NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Toll Brothers, Inc. (the “Company,” “we,” “us,” or “our”), a Delaware corporation, and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Investments in 50% or less owned partnerships and affiliates are accounted for using the equity method unless it is determined that we have effective control of the entity, in which case we would consolidate the entity.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. The
October 31, 2016
balance sheet amounts and disclosures included herein have been derived from our
October 31, 2016
audited financial statements. Since the accompanying condensed consolidated financial statements do not include all the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements, we suggest that they be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended
October 31, 2016
(“2016 Form 10-K”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, necessary to present fairly our financial position as of
January 31, 2017
; the results of our operations for the
three
-month periods ended
January 31, 2017
and
2016
; and our cash flows for the
three
-month periods ended
January 31, 2017
and
2016
. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year.
Acquisition
In November 2016, we acquired substantially all of the assets and operations of Coleman Real Estate Holdings, LLC (“Coleman”) for
$85.2 million
in cash. The assets acquired were primarily inventory, including approximately
1,750
home sites owned or controlled through land purchase agreements. As part of the acquisition, we assumed contracts to deliver
128
homes with an aggregate value of
$38.8 million
. The average price of the undelivered homes at the date of acquisition was approximately
$303,000
. Our selling community count increased by
15
communities at the acquisition date. The acquisition of Coleman’s assets and operations was not material to our results of operations or financial condition.
Recent Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customers’ Accounting for Fees Paid in a Cloud Computing Arrangement” (“ASU 2015-05”). ASU 2015-05 provides guidance for a customer to determine whether a cloud computing arrangement contains a software license or should be accounted for as a service contract. We adopted ASU 2015-05 on November 1, 2016, and we elected to adopt the standard prospectively. The adoption did not have a material effect on our consolidated financial statements or disclosures.
In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis” (“ASU 2015-02”), which eliminates the deferral granted to investment companies from applying the variable interest entities (“VIEs”) guidance and makes targeted amendments to the current consolidation guidance. The new guidance applies to all entities involved with limited partnerships or similar entities and will require re-evaluation of these entities under the revised guidance which may change previous consolidation conclusions. We adopted ASU 2015-02 on November 1, 2016, and the adoption did not have a material effect on our consolidated financial statements or disclosures.
In February 2017, the FASB issued ASU No. 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” (“ASU 2017-05”). ASU 2017-05 is meant to clarify the scope of the original guidance within Subtopic 610-20 that was issued in connection with ASU 2014-09, as defined below, which provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. ASU 2017-05 additionally added guidance for partial sales of nonfinancial assets. ASU 2017-05 is effective for our fiscal year beginning November 1, 2018 and we are required to adopt ASU 2017-05 concurrent with the adoption of ASU 2014-09. We are currently evaluating the impact that the adoption of ASU 2017-05 may have on our consolidated financial statements and disclosures.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”), which provides a more robust framework for determining whether transactions should be accounted for as acquisitions of assets (or disposals) or businesses. ASU 2017-01 is effective for our fiscal year beginning
November 1, 2018. We are currently evaluating the impact that the adoption of ASU 2017-01 may have on our consolidated financial statements and disclosures.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes and forfeitures, statutory tax withholding requirements and classification on the statement of cash flows. ASU 2016-09 is effective for our fiscal year beginning November 1, 2017. We are currently evaluating the impact that the adoption of ASU 2016-09 may have on our consolidated financial statements and disclosures.
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”), which requires an entity to recognize assets and liabilities on the balance sheet for the rights and obligations created by leased assets and provide additional disclosures. ASU 2016-02 is effective for our fiscal year beginning November 1, 2019, and, at that time, we will adopt the new standard using a modified retrospective approach. We are currently evaluating the impact that the adoption of ASU 2016-02 may have on our consolidated financial statements and disclosures.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. ASU 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition,” and most industry-specific guidance. ASU 2014-09 also supersedes some cost guidance included in ASC Subtopic 605-35, “Revenue Recognition—Construction-Type and Production-Type Contracts.” The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under the current guidance. These judgments and estimates include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14 “Revenue from Contracts with Customers” (“ASU 2015-14”), which delays the effective date of ASU 2014-09 by one year. ASU 2014-09, as amended by ASU 2015-14, is effective for our fiscal year beginning November 1, 2018, and, at that time, we expect to adopt the new standard under the modified retrospective approach. We do not believe the adoption of ASU 2014-09 will have a material impact on the amount or timing of our home building revenues. We are continuing to evaluate the impact the adoption of ASU 2014-09 may have on other aspects of our business and on our consolidated financial statements and disclosures.
2. Inventory
Inventory at
January 31, 2017
and
October 31, 2016
consisted of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
January 31,
2017
|
|
October 31,
2016
|
Land controlled for future communities
|
$
|
72,075
|
|
|
$
|
71,729
|
|
Land owned for future communities
|
1,620,763
|
|
|
1,884,146
|
|
Operating communities
|
5,847,136
|
|
|
5,398,092
|
|
|
$
|
7,539,974
|
|
|
$
|
7,353,967
|
|
Operating communities include communities offering homes for sale, communities that have sold all available home sites but have not completed delivery of the homes, communities that were previously offering homes for sale but are temporarily closed due to business conditions or non-availability of improved home sites and that are expected to reopen within 12 months of the end of the fiscal period being reported on, and communities preparing to open for sale. The carrying value attributable to operating communities includes the cost of homes under construction, land and land development costs, the carrying cost of home sites in current and future phases of these communities, and the carrying cost of model homes.
Communities that were previously offering homes for sale but are temporarily closed due to business conditions, do not have any remaining backlog and are not expected to reopen within 12 months of the end of the fiscal period being reported on have been classified as land owned for future communities.
Information regarding the classification, number, and carrying value of these temporarily closed communities, as of the dates indicated, is provided in the table below:
|
|
|
|
|
|
|
|
|
|
January 31,
2017
|
|
October 31,
2016
|
Land owned for future communities:
|
|
|
|
Number of communities
|
13
|
|
|
18
|
|
Carrying value (in thousands)
|
$
|
103,607
|
|
|
$
|
123,936
|
|
Operating communities:
|
|
|
|
Number of communities
|
6
|
|
|
3
|
|
Carrying value (in thousands)
|
$
|
39,237
|
|
|
$
|
8,523
|
|
The amounts we have provided for inventory impairment charges and the expensing of costs that we believed not to be recoverable, for the periods indicated, are shown in the table below (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
Three months ended January 31,
|
|
2017
|
|
2016
|
Land controlled for future communities
|
$
|
661
|
|
|
$
|
381
|
|
Land owned for future communities
|
|
|
|
300
|
|
Operating communities
|
4,000
|
|
|
600
|
|
|
$
|
4,661
|
|
|
$
|
1,281
|
|
See Note 11, “Fair Value Disclosures,” for information regarding the number of operating communities that we tested for potential impairment, the number of operating communities in which we recognized impairment charges, the amount of impairment charges recognized, and the fair values of those communities, net of impairment charges.
At
January 31, 2017
, we evaluated our land purchase contracts to determine whether any of the selling entities were VIEs and, if they were, whether we were the primary beneficiary of any of them. Under these land purchase contracts, we do not possess legal title to the land; our risk is generally limited to deposits paid to the sellers and predevelopment costs incurred; and the creditors of the sellers generally have no recourse against us. At
January 31, 2017
, we determined that
82
land purchase contracts, with an aggregate purchase price of
$964.4 million
, on which we had made aggregate deposits totaling
$46.7 million
, were VIEs, and that we were not the primary beneficiary of any VIE related to our land purchase contracts. At
October 31, 2016
, we determined that
78
land purchase contracts, with an aggregate purchase price of
$987.3 million
, on which we had made aggregate deposits totaling
$44.1 million
, were VIEs and that we were not the primary beneficiary of any VIE related to our land purchase contracts.
Interest incurred, capitalized, and expensed, for the periods indicated, was as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
Three months ended January 31,
|
|
2017
|
|
2016
|
Interest capitalized, beginning of period
|
$
|
369,419
|
|
|
$
|
373,128
|
|
Interest incurred
|
41,774
|
|
|
40,107
|
|
Interest expensed to cost of revenues
|
(27,928
|
)
|
|
(32,023
|
)
|
Write-off against other income
|
(42
|
)
|
|
(275
|
)
|
Interest capitalized on investments in unconsolidated entities
|
(2,394
|
)
|
|
(1,007
|
)
|
Previously capitalized interest transferred to investments in unconsolidated entities
|
(4,030
|
)
|
|
—
|
|
Previously capitalized interest on investments in unconsolidated entities transferred to inventory
|
81
|
|
|
|
|
Interest capitalized, end of period
|
$
|
376,880
|
|
|
$
|
379,930
|
|
3. Investments in Unconsolidated Entities
We have investments in various unconsolidated joint venture entities. These joint ventures (i) develop land for the joint venture participants and for sale to outside builders (“Land Development Joint Ventures”); (ii) develop for-sale homes (“Home Building Joint Ventures”); (iii) develop luxury for-rent residential apartments, commercial space, and a hotel (“Rental Property Joint Ventures”), which includes our investment in Toll Brothers Realty Trust (the “Trust”); and (iv) invest in distressed loans and
real estate and provide financing to residential builders and developers for the acquisition and development of land and home sites (“Gibraltar Joint Ventures”).
The table below provides information as of
January 31, 2017
, regarding active joint ventures that we are invested in, by joint venture category ($ amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
Development
Joint Ventures
|
|
Home Building
Joint Ventures
|
|
Rental Property
Joint Ventures
|
|
Gibraltar
Joint Ventures
|
|
Total
|
Number of unconsolidated entities
|
7
|
|
4
|
|
13
|
|
4
|
|
28
|
Investment in unconsolidated entities
|
$
|
300,124
|
|
|
$
|
130,487
|
|
|
$
|
149,599
|
|
|
$
|
21,486
|
|
|
$
|
601,696
|
|
Number of unconsolidated entities with funding commitments by the Company
|
5
|
|
1
|
|
3
|
|
1
|
|
|
10
|
Company’s remaining funding commitment to unconsolidated entities
|
$
|
43,794
|
|
|
$
|
8,300
|
|
|
$
|
3,850
|
|
|
$
|
9,621
|
|
|
$
|
65,565
|
|
Certain joint ventures in which we have investments obtained debt financing to finance a portion of their activities. The table below provides information at
January 31, 2017
, regarding the debt financing obtained by category ($ amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
Development
Joint Ventures
|
|
Home Building
Joint Ventures
|
|
Rental Property
Joint Ventures
|
|
Total
|
Number of joint ventures with debt financing
|
3
|
|
1
|
|
11
|
|
15
|
Aggregate loan commitments
|
$
|
275,000
|
|
|
$
|
236,500
|
|
|
$
|
1,002,866
|
|
|
$
|
1,514,366
|
|
Amounts borrowed under loan commitments
|
$
|
237,626
|
|
|
$
|
57,548
|
|
|
$
|
708,174
|
|
|
$
|
1,003,348
|
|
More specific and/or recent information regarding our investments in, advances to, and future commitments to these entities is provided below.
Land Development Joint Ventures
During the
three
months ended
January 31, 2017
, our Land Development Joint Ventures sold approximately
303
lots and recognized revenues of
$56.3 million
. We acquired
102
of these lots for
$25.0 million
. Our share of the joint venture income from the lots we acquired of
$3.7 million
was deferred by reducing our basis in those lots acquired. During the
three
months ended
January 31, 2016
, our Land Development Joint Ventures sold approximately
83
lots and recognized revenues of
$12.6 million
. We acquired
9
of these lots for
$0.8 million
. Our share of the income from the lots we acquired of
$0.2 million
was deferred by reducing our basis in those lots acquired.
In the fourth quarter of fiscal 2015, we entered into a joint venture with an unrelated party to purchase and develop a parcel of land located in Irvine, California. The joint venture expects to develop approximately
840
home sites on this land in multiple phases. We have a
50%
interest in this joint venture. The joint venture intends to develop the property and sell approximately
50%
of the value of the home sites to each of the members of the joint venture. At
January 31, 2017
, we had an investment of
$170.2 million
in this joint venture and were committed to make additional contributions to this joint venture of up to
$12.5 million
. To finance a portion of the land purchase, the joint venture entered into a
$320.0 million
purchase money mortgage with the seller. In December 2016, the joint venture entered into a
$200.0 million
building loan agreement and each member made a capital contribution of
$80.0 million
. A portion of the proceeds from the building loan in addition to the capital contributions made by the members were used to repay the purchase money mortgage. At
January 31, 2017
, this joint venture had
$186.7 million
of outstanding borrowings under the building loan.
Home Building Joint Ventures
Our Home Building Joint Ventures are delivering homes in New York City and Jupiter, Florida. During the
three
months ended
January 31, 2017
, our Home Building Joint Ventures delivered
87
homes with a sales value of
$217.4 million
. During the
three
months ended
January 31, 2016
, our Home Building Joint Ventures delivered
19
homes with a sales value of
$16.0 million
.
In December 2016, we entered into a joint venture with an unrelated party to complete the development of a high-rise luxury condominium project in New York City. Before the formation of this joint venture, we acquired the property and incurred approximately
$176.0 million
of land and land development costs. The joint venture, in which we have a
20%
interest, purchased the property from us at our cost, a portion of which was financed by a
$236.5 million
construction loan obtained by the joint venture. From the sale and financing, we received proceeds of
$148.0 million
, of which
$106.1 million
had been held in escrow by our captive title company at
October 31, 2016
and was included in “Receivables, prepaid expenses, and other
assets” on our Condensed Consolidated Balance Sheet at
October 31, 2016
. At
January 31, 2017
, we had an investment of
$30.0 million
in this joint venture and the joint venture had
$57.5 million
of outstanding borrowings under the construction loan.
Rental Property Joint Ventures
As of
January 31, 2017
, our Rental Property Joint Ventures owned
10
for-rent apartment projects, which are located in the metro Boston to metro Washington, D.C. corridor. At
January 31, 2017
, our joint ventures had approximately
2,950
units that were occupied or ready for occupancy,
600
units in the lease-up stage, and
1,400
units under active development. In addition, we either own, have under contract, or under a letter of intent approximately
4,910
units, which are in the planning stage. We intend to develop these units with joint venture partners in the future.
In the second quarter of fiscal 2016, we entered into a joint venture with an unrelated party to develop a
525
-unit luxury for-rent residential apartment building near Union Station in Washington, D.C. Prior to the formation of this joint venture, we acquired the land, through a 100%-owned entity, and incurred
$35.1 million
of land and land development costs. Our partner acquired a
50%
interest in this entity for
$20.2 million
and we subsequently received cash of
$18.7 million
to align the capital accounts of each of the partners of the joint venture. In the third quarter of fiscal 2016, as a result of the sale of
50%
of our interest to our partner, we recognized a gain of
$3.0 million
. Due to our continued involvement in the joint venture through our ownership interest, we deferred
$3.0 million
of the gain realized on the sale. At
January 31, 2017
, we had an investment of
$29.1 million
in this joint venture and expect to make additional investments of approximately
$0.8 million
for the development of this project. In November 2016, the joint venture entered into a
$130.6 million
construction loan agreement. At
January 31, 2017
, there were
no
outstanding borrowings under the construction loan agreement.
In the fourth quarter of fiscal 2016, we entered into a joint venture with an unrelated party to develop a
390
-unit luxury for-rent residential apartment building in a Boston, Massachusetts suburb, on land that we were under contract to purchase. We have a
25%
interest in this joint venture. In the fourth quarter of fiscal 2016, the joint venture entered into a
$91.0 million
construction loan agreement with a bank to finance the development of this project. At
January 31, 2017
, there were
no
outstanding borrowings under the construction loan agreement. At
January 31, 2017
, we had an investment of
$9.3 million
in this joint venture and expect to make additional investments of approximately
$1.7 million
for the development of this project.
We have an investment in a joint venture in which we have a
50%
interest to develop a luxury hotel in conjunction with a high-rise luxury condominium project in New York City being developed by a related Home Building Joint Venture. At
January 31, 2017
, we had invested
$40.5 million
in this joint venture. In November 2014, this joint venture, along with the related Home Building Joint Venture, entered into a
$160.0 million
construction loan agreement to complete the construction of the condominiums and the hotel. In December 2016, this joint venture entered into an
$80.0 million
,
three
-year term loan agreement. The proceeds from the term loan, along with proceeds from the closing of condominium units at the Home Building Joint Venture, were used to repay the construction loan. At
January 31, 2017
, this joint venture had
$80.0 million
of outstanding borrowings under the term loan.
In 1998, we formed the Trust to invest in commercial real estate opportunities. The Trust is effectively owned one-third by us; one-third by current and former members of our senior management; and one-third by an unrelated party. As of
January 31, 2017
, our investment in the Trust was
zero
as cumulative distributions received from the Trust have been in excess of the carrying amount of our net investment. We provide development, finance, and management services to the Trust and recognized fees under the terms of various agreements in the amount of
$0.4 million
in both the
three
-month periods ended
January 31, 2017
and
2016
. In the first quarter of fiscal
2016
, we received a
$2.0 million
distribution from the Trust, which is included in “Income from unconsolidated entities” in our Condensed Consolidated Statement of Operations and Comprehensive Income.
No
distributions were received from the Trust in the first quarter of fiscal 2017.
Gibraltar Joint Ventures
In the second quarter of fiscal 2016, we, through our wholly owned subsidiary, Gibraltar Capital and Asset Management, LLC (“Gibraltar”), entered into
two
ventures with an institutional investor to provide builders and developers with land banking and venture capital. We have a
25%
interest in these ventures. These ventures will finance builders’ and developers’ acquisition and development of land and home sites and pursue other complementary investment strategies. We may invest up to
$100.0 million
in these ventures. As of
January 31, 2017
, we had an investment of
$10.5 million
in these ventures.
In addition, in the second quarter of fiscal 2016, we entered into a separate venture with the same institutional investor to purchase, from Gibraltar, certain foreclosed real estate owned (“REO”) and distressed loans for
$24.1 million
. We have a
24%
interest in this venture. At
January 31, 2017
, we have a
$5.0 million
investment in this venture and are committed to invest an additional
$9.6 million
, if necessary.
Guarantees
The unconsolidated entities in which we have investments generally finance their activities with a combination of partner equity and debt financing. In some instances, we and our partners have guaranteed debt of certain unconsolidated entities. These guarantees may include any or all of the following: (i) project completion guarantees, including any cost overruns; (ii) repayment guarantees, generally covering a percentage of the outstanding loan; (iii) carry cost guarantees, which cover costs such as interest, real estate taxes, and insurance; (iv) an environmental indemnity provided to the lender that holds the lender harmless from and against losses arising from the discharge of hazardous materials from the property and non-compliance with applicable environmental laws; and (v) indemnification of the lender from “bad boy acts” of the unconsolidated entity.
In some instances, the guarantees provided in connection with loans to an unconsolidated entity are joint and several. In these situations, we generally have a reimbursement agreement with our partner that provides that neither party is responsible for more than its proportionate share or agreed upon share of the guarantee; however, if a joint venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, we may be liable for more than our proportionate share.
We believe that, as of
January 31, 2017
, in the event we become legally obligated to perform under a guarantee of an obligation of an unconsolidated entity due to a triggering event, the collateral in such entity should be sufficient to repay a significant portion of the obligation. If it is not, we and our partners would need to contribute additional capital to the venture. At
January 31, 2017
, certain unconsolidated entities have loan commitments aggregating
$1.25 billion
, of which, if the full amount of the debt obligations were borrowed, we estimate
$206.5 million
to be our maximum exposure related to repayment and carry cost guarantees. At
January 31, 2017
, the unconsolidated entities had borrowed an aggregate of
$747.7 million
, of which we estimate
$147.0 million
to be our maximum exposure related to repayment and carry cost guarantees. The terms of these guarantees generally range from
3 months
to
46 months
. These maximum exposure estimates do not take into account any recoveries from the underlying collateral or any reimbursement from our partners.
In addition, we have guaranteed approximately
$4.0 million
of ground lease payments and insurance deductibles for
three
joint ventures.
As of
January 31, 2017
, the estimated aggregate fair value of the guarantees provided by us related to debt and other obligations of certain unconsolidated entities was approximately
$5.6 million
. We have not made payments under any of the guarantees, nor have we been called upon to do so.
Variable Interest Entities
At
January 31, 2017
and
October 31, 2016
, we determined that
five
and
three
, respectively, of our joint ventures were VIEs under the guidance of ASC 810, “Consolidation.” However, we have concluded that we were not the primary beneficiary of these VIEs because the power to direct the activities of such VIEs that most significantly impact their performance was either shared by us and such VIEs’ other partners or such activities were controlled by our partner. For VIEs where the power to direct significant activities is shared, business plans, budgets, and other major decisions are required to be unanimously approved by all members. Management and other fees earned by us are nominal and believed to be at market rates, and there is no significant economic disproportionality between us and the other members. The information presented below regarding the investments, commitments, and guarantees in unconsolidated entities deemed to be VIEs is also included in the information provided above.
At
January 31, 2017
and
October 31, 2016
, our investments in the unconsolidated joint ventures deemed to be VIEs, which is included in “Investments in unconsolidated entities” in the accompanying Condensed Consolidated Balance Sheets, totaled
$21.5 million
and
$16.4 million
, respectively. At
January 31, 2017
, the maximum exposure of loss to our investments in the unconsolidated joint ventures that are VIEs was limited to our investments in the unconsolidated VIEs, except with regard to
$9.6 million
of additional commitments to the VIEs. At
October 31, 2016
, the maximum exposure of loss to our investments in the unconsolidated joint ventures that are VIEs was limited to our investments in the unconsolidated VIEs, except with regard to
$70.0 million
of loan guarantees and
$1.4 million
of additional commitments to the VIEs. Of our potential exposure for these loan guarantees at
October 31, 2016
,
$14.3 million
is related to repayment and carry cost guarantees.
Joint Venture Condensed Financial Information
The Condensed Balance Sheets, as of the dates indicated, and the Condensed Statements of Operations and Comprehensive Income, for the periods indicated, for the unconsolidated entities in which we have an investment are included below (in thousands):
Condensed Balance Sheets:
|
|
|
|
|
|
|
|
|
|
January 31,
2017
|
|
October 31,
2016
|
Cash and cash equivalents
|
$
|
110,665
|
|
|
$
|
130,794
|
|
Inventory
|
1,177,928
|
|
|
1,074,888
|
|
Loans receivable, net
|
26,684
|
|
|
—
|
|
Non-performing loan portfolio
|
3,835
|
|
|
4,298
|
|
Rental properties
|
675,069
|
|
|
621,615
|
|
Rental properties under development
|
312,645
|
|
|
302,632
|
|
Real estate owned (“REO”)
|
84,471
|
|
|
87,226
|
|
Other assets
|
169,064
|
|
|
175,805
|
|
Total assets
|
$
|
2,560,361
|
|
|
$
|
2,397,258
|
|
Debt
|
$
|
1,008,011
|
|
|
$
|
1,164,883
|
|
Other liabilities
|
132,829
|
|
|
152,881
|
|
Members’ equity
|
1,322,829
|
|
|
980,354
|
|
Noncontrolling interest
|
96,692
|
|
|
99,140
|
|
Total liabilities and equity
|
$
|
2,560,361
|
|
|
$
|
2,397,258
|
|
Company’s net investment in unconsolidated entities (1)
|
$
|
601,696
|
|
|
$
|
496,411
|
|
|
|
(1)
|
Differences between our net investment in unconsolidated entities and our underlying equity in the net assets of the entities are primarily a result of the acquisition price of an investment in a Land Development Joint Venture in fiscal 2012 that was in excess of our pro rata share of the underlying equity; impairments related to our investment in unconsolidated entities; interest capitalized on our investments; the estimated fair value of the guarantees provided to the joint ventures; gains recognized from the sale of our ownership interests; and distributions from entities in excess of the carrying amount of our net investment.
|
Condensed Statements of Operations and Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
Three months ended January 31,
|
|
2017
|
|
2016
|
Revenues
|
$
|
295,702
|
|
|
$
|
42,486
|
|
Cost of revenues
|
165,706
|
|
|
35,513
|
|
Other expenses
|
21,134
|
|
|
9,307
|
|
Total expenses
|
186,840
|
|
|
44,820
|
|
Gain on disposition of loans and REO
|
8,886
|
|
|
25,983
|
|
Income from operations
|
117,748
|
|
|
23,649
|
|
Other income
|
2,586
|
|
|
1,005
|
|
Income before income taxes
|
120,334
|
|
|
24,654
|
|
Income tax provision
|
3,827
|
|
|
—
|
|
Net income including earnings from noncontrolling interests
|
116,507
|
|
|
24,654
|
|
Less: income attributable to noncontrolling interest
|
(2,080
|
)
|
|
(11,610
|
)
|
Net income attributable to controlling interest
|
114,427
|
|
|
13,044
|
|
Other comprehensive income
|
—
|
|
|
87
|
|
Total comprehensive income
|
$
|
114,427
|
|
|
$
|
13,131
|
|
Company’s equity in earnings of unconsolidated entities (2)
|
$
|
46,445
|
|
|
$
|
8,638
|
|
|
|
(2)
|
Differences between our equity in earnings of unconsolidated entities and the underlying net income of the entities are primarily a result of a basis difference of an acquired joint venture interest; distributions from entities in excess of the carrying amount of our net investment; recoveries of previously incurred charges; unrealized gains on our retained joint venture interests; and our share of the entities’ profits related to home sites purchased by us which reduces our cost basis of the home sites acquired.
|
4. Receivables, Prepaid Expenses, and Other Assets
Receivables, prepaid expenses, and other assets at
January 31, 2017
and
October 31, 2016
, consisted of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
January 31, 2017
|
|
October 31, 2016
|
Expected recoveries from insurance carriers and others
|
$
|
164,510
|
|
|
$
|
165,696
|
|
Improvement cost receivable
|
91,910
|
|
|
85,627
|
|
Escrow cash held by our captive title company
|
40,811
|
|
|
138,633
|
|
Property held for rental development
|
112,958
|
|
|
81,693
|
|
Investment in foreclosed real estate owned
|
10,604
|
|
|
11,552
|
|
Prepaid expenses
|
20,794
|
|
|
25,659
|
|
Other
|
71,387
|
|
|
73,898
|
|
|
$
|
512,974
|
|
|
$
|
582,758
|
|
5. Loans Payable, Senior Notes, and Mortgage Company Loan Facility
Loans Payable
At
January 31, 2017
and
October 31, 2016
, loans payable consisted of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
January 31,
2017
|
|
October 31,
2016
|
Senior unsecured term loan
|
$
|
500,000
|
|
|
$
|
500,000
|
|
Credit facility borrowings
|
250,000
|
|
|
250,000
|
|
Loans payable – other
|
131,537
|
|
|
122,809
|
|
Deferred issuance costs
|
(1,643
|
)
|
|
(1,730
|
)
|
|
$
|
879,894
|
|
|
$
|
871,079
|
|
Senior Unsecured Term Loan
On February 3, 2014, we entered into a
five
-year senior,
$485.0 million
, unsecured term loan facility (the “Term Loan Facility”) with a syndicate of banks. We borrowed the full amount of the Term Loan Facility on February 3, 2014. In October 2014, we increased the Term Loan Facility by
$15.0 million
and borrowed the full amount of the increase. The Term Loan Facility, as amended, matures on August 2, 2021. At
January 31, 2017
, the interest rate on borrowings was
2.18%
per annum.
We and substantially all of our
100%
-owned home building subsidiaries are guarantors under the Term Loan Facility. The Term Loan Facility contains substantially the same financial covenants as our New Credit Facility, as described below.
Credit Facility
On August 1, 2013, we entered into a
$1.035 billion
, unsecured,
five
-year revolving credit facility (the “Credit Facility”). The commitments under the Credit Facility were scheduled to expire on
August 1, 2018
. On May 19, 2016, we entered into a new
$1.215 billion
(subsequently increased to
$1.295 billion
), unsecured,
five
-year revolving credit facility (the “New Credit Facility”) with a syndicate of banks (the “Aggregate Credit Commitment”) and terminated the Credit Facility. The commitments under the New Credit Facility are scheduled to expire on
May 19, 2021
. We and substantially all of our
100%
-owned home building subsidiaries are guarantors under the New Credit Facility.
Under the terms of the New Credit Facility, at
January 31, 2017
, our maximum leverage ratio (as defined in the credit agreement) may not exceed
1.75
to 1.00, and we are required to maintain a minimum tangible net worth (as defined in the credit agreement) of no less than approximately
$2.64 billion
. Under the terms of the New Credit Facility, at
January 31, 2017
, our leverage ratio was approximately
0.79
to 1.00, and our tangible net worth was approximately
$4.28 billion
. Based upon the minimum tangible net worth requirement in the New Credit Facility, our ability to repurchase our common stock was limited to approximately
$2.34 billion
as of
January 31, 2017
.
At
January 31, 2017
, we had
$250.0 million
of outstanding borrowings under the New Credit Facility and had outstanding letters of credit of approximately
$112.4 million
under the New Credit Facility. Subsequent to
January 31, 2017
, we borrowed
an additional
$125.0 million
under the New Credit Facility. At
January 31, 2017
, the interest rate on borrowings under the New Credit Facility was
2.27%
per annum.
Loans Payable – Other
Our “Loans payable – other” primarily represent purchase money mortgages on properties we acquired that the seller had financed and various revenue bonds that were issued by government entities on our behalf to finance community infrastructure and our manufacturing facilities. At
January 31, 2017
, the weighted-average interest rate on “Loans payable – other” was
3.99%
per annum.
Senior Notes
At
January 31, 2017
, we, through Toll Brothers Finance Corp., had
eight
issues of Senior Notes outstanding with an aggregate principal amount of
$2.71 billion
.
Mortgage Company Loan Facility
In October 2016, TBI Mortgage
®
Company (“TBI Mortgage”), our wholly owned mortgage subsidiary, entered into a Mortgage Warehousing Agreement (“Warehousing Agreement”) with a syndicate of banks. The purpose of the Warehousing Agreement is to finance the origination of mortgage loans by TBI Mortgage, and the Warehousing Agreement is accounted for as a secured borrowing under ASC 860, “Transfers and Servicing.” The Warehousing Agreement provides for loan purchases up to
$150 million
, subject to certain sublimits. In addition, the Warehousing Agreement provides for an accordion feature under which TBI Mortgage may request that the aggregate commitments under the Warehousing Agreement be increased to an amount up to
$210 million
for a short period of time. The Warehousing Agreement expires on
October 27, 2017
, and borrowings thereunder bear interest at LIBOR plus
2.00%
per annum. At
January 31, 2017
, the interest rate on the Warehousing Agreement was
2.78%
per annum. At
January 31, 2017
and
October 31, 2016
, there was
$57.0 million
and
$210.0 million
, respectively, outstanding under the Warehousing Agreement, respectively, which are included in liabilities in our Condensed Consolidated Balance Sheets.
6. Accrued Expenses
Accrued expenses at
January 31, 2017
and
October 31, 2016
consisted of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
January 31,
2017
|
|
October 31,
2016
|
Land, land development, and construction
|
$
|
131,290
|
|
|
$
|
153,264
|
|
Compensation and employee benefits
|
138,680
|
|
|
138,282
|
|
Escrow liability
|
40,360
|
|
|
137,396
|
|
Self-insurance
|
124,100
|
|
|
126,431
|
|
Warranty
|
364,058
|
|
|
370,992
|
|
Deferred income
|
38,940
|
|
|
43,488
|
|
Interest
|
39,325
|
|
|
34,903
|
|
Commitments to unconsolidated entities
|
6,411
|
|
|
5,637
|
|
Other
|
56,938
|
|
|
61,907
|
|
|
$
|
940,102
|
|
|
$
|
1,072,300
|
|
As previously disclosed in Note 6, “Accrued Expenses” in our 2016 Form 10-K, we determined that we needed to make repairs in certain completed communities located in Pennsylvania and Delaware (which are in our Mid-Atlantic region) related to stucco and other water intrusion claims in older homes. Each quarter, we review and update where necessary our assumptions to the estimates used in determining our estimated liability for these claims. This review and update includes an analysis to determine an estimated number of claims likely to be received and the estimated costs to resolve any such claims. This analysis involves many factors including: the number of communities involved; the closing dates of the homes in each community; the number of claims received to date; our inspection of homes; an estimate of the number of homes we expect to repair; the type and cost of repairs that have been performed in each community; the estimated costs to remediate pending and future claims in each community; the expected recovery from our insurance carriers and others; and the amount of warranty and self-insurance reserves already recorded. Due to the degree of judgment required and the potential for variability in the underlying assumptions, it is reasonably possible that our actual costs could differ from those estimated, such differences could be material, and, therefore, we are unable to estimate the range of any such differences. Based upon our review at January 31, 2017, we determined that no adjustments to our previous estimates were needed.
At
January 31, 2017
and
October 31, 2016
, our estimated remaining liability to be expended for known and unknown stucco and other water intrusion claims was
$291.7 million
and
$298.0 million
, respectively, of which we expect to recover a total of approximately
$140.0 million
and
$141.7 million
, respectively, from outside insurance carriers and others.
We accrue for expected warranty costs at the time each home is closed and title and possession are transferred to the home buyer. Warranty costs are accrued based upon historical experience. The table below provides, for the periods indicated, a reconciliation of the changes in our warranty accrual (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
Three months ended January 31,
|
|
2017
|
|
2016
|
Balance, beginning of period
|
$
|
370,992
|
|
|
$
|
93,083
|
|
Additions – homes closed during the period
|
5,104
|
|
|
4,496
|
|
Addition – Coleman liabilities acquired
|
1,111
|
|
|
|
|
Increase in accruals for homes closed in prior years
|
1,694
|
|
|
2,453
|
|
Reclassification from other accruals
|
732
|
|
|
|
|
Charges incurred
|
(15,575
|
)
|
|
(9,371
|
)
|
Balance, end of period
|
$
|
364,058
|
|
|
$
|
90,661
|
|
7. Income Taxes
We recorded income tax provisions of
$39.4 million
and
$43.6 million
for the
three
months ended
January 31, 2017
and
2016
, respectively. The effective tax rate for the
three
months ended
January 31, 2017
was
35.9%
, compared to
37.4%
for the
three
months ended
January 31, 2016
. The income tax provisions for both periods included the provision for state income taxes and interest accrued on anticipated tax assessments, offset by tax benefits related to the utilization of domestic production activities deductions and other permanent differences.
We currently operate in
20
states and are subject to various state tax jurisdictions. We estimate our state tax liability based upon the individual taxing authorities’ regulations, estimates of income by taxing jurisdiction, and our ability to utilize certain tax-saving strategies. We estimate our rate for the full fiscal year
2017
for state income taxes will be
7.6%
. Our state income tax rate for the full fiscal year
2016
was
7.0%
.
For state tax purposes, due to past and projected losses in certain jurisdictions where we do not have carryback potential and/or cannot sufficiently forecast future taxable income, we recognized net cumulative valuation allowances against our state deferred tax assets of
$32.2 million
as of
January 31, 2017
and
October 31, 2016
.
At
January 31, 2017
, we had
$25.8 million
of gross unrecognized tax benefits, including interest and penalties. If these unrecognized tax benefits were to reverse in the future, they would have a beneficial impact on our effective tax rate at that time.
During the next 12 months, it is reasonably possible that our unrecognized tax benefits will change, but we are not able to provide a range of such change.
The possible changes would be principally due to the expiration of tax statutes, settlements with taxing jurisdictions, increases due to new tax positions taken, and the accrual of estimated interest and penalties.
8. Stock-Based Benefit Plans
We grant stock options and various types of restricted stock units to our employees and our nonemployee directors. Additionally, we have an employee stock purchase plan that allows employees to purchase our stock at a discount.
Information regarding the amount of total stock-based compensation expense and tax benefit recognized by us, for the periods indicated, is as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
Three months ended January 31,
|
|
2017
|
|
2016
|
Total stock-based compensation expense recognized
|
$
|
9,329
|
|
|
$
|
9,223
|
|
Income tax benefit recognized
|
$
|
3,653
|
|
|
$
|
3,555
|
|
At
January 31, 2017
and
October 31, 2016
, the aggregate unamortized value of outstanding stock-based compensation awards was approximately
$43.6 million
and
$27.0 million
, respectively.
9. Stock Repurchase Program
On May 23, 2016, our Board of Directors terminated a prior share repurchase program and authorized, under a new repurchase program, the repurchase of
20 million
shares of our common stock in open market transactions or otherwise for general
corporate purposes, including to obtain shares for the Company’s equity award and other employee benefit plans. The Board of Directors did not fix any expiration date for this repurchase program.
The table below provides, for the periods indicated, information about our share repurchase programs:
|
|
|
|
|
|
|
|
|
|
Three months ended January 31,
|
|
2017
|
|
2016
|
Number of shares purchased (in thousands)
|
557
|
|
|
4,770
|
|
Average price per share
|
$
|
27.33
|
|
|
$
|
31.48
|
|
Remaining authorization at January 31 (in thousands)
|
15,281
|
|
|
13,765
|
|
10. Income per Share Information
The table below provides, for the periods indicated, information pertaining to the calculation of income per share, common stock equivalents, weighted-average number of antidilutive options, and shares issued (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended January 31,
|
|
|
2017
|
|
2016
|
Numerator:
|
|
|
|
|
Net income as reported
|
|
$
|
70,416
|
|
|
$
|
73,180
|
|
Plus interest and costs attributable to 0.5% Exchangeable Senior Notes, net of income tax benefit
|
|
384
|
|
|
389
|
|
Numerator for diluted earnings per share
|
|
$
|
70,800
|
|
|
$
|
73,569
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
Basic weighted-average shares
|
|
162,588
|
|
|
174,205
|
|
Common stock equivalents (a)
|
|
1,971
|
|
|
2,328
|
|
Shares attributable to 0.5% Exchangeable Senior Notes
|
|
5,858
|
|
|
5,858
|
|
Diluted weighted-average shares
|
|
170,417
|
|
|
182,391
|
|
|
|
|
|
|
Other information:
|
|
|
|
|
Weighted-average number of antidilutive options and restricted stock units (b)
|
|
5,204
|
|
|
2,954
|
|
Shares issued under stock incentive and employee stock purchase plans
|
|
1,280
|
|
|
473
|
|
|
|
(a)
|
Common stock equivalents represent the dilutive effect of outstanding in-the-money stock options using the treasury stock method and shares expected to be issued under performance-based restricted stock units and nonperformance-based restricted stock units.
|
|
|
(b)
|
Weighted-average number of antidilutive options and restricted stock units are based upon the average closing price of our common stock on the NYSE for the period.
|
11. Fair Value Disclosures
Financial Instruments
The table below provides, as of the dates indicated, a summary of assets (liabilities) related to our financial instruments, measured at fair value on a recurring basis (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
Financial Instrument
|
|
Fair value
hierarchy
|
|
January 31,
2017
|
|
October 31, 2016
|
Mortgage Loans Held for Sale
|
|
Level 2
|
|
$
|
85,765
|
|
|
$
|
248,601
|
|
Forward Loan Commitments — Residential Mortgage Loans Held for Sale
|
|
Level 2
|
|
$
|
1,009
|
|
|
$
|
1,390
|
|
Interest Rate Lock Commitments (“IRLCs”)
|
|
Level 2
|
|
$
|
(3,917
|
)
|
|
$
|
(921
|
)
|
Forward Loan Commitments — IRLCs
|
|
Level 2
|
|
$
|
3,917
|
|
|
$
|
921
|
|
At
January 31, 2017
and
October 31, 2016
, the carrying value of cash and cash equivalents and restricted cash and investments approximated fair value.
Mortgage Loans Held for Sale
At the end of the reporting period, we determine the fair value of our mortgage loans held for sale and the forward loan commitments we have entered into as a hedge against the interest rate risk of our mortgage loans and commitments using the market approach to determine fair value.
The table below provides, as of the dates indicated, the aggregate unpaid principal and fair value of mortgage loans held for sale (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate unpaid
principal balance
|
|
Fair value
|
|
Excess/(Deficit)
|
At January 31, 2017
|
$
|
86,122
|
|
|
$
|
85,765
|
|
|
$
|
(357
|
)
|
At October 31, 2016
|
$
|
246,794
|
|
|
$
|
248,601
|
|
|
$
|
1,807
|
|
Inventory
We recognize inventory impairment charges based on the difference in the carrying value of the inventory and its fair value at the time of the evaluation. The fair value of the aforementioned inventory was determined using Level 3 criteria. See Note 1, “Significant Accounting Policies – Inventory,” in our
2016
Form 10-K for information regarding our methodology for determining fair value. The table below summarizes, for the periods indicated, the ranges of certain quantitative unobservable inputs utilized in determining the fair value of impaired operating communities:
|
|
|
|
|
|
|
Three months ended:
|
Selling price
per unit
($ in thousands)
|
|
Sales pace
per year
(in units)
|
|
Discount rate
|
Fiscal 2017:
|
|
|
|
|
|
January 31
|
692 - 880
|
|
4 - 12
|
|
16.3%
|
|
|
|
|
|
|
Fiscal 2016:
|
|
|
|
|
|
January 31
|
—
|
|
—
|
|
—
|
April 30
|
369 - 394
|
|
18 - 23
|
|
16.3%
|
July 31
|
—
|
|
—
|
|
—
|
October 31
|
—
|
|
—
|
|
—
|
The table below provides, for the periods indicated, the fair value of operating communities whose carrying value was adjusted and the amount of impairment charges recognized ($ amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired operating communities
|
Three months ended:
|
Number of
communities tested
|
|
Number of
communities
|
|
Fair value of
communities,
net of
impairment charges
|
|
Impairment charges recognized
|
Fiscal 2017:
|
|
|
|
|
|
|
|
January 31
|
57
|
|
2
|
|
$
|
8,372
|
|
|
$
|
4,000
|
|
|
|
|
|
|
|
|
$
|
4,000
|
|
Fiscal 2016:
|
|
|
|
|
|
|
|
January 31
|
43
|
|
2
|
|
$
|
1,713
|
|
|
$
|
600
|
|
April 30
|
41
|
|
2
|
|
$
|
10,103
|
|
|
6,100
|
|
July 31
|
51
|
|
2
|
|
$
|
11,714
|
|
|
1,250
|
|
October 31
|
59
|
|
2
|
|
$
|
1,126
|
|
|
415
|
|
|
|
|
|
|
|
|
$
|
8,365
|
|
Debt
The table below provides, as of the dates indicated, the book value and estimated fair value of our debt (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2017
|
|
October 31, 2016
|
|
Fair value
hierarchy
|
|
Book value
|
|
Estimated
fair value
|
|
Book value
|
|
Estimated
fair value
|
Loans payable (a)
|
Level 2
|
|
$
|
881,537
|
|
|
$
|
879,581
|
|
|
$
|
872,809
|
|
|
$
|
870,384
|
|
Senior notes (b)
|
Level 1
|
|
2,707,376
|
|
|
2,814,780
|
|
|
2,707,376
|
|
|
2,843,177
|
|
Mortgage company loan facility (c)
|
Level 2
|
|
57,040
|
|
|
57,040
|
|
|
210,000
|
|
|
210,000
|
|
|
|
|
$
|
3,645,953
|
|
|
$
|
3,751,401
|
|
|
$
|
3,790,185
|
|
|
$
|
3,923,561
|
|
|
|
(a)
|
The estimated fair value of loans payable was based upon contractual cash flows discounted at interest rates that we believed were available to us for loans with similar terms and remaining maturities as of the applicable valuation date.
|
|
|
(b)
|
The estimated fair value of our senior notes is based upon their market prices as of the applicable valuation date.
|
|
|
(c)
|
We believe that the carrying value of our mortgage company loan borrowings approximates their fair value.
|
12. Other Income – Net
The table below provides the significant components of other income – net (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
Three months ended January 31,
|
|
2017
|
|
2016
|
Interest income
|
$
|
941
|
|
|
$
|
404
|
|
Income from ancillary businesses
|
2,297
|
|
|
3,729
|
|
Gibraltar
|
(62
|
)
|
|
828
|
|
Management fee income from unconsolidated entities
|
4,289
|
|
|
2,107
|
|
Retained customer deposits
|
1,746
|
|
|
2,113
|
|
Income from land sales
|
3,559
|
|
|
3,998
|
|
Other
|
(67
|
)
|
|
541
|
|
Total other income – net
|
$
|
12,703
|
|
|
$
|
13,720
|
|
In the
three
months ended
January 31, 2016
, our security monitoring business recognized a gain of
$1.6 million
from a bulk sale of security monitoring accounts in fiscal 2015, which is included in income from ancillary businesses in the table above.
Income from ancillary businesses includes our mortgage, title, landscaping, security monitoring, and golf course and country club operations. The table below provides, for the periods indicated, revenues and expenses for our ancillary businesses (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
Three months ended January 31,
|
|
2017
|
|
2016
|
Revenues
|
$
|
28,528
|
|
|
$
|
24,869
|
|
Expenses
|
$
|
26,231
|
|
|
$
|
21,140
|
|
The table below provides, for the periods indicated, revenues and expenses recognized from land sales (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
Three months ended January 31,
|
|
2017
|
|
2016
|
Revenues
|
$
|
144,714
|
|
|
$
|
10,691
|
|
Expenses
|
(144,273
|
)
|
|
(6,693
|
)
|
Deferred gain recognized
|
3,118
|
|
|
—
|
|
Income from land sales
|
$
|
3,559
|
|
|
$
|
3,998
|
|
Land sale revenues for the
three
months ended
January 31, 2017
includes
$143.3 million
related to an in substance real estate sale transaction which resulted in a new Home Building Joint Venture in which we have a
20%
interest. No gain or loss was realized on the sale. See Note 3, “Investments in Unconsolidated Entities,” for more information on this transaction.
13. Commitments and Contingencies
Legal Proceedings
We are involved in various claims and litigation arising principally in the ordinary course of business. We believe that adequate provision for resolution of all current claims and pending litigation has been made for probable losses. We believe that the disposition of these matters will not have a material adverse effect on our results of operations and liquidity or on our financial condition.
Investments in Unconsolidated Entities
At
January 31, 2017
, we had investments in a number of unconsolidated entities, were committed to invest or advance additional funds, and had guaranteed a portion of the indebtedness and/or loan commitments of these entities. See Note 3, “Investments in Unconsolidated Entities,” for more information regarding our commitments to these entities.
Land Purchase Commitments
Generally, our purchase agreements to acquire land parcels do not require us to purchase those land parcels, although we, in some cases, forfeit any deposit balance outstanding if and when we terminate a purchase agreement. Information regarding our land purchase commitments, as of the dates indicated, is provided in the table below (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
January 31, 2017
|
|
October 31, 2016
|
Aggregate purchase commitments:
|
|
|
|
Unrelated parties
|
$
|
1,388,618
|
|
|
$
|
1,544,185
|
|
Unconsolidated entities that the Company has investments in
|
54,226
|
|
|
79,204
|
|
Total
|
$
|
1,442,844
|
|
|
$
|
1,623,389
|
|
Deposits against aggregate purchase commitments
|
$
|
70,502
|
|
|
$
|
65,299
|
|
Additional cash required to acquire land
|
1,372,342
|
|
|
1,558,090
|
|
Total
|
$
|
1,442,844
|
|
|
$
|
1,623,389
|
|
Amount of additional cash required to acquire land included in accrued expenses
|
$
|
16,985
|
|
|
$
|
18,266
|
|
In addition, we expect to purchase approximately
3,600
additional home sites over a number of years from several joint ventures in which we have interests; the purchase prices of these home sites will be determined at a future date.
At
January 31, 2017
, we also had purchase commitments to acquire land for apartment developments of approximately
$84.3 million
, of which we had outstanding deposits in the amount of
$4.4 million
.
We have additional land parcels under option that have been excluded from the aforementioned aggregate purchase amounts since we do not believe that we will complete the purchase of these land parcels and no additional funds will be required from us to terminate these contracts.
Surety Bonds and Letters of Credit
At
January 31, 2017
, we had outstanding surety bonds amounting to
$667.1 million
, primarily related to our obligations to governmental entities to construct improvements in our communities. We estimate that
$345.4 million
of work remains on these improvements. We have an additional
$137.7 million
of surety bonds outstanding that guarantee other obligations. We do not believe that it is probable that any outstanding bonds will be drawn upon.
At
January 31, 2017
, we had outstanding letters of credit of
$112.4 million
under our New Credit Facility. These letters of credit were issued to secure our various financial obligations, including insurance policy deductibles and other claims, land deposits, and security to complete improvements in communities in which we are operating. We do not believe that it is probable that any outstanding letters of credit will be drawn upon.
Backlog
At
January 31, 2017
, we had agreements of sale outstanding to deliver
5,145
homes with an aggregate sales value of
$4.35 billion
.
Mortgage Commitments
Information regarding our mortgage commitments, as of the dates indicated, is provided in the table below (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
January 31,
2017
|
|
October 31, 2016
|
Aggregate mortgage loan commitments:
|
|
|
|
IRLCs
|
$
|
352,279
|
|
|
$
|
255,647
|
|
Non-IRLCs
|
1,178,730
|
|
|
1,094,861
|
|
Total
|
$
|
1,531,009
|
|
|
$
|
1,350,508
|
|
Investor commitments to purchase:
|
|
|
|
IRLCs
|
$
|
352,279
|
|
|
$
|
255,647
|
|
Mortgage loans receivable
|
71,668
|
|
|
231,398
|
|
Total
|
$
|
423,947
|
|
|
$
|
487,045
|
|
14. Information on Segments
We operate in
two
segments: Traditional Home Building and Urban Infill. We build and sell detached and attached homes in luxury residential communities located in affluent suburban markets that cater to move-up, empty-nester, active-adult, age-qualified, and second-home buyers in the United States (“Traditional Home Building”). We also build and sell homes in urban infill markets through Toll Brothers City Living
®
(“City Living”).
We have determined that our Traditional Home Building operations operate in
five
geographic segments: North, Mid-Atlantic, South, West, and California. The states comprising each geographic segment are as follows:
North:
Connecticut, Illinois, Massachusetts, Michigan, Minnesota, New Jersey, and New York
Mid-Atlantic:
Delaware, Maryland, Pennsylvania, and Virginia
South:
Florida, North Carolina, and Texas
West:
Arizona, Colorado, Idaho, Nevada, and Washington
California:
California
Revenue and income (loss) before income taxes for each of our segments, for the periods indicated, were as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
Three months ended January 31,
|
|
2017
|
|
2016
|
Revenues:
|
|
|
|
Traditional Home Building:
|
|
|
|
North
|
$
|
145,638
|
|
|
$
|
120,818
|
|
Mid-Atlantic
|
184,051
|
|
|
169,808
|
|
South
|
142,196
|
|
|
146,798
|
|
West
|
211,133
|
|
|
137,258
|
|
California
|
219,776
|
|
|
216,903
|
|
Traditional Home Building
|
902,794
|
|
|
791,585
|
|
City Living
|
17,936
|
|
|
136,981
|
|
Total
|
$
|
920,730
|
|
|
$
|
928,566
|
|
|
|
|
|
Income (loss) before income taxes:
|
|
|
|
Traditional Home Building:
|
|
|
|
North
|
$
|
10,093
|
|
|
$
|
8,033
|
|
Mid-Atlantic
|
11,632
|
|
|
16,983
|
|
South
|
13,111
|
|
|
21,245
|
|
West
|
25,497
|
|
|
19,688
|
|
California
|
43,193
|
|
|
43,536
|
|
Traditional Home Building
|
103,526
|
|
|
109,485
|
|
City Living
|
43,102
|
|
|
43,680
|
|
Corporate and other
|
(36,847
|
)
|
|
(36,348
|
)
|
Total
|
$
|
109,781
|
|
|
$
|
116,817
|
|
“Corporate and other” is comprised principally of general corporate expenses such as the offices of our executive officers; the corporate finance, accounting, audit, tax, human resources, risk management, information technology, marketing, and legal groups; interest income; income from certain of our ancillary businesses, including Gibraltar; and income from a number of our unconsolidated entities.
Total assets for each of our segments, as of the dates indicated, are shown in the table below (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
January 31,
2017
|
|
October 31,
2016
|
Traditional Home Building:
|
|
|
|
North
|
$
|
1,071,049
|
|
|
$
|
1,020,250
|
|
Mid-Atlantic
|
1,182,142
|
|
|
1,166,023
|
|
South
|
1,257,109
|
|
|
1,203,554
|
|
West
|
1,250,759
|
|
|
1,130,625
|
|
California
|
2,625,956
|
|
|
2,479,885
|
|
Traditional Home Building
|
7,387,015
|
|
|
7,000,337
|
|
City Living
|
824,419
|
|
|
946,738
|
|
Corporate and other
|
1,305,366
|
|
|
1,789,714
|
|
Total
|
$
|
9,516,800
|
|
|
$
|
9,736,789
|
|
“Corporate and other” is comprised principally of cash and cash equivalents, restricted cash and investments, deferred tax assets, investments in our Rental Property Joint Ventures, expected recoveries from insurance carriers and suppliers, our Gibraltar investments, manufacturing facilities, and our mortgage and title subsidiaries.
15. Supplemental Disclosure to Condensed Consolidated Statements of Cash Flows
The following are supplemental disclosures to the Condensed Consolidated Statements of Cash Flows, for the periods indicated (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended January 31,
|
|
|
2017
|
|
2016
|
Cash flow information:
|
|
|
|
|
Interest capitalized, net of amount paid
|
|
$
|
419
|
|
|
$
|
8,227
|
|
Income tax payments
|
|
$
|
80,070
|
|
|
$
|
38,781
|
|
Income tax refunds
|
|
$
|
911
|
|
|
$
|
1,874
|
|
Noncash activity:
|
|
|
|
|
Cost of inventory acquired through seller financing or municipal bonds, net
|
|
$
|
18,011
|
|
|
$
|
10,534
|
|
Reduction in inventory for our share of earnings in land purchased from unconsolidated entities and allocation of basis difference
|
|
$
|
3,654
|
|
|
$
|
160
|
|
Defined benefit plan amendment
|
|
|
|
|
$
|
757
|
|
Deferred tax decrease related to stock-based compensation activity included in additional paid-in capital
|
|
$
|
4,935
|
|
|
$
|
3,249
|
|
Transfer of inventory to investment in unconsolidated entities
|
|
$
|
36,256
|
|
|
|
|
Acquisition of a Business:
|
|
|
|
|
Fair value of assets purchased
|
|
$
|
90,560
|
|
|
|
|
Liabilities assumed
|
|
$
|
5,377
|
|
|
|
|
Cash paid
|
|
$
|
85,183
|
|
|
|
|
16. Supplemental Guarantor Information
At
January 31, 2017
, our
100%
-owned subsidiary, Toll Brothers Finance Corp. (the “Subsidiary Issuer”), has issued the following outstanding Senior Notes (amounts in thousands):
|
|
|
|
|
|
|
|
Original amount issued and amount outstanding
|
8.91% Senior Notes due 2017
|
|
$
|
400,000
|
|
4.0% Senior Notes due 2018
|
|
$
|
350,000
|
|
6.75% Senior Notes due 2019
|
|
$
|
250,000
|
|
5.875% Senior Notes due 2022
|
|
$
|
419,876
|
|
4.375% Senior Notes due 2023
|
|
$
|
400,000
|
|
5.625% Senior Notes due 2024
|
|
$
|
250,000
|
|
4.875% Senior Notes due 2025
|
|
$
|
350,000
|
|
0.5% Exchangeable Senior Notes due 2032
|
|
$
|
287,500
|
|
The obligations of the Subsidiary Issuer to pay principal, premiums, if any, and interest are guaranteed jointly and severally on a senior basis by us and substantially all of our
100%
-owned home building subsidiaries (the “Guarantor Subsidiaries”). The guarantees are full and unconditional. Our non-home building subsidiaries and several of our home building subsidiaries (together, the “Nonguarantor Subsidiaries”) do not guarantee these Senior Notes. The Subsidiary Issuer generates no operating revenues and does not have any independent operations other than the financing of our other subsidiaries by lending the proceeds from the above-described debt issuances. The indentures under which the Senior Notes were issued provide that any of our subsidiaries that provide a guarantee of our obligations under the New Credit Facility will guarantee the Senior Notes. The indentures further provide that any Guarantor Subsidiary may be released from its guarantee so long as (i) no default or event of default exists or would result from release of such guarantee; (ii) the Guarantor Subsidiary being released has consolidated net worth of less than 5% of the Company’s consolidated net worth as of the end of our most recent fiscal quarter; (iii) the Guarantor Subsidiaries released from their guarantees in any fiscal year comprise in the aggregate less than 10% (or 15% if and to the extent necessary to permit the cure of a default) of our consolidated net worth as of the end of our most recent fiscal quarter; (iv) such release would not have a material adverse effect on our and our subsidiaries’ home building business; and (v) the Guarantor Subsidiary is released from its guaranty under the New Credit Facility. If there are no guarantors under the New Credit Facility, all Guarantor Subsidiaries under the indentures will be released from their guarantees.
During the preparation of this Form 10-Q, we identified an immaterial revision that was necessary to certain columns in the consolidating statements for the year ended October 31, 2016. The revision impacted the Guarantor and Nonguarantor Subsidiaries columns in the Consolidating Statement of Operations and Comprehensive Income for the year ended October 31, 2016 and the Nonguarantor Subsidiaries and Eliminations columns in the Condensed Consolidating Balance Sheet as of October 31, 2016, by offsetting amounts. Corresponding changes to the Consolidating Statement of Cash Flows for the year ended October 31, 2016 were also made. The revision had no impact on any consolidated totals of such consolidating statements.
Accordingly, the Consolidating Statements of Operations and Comprehensive Income and of Cash Flows for the year ended October 31, 2016 and the Condensed Consolidating Balance Sheet as of October 31, 2016 have been revised to reflect the immaterial adjustment described above and are included hereunder.
Separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented because management has determined that such disclosures would not be material to investors.
Supplemental consolidating financial information of Toll Brothers, Inc., the Subsidiary Issuer, the Guarantor Subsidiaries, the Nonguarantor Subsidiaries, and the eliminations to arrive at Toll Brothers, Inc. on a consolidated basis is presented below ($ amounts in thousands).
Condensed Consolidating Balance Sheet at
January 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
Brothers,
Inc.
|
|
Subsidiary
Issuer
|
|
Guarantor
Subsidiaries
|
|
Nonguarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
—
|
|
|
—
|
|
|
280,504
|
|
|
92,965
|
|
|
—
|
|
|
373,469
|
|
Restricted cash and investments
|
11,796
|
|
|
|
|
|
|
|
649
|
|
|
|
|
12,445
|
|
Inventory
|
|
|
|
|
7,244,287
|
|
|
295,687
|
|
|
|
|
7,539,974
|
|
Property, construction and office equipment, net
|
|
|
|
|
156,691
|
|
|
15,768
|
|
|
|
|
172,459
|
|
Receivables, prepaid expenses and other assets
|
17
|
|
|
|
|
|
353,100
|
|
|
200,837
|
|
|
(40,980
|
)
|
|
512,974
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
85,765
|
|
|
|
|
85,765
|
|
Customer deposits held in escrow
|
|
|
|
|
57,663
|
|
|
349
|
|
|
|
|
58,012
|
|
Investments in unconsolidated entities
|
|
|
|
|
96,840
|
|
|
504,856
|
|
|
|
|
601,696
|
|
Investments in foreclosed real estate and distressed loans
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Investments in and advances to consolidated entities
|
4,163,667
|
|
|
2,747,471
|
|
|
91,740
|
|
|
166,492
|
|
|
(7,169,370
|
)
|
|
—
|
|
Deferred tax assets, net of valuation allowances
|
160,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,006
|
|
|
4,335,486
|
|
|
2,747,471
|
|
|
8,280,825
|
|
|
1,363,368
|
|
|
(7,210,350
|
)
|
|
9,516,800
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Loans payable
|
|
|
|
|
879,894
|
|
|
|
|
|
|
|
879,894
|
|
Senior notes
|
|
|
2,687,342
|
|
|
|
|
|
|
8,182
|
|
|
2,695,524
|
|
Mortgage company loan facility
|
|
|
|
|
|
|
57,040
|
|
|
|
|
57,040
|
|
Customer deposits
|
|
|
|
|
326,407
|
|
|
17,743
|
|
|
|
|
344,150
|
|
Accounts payable
|
|
|
|
|
256,323
|
|
|
2,371
|
|
|
|
|
258,694
|
|
Accrued expenses
|
|
|
36,869
|
|
|
585,661
|
|
|
367,776
|
|
|
(50,204
|
)
|
|
940,102
|
|
Advances from consolidated entities
|
|
|
|
|
|
1,834,429
|
|
|
728,851
|
|
|
(2,563,280
|
)
|
|
—
|
|
Income taxes payable
|
20,372
|
|
|
|
|
|
|
|
|
|
|
|
20,372
|
|
Total liabilities
|
20,372
|
|
|
2,724,211
|
|
|
3,882,714
|
|
|
1,173,781
|
|
|
(2,605,302
|
)
|
|
5,195,776
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
1,779
|
|
|
|
|
48
|
|
|
3,006
|
|
|
(3,054
|
)
|
|
1,779
|
|
Additional paid-in capital
|
718,861
|
|
|
49,400
|
|
|
|
|
|
93,734
|
|
|
(143,134
|
)
|
|
718,861
|
|
Retained earnings (deficits)
|
4,047,713
|
|
|
(26,140
|
)
|
|
4,398,063
|
|
|
86,937
|
|
|
(4,458,860
|
)
|
|
4,047,713
|
|
Treasury stock, at cost
|
(450,072
|
)
|
|
|
|
|
|
|
|
|
|
(450,072
|
)
|
Accumulated other comprehensive loss
|
(3,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(3,167
|
)
|
Total stockholders’ equity
|
4,315,114
|
|
|
23,260
|
|
|
4,398,111
|
|
|
183,677
|
|
|
(4,605,048
|
)
|
|
4,315,114
|
|
Noncontrolling interest
|
|
|
|
|
|
|
5,910
|
|
|
|
|
5,910
|
|
Total equity
|
4,315,114
|
|
|
23,260
|
|
|
4,398,111
|
|
|
189,587
|
|
|
(4,605,048
|
)
|
|
4,321,024
|
|
|
4,335,486
|
|
|
2,747,471
|
|
|
8,280,825
|
|
|
1,363,368
|
|
|
(7,210,350
|
)
|
|
9,516,800
|
|
Condensed Consolidating Balance Sheet at
October 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
Brothers,
Inc.
|
|
Subsidiary
Issuer
|
|
Guarantor
Subsidiaries
|
|
Nonguarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
—
|
|
|
—
|
|
|
583,440
|
|
|
50,275
|
|
|
—
|
|
|
633,715
|
|
Restricted cash and investments
|
11,708
|
|
|
|
|
|
|
|
19,583
|
|
|
|
|
31,291
|
|
Inventory
|
|
|
|
|
6,896,205
|
|
|
457,806
|
|
|
(44
|
)
|
|
7,353,967
|
|
Property, construction and office equipment, net
|
|
|
|
|
153,663
|
|
|
15,913
|
|
|
|
|
169,576
|
|
Receivables, prepaid expenses and other assets
|
77
|
|
|
|
|
|
319,319
|
|
|
299,978
|
|
|
(36,616
|
)
|
|
582,758
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
248,601
|
|
|
|
|
248,601
|
|
Customer deposits held in escrow
|
|
|
|
|
50,079
|
|
|
2,978
|
|
|
|
|
53,057
|
|
Investments in unconsolidated entities
|
|
|
|
|
101,999
|
|
|
394,412
|
|
|
|
|
496,411
|
|
Investments in and advances to consolidated entities
|
4,112,876
|
|
|
2,741,160
|
|
|
20,519
|
|
|
90,671
|
|
|
(6,965,226
|
)
|
|
—
|
|
Deferred tax assets, net of valuation allowances
|
167,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167,413
|
|
|
4,292,074
|
|
|
2,741,160
|
|
|
8,125,224
|
|
|
1,580,217
|
|
|
(7,001,886
|
)
|
|
9,736,789
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Loans payable
|
|
|
|
|
871,079
|
|
|
|
|
|
|
|
871,079
|
|
Senior notes
|
|
|
2,683,823
|
|
|
|
|
|
|
10,549
|
|
|
2,694,372
|
|
Mortgage company loan facility
|
|
|
|
|
|
|
210,000
|
|
|
|
|
210,000
|
|
Customer deposits
|
|
|
|
|
292,794
|
|
|
16,305
|
|
|
|
|
309,099
|
|
Accounts payable
|
|
|
|
|
280,107
|
|
|
1,848
|
|
|
|
|
281,955
|
|
Accrued expenses
|
|
|
32,559
|
|
|
610,958
|
|
|
469,527
|
|
|
(40,744
|
)
|
|
1,072,300
|
|
Advances from consolidated entities
|
|
|
|
|
|
1,737,682
|
|
|
799,082
|
|
|
(2,536,764
|
)
|
|
—
|
|
Income taxes payable
|
62,782
|
|
|
|
|
|
|
|
|
|
|
|
62,782
|
|
Total liabilities
|
62,782
|
|
|
2,716,382
|
|
|
3,792,620
|
|
|
1,496,762
|
|
|
(2,566,959
|
)
|
|
5,501,587
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
1,779
|
|
|
|
|
48
|
|
|
3,006
|
|
|
(3,054
|
)
|
|
1,779
|
|
Additional paid-in capital
|
728,464
|
|
|
49,400
|
|
|
|
|
|
6,734
|
|
|
(56,134
|
)
|
|
728,464
|
|
Retained earnings (deficits)
|
3,977,297
|
|
|
(24,622
|
)
|
|
4,332,556
|
|
|
67,805
|
|
|
(4,375,739
|
)
|
|
3,977,297
|
|
Treasury stock, at cost
|
(474,912
|
)
|
|
|
|
|
|
|
|
|
|
(474,912
|
)
|
Accumulated other comprehensive loss
|
(3,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(3,336
|
)
|
Total stockholders’ equity
|
4,229,292
|
|
|
24,778
|
|
|
4,332,604
|
|
|
77,545
|
|
|
(4,434,927
|
)
|
|
4,229,292
|
|
Noncontrolling interest
|
|
|
|
|
|
|
5,910
|
|
|
|
|
5,910
|
|
Total equity
|
4,229,292
|
|
|
24,778
|
|
|
4,332,604
|
|
|
83,455
|
|
|
(4,434,927
|
)
|
|
4,235,202
|
|
|
4,292,074
|
|
|
2,741,160
|
|
|
8,125,224
|
|
|
1,580,217
|
|
|
(7,001,886
|
)
|
|
9,736,789
|
|
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) for the
three
months ended
January 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
Brothers,
Inc.
|
|
Subsidiary
Issuer
|
|
Guarantor
Subsidiaries
|
|
Nonguarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenues
|
|
|
|
|
915,823
|
|
|
45,696
|
|
|
(40,789
|
)
|
|
920,730
|
|
Cost of revenues
|
|
|
|
|
724,257
|
|
|
29,471
|
|
|
(20,726
|
)
|
|
733,002
|
|
Selling, general and administrative
|
|
|
|
968
|
|
|
143,881
|
|
|
16,948
|
|
|
(24,702
|
)
|
|
137,095
|
|
|
—
|
|
|
968
|
|
|
868,138
|
|
|
46,419
|
|
|
(45,428
|
)
|
|
870,097
|
|
Income (loss) from operations
|
—
|
|
|
(968
|
)
|
|
47,685
|
|
|
(723
|
)
|
|
4,639
|
|
|
50,633
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
Income from unconsolidated entities
|
|
|
|
|
5,144
|
|
|
41,301
|
|
|
|
|
46,445
|
|
Other income
–
net
|
2,393
|
|
|
|
|
|
7,251
|
|
|
4,500
|
|
|
(1,441
|
)
|
|
12,703
|
|
Intercompany interest income
|
|
|
36,496
|
|
|
|
|
|
|
|
|
(36,496
|
)
|
|
—
|
|
Interest expense
|
|
|
(37,895
|
)
|
|
|
|
|
(663
|
)
|
|
38,558
|
|
|
—
|
|
Income from subsidiaries
|
107,388
|
|
|
|
|
42,048
|
|
|
|
|
(149,436
|
)
|
|
—
|
|
Income (loss) before income taxes
|
109,781
|
|
|
(2,367
|
)
|
|
102,128
|
|
|
44,415
|
|
|
(144,176
|
)
|
|
109,781
|
|
Income tax provision (benefit)
|
39,365
|
|
|
(849
|
)
|
|
36,621
|
|
|
15,926
|
|
|
(51,698
|
)
|
|
39,365
|
|
Net income (loss)
|
70,416
|
|
|
(1,518
|
)
|
|
65,507
|
|
|
28,489
|
|
|
(92,478
|
)
|
|
70,416
|
|
Other comprehensive income
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169
|
|
Total comprehensive income (loss)
|
70,585
|
|
|
(1,518
|
)
|
|
65,507
|
|
|
28,489
|
|
|
(92,478
|
)
|
|
70,585
|
|
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) for the
three
months ended
January 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
Brothers,
Inc.
|
|
Subsidiary
Issuer
|
|
Guarantor
Subsidiaries
|
|
Nonguarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenues
|
|
|
|
|
784,596
|
|
|
170,223
|
|
|
(26,253
|
)
|
|
928,566
|
|
Cost of revenues
|
|
|
|
|
624,801
|
|
|
90,087
|
|
|
(2,577
|
)
|
|
712,311
|
|
Selling, general and administrative
|
12
|
|
|
969
|
|
|
125,905
|
|
|
17,973
|
|
|
(23,063
|
)
|
|
121,796
|
|
|
12
|
|
|
969
|
|
|
750,706
|
|
|
108,060
|
|
|
(25,640
|
)
|
|
834,107
|
|
Income (loss) from operations
|
(12
|
)
|
|
(969
|
)
|
|
33,890
|
|
|
62,163
|
|
|
(613
|
)
|
|
94,459
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
Income from unconsolidated entities
|
|
|
|
|
2,997
|
|
|
5,641
|
|
|
|
|
8,638
|
|
Other income
–
net
|
2,391
|
|
|
|
|
|
8,169
|
|
|
4,193
|
|
|
(1,033
|
)
|
|
13,720
|
|
Intercompany interest income
|
|
|
36,497
|
|
|
|
|
|
|
|
|
(36,497
|
)
|
|
—
|
|
Interest expense
|
|
|
(37,895
|
)
|
|
|
|
|
(248
|
)
|
|
38,143
|
|
|
—
|
|
Income from subsidiaries
|
114,438
|
|
|
|
|
69,382
|
|
|
|
|
(183,820
|
)
|
|
—
|
|
Income (loss) before income taxes
|
116,817
|
|
|
(2,367
|
)
|
|
114,438
|
|
|
71,749
|
|
|
(183,820
|
)
|
|
116,817
|
|
Income tax provision (benefit)
|
43,637
|
|
|
(912
|
)
|
|
44,104
|
|
|
27,652
|
|
|
(70,844
|
)
|
|
43,637
|
|
Net income (loss)
|
73,180
|
|
|
(1,455
|
)
|
|
70,334
|
|
|
44,097
|
|
|
(112,976
|
)
|
|
73,180
|
|
Other comprehensive (loss) income
|
(288
|
)
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
(261
|
)
|
Total comprehensive income (loss)
|
72,892
|
|
|
(1,455
|
)
|
|
70,361
|
|
|
44,097
|
|
|
(112,976
|
)
|
|
72,919
|
|
Consolidating Statement of Operations and Comprehensive Income (Loss) for the fiscal year ended October 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
Brothers,
Inc.
|
|
Subsidiary
Issuer
|
|
Guarantor
Subsidiaries
|
|
Nonguarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenues
|
|
|
|
|
4,984,356
|
|
|
361,685
|
|
|
(176,533
|
)
|
|
5,169,508
|
|
Cost of revenues
|
|
|
|
|
3,919,729
|
|
|
288,044
|
|
|
(63,708
|
)
|
|
4,144,065
|
|
Selling, general and administrative
|
75
|
|
|
3,809
|
|
|
558,822
|
|
|
74,328
|
|
|
(101,652
|
)
|
|
535,382
|
|
|
75
|
|
|
3,809
|
|
|
4,478,551
|
|
|
362,372
|
|
|
(165,360
|
)
|
|
4,679,447
|
|
Income (loss) from operations
|
(75
|
)
|
|
(3,809
|
)
|
|
505,805
|
|
|
(687
|
)
|
|
(11,173
|
)
|
|
490,061
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
Income from unconsolidated entities
|
|
|
|
|
16,913
|
|
|
23,835
|
|
|
|
|
40,748
|
|
Other income - net
|
9,501
|
|
|
|
|
|
27,873
|
|
|
17,456
|
|
|
3,388
|
|
|
58,218
|
|
Intercompany interest income
|
|
|
|
145,828
|
|
|
|
|
|
|
(145,828
|
)
|
|
—
|
|
Interest expense
|
|
|
|
(151,410
|
)
|
|
|
|
(2,203
|
)
|
|
153,613
|
|
|
—
|
|
Income from consolidated subsidiaries
|
579,601
|
|
|
|
|
29,010
|
|
|
|
|
(608,611
|
)
|
|
—
|
|
Income (loss) before income taxes
|
589,027
|
|
|
(9,391
|
)
|
|
579,601
|
|
|
38,401
|
|
|
(608,611
|
)
|
|
589,027
|
|
Income tax provision (benefit)
|
206,932
|
|
|
(3,299
|
)
|
|
203,614
|
|
|
13,490
|
|
|
(213,805
|
)
|
|
206,932
|
|
Net income (loss)
|
382,095
|
|
|
(6,092
|
)
|
|
375,987
|
|
|
24,911
|
|
|
(394,806
|
)
|
|
382,095
|
|
Other comprehensive (loss) income
|
(858
|
)
|
|
|
|
31
|
|
|
|
|
|
|
|
|
(827
|
)
|
Total comprehensive income (loss)
|
381,237
|
|
|
(6,092
|
)
|
|
376,018
|
|
|
24,911
|
|
|
(394,806
|
)
|
|
381,268
|
|
Condensed Consolidating Statement of Cash Flows for the
three
months ended
January 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
Brothers,
Inc.
|
|
Subsidiary
Issuer
|
|
Guarantor
Subsidiaries
|
|
Nonguarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net cash (used in) provided by operating activities
|
(25,840
|
)
|
|
6,311
|
|
|
(273,424
|
)
|
|
338,773
|
|
|
(3,856
|
)
|
|
41,964
|
|
Cash flow provided by (used in) investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment - net
|
|
|
|
|
(6,393
|
)
|
|
79
|
|
|
|
|
(6,314
|
)
|
Investment in unconsolidated entities
|
|
|
|
|
(267
|
)
|
|
(99,674
|
)
|
|
|
|
(99,941
|
)
|
Return of investments in unconsolidated entities
|
|
|
|
|
9,950
|
|
|
23,303
|
|
|
|
|
33,253
|
|
Investment in foreclosed real estate and distressed loans
|
|
|
|
|
|
|
|
(274
|
)
|
|
|
|
(274
|
)
|
Return of investments in foreclosed real estate and distressed loans
|
|
|
|
|
|
|
1,852
|
|
|
|
|
1,852
|
|
Acquisition of a business
|
|
|
|
|
(85,183
|
)
|
|
|
|
|
|
|
(85,183
|
)
|
Investment paid - intercompany
|
|
|
|
|
45,000
|
|
|
|
|
(45,000
|
)
|
|
—
|
|
Intercompany advances
|
14,992
|
|
|
(6,311
|
)
|
|
|
|
|
|
|
(8,681
|
)
|
|
—
|
|
Net cash provided by (used in) investing activities
|
14,992
|
|
|
(6,311
|
)
|
|
(36,893
|
)
|
|
(74,714
|
)
|
|
(53,681
|
)
|
|
(156,607
|
)
|
Cash flow used in financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from loans payable
|
|
|
|
|
|
|
360,382
|
|
|
|
|
360,382
|
|
Debt issuance costs for loans payable
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Principal payments of loans payable
|
|
|
|
|
(3,491
|
)
|
|
(513,342
|
)
|
|
|
|
(516,833
|
)
|
Proceeds from stock-based benefit plans
|
25,831
|
|
|
|
|
|
|
|
|
|
|
25,831
|
|
Excess tax benefits from stock-based compensation
|
253
|
|
|
|
|
|
|
|
|
|
|
253
|
|
Purchase of treasury stock
|
(15,236
|
)
|
|
|
|
|
|
|
|
|
|
(15,236
|
)
|
Dividend paid - intercompany
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Investment received intercompany
|
|
|
|
|
|
|
|
45,000
|
|
|
(45,000
|
)
|
|
—
|
|
Intercompany advances
|
|
|
|
|
|
10,872
|
|
|
(113,409
|
)
|
|
102,537
|
|
|
—
|
|
Net cash used in financing activities
|
10,848
|
|
|
—
|
|
|
7,381
|
|
|
(221,369
|
)
|
|
57,537
|
|
|
(145,603
|
)
|
Net decrease in cash and cash equivalents
|
—
|
|
|
—
|
|
|
(302,936
|
)
|
|
42,690
|
|
|
—
|
|
|
(260,246
|
)
|
Cash and cash equivalents, beginning of period
|
—
|
|
|
—
|
|
|
583,440
|
|
|
50,275
|
|
|
—
|
|
|
633,715
|
|
Cash and cash equivalents, end of period
|
—
|
|
|
—
|
|
|
280,504
|
|
|
92,965
|
|
|
—
|
|
|
373,469
|
|
Condensed Consolidating Statement of Cash Flows for the
three
months ended
January 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
Brothers,
Inc.
|
|
Subsidiary
Issuer
|
|
Guarantor
Subsidiaries
|
|
Nonguarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net cash (used in) provided by operating activities
|
18,482
|
|
|
14,528
|
|
|
(178,283
|
)
|
|
132,051
|
|
|
(10,003
|
)
|
|
(23,225
|
)
|
Cash flow provided by (used in) investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment — net
|
|
|
|
|
(1,667
|
)
|
|
74
|
|
|
|
|
(1,593
|
)
|
Purchase of marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Sale and redemption of marketable securities
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
10,000
|
|
Investments in unconsolidated entities
|
|
|
|
|
(1,445
|
)
|
|
(10,393
|
)
|
|
|
|
(11,838
|
)
|
Return of investments in unconsolidated entities
|
|
|
|
|
12,167
|
|
|
2,637
|
|
|
|
|
14,804
|
|
Investment in foreclosed real estate and distressed loans
|
|
|
|
|
|
|
|
(694
|
)
|
|
|
|
(694
|
)
|
Return of investments in foreclosed real estate and distressed loans
|
|
|
|
|
|
|
|
5,321
|
|
|
|
|
5,321
|
|
Dividend received
–
intercompany
|
|
|
|
|
5,000
|
|
|
|
|
(5,000
|
)
|
|
—
|
|
Intercompany advances
|
126,587
|
|
|
(14,464
|
)
|
|
|
|
|
|
(112,123
|
)
|
|
—
|
|
Net cash provided by (used in) investing activities
|
126,587
|
|
|
(14,464
|
)
|
|
14,055
|
|
|
6,945
|
|
|
(117,123
|
)
|
|
16,000
|
|
Cash flow used in financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs for senior notes
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
(64
|
)
|
Proceeds from loans payable
|
|
|
|
|
|
|
339,854
|
|
|
|
|
339,854
|
|
Principal payments of loans payable
|
|
|
|
|
(394,592
|
)
|
|
(375,947
|
)
|
|
|
|
(770,539
|
)
|
Proceeds from stock-based benefit plans
|
4,769
|
|
|
|
|
|
|
|
|
|
|
4,769
|
|
Excess tax benefits from stock-based compensation
|
297
|
|
|
|
|
|
|
|
|
|
|
297
|
|
Purchase of treasury stock
|
(150,135
|
)
|
|
|
|
|
|
|
|
|
|
(150,135
|
)
|
Receipts related to noncontrolling interest
|
|
|
|
|
|
|
|
294
|
|
|
|
|
294
|
|
Dividend paid
–
intercompany
|
|
|
|
|
|
|
(5,000
|
)
|
|
5,000
|
|
|
—
|
|
Intercompany advances
|
|
|
|
|
|
(46,017
|
)
|
|
(76,109
|
)
|
|
122,126
|
|
|
—
|
|
Net cash used in financing activities
|
(145,069
|
)
|
|
(64
|
)
|
|
(440,609
|
)
|
|
(116,908
|
)
|
|
127,126
|
|
|
(575,524
|
)
|
Net (decrease) increase in cash and cash equivalents
|
—
|
|
|
—
|
|
|
(604,837
|
)
|
|
22,088
|
|
|
—
|
|
|
(582,749
|
)
|
Cash and cash equivalents, beginning of period
|
—
|
|
|
—
|
|
|
783,599
|
|
|
135,394
|
|
|
—
|
|
|
918,993
|
|
Cash and cash equivalents, end of period
|
—
|
|
|
—
|
|
|
178,762
|
|
|
157,482
|
|
|
—
|
|
|
336,244
|
|
Consolidating Statement of Cash Flows for the fiscal year ended October 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toll
Brothers,
Inc.
|
|
Subsidiary
Issuer
|
|
Guarantor
Subsidiaries
|
|
Nonguarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net cash provided by (used in) operating activities
|
60,465
|
|
|
14,768
|
|
|
105,709
|
|
|
(64,386
|
)
|
|
32,215
|
|
|
148,771
|
|
Cash flow provided by (used in) investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment — net
|
|
|
|
|
(27,835
|
)
|
|
(591
|
)
|
|
|
|
(28,426
|
)
|
Purchase of marketable securities
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Sale and redemption of marketable securities
|
|
|
|
|
|
|
10,000
|
|
|
|
|
10,000
|
|
Investment in unconsolidated entities
|
|
|
|
|
(2,637
|
)
|
|
(67,018
|
)
|
|
|
|
(69,655
|
)
|
Return of investments in unconsolidated entities
|
|
|
|
|
32,857
|
|
|
14,949
|
|
|
|
|
47,806
|
|
Investment in distressed loans and foreclosed real estate
|
|
|
|
|
|
|
(1,133
|
)
|
|
|
|
(1,133
|
)
|
Return of investments in distressed loans and foreclosed real estate
|
|
|
|
|
|
|
49,619
|
|
|
|
|
49,619
|
|
Dividends received intercompany
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
(5,000
|
)
|
|
—
|
|
Investment paid intercompany
|
|
|
|
|
|
|
(5,000
|
)
|
|
|
|
|
5,000
|
|
|
—
|
|
Intercompany advances
|
323,207
|
|
|
(14,733
|
)
|
|
|
|
|
|
|
|
(308,474
|
)
|
|
—
|
|
Net cash provided by (used in) investing activities
|
323,207
|
|
|
(14,733
|
)
|
|
2,385
|
|
|
5,826
|
|
|
(308,474
|
)
|
|
8,211
|
|
Cash flow (used in) provided by financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs for senior notes
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
(35
|
)
|
Proceeds from loans payable
|
|
|
|
|
550,000
|
|
|
1,893,496
|
|
|
|
|
2,443,496
|
|
Debt issuance costs for loans payable
|
|
|
|
|
(4,868
|
)
|
|
|
|
|
|
(4,868
|
)
|
Principal payments of loans payable
|
|
|
|
|
(714,089
|
)
|
|
(1,783,496
|
)
|
|
|
|
(2,497,585
|
)
|
Proceeds from stock-based benefit plans
|
6,986
|
|
|
|
|
|
|
|
|
|
|
6,986
|
|
Excess tax benefits from stock-based compensation
|
2,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,114
|
|
Purchase of treasury stock
|
(392,772
|
)
|
|
|
|
|
|
|
|
|
|
(392,772
|
)
|
Receipts related to noncontrolling interest
|
|
|
|
|
|
|
404
|
|
|
|
|
404
|
|
Dividends paid intercompany
|
|
|
|
|
|
|
(5,000
|
)
|
|
5,000
|
|
|
—
|
|
Investment received intercompany
|
|
|
|
|
|
|
5,000
|
|
|
(5,000
|
)
|
|
—
|
|
Intercompany advances
|
|
|
|
|
(139,296
|
)
|
|
(136,963
|
)
|
|
276,259
|
|
|
—
|
|
Net cash (used in) provided by financing activities
|
(383,672
|
)
|
|
(35
|
)
|
|
(308,253
|
)
|
|
(26,559
|
)
|
|
276,259
|
|
|
(442,260
|
)
|
Net decrease in cash and cash equivalents
|
—
|
|
|
—
|
|
|
(200,159
|
)
|
|
(85,119
|
)
|
|
—
|
|
|
(285,278
|
)
|
Cash and cash equivalents, beginning of period
|
—
|
|
|
—
|
|
|
783,599
|
|
|
135,394
|
|
|
—
|
|
|
918,993
|
|
Cash and cash equivalents, end of period
|
—
|
|
|
—
|
|
|
583,440
|
|
|
50,275
|
|
|
—
|
|
|
633,715
|
|