For Toll Brothers, Future's Uncertain

Minyan Peter
  AUG 27, 2009 12:15 PM

The homebuilder believes it can no longer shelter deferred tax assets.


Editor's Note: This article was originally published on the Buzz & Banter. It's being reposted here for the benefit of the Minyanville community.

In its earnings announcement, Toll Brothers (TOL) states that the company:

"...recorded non-cash valuation allowances of $416.8 million against its federal deferred tax asset and $22.6 million against its state deferred tax assets following an assessment of the recoverability of its deferred tax assets under SFAS 109. The Company believes that the extended downturn in the housing market, the uncertainty as to its duration, and the Company's recent losses due primarily to recognition of impairment charges are significant evidence of the need for such an allowance."

For those not familiar with deferred tax assets, they typically represent taxes which a company is able to shelter in the future because of prior period losses. And by its earnings announcement this morning, Toll is saying that future earnings are sufficiently uncertain that the company no longer believes it can shelter them.

Having said that, folks will see that as of July 31, 2009, the company still had an unreserved federal deferred tax asset of $151.7 million. But I would note that this "represents the amount of refund it anticipates from the filing of its 2009 tax return in early 2010."

As I've written before on the Buzz & Banter, write-offs of deferred tax assets, while always positioned as non-cash, are truly the best forward-looking earnings guidance that a company gives investors.

And to me, Toll's comments today speak to its confidence in the economic recovery ahead.

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