Toll Brothers Reports 4th Qtr and FY 2009 Results

Toll Brothers Reports 4th Qtr and FY 2009 Results

HORSHAM, Pa., Dec. 3, 2009 -- Toll Brothers, Inc. (NYSE:TOL) @ the nation's leading builder of luxury homes, today reported a FY 2009 fourth-quarter net loss of $111.4 million, or $0.68 per share diluted. The loss included $85.5 million of non-cash pre-tax inventory write-downs, a pre-tax charge of $11.6 million due to early retirement of debt and a $14.6 million non-cash expense for deferred tax asset valuation allowances. Excluding write-downs and charges for early retirement of debt, FY 2009's fourth quarter pre-tax loss was $9.6 million.

FY 2008's fourth-quarter net loss was $78.8 million, or $0.49 per share diluted, which included $175.9 million of non-cash pre-tax inventory and other write-downs and an $11.1 million non-cash expense for deferred tax asset valuation allowances. FY 2008's fourth-quarter pre-tax earnings, excluding inventory and other write-downs, were $69.9 million.

For its full fiscal year ended October 31, 2009, the Company reported a net loss of $755.8 million, or $4.68 per share diluted, which was impacted by non-cash pre-tax inventory and other write-downs totaling $476.7 million, a pre-tax charge of $13.7 million related to the early retirement of debt and a $458.3 million non-cash expense for deferred tax asset valuation allowances. Excluding inventory and other write-downs and charges for early retirement of debt, FY 2009's full-year pre-tax loss was $6.1 million.

FY 2008's full-year net loss was $297.8 million, or $1.88 per share diluted, which was impacted by non-cash pre-tax inventory and other write-downs totaling $848.9 million, a non-cash $24.1 million expense for deferred tax valuation allowances and $40.2 million of other pre-tax income attributable to net proceeds received from a condemnation judgment. FY 2008's full-year pre-tax earnings were $341.9 million, excluding inventory and other write-downs and the condemnation proceeds.

The Company ended FY 2009 with a net-debt-to-capital ratio(1) of 7.4%, its lowest ever, compared to 12.6% at FYE 2008. At FYE 2009, the Company had $1.91 billion of cash and marketable U.S. Treasury securities, compared to $1.66 billion at FY 2009's third-quarter-end and $1.63 billion at FYE 2008. At FYE 2009, the Company had $1.38 billion available under its $1.89 billion 30-bank credit facility, which matures in March 2011.

FY 2009's fourth-quarter net signed contracts of 765 units and $430.8 million rose 42% in units and 62% in dollars compared to FY 2008's fourth-quarter totals. FY 2009's fourth-quarter totals also exceeded FY 2007's fourth-quarter net signed contracts by 17% in units and 18% in dollars. These increases were achieved despite having fewer selling communities: During FY 2009's fourth quarter, the Company averaged 215 selling communities, down 26% from 290 in FY 2008's fourth quarter and down 32% from 315, its fourth-quarter peak, in FY 2007.

The Company's contract cancellation rate (current-quarter cancellations divided by current-quarter signed contracts) was 6.9% in the fourth quarter of FY 2009, which was in line with its pre-downturn historical averages.

FY 2009's average fourth-quarter net signed contracts of 3.56 units per community exceeded FY 2008's fourth-quarter average of 1.86 units per community by 91%, and exceeded FY 2007's fourth-quarter average of 2.08 units per community by 71%. FY 2009's average was 4% above FY 2006's fourth-quarter average of 3.42 units per community, but still well below the Company's twenty-year fourth-quarter average of 6.16 units per community.

The Company's FY 2009 fourth-quarter home building deliveries and revenues of 860 units and $486.6 million declined 20% in units and 30% in dollars, and its fourth-quarter-end backlog of 1,531 units and $874.8 million declined 25% in units and 34% in dollars, compared to FY 2008's fourth-quarter.

For the fiscal year ended October 31, 2009, net signed contracts of 2,450 units and $1.30 billion dollars declined 16% and 19% respectively, compared to FY 2008. The Company's FY 2009 home building deliveries and revenues of 2,965 units and $1.76 billion declined 37% in units and 44% in dollars compared to FY 2008.

Robert I. Toll, chairman and chief executive officer, stated: "We are entering the fifth year of this severe housing recession. Last year at this time, Lehman Brothers had recently collapsed, paralyzing the financial markets. Now, one year later, after massive government intervention, the debate about the economy and the housing industry seems no longer to be focused on whether we have seen the bottom, but rather, when and how quickly the economy and the housing market will recover.

"Our declining cancellation rate and improved pace of contract signings provide some signs of recovery. From elevated levels ranging from 18% to 39% over the prior twelve quarters, our cancellation rate has improved dramatically -- to 8.5% in our third quarter, and down to 6.9%, our historical average, in our fourth quarter. We are also encouraged by the improved pace of net contracts signed per community this fourth quarter, which, although well below our historical averages, exceeded fourth quarter paces dating back to FY 2006.

"A number of factors continue to weigh on the housing market. The nation's unemployment rate in October reached 10.2%, the highest in 26 years, although the rate for college graduates, our primary demographic, was a much lower 4.7%, having declined from the previous month. Recent news reports indicate that one in four Americans have mortgages that exceed the value of their homes, which restricts their ability to sell and move to another home. On the other hand, affordability hovers near an all-time high, mortgage rates are near historic lows, and home prices, although down to 2003 levels, have improved sequentially over the past two quarters according to the most recent S&P/Case-Shiller Home Price Index. And although the volume of home sales continues to be near record lows, inventories of unsold homes are declining nationally.

"The choppiness in demand that began after Labor Day, following a stronger period from late March through late August, has continued. This is consistent with recent weaker economic news. Since the holiday season is not typically the busiest time to be purchasing or selling homes, we suspect the housing market may be following seasonal buying patterns.

"We believe it may take some time for Americans to regain confidence in our economy, their job status and the benefits of home ownership. Currently, we anticipate a gradual recovery in housing, similar to the one that occurred over several years coming out of the last recession in the early 1990's."

Joel H. Rassman, chief financial officer, stated: "We were pleased that Standard & Poor's recently reaffirmed our investment grade corporate credit rating, and upgraded our outlook to "Stable". Since April 2009, we have extended the average term of our public debt maturities from 3.5 to 6.1 years and now have no public debt maturing before FY 2013: We have raised $650 million in long-term debt in the public markets and retired $543 million of public debt with shorter term maturities, including, most recently, the remaining $48 million of our outstanding FY 2012 Senior Subordinated Notes on December 1, 2009."

"Our write-downs this quarter included $44.9 million attributable to owned operating communities, $36.4 million on land owned for future communities, and $4.2 million attributable to options on land. Of the aggregate $85.5 million of write-downs, $2.0 million was attributable to sales of non-strategic land holdings in the fourth quarter. These sales also triggered the expensing of $2.6 million (pre-tax) of previously capitalized marketing costs associated with the properties sold, which elevated our SG&A expense.

"Subject to the caveats contained in our statement on forward-looking information included in this release and in our other public filings, we offer the following limited guidance.

"We ended FYE 2009 with a significantly lower backlog than at FYE 2008 and, as a result, expect the number of homes we deliver in FY 2010 will be lower than the 2,965 homes we delivered in FY 2009. We currently estimate that we will deliver between 2,000 and 2,750 homes in FY 2010 at an average price of between $540,000 and $560,000 per home. We believe that, primarily due to incentives, fewer deliveries and a lower average selling price, our cost of sales as a percent of revenues, before taking into account write-downs, will be higher in FY 2010 than in FY 2009. Additionally, we estimate that our SG&A expense, excluding interest, will be lower in absolute terms in FY 2010 than in FY 2009, but based on FY 2010's lower projected revenues, we estimate it will be higher as a percentage of revenues."

Robert Toll continued: "In the past few months, we have been seeing and competing for a greater number of attractive land acquisition opportunities from financial institutions and other sellers. With our strong cash position, our record low net-debt-to-capital ratio and our demonstrated access to liquidity, we believe we can take advantage of opportunities that arise from the current state of distress in our industry.

"As has happened in previous downturns, we believe there will be further consolidation in our industry. Many of the small- and mid-sized private builders, who historically have been our primary competitors in the luxury niche, are facing serious capital constraints, among other problems, and are either hobbled or no longer in business. The other major public home building companies remain focused primarily on the lower end of the housing market, rather than on the luxury niche. Facing fewer competitors, and supported by our strong balance sheet, our diverse product lines, our broad geographic footprint and our brand name reputation for dependability, value, quality and service, we believe we are well-positioned to gain market share as the housing market gradually recovers."

Toll Brothers' financial highlights for the fourth-quarter and fiscal year ended October 31, 2009 (unaudited):

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