Commitments and Contingencies

6 Months Ended

Apr. 30, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

13. Commitments and Contingencies

Generally, the Company’s option and purchase agreements to acquire land parcels do not require the Company to purchase those land parcels, although the Company may, in some cases, forfeit any deposit balance outstanding if and when it terminates an option and purchase agreement. If market conditions are weak, approvals needed to develop the land are uncertain or other factors exist that make the purchase undesirable, the Company may not expect to acquire the land. Whether an option and purchase agreement is legally terminated or not, the Company reviews the amount recorded for the land parcel subject to the option and purchase agreement to determine if the amount is recoverable. While the Company may not have formally terminated the option and purchase agreements for those land parcels that it does not expect to acquire, it has written off any non-refundable deposits and costs previously capitalized to such land parcels in the periods that it determined such costs were not recoverable.

Information regarding the Company’s purchase commitments at April 30, 2011 and October 31, 2010 is provided in the table below (amounts in millions).

	April 30,		October 31,
	2011		2010
Aggregate purchase commitments
Unrelated parties	$	408.2	$	419.2
Unconsolidated entities that the Company has investments in		136.0		131.2
Total	$	544.2	$	550.4
Deposits against aggregate purchase commitments	$	43.5	$	47.1
Credits to be received from unconsolidated entities		38.3		37.3
Additional cash required to acquire land		462.4		466.0
Total	$	544.2	$	550.4
Amount of additional cash required to acquire land included in accrued expenses	$	62.5	$	77.6

The Company has additional land parcels under option that have been excluded from the aforementioned aggregate purchase amounts since it does not believe that it will complete the purchase of these land parcels and no additional funds will be required from the Company to terminate these contracts.

At April 30, 2011, the Company had investments in and advances to a number of unconsolidated entities, was committed to invest or advance additional funds and had guaranteed a portion of the indebtedness and/or loan commitments of these entities. In addition, the Company was subject to litigation related to one joint venture in which it had an investment. See Note 3, “Investments in and Advances to Unconsolidated Entities,” for more information regarding the Company’s commitments to these entities.

At April 30, 2011, the Company had $783.8 million available to it under its $885 million revolving credit facility with 12 banks, which extends to October 2014. At April 30, 2011, the Company had no outstanding borrowings under the credit facility but had outstanding letters of credit of approximately $101.2 million. At April 30, 2011, interest would have been payable on borrowings under our credit facility at 2.50% (subject to adjustment based upon our debt rating and leverage ratios) above the Eurodollar rate or at other specified variable rates as selected by us from time to time. The Company is obligated to pay an undrawn commitment fee of 0.50% (subject to adjustment based upon our debt rating and leverage ratios) based on the average daily unused amount of the credit facility. Under the terms of the credit facility, the Company is not permitted to allow its maximum leverage ratio (as defined in the underlying credit agreement) to exceed 1.75 to 1.00, and is required to maintain a minimum tangible net worth (as defined in the underlying credit agreement) of approximately $1.88 billion at April 30, 2011. At April 30, 2011, the Company’s leverage ratio was approximately 0.16 to 1.00, and its tangible net worth was approximately $2.51 billion. In addition, at April 30, 2011, the Company had $25.3 million of letters of credit outstanding with three banks which were not part of its new credit facility; these letters of credit were collateralized by $26.0 million of cash deposits.

At April 30, 2011, the Company had outstanding surety bonds amounting to $371.0 million, primarily related to its obligations to various governmental entities to construct improvements in the Company’s various communities. The Company estimates that an aggregate of $172.9 million of work remains on these improvements. The Company has an additional $71.1 million of surety bonds outstanding that guarantee other obligations of the Company. The Company does not believe it is probable that any outstanding bonds will be drawn upon.

At April 30, 2011, the Company had agreements of sale outstanding to deliver 1,760 homes with an aggregate sales value of $1.01 billion.

The Company’s mortgage subsidiary provides mortgage financing for a portion of the Company’s home closings. The Company’s mortgage subsidiary funds its commitments through a combination of its own capital, capital provided from Toll Brothers, Inc, its $75 million repurchase facility and from the sale of mortgage loans to various investors. For those home buyers to whom the Company’s mortgage subsidiary provides mortgages, it determines whether the home buyer qualifies for the mortgage he or she is seeking based upon information provided by the home buyer and other sources. For those home buyers that qualify, the Company’s mortgage subsidiary provides the home buyer with a mortgage commitment that specifies the terms and conditions of a proposed mortgage loan based upon then-current market conditions. Prior to the actual closing of the home and funding of the mortgage, the home buyer will “lock” in an interest rate based upon the terms of the commitment. At the time of rate lock, the Company’s mortgage subsidiary agrees to sell the proposed mortgage loan to one of several outside recognized mortgage financing institutions, which is willing to honor the terms and conditions, including a locked interest rate, committed to the home buyer. The Company believes that these institutions have adequate financial resources to honor their commitments to its mortgage subsidiary. Information regarding the Company’s mortgage commitments at April 30, 2011 and October 31, 2010 is provided in the table below (amounts in millions).

	April 30,		October 31,
	2011		2010
Aggregate mortgage loan commitments
IRLCs	$	153.3	$	169.5
Non-IRLCs		319.0		263.5
Total	$	472.3	$	433.0
Investor commitments to purchase:
IRLCs	$	148.2	$	169.5
Mortgage loans receivable		25.9		91.7
Total	$	174.1	$	261.2
Amount of commitments with unlocked interest rates by home buyer	$	319.0	$	263.5

As of April 30, 2011, the Company has confirmed the presence of defective Chinese-made drywall in a small number of its West Florida homes, which were delivered between May 2006 and January 2008. The anticipated cost of the remediation of these homes is included in the amounts that the Company previously accrued. The Company believes that adequate provision for costs associated with the remediation of homes containing Chinese-made drywall has been made and that such costs are not expected to have a material adverse effect on the Company’s results of operations and liquidity or on its financial condition.