Mark K. Kessler
Direct Dial: (215) 977-2576
Direct Fax: (215) 405-2576
E-mail: mkessler@wolfblock.com
January 13, 2006
VIA EDGAR AND OVERNIGHT DELIVERY
- --------------------------------
Pamela A. Long
Assistant Director
Division of Corporation Finance
United States Securities and Exchange Commission
100 F Street, N.E.
Mail Stop 7010
Washington, D.C. 20549-7010
RE: TOLL BROTHERS FINANCE CORP.
AMENDMENT NO. 1 TO REGISTRATION
STATEMENT ON FORM S-4
FILED NOVEMBER 17, 2005
FILE NO. 333-128683
FORM 10-K FOR FISCAL YEAR ENDED OCTOBER 31, 2004
FILED JANUARY 13, 2005
FILE NO. 1-9186
---------------
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 December 12, 2005. The comments in your letter relate to Toll
Brothers Finance Corp.'s Registration Statement on Form S-4, as amended by
Amendment No. 1 filed November 17, 2005 (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. 2 (the
"Amendment") to the above-referenced Registration Statement and in accordance
with your comment letter and discussions with the Staff, we also are providing
you supplementally with four copies of each of the following:
Cherry Hill, NJ [] Harrisburg, PA [] New York, NY [] Norristown, PA []
Philadelphia, PA [] Roseland, NJ [] Wilmington, DE
WolfBlock Government Relations: Harrisburg, PA and Washington, DC
Wolf, Block, Schorr and Solis-Cohen LLP, a Pennsylvania Limited
Liability Partnership
Pamela A. Long
January 13, 2006
Page 2
o the revised prospectus, which has been filed as part of the Amendment
(the "Revised Prospectus"), which has been marked to indicate all changes,
o excerpts from the Company's Annual Report on Form 10-K for its fiscal
year ended October 31, 2005 (the "2005 10-K") which are responsive to your
comments and conclusions reached during a conversation on January 12, 2006,
among Mr. Joel H. Rassman and Joseph R. Sicree, of the Company, representatives
of Ernst & Young LLP ("E&Y"), the Company's independent registered public
accounting firm, and Ms. Carol Stacey, Ms. Leslie Overton, Ms. Jeanne Baker and
Mr. Ryan Rohn of the Staff,
o memo of the Company entitled "Analysis of Adjustments to the 2004 and
2003 Financial Statements,"
o letter dated January 12, 2006 from Joel H. Rassman, Chief Financial
Officer of the Company, to Leslie Overton, Associate Chief Accountant, together
with draft disclosure referenced therein, and
o 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 I previously discussed with Ms. Baker and Mr. Rohn, the Company
formally requests the concurrence of the Staff that it may revise its
disclosures consistent with your comments and the responses below in the 2005
10-K, which report was filed January 13, 2006. As I also discussed with the
Staff, pursuant to a Registration Rights Agreement (the "Rights Agreement")
dated as of June 2, 2005 by and among the Company, Toll Brothers Finance Corp.
(the "Issuer") and Citigroup Global Markets Inc., the Company and the Issuer are
required to use their reasonable best efforts to cause the Registration
Statement to be declared effective no later than January 13, 2006. If the
Registration Statement is not declared effective by such date, other parties to
the Rights Agreement may assert that a "Registration Default" has occurred under
the Rights Agreement, which default would subject the Company and the Issuer to
a penalty in the form of additional interest on the privately-placed senior
notes. Accordingly, it would be greatly appreciated if you would give this
letter, together with its attachments, your prompt attention
Pamela A. Long
January 13, 2006
Page 3
GENERAL
Comment No. 1
We note your response to comments 3 and 9 of our letter dated October 28, 2005.
Please confirm that your aggregate amount of debt outstanding has not changed
materially since July 31, 2005.
The Company confirms that the aggregate amount of debt currently outstanding has
not changed materially since July 31, 2005. As of October 31, 2005, the
Company's outstanding indebtedness was $1.83 billion, compared to $1.714 billion
on July 31, 2005. The Company further confirms that as of January 12, 2006, the
aggregate amount of the Company's outstanding indebtedness had not changed
materially since October 31, 2005.
GUARANTOR FINANCIAL INFORMATION
Comment No. 2
We have reviewed your response to prior comment 4. Please note that your current
disclosure of 5.15% Senior Notes due 2015 in your Form 10-Q for the quarter
ended July 31, 2005 does not satisfy the requirements of Rule 3-10 of Regulation
S-X because these disclosures are required to be in an audited footnote.
Therefore, as previously requested, please provide revised audited financial
statements such that the issuance of the 5.15% Senior Notes due 2015 is
addressed and the information required by Rule 3-10 of Regulation S-X (e.g.,
confirm, if true, that the subsidiaries who guarantee the 5.15% Senior Notes due
2015 are 100% owned and that their guarantees are full and unconditional, joint
and several) is presented in an audited footnote.
The Company has provided the requested disclosure in its audited consolidated
financial statements included with the 2005 10-K. In addition, the Company will
in the future ensure its disclosures satisfy the requirements of Rule 3-10 of
Regulation S-X.
Comment No. 3
Your response to prior comment 5 confirms that all of your guarantor
subsidiaries have been included in your financial statements as of October 31,
2004, except certain of the guarantor subsidiaries that were formed subsequent
to October 31, 2004. You also have confirmed that separate financial statements
for these subsidiaries are not required as the aggregate net book value of these
subsidiary guarantors is less than 20% of the principal amount of the securities
that you are registering. We have the following additional comments in this
regard.
o Please confirm that all of your guarantor
subsidiaries that have been included in your
financial statements as of October 31, 2004 have been
included in those audited financial statements for at
least nine months. If any guarantor subsidiary has
not been included in the audited financial statements
for at least nine months, address the need to provide
separate financial statements of such guarantor
subsidiaries as required by Rule 3-10(g) of
Regulation S-X.
Pamela A. Long
January 13, 2006
Page 4
o As required by Rule 3-10(g)(ii) of Regulation S-X,
you must also confirm that the aggregate purchase
price of any guarantor subsidiary who has not been
included in your audited financial statements for at
least nine months is less than 20% of the securities
being registered or you must provide their respective
financial statements.
The Company confirms that except for a small number of subsidiaries the Company
acquired during fiscal 2004 (the "2004 Acquired Subsidiaries"), all guarantor
subsidiaries included in its financial statements as of October 31, 2004 that
had not been included in its audited financial statements for at least nine
months are entities that were formed by the Company solely to acquire new land
for the development and sale of homes and that, prior to their formation, had no
operations or cash flows. As to the 2004 Acquired Subsidiaries, the Company
further confirms that: (i) each of the 2004 Acquired Subsidiaries is and was a
non-operating entity that was acquired for the purpose of acquiring the land
owned by such entity and (ii) the aggregate purchase price for each such entity
was less than 20% of the principal amount of the securities being registered.
With respect to fiscal 2005, the Company confirms that except for those
subsidiaries listed below (the "2005 Acquired Subsidiaries"), all guarantor
subsidiaries that are included in its audited financial statements as of October
31, 2005 have been included in its audited financial statements for at least
nine months except for entities formed by the Company solely to acquire land for
the development and sale of homes and, prior to their formation, had no
operations or cash flows. As to the 2005 Acquired Subsidiaries, the Company
further confirms that: (i) each of the 2005 Acquired Subsidiaries is and was a
non-operating entity that was acquired for the purpose of acquiring the land
owned by such entity and (ii) the aggregate purchase price for each such entity
was less than 20% of the principal amount of the securities being registered.
110-112 Third Ave. Realty Corp.
Arthur's Woods, LLC
Arundel Preserve #6, LLC
Arundel Preserve #10a, LLC
DOCUMENTS INCORPORATED BY REFERENCE, PAGE I
Comment No. 4
We note that you have not updated for any documents to be incorporated by
reference since the date of your initial filing. Please revise to specifically
incorporate by reference all required documents and filings made with the
Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934. Please note that your use of the language "after the date of this
prospectus" is inconsistent with our guidance set forth in our July 1997 Manual
of Publicly Available Telephone Interpretations, at H.69.
Pamela A. Long
January 13, 2006
Page 5
In response to this comment, the Company has incorporated by reference all
required documents and filings made with the Commission under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act").
Further, the Company will, by pre-effective amendment, specifically incorporate
by reference any other required documents and filings made with the Commission
under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
effectiveness of the Registration Statement. Finally, consistent with your
guidance set forth in the July 1997 Manual of Publicly Available Telephone
Interpretations, H.69, in future registration statement filings, the Company
will (1) include a statement in its initial registration statement (in addition
to the statement regarding incorporation after the date of the prospectus) to
the effect that all filings filed by the Company pursuant to the Exchange Act
after "the date of the initial registration statement and prior to effectiveness
of the registration statement" shall be deemed to be incorporated by reference
into the prospectus; and (2) in the first prospectus used after effectiveness,
identify all Exchange Act reports filed prior to effectiveness (by character,
date and Commission file number) and delete the new sentence referred to in (1),
above.
AVAILABLE INFORMATION, PAGE II
Comment No. 5
Please update the address of the Commission's public reference room. See Item
11(c) of Form S-4.
The Company has revised its disclosure accordingly. See page ii of the Revised
Prospectus.
RECENT DEVELOPMENTS, PAGE 2
Comment No. 6
We note that you recently cut your sales forecast for fiscal 2006, citing
delayed openings for new developments and weakened demand in several markets. If
material, please discuss any trends that you are aware of in this section that
may affect your credit rating.
The Company does not believe that the recent cut in its sales forecast or any
other trends of which it is aware will affect its credit rating. In response to
this comment, the Company has, however, supplemented its "Summary--Recent
Developments" disclosure to include a discussion of the recent slowdown in new
contract signings. See page 2 of the Revised Prospectus.
Pamela A. Long
January 13, 2006
Page 6
CERTAIN CONDITIONS TO THE EXCHANGE OFFER, PAGE 35
Comment No. 7
We note your response to prior comment 13. We continue to believe that 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. Therefore, please delete the phrase "or the
exchange of the exchange notes for such old notes" in the sentence that precedes
the bullet points. In addition, please tell us when you anticipate that
acceptance will take place. We may have further comments based on your response.
In response to this comment, the Company has stricken the cited language. See
page 35 of the Revised Prospectus. It should be noted, however, that while the
Company has committed to issuing the exchange notes "promptly" after the
expiration date, an intervening court order, change in law, or similar action,
that prohibits consummation of the exchange offer would put the Company in the
position of violating such order or law if it were to issue the exchange notes
consistent with this change. It should be further noted that in response to a
similar comment made by the Staff by letter dated April 18, 2003, the Company
explained this rationale for including the cited language, which rationale was
then accepted by the Staff.
The Company anticipates acceptance will take place on the expiration date.
FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 2004
CRITICAL ACCOUNTING POLICIES, PAGE 16
Comment No. 8
We note your response to prior comment 18. Due to the subjectivity and judgment
necessary in applying FIN 46 and its relevance to your business, we repeat our
comment to 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.
Pamela A. Long
January 13, 2006
Page 7
While the Company believes that, for the reasons set forth in its November 17,
2005 letter to the Commission, its disclosure in its Annual Report on Form 10-K
for its fiscal year ended October 31, 2004 was adequate, in response to this
comment the Company has, in the 2005 10-K, added a critical accounting policy to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and to the notes to the consolidated financial statements filed
therein, which policy expands on the Company's FIN 46 assumptions. See the
attached excerpt from the 2005 10-K attached hereto as Exhibit A.
With regard to the Company's option agreements and purchase contracts, the
Company uses these terms interchangeably. There is no significant difference
between the two forms of agreement. The Company has added language to the 2005
10-K to clarify this point.
If the Company were required to record a material amount of land under these
land purchase agreements and their related liability on its balance sheet, it
would not have a material impact on the Company's financial covenants. As set
forth on page 15 in the "Risk Factors" section of the Revised Prospectus, the
Company could incur approximately $7.9 billion of additional indebtedness under
the covenants of its bank revolving credit agreement. The Company confirms that
it has no other materials debt covenants with which it is required to comply.
CAPITAL RESOURCES AND LIQUIDITY, PAGE 23
Comment No. 9
We note your response to prior comment 22. We do not agree with your conclusion
that your disclosure is consistent with GAAP. Your presentation of cash flows
from operations before inventory growth is a non-GAAP measure as defined by Item
10(e) of Regulation S-K. In addition, it is still unclear to us how any
discussion of cash flows from operating activities before inventory additions is
a meaningful measure of your liquidity, and therefore, we repeat our comment.
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 that (i) the 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. Please revise
to delete such discussion or provide a comprehensive discussion of this non-GAAP
measure, reconcile it to the most directly comparable GAAP financial measure,
disclose the material limitations associated with use of this non-GAAP measure
as compared to the most directly comparable GAAP measure and the manner in which
you compensate for these limitations when using the non-GAAP measure for your
liquidity. See question 13 of the SEC "Frequently Asked Questions Regarding the
Use of Non-GAAP Financial Measures."
Because a non-GAAP financial measure is defined under Item 10(e)(2) of
Regulation S-K as a "numerical" measure of a registrant's historical or future
financial performance, financial position or cash flows, the Company believes
that its non-numerical, textual presentation of cash flow from operations before
inventory additions is not a non-GAAP financial measure. In response to the
Commission's comment, however, the Company has deleted all uses of the phrase
"before inventory additions" in the 2005 10-K and will not use this language in
future filings.
Pamela A. Long
January 13, 2006
Page 8
Comment No. 10
We note your response to prior comment 23 that your cash flow from investing and
financing activities is readily apparent from the face of your financial
statements and from your current disclosures. However, we note that MD&A should
not be a recitation of financial statements, but rather a discussion and
analysis of a company's business as seen through the eyes of those who manage
that business. Therefore, we repeat our comment to 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.
Refer to Section IV. Liquidity and Capital Resources of Release 33-8350
"Interpretation: Commission Guidance Regarding Management's Discussion and
Analysis of Financial Condition and Results of Operations" dated December 29,
2003.
In response to this comment, the Company has in the 2005 10-K expanded its
discussion of liquidity to include a comprehensive discussion of cash flow from
investing activities and cash flow from financing activities. See the attached
excerpt from the 2005 10-K attached hereto as Exhibit B.
EXECUTIVE COMPENSATION, PAGE 26
Comment No. 11
We note your response to prior comment 27. Please tell us the section and page
in the proxy statement where you describe the terms of the Mr. Rassman's
employment agreement, and the bonus and other compensation plans for the
executive officers and directors. We note the compensation committee is
responsible for administering the following plans: Toll Brothers, Inc. Cash
Bonus Plan, the Toll Brothers, Inc. Executive Officer Cash Bonus Plan, the Toll
Brothers, Inc. Stock Award Deferral Plan, the Amended and Restated Stock Option
Plan (1986), the Key Executives and Non-Employee Directors Stock Option Plan
(1993), the Stock Option and Incentive Plan (1995), the Stock Incentive Plan
(1998), the Toll Brothers, Inc. Stock Award Deferral Plan and the Supplemental
Executive Retirement Plan. In future filings, please consider organizing your
disclosure under separate headings for each agreement and plan.
The material terms of the Company's agreement with Mr. Rassman are described on
page 24 of the Company's proxy statement for its 2005 Annual Meeting of
Stockholders. See footnote three to the "Executive Compensation" table. The
compensation of the Company's directors is described on pages eight and nine of
the Company's proxy statement for its 2005 Annual Meeting of Stockholders.
Finally, the compensation of the Company's executive officers is described on
pages 23-27 and 29-32 of the Company's proxy statement for its 2005 Annual
Meeting of Stockholders.
Pamela A. Long
January 13, 2006
Page 9
The Company will in future filings review the presentation of its various
benefit plans and agreements and consider organizing its disclosure under
separate headings for each agreement and plan.
CERTAIN TRANSACTIONS, PAGE 26
Comment No. 12
We note your response to prior comment 29. Please provide us your analysis of
why these agreements are not material contracts required to be filed under Item
601(b)(l0)(A) of Regulation S-K.
Item 601(b)(10)(ii)(A) generally requires the filing of any contract to which a
registrant's directors, officers or security holders are a party. A registrant
is not required to file such a contract, however, if the agreement is
"immaterial in amount or significance." Item 601(b)(10)(ii). The Company
considers its transactions with Toll Brothers Realty Trust Group (the "Trust")
to be immaterial in amount and significance when fees received in connection
with such transactions are viewed against the Company's total revenues and
income before income taxes. For the Company's fiscal year ended October 31,
2004, the Company had $3.86 billion of total revenues and income before income
taxes of $647.4 million. As indicated in the Company's consolidated financial
statements for such fiscal year, the Company received $1.7 million of fee income
from the Trust, which amount represents approximately 0.04% of total revenues
and approximately 0.27% of income before income taxes. For the Company's fiscal
year ended October 31, 2005, the Company had $5.79 billion of total revenues and
income before income taxes of $1.32 billion. As indicated in the Company's
consolidated financial statements for such fiscal year, the Company received
$2.2 million of fee income from the Trust, which amount represents approximately
0.04% of total revenues and approximately 0.17% of income before income taxes.
CONSOLIDATED STATEMENTS OF CASH FLOWS, PAGE F-4
Comment No. 13
We note your response to comment 31. We do not believe that it is appropriate to
restate your statement of cash flows and provide the appropriate APB 20
disclosures in future filings. In this regard, we note that the amount of
distributions from unconsolidated is quantitatively material to your cash flows
from operating activities. Therefore, revise your historical financial
statements to classify the distributions you received from your equity investees
as inflows of cash from your operating activities and include the appropriate
APB 20 disclosures.
Consistent with this comment and subsequent informal discussions with the Staff,
the Company has in the 2005 10-K reclassified distributions of earnings it
received from equity investees as inflows of cash from operating activities. The
Company has provided separate footnote disclosure of this reclassification, as
well as of the reclassification of the Company's investments in auction rate
securities from "cash and cash equivalents" to "marketable securities." As also
discussed with the Staff, E&Y has concurred with the Company's assessment that
these reclassifications are not material and do not require a restatement of the
Company's financial statements for any prior fiscal period, in that such report
does not reference the reclassifications in that such report does not reference
the reclassifications and E&Y's report included in the 2005 10-K is consistent
with such concurrence. See the attached excerpts from the financial statements
included in the 2005 10-K attached hereto as Exhibit C.
Pamela A. Long
January 13, 2006
Page 10
STOCKHOLDERS' EQUITY, CHANGES IN STOCKHOLDERS' EQUITY, PAGE F-12
Comment No. 14
We note your roll-forward table in response to comment 34. Expand your Changes
in Stockholder' Equity table in Note 6 to separately disclose proceeds from
stock-based benefit plans and income tax benefit related to options to allow
your readers to more readily understand the components of your equity in
relation to the amounts in your cash flow statement.
The Company believes that the disclosure contained in Note 6, "Stockholders
Equity - Changes in Stockholders Equity" is appropriate. The tax benefit
received from the exercise of stock options is appropriately grouped in the
"Changes in Stockholders Equity" section on the line entitled "Exercise of stock
options." The tax benefit of $18.2 million is directly derived from the exercise
of options.
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,
/s/ Mark K. Kessler
-------------------------------------------
Mark K. Kessler
For WOLF, BLOCK, SCHORR and SOLIS-COHEN LLP
Enclosures
MKK/ka
cc: Don H. Liu, General Counsel
Joseph R. Sicree, Chief Accounting Officer
Martin Connor, Ernst & Young LLP