CORRESP 1 filename1.htm Comment letter 4-22-2013

May 6, 2013
VIA EDGAR TRANSMISSION

Mr. Terence O'Brien
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-7010 
Re:
Toll Brothers, Inc.
 
Form 10-K
 
Filed December 28, 2012
 
File No. 1-9186
Dear Mr. O'Brien:
We have reviewed your letter of April 22, 2013 regarding the Toll Brothers, Inc. (the “Company”) Annual Report on Form 10-K for the fiscal year ended October 31, 2012 (the “Form 10-K”). To facilitate your review, we have organized our response to include each comment to which we are responding herein prior to the response to that comment. This document is being submitted via EDGAR.
We understand that your review and comments are intended to assist us in compliance with applicable disclosure requirements and to enhance the overall quality of the disclosure in our filings. We share these objectives and are responding to your comments with these goals in mind.
Form 10-K for the year ended October 31, 2012
General

1.
Please provide a written statement from the company acknowledging that:
•
the company is responsible for the adequacy and accuracy of the disclosure in the filing;

•
staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and

•
the company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
Response:
The Company acknowledges that it is responsible for the adequacy and accuracy of the disclosure contained in the filing; that Securities and Exchange Commission (the “Commission”) staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and that the Company may not assert the Commission’s staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.


Securities and Exchange Commission
May 6, 2013
Page 2

Management's Discussion and Analysis, page 22
Off-Balance Sheet Arrangements, page 30
2.
We have read your response to comment 2 in our letter dated March 25, 2013. We understand and agree it is important to provide the user with information that is useful and relevant to the current trends of your business. However, given that "current trends", especially within the homebuilding industry, likely encompass several periods and even several years, it is not clear to us that the expanded disclosure requested related to material impairments recognized only in fiscal 2011 was no longer meaningful for the fiscal 2012 report. As your next Form 10-K continues to cover the impacted period, please ensure that, therein and in other future filings as applicable, your disclosure related to material items is, in the aggregate, useful, relevant and fully responsive to prior concerns previously communicated to you.
Response:
In future filings, we will ensure that our disclosure related to material items is, in the aggregate, useful, relevant and fully responsive to the staffs earlier comments.
Supplemental Guarantor Information, page F-45

3.
We have read your response to comment 3 in our letter dated March 25, 2013. We have the following comments related to your response and/or revised Rule 3-10 presentation:

(a) On the balance sheet, please present the intercompany advances (receivable) asset account separately from the equity investment in consolidated entities account. Refer to Rule 3-10(i) of Regulation S-X.
Response:
As a general rule, we capitalize Toll Brothers Finance Corp. (the "Subsidiary Issuer") and our guarantor and non-guarantor subsidiaries with minimal investment. At October 31, 2012, the aggregate amount of investments and advances in consolidated entities was $4,921 million. Of this $4,921 million, only $4.8 million was our capital investments in our subsidiaries. We do not believe that the breakout of our investments in our consolidated subsidiaries of $4.8 million on a separate line item in our consolidating balance sheet is material and that it would provide the reader of the financial statements with any useful information.

(b) The guarantor subsidiaries and non-guarantor subsidiaries have intercompany liabilities for fiscal years 2012 and 2011, so it appears that interest expense would be incurred on those liabilities. If so, it is not clear that the full amount of corresponding interest expense is presented in the interest expense line item in the income statement, given that, for 2012, the guarantor interest expense is nil and the non-guarantor interest expense appears low relative to the liability. For 2011, the guarantor interest expense appears low and the non-guarantor interest expense is nil. Please explain or revise.

Response:
As a general rule, substantially all of our interest is capitalized to inventory and is amortized when the inventory is sold or disposed. The amortization of capitalized interest is included in cost of revenues. This accounting policy is included in Note 1, "Significant Accounting Policies, Inventory" on page F-8 of Form 10-K. The accounting policy states: "The Company capitalizes certain interest costs to qualified inventory during the development and construction period of its communities in accordance with ASC 835-20, “Capitalization of Interest” (“ASC 835-20”). Capitalized interest is

Securities and Exchange Commission
May 6, 2013
Page 3

charged to cost of revenues when the related inventory is delivered. Interest incurred on home building indebtedness in excess of qualified inventory, as defined in ASC 835-20, is charged to the Consolidated Statement of Operations in the period incurred."

Of the $125.8 million and $114.8 million of interest incurred in fiscal 2012 and 2011, respectively, $3.4 million and $1.2 million, respectively, were applicable to our ancillary businesses and included in other income - net, and in fiscal 2011, $1.5 million was expensed directly to the statement of operations. In Note 3, Inventory on page F-16 of Form 10-K, we provide a table that shows interest incurred, capitalized and expensed.

(c) On the income statement, it does not appear that interest expense should be presented as a component of operating income (loss), given Rule 5-03 of Regulation S-X. Please explain or revise.

In future filings, we will revise our presentation of interest expense to reflect interest expense below the operating income (loss) line on our statement of operations.

(d) On the cash flow statement, it appears that the transactions in which the guarantor and non-guarantor subsidiaries are either receiving or paying back intercompany advances are debt repayment transactions. If so, the classification should be as financing activities by the guarantor and non-guarantor subsidiaries, instead of as investing activities. Please explain or revise. Conversely, since Toll Brothers, Inc. and the Subsidiary Issuer are the lenders, when cash is advanced to the subsidiaries and repayments on those advances are received, then those transactions should be classified as investing activities for these entities. Please explain or revise.
Response:
In future filings, we will disclose the receiving or paying back of intercompany advances as financing activities by the guarantor and non-guarantor subsidiaries, and cash advanced to the guarantor and non-guarantor subsidiaries and repayments on those advances by Toll Brothers, Inc. and the Subsidiary Issuer as investing activities.

(e) On the cash flow statement, please explain why the "(Increase) decrease in intercompany amounts" is shown as an operating cash flow, whereas the "Investment in and advances to unconsolidated entities" is shown as an investing activity. Please explain the difference between these two line items and reconcile these amounts to the 2011 and 2012 balance sheets.
Response:
The (increase) decrease in intercompany amounts represents the change in the advances made to our subsidiaries that are included in our consolidated and consolidating financial statements. The amounts shown as investments in unconsolidated entities are funds invested in entities for which we do not have control and the financial statements are not included in our consolidated and consolidating financial statements but are accounted for using the equity method of accounting. Please see our response to Comment #3(d) above regarding the classification of the increase/decrease in intercompany amounts. As requested, the reconciliations of our investments in unconsolidated entities and consolidated entities for fiscal 2011 and 2012, are presented in Exhibit A to this letter.


Securities and Exchange Commission
May 6, 2013
Page 4

(f) Please clarify whether any component of the intercompany advances assets shown on the balance sheet are non-interest bearing. If so, please quantify the balance therefor and tell us how you determined that these non-interest bearing components constitute assets instead of capital transactions.
Response:
All intercompany advances are non-interest bearing. We do not consider any advances to our subsidiaries as capital transactions but temporary advances that will be repaid from the operations of the subsidiary.

(g) Please provide us a revised draft of your Rule 3-10 data for fiscals 2011 and 2012 assuming you have made the above changes, and include those changes made in your initial response.
Response:
As requested, the revised draft of our Rule 3-10 data, to be included in future filings, as of and for the years ended October 31, 2012 and 2011, reflecting the above referenced changes and the changes included in our letter dated April 5, 2013, is attached to this letter as Exhibit B.


*                                                                                  *                                                                                  *
We are grateful for your assistance in this matter. Please do not hesitate to call me at (215) 938-8045 with any questions or further comments you may have regarding this letter or if you wish to discuss our responses to the Comment Letter.
Yours truly,
/s/ Joseph R. Sicree
Joseph R. Sicree
Senior Vice President and
Chief Accounting officer


Securities and Exchange Commission
May 6, 2013
Exhibit A (Page 1)


Rollfoward of Investments in Consolidated Entities (amounts in thousands)
 
 
For the year ended October 31, 2012
 
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor Subsidiaries
 
Non-
Guarantor Subsidiaries
 
 
 
 
 
 
 
 
 
Investments in and advances to consolidated entities, beginning of year
 
$
2,694,419

 
$
1,508,550

 
$
(727,258
)
 
$
(477,322
)
 
 
 
 
 
 
 
 
 
Income from consolidated entities
 
112,981

 
 
 
26,835

 
 
Intercompany advances
 
15,652

 
584,260

 
(472,831
)
 
(155,174
)
 
 
 
 
 
 
 
 
 
Investments in and advances to consolidated entities, end of year
 
$
2,823,052

 
$
2,092,810

 
$
(1,173,254
)
 
$
(632,496
)

 
 
For the year ended October 31, 2011
 
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor Subsidiaries
 
Non-
Guarantor Subsidiaries
 
 
 
 
 
 
 
 
 
Investments in and advances to consolidated entities, beginning of year
 
$
2,578,195

 
$
1,562,109

 
$
(871,125
)
 
$
(315,074
)
 
 
 
 
 
 
 
 
 
Loss from consolidated entities
 
(29,229
)
 
 
 
(5,374
)
 
 
Intercompany advances
 
145,453

 
(53,559
)
 
149,241

 
(162,248
)
 
 
 
 
 
 
 
 
 
Investments in and advances to consolidated entities, end of year
 
$
2,694,419

 
$
1,508,550

 
$
(727,258
)
 
$
(477,322
)



Securities and Exchange Commission
May 6, 2013
Exhibit A (Page 2)


Rollfoward of Investments in Unconsolidated Entities (amounts in thousands)
 
 
For the year ended October 31, 2012
 
For the year ended October 31, 2011
 
 
Guarantor Subsidiaries
 
Non-
Guarantor Subsidiaries
 
Total
 
Guarantor Subsidiaries
 
Non-
Guarantor Subsidiaries
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments in and advances to unconsolidated entities, beginning of year
 
$
86,481

 
$
39,874

 
$
126,355

 
$
116,247

 
$
82,195

 
$
198,442

Recovery (Impairment of investments in unconsolidated entities
 
2,311

 
 
 
2,311

 
(15,170
)
 
(25,700
)
 
(40,870
)
Income from unconsolidated entities
 
13,724

 
7,557

 
21,281

 
21,299

 
18,377

 
39,676

Distribution of earnings from unconsolidated entities
 
(5,258
)
 
 
 
(5,258
)
 
(12,747
)
 
666

 
(12,081
)
Investments in unconsolidated entities
 
3,637

 
213,523

 
217,160

 
70

 
62

 
132

Return of investments in unconsolidated entities
 
(32,659
)
 
(5,709
)
 
(38,368
)
 
(23,859
)
 
(19,450
)
 
(43,309
)
Non-cash items:
 
 
 
 
 
 
 
 
 
 
 
 
Transfer of inventory to investment in unconsolidated entities
 
 
 
5,792

 
5,792

 
 
 
 
 
—

Reclassification of deferred income from investment in unconsolidated entities to accrued liabilities
 
2,943

 
 
 
2,943

 
 
 
 
 
—

Unrealized loss on derivative held by equity investee
 
(875
)
 
 
 
(875
)
 
 
 
 
 
—

Reduction in investment in unconsolidated entities due to reduction of letters of credit or accrued liabilities
 
 
 
(448
)
 
(448
)
 
 
 
(13,423
)
 
(13,423
)
Other non-cash transactions
 
(159
)
 
(117
)
 
(276
)
 
641

 
(2,853
)
 
(2,212
)
Investments in and advances to unconsolidated entities, end of year
 
$
70,145

 
$
260,472

 
$
330,617

 
$
86,481

 
$
39,874

 
$
126,355



Securities and Exchange Commission
May 6, 2013
Exhibit B (Page 1)


Consolidating Balance Sheet at October 31, 2012 ($ in thousands):
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
—

 
—

 
711,375

 
67,449

 
—

 
778,824

Marketable securities
 
 
 
 
378,858

 
60,210

 
 
 
439,068

Restricted cash
28,268

 
 
 
17,561

 
1,447

 
 
 
47,276

Inventory
 
 
 
 
3,527,677

 
233,510

 
 
 
3,761,187

Property, construction and office equipment, net
 
 
 
 
106,963

 
3,008

 
 
 
109,971

Receivables, prepaid expenses and other assets
134

 
15,130

 
77,175

 
68,300

 
(16,181
)
 
144,558

Mortgage loans held for sale
 
 
 
 
 
 
86,386

 
 
 
86,386

Customer deposits held in escrow
 
 
 
 
27,312

 
2,267

 
 
 
29,579

Investments in and advances to unconsolidated entities
 
 
 
 
70,145

 
260,472

 
 
 
330,617

Investments in distressed loans
 
 
 
 
 
 
37,169

 
 
 
37,169

Investments in foreclosed real estate
 
 
 
 
 
 
58,353

 
 
 
58,353

Investments in and advances to consolidated entities
2,823,052

 
2,092,810

 
4,740

 
 
 
(4,920,602
)
 
—

Deferred tax assets, net of valuation allowances
358,056

 
 
 
 
 
 
 
 
 
358,056

 
3,209,510

 
2,107,940

 
4,921,806

 
878,571

 
(4,936,783
)
 
6,181,044

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Loans payable
 
 
 
 
69,393

 
30,424

 
 
 
99,817

Senior notes
 
 
2,032,335

 
 
 
 
 
48,128

 
2,080,463

Mortgage company warehouse loan
 
 
 
 
 
 
72,664

 
 
 
72,664

Customer deposits
 
 
 
 
136,225

 
6,752

 
 
 
142,977

Accounts payable
 
 
 
 
99,889

 
22

 
 
 
99,911

Accrued expenses
 
 
27,476

 
341,233

 
119,244

 
(11,603
)
 
476,350

Advances from consolidated entities
 
 
 
 
1,177,994

 
632,496

 
(1,810,490
)
 
—

Income taxes payable
82,991

 
 
 
 
 
(2,000
)
 
 
 
80,991

Total liabilities
82,991

 
2,059,811

 
1,824,734

 
859,602

 
(1,773,965
)
 
3,053,173

Equity:
 
 
 
 
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
Common stock
1,687

 
 
 
48

 
3,006

 
(3,054
)
 
1,687

Additional paid-in capital
404,418

 
49,400

 
 
 
1,734

 
(51,134
)
 
404,418

Retained earnings
2,721,397

 
(1,271
)
 
3,101,833

 
8,068

 
(3,108,630
)
 
2,721,397

Treasury stock, at cost
(983
)
 
 
 
 
 
 
 
 
 
(983
)
Accumulated other comprehensive loss
 
 
 
 
(4,809
)
 
(10
)
 
 
 
(4,819
)
Total stockholders’ equity
3,126,519

 
48,129

 
3,097,072

 
12,798

 
(3,162,818
)
 
3,121,700

Noncontrolling interest
 
 
 
 
 
 
6,171

 
 
 
6,171

Total equity
3,126,519

 
48,129

 
3,097,072

 
18,969

 
(3,162,818
)
 
3,127,871

 
3,209,510

 
2,107,940

 
4,921,806

 
878,571

 
(4,936,783
)
 
6,181,044



Securities and Exchange Commission
May 6, 2013
Exhibit B (Page 2)


Consolidating Balance Sheet at October 31, 2011 ($ in thousands):
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
—

 
—

 
775,300

 
131,040

 
—

 
906,340

Marketable securities
 
 
 
 
233,572

 
 
 
 
 
233,572

Restricted cash
 
 
 
 
19,084

 
676

 
 
 
19,760

Inventory
 
 
 
 
2,911,211

 
505,512

 
 
 
3,416,723

Property, construction and office equipment, net
 
 
 
 
77,001

 
22,711

 
 
 
99,712

Receivables, prepaid expenses and other assets
 
 
6,768

 
74,980

 
26,067

 
(2,239
)
 
105,576

Mortgage loans held for sale
 
 
 
 
 
 
63,175

 
 
 
63,175

Customer deposits held in escrow
 
 
 
 
10,682

 
4,177

 
 
 
14,859

Investments in and advances to unconsolidated entities
 
 
 
 
86,481

 
39,874

 
 
 
126,355

Investments in distressed loans
 
 
 
 
 
 
63,235

 
 
 
63,235

Investments in foreclosed real estate
 
 
 
 
 
 
5,939

 
 
 
5,939

Investments in and advances to consolidated entities
2,694,419

 
1,508,550

 
4,737

 
 
 
(4,207,706
)
 
—

 
2,694,419

 
1,515,318

 
4,193,048

 
862,406

 
(4,209,945
)
 
5,055,246

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Loans payable
 
 
 
 
61,994

 
44,562

 
 
 
106,556

Senior notes
 
 
1,490,972

 
 
 
 
 
 
 
1,490,972

Mortgage company warehouse loan
 
 
 
 
 
 
57,409

 
 
 
57,409

Customer deposits
 
 
 
 
71,388

 
12,436

 
 
 
83,824

Accounts payable
 
 
 
 
96,645

 
172

 
 
 
96,817

Accrued expenses
 
 
24,346

 
320,021

 
178,965

 
(2,281
)
 
521,051

Advances from consolidated entities
 
 
 
 
731,995

 
477,322

 
(1,209,317
)
 
—

Income taxes payable
108,066

 
 
 
 
 
(2,000
)
 
 
 
106,066

Total liabilities
108,066

 
1,515,318

 
1,282,043

 
768,866

 
(1,211,598
)
 
2,462,695

Equity:
 
 
 
 
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
Common stock
1,687

 
 
 
3,054

 
2,003

 
(5,057
)
 
1,687

Additional paid-in capital
400,382

 
 
 
1,366

 
2,734

 
(4,100
)
 
400,382

Retained earnings
2,234,251

 
 
 
2,909,487

 
82,605

 
(2,992,092
)
 
2,234,251

Treasury stock, at cost
(47,065
)
 
 
 
 
 
 
 
 
 
(47,065
)
Accumulated other comprehensive loss
(2,902
)
 
 
 
(2,902
)
 
 
 
2,902

 
(2,902
)
Total stockholders’ equity
2,586,353

 
—

 
2,911,005

 
87,342

 
(2,998,347
)
 
2,586,353

Noncontrolling interest
 
 
 
 
 
 
6,198

 
 
 
6,198

Total equity
2,586,353

 
—

 
2,911,005

 
93,540

 
(2,998,347
)
 
2,592,551

 
2,694,419

 
1,515,318

 
4,193,048

 
862,406

 
(4,209,945
)
 
5,055,246



Securities and Exchange Commission
May 6, 2013
Exhibit B (Page 3)


Consolidating Statement of Operations for the fiscal year ended October 31, 2012 ($ in thousands):
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
 
 
 
 
1,880,908

 
79,850

 
(77,977
)
 
1,882,781

Cost of revenues
 
 
 
 
1,523,074

 
22,736

 
(13,715
)
 
1,532,095

Selling, general and administrative
95

 
2,965

 
307,292

 
41,055

 
(64,150
)
 
287,257

 
95

 
2,965

 
1,830,366

 
63,791

 
(77,865
)
 
1,819,352

Income (loss) from operations
(95
)
 
(2,965
)
 
50,542

 
16,059

 
(112
)
 
63,429

Other:
 
 
 
 
 
 
 
 
 
 
 
Income from unconsolidated entities
 
 
 
 
16,035

 
7,557

 
 
 
23,592

Other income - net
56

 
 
 
19,569

 
3,795

 
2,501

 
25,921

Intercompany interest income
 
 
116,835

 
 
 
 
 
(116,835
)
 
—

Interest expense
 
 
(115,141
)
 
 
 
(576
)
 
115,717

 
—

Income from consolidated subsidiaries
112,981

 
 
 
26,835

 
 
 
(139,816
)
 
—

Income before income tax benefit (provision)
112,942

 
(1,271
)
 
112,981

 
26,835

 
(138,545
)
 
112,942

Income tax (benefit) provision
(374,204
)
 
 
 
25,805

 
6,129

 
(31,934
)
 
(374,204
)
Net income
487,146

 
(1,271
)
 
87,176

 
20,706

 
(106,611
)
 
487,146


Consolidating Statement of Operations for the fiscal year ended October 31, 2011 ($ in thousands):
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
 
 
 
 
1,445,148

 
105,364

 
(74,631
)
 
1,475,881

Cost of revenues
 
 
 
 
1,217,512

 
57,617

 
(14,359
)
 
1,260,770

Selling, general and administrative
137

 
1,345

 
270,605

 
42,131

 
(52,863
)
 
261,355

 
137

 
1,345

 
1,488,117

 
99,748

 
(67,222
)
 
1,522,125

Income (loss) from operations
(137
)
 
(1,345
)
 
(42,969
)
 
5,616

 
(7,409
)
 
(46,244
)
Other:
 
 
 
 
 
 
 
 
 
 
 
Income from unconsolidated entities
 
 
 
 
6,129

 
(7,323
)
 
 
 
(1,194
)
Other income - net
 
 
 
 
14,489

 
(3,667
)
 
12,581

 
23,403

Intercompany interest income
 
 
108,776

 
 
 
 
 
(108,776
)
 
—

Interest expense
 
 
(103,604
)
 
(1,504
)
 
 
 
103,604

 
(1,504
)
Expenses related to early retirement of debt
 
 
(3,827
)
 
 
 
 
 
 
 
(3,827
)
Income from consolidated subsidiaries
(29,229
)
 
 
 
(5,374
)
 
 
 
34,603

 
—

Income before income tax benefit (provision)
(29,366
)
 
—

 
(29,229
)
 
(5,374
)
 
34,603

 
(29,366
)
Income tax (benefit) provision
(69,161
)
 
 
 
(68,837
)
 
(12,656
)
 
81,493

 
(69,161
)
Net income
39,795

 
—

 
39,608

 
7,282

 
(46,890
)
 
39,795




Securities and Exchange Commission
May 6, 2013
Exhibit B (Page 4)


Consolidating Statement of Cash Flows for the fiscal year ended October 31, 2012 ($ in thousands)
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Cash flow (used in) provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
487,146

 
(1,271
)
 
87,176

 
20,706

 
(106,611
)
 
487,146

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
22

 
5,036

 
18,459

 
340

 
(1,271
)
 
22,586

Stock-based compensation
15,575

 
 
 
 
 
 
 
 
 
15,575

Recovery of investment in unconsolidated entities
 
 
 
 
(2,311
)
 
 
 
 
 
(2,311
)
Excess tax benefits from stock-based compensation
(5,776
)
 
 
 
 
 
 
 
 
 
(5,776
)
Income from unconsolidated entities
 
 
 
 
(13,724
)
 
(7,557
)
 
 
 
(21,281
)
Distributions of earnings from unconsolidated entities
 
 
 
 
5,258

 
 
 
 
 
5,258

Income from consolidated subsidiaries
(112,981
)
 
 
 
(26,835
)
 
 
 
139,816

 
—

Income from non-performing loan portfolios and foreclosed real estate
 
 
 
 
 
 
(12,444
)
 
 
 
(12,444
)
Deferred tax benefit
41,810

 
 
 
 
 
 
 
 
 
41,810

Deferred tax valuation allowances
(394,718
)
 
 
 
 
 
 
 
 
 
(394,718
)
Inventory impairments and write-offs
 
 
 
 
14,739

 
 
 
 
 
14,739

Change in fair value of mortgage loans receivable and derivative instruments
 
 
 
 
 
 
(670
)
 
 
 
(670
)
Gain on sale of marketable securities
 
 
 
 
(40
)
 
 
 
 
 
(40
)
Changes in operating assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
Increase in inventory
 
 
 
 
(111,788
)
 
(84,160
)
 
 
 
(195,948
)
Origination of mortgage loans
 
 
 
 
 
 
(651,618
)
 
 
 
(651,618
)
Sale of mortgage loans
 
 
 
 
 
 
629,397

 
 
 
629,397

Decrease (increase) in restricted cash
(28,268
)
 
 
 
1,523

 
(771
)
 
 
 
(27,516
)
(Increase) decrease in receivables, prepaid expenses and other assets
1,483

 
(1,331
)
 
(255,019
)
 
219,833

 
1,112

 
(33,922
)
Increase (decrease) in customer deposits
 
 
 
 
48,157

 
(3,774
)
 
 
 
44,383

(Decrease) increase in accounts payable and accrued expenses
(2,584
)
 
3,130

 
5,363

 
(59,493
)
 
(4,953
)
 
(58,537
)
Decrease in current income taxes payable
(25,075
)
 
 
 
 
 
 
 
 
 
(25,075
)
Net cash (used in) provided by operating activities
(23,366
)
 
5,564

 
(229,042
)
 
49,789

 
28,093

 
(168,962
)
Cash flow used in investing activities:
 
 
 
 
 
 
 
 
 
 
 
Purchase of property and equipment — net
 
 
 
 
(13,706
)
 
(789
)
 
 
 
(14,495
)
Purchase of marketable securities
 
 
 
 
(519,737
)
 
(60,221
)
 
 
 
(579,958
)
Sale and redemption of marketable securities
 
 
 
 
368,253

 
 
 
 
 
368,253

Investment in and advances to unconsolidated entities
 
 
 
 
(3,637
)
 
(213,523
)
 
 
 
(217,160
)
Return of investments in unconsolidated entities
 
 
 
 
32,659

 
5,709

 
 
 
38,368

Investment in non-performing loan portfolios and foreclosed real estate
 
 
 
 
 
 
(30,090
)
 
 
 
(30,090
)
Return of investments in non-performing loan portfolios and foreclosed real estate
 
 
 
 
 
 
16,707

 
 
 
16,707

Acquisition of a business
 
 
 
 
(144,746
)
 
 
 
 
 
(144,746
)
Intercompany advances
(15,652
)
 
(584,260
)
 
 
 
 
 
599,912

 
—

Net cash used in investing activities
(15,652
)
 
(584,260
)
 
(280,914
)
 
(282,207
)
 
599,912

 
(563,121
)
Cash flow provide by (used in) financing activities:
 
 
 
 
 
 
 
 
 
 
 
Net proceeds from issuance of senior notes
 
 
578,696

 
 
 
 
 
 
 
578,696

Proceeds from loans payable
 
 
 
 
 
 
1,002,934

 
 
 
1,002,934

Principal payments of loans payable
 
 
 
 
(26,800
)
 
(989,281
)
 
 
 
(1,016,081
)
Proceeds from stock-based benefit plans
33,747

 
 
 
 
 
 
 
 
 
33,747

Excess tax benefits from stock-based compensation
5,776

 
 
 
 
 
 
 
 
 
5,776

Purchase of treasury stock
(505
)
 
 
 
 
 
 
 
 
 
(505
)
Intercompany advances
 
 
 
 
472,831

 
155,174

 
(628,005
)
 
—

Net cash provided by (used in) financing activities
39,018

 
578,696

 
446,031

 
168,827

 
(628,005
)
 
604,567

Net decrease in cash and cash equivalents
—

 
—

 
(63,925
)
 
(63,591
)
 
—

 
(127,516
)
Cash and cash equivalents, beginning of year
—

 
—

 
775,300

 
131,040

 
—

 
906,340

Cash and cash equivalents, end of year
—

 
—

 
711,375

 
67,449

 
—

 
778,824


Securities and Exchange Commission
May 6, 2013
Exhibit B (Page 5)


Consolidating Statement of Cash Flows for the fiscal year ended October 31, 2011 ($ in thousands):

Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Cash flow (used in) provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
39,795

 
—

 
39,608

 
7,282

 
(46,890
)
 
39,795

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
3,210

 
19,343

 
589

 
 
 
23,142

Stock-based compensation
12,494

 
 
 
 
 
 
 
 
 
12,494

Impairment of investment in unconsolidated entities
 
 
 
 
15,170

 
25,700

 
 
 
40,870

Income from unconsolidated entities
 
 
 
 
(21,299
)
 
(18,377
)
 
 
 
(39,676
)
Distributions of earnings from unconsolidated entities
 
 
 
 
12,747

 
(666
)
 
 
 
12,081

Loss from consolidated subsidiaries
29,229

 
 
 
5,374

 
 
 
(34,603
)
 
—

Income from non-performing loan portfolios and foreclosed real estate
 
 
 
 
 
 
(5,113
)
 
 
 
(5,113
)
Deferred tax benefit
(18,188
)
 
 
 
 
 
 
 
 
 
(18,188
)
Deferred tax valuation allowances
18,188

 
 
 
 
 
 
 
 
 
18,188

Inventory impairments and write-offs
 
 
 
 
51,837

 
 
 
 
 
51,837

Change in fair value of mortgage loans receivable and derivative instruments
 
 
 
 
 
 
475

 
 
 
475

Expenses related to early retirement of debt
 
 
3,827

 
 
 
 
 
 
 
3,827

Changes in operating assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
Increase in inventory
 
 
 
 
(89,869
)
 
(125,869
)
 
 
 
(215,738
)
Origination of mortgage loans
 
 
 
 
 
 
(630,294
)
 
 
 
(630,294
)
Sale of mortgage loans
 
 
 
 
 
 
659,610

 
 
 
659,610

Decrease (increase) in restricted cash
 
 
 
 
41,822

 
(676
)
 
 
 
41,146

(Increase) decrease in receivables, prepaid expenses and other assets
(146
)
 
 
 
(124,022
)
 
111,903

 
743

 
(11,522
)
Increase (decrease) in customer deposits
 
 
 
 
1,677

 
11,498

 
 
 
13,175

(Decrease) increase in accounts payable and accrued expenses
2,287

 
(1,759
)
 
80,257

 
(111,272
)
 
1,863

 
(28,624
)
Decrease in income tax refund recoverable
141,590

 
 
 
 
 
 
 
 
 
141,590

Decrease in current income taxes payable
(56,225
)
 
 
 
 
 
 
 
 
 
(56,225
)
Net cash (used in) provided by operating activities
169,024

 
5,278

 
32,645

 
(75,210
)
 
(78,887
)
 
52,850

Cash flow used in investing activities:
 
 
 
 
 
 
 
 
 
 
 
Purchase of property and equipment — net
 
 
 
 
(6,658
)
 
(2,895
)
 
 
 
(9,553
)
Purchase of marketable securities
 
 
 
 
(452,864
)
 
 
 
 
 
(452,864
)
Sale and redemption of marketable securities
 
 
 
 
408,831

 
 
 
 
 
408,831

Investment in and advances to unconsolidated entities
 
 
 
 
(70
)
 
(62
)
 
 
 
(132
)
Return of investments in unconsolidated entities
 
 
 
 
23,859

 
19,450

 
 
 
43,309

Investment in non-performing loan portfolios and foreclosed real estate
 
 
 
 
 
 
(66,867
)
 
 
 
(66,867
)
Return of investments in non-performing loan portfolios and foreclosed real estate
 
 
 
 
 
 
2,806

 
 
 
2,806

Intercompany advances
(145,453
)
 
53,559

 
 
 
 
 
91,894

 
—

Net cash used in investing activities
(145,453
)
 
53,559

 
(26,902
)
 
(47,568
)
 
91,894

 
(74,470
)
Cash flow provide by (used in) financing activities:
 
 
 
 
 
 
 
 
 
 
 
Proceeds from loans payable
 
 
 
 
 
 
921,251

 
 
 
921,251

Principal payments of loans payable
 
 
 
 
(11,589
)
 
(941,032
)
 
 
 
(952,621
)
Redemption of senior notes
 
 
(58,837
)
 
 
 
 
 
 
 
(58,837
)
Proceeds from stock-based benefit plans
25,531

 
 
 
 
 
 
 
 
 
25,531

Purchase of treasury stock
(49,102
)
 
 
 
 
 
 
 
 
 
(49,102
)
Change in noncontrolling interest
 
 
 
 
 
 
2,678

 
 
 
2,678

Intercompany advances
 
 
 
 
(149,241
)
 
162,248

 
(13,007
)
 
—

Net cash provided by (used in) financing activities
(23,571
)
 
(58,837
)
 
(160,830
)
 
145,145

 
(13,007
)
 
(111,100
)
Net decrease in cash and cash equivalents
—

 
—

 
(155,087
)
 
22,367

 
—

 
(132,720
)
Cash and cash equivalents, beginning of year
—

 
—

 
930,387

 
108,673

 
—

 
1,039,060

Cash and cash equivalents, end of year
—

 
—

 
775,300

 
131,040

 
—

 
906,340