
income, and therefore, should be presented for the periods that your statement
of income is presented. Refer to paragraph 14b of FIN 45.
The Company believes that its disclosure of warranty costs is in accordance with
FIN 45. The disclosures required by FIN 45 were required to be included in
financial statements for interim and annual periods ending after December 15,
2002. Because the Company has an October 31 fiscal year end, warranty costs for
its fiscal year ended October 31, 2002 were not required to be included in the
2004 10-K. In accordance with FIN 45, three years of warranty cost information
will be provided with the Company's Annual Report on Form 10-K for its fiscal
year ended October 31, 2005.
SUPPLEMENTAL GUARANTOR INFORMATION, PAGE F-18
- ---------------------------------------------
Comment No. 38
- --------------
If true, please revise to clarify that the guarantor subsidiaries are "100%
owned" by the parent as required by Rule 3-10(f) of Regulation S-X. We note your
use of the term "wholly-owned;" however, that term is not the same as the term
"100% owned" in Rule 3-10(h) of Regulation S-X.
Pamela A. Long
November 17, 2005
Page 19
As noted above, while the Company believes "wholly-owned" and "100% owned" are
synonymous, the Company will in future filings revise the terminology in its
disclosure to indicate that the guarantor subsidiaries are 100% owned by the
Company or one of its other 100% owned subsidiaries.
We trust that the above fully responds to your questions and comments.
If you have any additional questions or comments, please contact me at your
earliest convenience.
Sincerely,
Pamela A. Morone
Pamela A. Morone
For WOLF, BLOCK, SCHORR and SOLIS-COHEN LLP
Enclosures
PAM/ka
cc:
Joseph R. Sicree, Chief Accounting Officer (w/enclosures)
Mark K. Kessler, Esq. (w/enclosures)