Toll Brothers Inc. (TOL)

TOL 
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Toll Brothers, Inc. (TOL)

F4Q09 Earnings Call

December 3, 2009 2:00 pm ET

Executives

Robert Toll – CEO

Joel Rassman – CFO

Greg Zeigler – VP Finance

Analysts

Nishu Sood - Deutsche Bank

Michael Rehaut - JPMorgan

Analyst for Ken Zenner - Macquarrie

Joshua Pollard - Goldman Sachs

Ivy Zelman - Zelman & Associates

Daniel Oppenheim - Credit Suisse

Stephen East - Pali Capital

David Goldberg - UBS

Arjan Shamar - Analyst

Joel Locker - FBN Securities

Megan McGrath - Barclays Capital

Alex Barron - Agency Trading Group

Analyst for Bose George - KBW

Analyst for Ivy Zelman - Zelman & Associates

Jim Wilson - JMP Securities

Presentation

Operator

Good afternoon. My name is [Latanji] and I will be your conference operator today. At this time, I would like to welcome everyone to the Toll Brothers fourth quarter earnings conference call. (Operator Instructions). Thank you. Mr. Toll, you may begin your conference.

Robert Toll

Thank you, Latanji. Welcome and thank you for joining us. With me today are Joel Rassman, Chief Financial Officer; Doug Yearley, Executive Vice President; Marty Connor, Assistant CFO; Fred Cooper, Senior Vice President of Finance and Investor Relations; Joe Sicree, Chief Accounting Officer; Kira McCarron, Chief Marketing Officer; Mike Synder, Chief Planning Officer; Don Salmon, President of TBI Mortgage Co.; and Greg Ziegler, Vice President of Finance, who really supports all of the above people with the answers.

Before I begin I’ll ask you to read the statement on forward-looking information in today's release and on our website. I caution you that many statements on this call are based on assumptions about the economy, world events, housing and financial markets, and many other factors beyond our control and knowledge that could significantly affect future results. Those listening on the web can email questions to rtoll@tollbrothersinc.com.

As I mentioned on our November 11th preliminary results call, please note that starting in fiscal year 2010, we are getting out of the pre-release business and will do just one investor conference call each quarter, which will be our quarterly earnings call.

Today we reported results for our fourth quarter ended October 31, 2009. Since our detailed release has been out since early this morning and is posted on our website, I will just hit certain highlights.

In fiscal year 09’s fourth quarter, we reported a net loss of $111.4 million, or $0.68 per share diluted. The loss included $85.5 million of non-cash pretax inventory write-downs, a pretax 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 of early retirement of debt, fiscal year ‘09’s fourth quarter pretax loss was $9.6 million.

For the full fiscal year 2009, we reported a net loss of $755.8 million or $4.68 per share diluted, which was impacted by non-cash pretax inventory and other write-downs totalling $476.7 million, a pretax 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, fiscal year 09’s full-year pretax loss was $6.1 million.

We ended fiscal year ’09 with a net debt to cap ratio of 7.4%, our lowest ever, compared to 12.6% at fiscal yearend 08. At fiscal year-end 09, we had $1.91 billion of cash and marketable U.S. treasuries compared to $1.63 billion at fiscal year-end 08. At fiscal year-end 09, we had $1.38 billion available under our $1.89 billion 30-bank credit facility, which matures in March 2011.

Our fiscal year 09’s fourth quarter net signed contracts of 765 units and $430.8 million rose 42% in units and 62% in dollars compared to fiscal year 08. Fiscal year ‘09’s fourth quarter totals also exceeded fiscal year ‘07’s fourth quarter net signed contracts by 17% in units and 18% in dollars. These increases were achieved despite having fewer selling communities. During fiscal year ‘09’s fourth quarter, we averaged 215 selling communities, down 26% from 290 in fiscal year 08’s fourth quarter and down 32% from 315 communities, our fourth quarter peak in fiscal year ’07.

Fiscal year 09’s average fourth quarter net signed contracts of 3.56 units per community exceeded fiscal year 08’s fourth quarter average of 1.86 units per community by 91%. They also exceeded fiscal year 07’s fourth quarter average of 2.08 units per community by 71%. Fiscal year 09's average was also 4% above fiscal year 06’s fourth quarter average of 3.42 units per community but still well below our 20-year fourth quarter average of 6.16 units per community.

Fiscal year 09's fourth quarter homebuilding deliveries and revenues of 860 units and $486.6 million declined 20% in units and 30% in dollars, and our fourth quarter end backlog of 1,531 units and $874.8 million declined 25% in units and 34% in dollars compared to fiscal year 08’s fourth quarter.

For the full fiscal year 09, net signed contracts of 2,450 units and $1.3 billion declined 16% and 19% respectively compared to fiscal year 08. Our fiscal year 09 homebuilding deliveries and revenues of 2,965 units and $1.76 billion, declined 37% in units and 44% in dollars compared to fiscal year 08.

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 whether 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.

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