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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9186
TOLL BROTHERS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 23-2416878
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3103 Philmont Avenue, Huntingdon Valley, Pennsylvania 19006-4298
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 938-8000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock (par value $.01)* New York Stock Exchange
and Pacific Exchange
* Includes associated Right to Purchase Series A Junior Participating
Preferred Stock.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
As of December 31, 2000, the aggregate market value of the Common Stock held by
non-affiliates (all persons other than executive officers and directors of
Registrant) of the Registrant was approximately $1,040,277,000.
As of December 31, 2000, there were 36,262,522 shares of Common Stock
outstanding.
Documents Incorporated by Reference: Portions of the proxy statement of Toll
Brothers, Inc. with respect to the 2001 Annual Meeting of Shareholders,
scheduled to be held on March 22, 2001, are incorporated by reference into
Items 10 through 13 hereof.
PART I
ITEM 1. BUSINESS
General
Toll Brothers, Inc. ("Toll Brothers" or the "Company"), a Delaware corporation
formed in May 1986, commenced its business operations, through predecessor
entities, in 1967. Toll Brothers designs, builds, markets and arranges financing
for single family detached and attached homes in middle and high income
residential communities catering to move-up, empty-nester and age-qualified
homebuyers in twenty states in six regions around the United States. The
communities are generally located on land the Company has either developed or
acquired fully approved and, in some cases, improved. Currently, the Company
operates in:
Southeastern Pennsylvania and Delaware
Central New Jersey
Virginia and Maryland suburbs of Washington, D.C.
Baltimore County, Maryland
Boston, Massachusetts metropolitan area
Rhode Island
Southern New Hampshire
Fairfield and Hartford Counties, Connecticut
Westchester County, New York
Metro Los Angeles and San Diego, California
San Francisco Bay area of Northern California
Palm Springs, California
Phoenix, Arizona metropolitan area
Raleigh and Charlotte, North Carolina
Las Vegas, Nevada
Dallas and Austin, Texas
East and west coasts of Florida
Columbus, Ohio
Nashville, Tennessee
Detroit, Michigan
Chicago, Illinois
The Company continues to explore additional geographic areas for expansion.
The Company markets its homes primarily to middle-income and upper-income
buyers,emphasizing high quality construction and customer satisfaction. In the
five years ended October 31, 2000, Toll Brothers delivered more than 15,000
homes in 321 communities, including 3,945 homes in 188 communities delivered
in fiscal 2000.
In order to take advantage of commercial real estate opportunities which may
present themselves from time to time, the Company formed Toll Brothers Realty
Trust, a venture which is owned one-third by the Company, one-third by a number
of senior executives and /or directors, including Robert I. Toll, Bruce E. Toll
(and members of his family), Zvi Barzilay (and members of his family) and Joel
H. Rassman, and one-third by the Pennsylvania State Employees Retirement System.
The Company provides development, finance and management services to Toll Realty
Trust and receives fees for its services.
The Company also operates its own land development, architectural, engineering,
mortgage, title, security monitoring, landscape, cable T.V., broadband Internet
access, lumber distribution, house component assembly and manufacturing
operations.
At October 31, 2000, the Company was offering homes for sale in 146 communities
containing over 14,732 home sites which were owned or controlled through
options. As of that date, the Company also controlled approximately 15,607
home sites in 121 proposed communities.
At October 31, 2000, the Company was offering single family detached homes at
prices, excluding customized options, generally ranging from $183,000 to
$1,120,000 with an average base sales price of $453,000. The offering price of
the Company's attached homes, excluding customized options, generally ranged
from $155,000 to $600,000, with an average base sales price of $298,000.
On October 31, 2000 and 1999, the Company had backlogs of $1,434,946,000 (2,779
homes) and $1,067,685,000 (2,381 homes), respectively. The Company expects that
substantially all homes in backlog at October 31, 2000 will be delivered by
October 31, 2001.
In recognition of its achievements, the Company has received numerous awards
from national, state and local homebuilder publications and associations. Toll
Brothers is the only publicly traded home builder to have won all three of the
industry's highest honors: America's Best Builder (1996), the National Housing
Quality Award (1995), and Builder of the Year (1988).
The Company generally attempts to reduce certain risks homebuilders encounter by
controlling land for future development through options whenever possible (which
allows the Company to obtain the necessary governmental approvals before
acquiring title to the land), by generally commencing construction of a home
only after executing an agreement of sale with a buyer, and by using
subcontractors to perform home construction and land development work on a
fixed-price basis. In order to obtain better terms or prices, or due to
competitive pressures, the Company may purchase properties outright, or
acquire the underlying mortgage, prior to obtaining all of the governmental
approvals necessary to commence development.
The Communities
Toll Brothers' communities are generally located in affluent suburban areas near
major highways with access to major cities. The Company currently operates in
twenty states in six regions around the country. The following table lists the
states in which the Company operates and the fiscal years in which the Company
or its predecessor commenced operations:
Fiscal Fiscal
State Year of State Year of
Entry Entry
Pennsylvania 1967 Texas 1995
New Jersey 1982 Florida 1995
Delaware 1987 Arizona 1995
Massachusetts 1988 Ohio 1997
Maryland 1988 Tennessee 1998
Virginia 1992 Nevada 1998
Connecticut 1992 Michigan 1999
New York 1993 Illinois 1999
California 1994 Rhode Island 2000
North Carolina 1994 New Hampshire 2000
The Company emphasizes its high-quality, detached single family homes that are
marketed primarily to "upscale" luxury home buyers, generally comprised of
those persons who have previously owned a principal residence and who are
seeking to buy a larger home - the so-called "move-up" market. The Company
believes its reputation as a developer of homes for this market enhances its
competitive position with respect to the sale of smaller, moderately priced
detached homes, as well as attached homes.
The Company also sells to the 50+ year-old "empty-nester" market and believes
that this market has strong growth potential. The Company has developed a number
of home designs with features such as single-story homes and first floor master
bedroom suites that it believes appeal to this category of home buyer and has
integrated these designs into its communities along with its other homes.
In 1999, the Company opened for sale its first active adult, age-qualified
community for households in which at least one member is 55 years of age. The
Company is currently selling from three such communities and expects to open
several additional age-qualified communities during the next few years.
The Company believes that the demographics of its move-up, empty-nester and
active adult, age-qualified up-scale markets provide potential for growth in the
coming decade. According to the U.S. Census Bureau, the number of households
earning $100,000 or more (in constant 1999 dollars) now stands at 12.8 million
households, approximately 12.2% of all households. This group has grown at
nearly seven times the rate of increase of all U.S. households over the past two
decades. According to Claritas, Inc., a provider of demographic information,
approximately 5.2 million of these households are located in the Company's
current markets. The largest number of baby boomers, the more than four million
born annually between 1954 and 1964, are now 36 to 47 years of age and in their
peak move-up home buying years. The leading edge of the baby boom generation is
just now entering its 50s and the empty-nester market. The number of households
with persons 55 to 64 years old, the focus of the Company's age-qualified
communities, is projected to increase by over 47% by the Year 2010 according to
the U.S. Census Bureau.
Toll Brothers also develops master planned communities and currently has seven
such communities containing approximately 6,500 home sites and expects to open
three additional communities during the next two years. These communities, many
of which contain golf courses and other country club type amenities, enable the
Company to offer multiple home types and sizes to a broad range of move-up,
empty-nester and active-adult buyers. The Company realizes efficiencies from
such shared common costs as land development, infrastructure and marketing. The
Company currently has master planned communities in Michigan, Florida, North
Carolina and Virginia.
Each single-family detached-home community offers several home plans, with the
opportunity for home buyers to select various exterior styles. The Company
designs each community to fit existing land characteristics, blending winding
streets with cul-de-sacs to establish a pleasant environment. The Company
strives to create a diversity of architectural styles within an overall planned
community. This diversity is created and enhanced by variations among the house
models offered, in exterior design options for homes of the same basic floor
plan, preservation of existing trees and foliage whenever practicable, and
curving street layouts which allow relatively few homes to be seen from any
vantage point. Normally, homes of the same type or color may not be built next
to each other. The communities have attractive entrances with distinctive
signage and landscaping. The Company believes this avoids a "development"
appearance and gives each community a diversified neighborhood appearance
that enhances home values.
The Company's attached home communities generally offer one to three-story
homes, provide for limited exterior options and often contain commonly-owned
recreational acreage such as playing fields, swimming pools and tennis courts.
The Homes
Most single-family detached-home communities offer at least four different floor
plans, each with several substantially different architectural styles. For
example, the purchaser may select the same basic floor plan with a Colonial,
Georgian, Federal or Provincial design, and exteriors may be varied further by
the use of stone, stucco, brick or siding. Attached home communities generally
offer two or three different floor plans with two, three or four bedrooms.
In all of Toll Brothers' communities, a wide selection of options is available
to purchasers for an additional charge. The options typically are more numerous
and complex as the home becomes more expensive. Major options include additional
garages, additional rooms, finished lofts and extra fireplaces. As a result of
the additional charges for such options, the average final sales price of the
Company's homes was approximately 19% higher than the average base sales price
during fiscal 2000.
The range of base sales prices for the Company's lines of homes as of October
31, 2000, was as follows:
Single-Family Detached Homes:
Move-up $183,000 - $ 727,000
Executive 271,000 - 899,000
Estate 330,000 - 1,120,000
Active Adult, Age-Qualified 196,000 - 439,000
Attached Homes:
Flats $155,000 - $ 225,000
Townhomes 190,000 - 396,000
Carriage Homes 254,000 - 600,000
Contracts for the sale of homes are at fixed prices. The prices at which homes
are offered in a community have generally increased from time to time during the
sellout period for the community; however, there can be no assurance that sales
prices will increase in the future.
The Company uses some of the same basic home designs in similar communities.
However, the Company is continuously developing new designs to replace or
augment existing ones to assure that its homes reflect current consumer
preferences. The Company uses its own architectural staff and also engages
unaffiliated architectural firms to develop new designs. During the past year,
the Company has introduced over 80 new models.
The Company operates in six regions throughout the United States. The following
table summarizes by region the Company's closings and new contracts signed
during fiscal 2000 and the Company's backlog as of October 31, 2000:
Region Closings New Contracts(1) Backlog(1)
Units $000 Units $000 Units $000
Northeast 1,043 $492,567 1,043 $513,938 723 $367,586
(CT,MA,NH,NJ,NY,RI)
Mid-Atlantic
(DE,MD,PA,VA) 1,293 584,912 1,280 592,738 679 319,220
Southeast (FL,NC,TN) 269 133,892 419 203,963 312 146,632
Southwest (AZ, NV, TX) 734 276,548 731 315,643 417 209,327
Midwest (IL,MI,OH) 335 122,145 481 205,994 311 147,214
West (CA) 271 152,866 464 317,090 337 244,967
Total 3,945 $1,762,930 4,418 $2,149,366 2,779$1,434,946
(1) New contracts and backlog amounts include $14,844,000 (54 homes) and
$9,425,000 (33 homes), respectively, from an unconsolidated 50% owned joint
venture.
The following table summarizes certain information with respect to residential
communities of Toll Brothers under development as of October 31, 2000:
HOMES UNDER
NUMBER OF HOMES HOMES CONTRACT AND HOMESITES
REGION COMMUNITIES APPROVED CLOSED NOT CLOSED AVAILABLE
Northeast
(CT,MA,NH,NJ,NY,RI) 52 5,008 1,932 723 2,353
Mid-Atlantic
(DE,MD,PA,VA) 55 8,043 2,546 679 4,818
Southeast
(FL,NC,TN) 30 3,496 517 312 2,667
Southwest
(AZ,NV,TX) 36 3,733 1,258 417 2,058
Midwest
(IL,MI,OH) 24 2,728 649 311 1,768
West
(CA) 16 1,607 202 337 1,068
Total 213 24,615 7,104 2,779 14,732
On October 31, 2000, significant site improvements had not commenced on
approximately 9,239 of the 14,732 available home sites. Of the 14,732 available
home sites, 1,035 were not owned by the Company, but were controlled through
options.
Of the 213 communities under development as of October 31, 2000, 146 had homes
being offered for sale and 40 had not yet opened for sale. The other 27 had
been sold out, but not all closings had been completed. Of the 146
communities in which homes were being offered for sale, 129 were
single-family detached-home communities containing a total of 188 homes
(exclusive of model homes) under construction but not under contract, and 17
were attached-home communities containing a total of 54 homes (exclusive of
model homes)under construction but not under contract.
Land Policy
Before entering into an agreement to purchase a land parcel, the Company
completes extensive comparative studies and analyses on detailed
Company-designed forms that assist it in evaluating the acquisition. Toll
Brothers generally attempts to follow a policy of acquiring options to
purchase land for future communities. However, in order to obtain better
terms or prices, or due to competitive pressures, the Company will acquire
property outright from time to time. In addition, the Company has, at times,
acquired the underlying mortgage on a property and subsequently obtained
title to that property.
An option or agreement to purchase land is generally on a non-recourse basis,
thereby limiting the Company's financial exposure to the amounts invested in
property and pre-development costs. The use of options or purchase agreements
may increase the price of land that the Company eventually acquires, but
significantly reduces the risk. It allows the Company to obtain necessary
development approvals before acquisition of the land, which generally
enhances the value of the options and purchase agreements and the land, when
acquired. The Company has the ability to extend many of these options for
varying periods of time, in some cases by making an additional payment and,
in some cases, without any additional payment. The Company's purchase
agreements are typically subject to numerous conditions including, but not
limited to, the Company's ability to obtain necessary governmental approvals
for the proposed community. Often, the downpayment on an agreement will be
returned to the Company if all approvals are not obtained, although
pre-development costs may not be recoverable. The Company generally has
the right to cancel any of its agreements to purchase land by forfeiture of the
Company's downpayment on the agreement. In such instances, the Company
generally is not able to recover any pre-development costs.
During the early 1990's, due to a recession and the difficulties other builders
and land developers had in obtaining financing, the number of buyers competing
for land in the Company's market areas diminished, while the number of sellers
increased, resulting in more attractive prices for the Company's land
acquisitions. Further, many of the land parcels offered for sale were fully
approved, and often improved, subdivisions. Previously, such types of
subdivisions generally were not available for acquisition in the Company's
market areas. The Company purchased several such subdivisions outright and
acquired control of several others through option contracts.
Due to the improved economy and the availability of capital during the later
portion of the 1990's, the Company has experienced an increase in competition
for available land in its market areas. The Company's ability to continue its
development activities over the long-term will be dependent upon its continued
ability to locate and enter into options or agreements to purchase land, obtain
governmental approvals for suitable parcels of land, and consummate the
acquisition and complete the development of such land.
While the Company believes that there is significant diversity in its existing
markets and that this diversity provides protection from the vagaries of
individual local economies, it believes that greater geographic diversification
will provide additional protection and more opportunities for growth. The
Company continues to look for new markets.
The following is a summary, at October 31, 2000, of the parcels of land that
the Company either owned or controlled through options or purchase agreements
for proposed communities, as distinguished from those currently under
development:
Number of Number of
Region Communities Homes Planned
Northeast 50 5,183
Mid-Atlantic 50 7,710
Southeast 3 438
Southwest 3 344
Midwest 4 902
West 11 1,030
121 15,607
Of the 15,607 planned home sites, 5,799 lots were owned by the Company and
1,417 lots were held for sale. The aggregate purchase price of land parcels
under option and purchase agreements at October 31, 2000 was approximately
$648,347,000, of which the Company had paid or deposited $32,934,000.
The Company evaluates all of the land under its control for proposed
communities on an ongoing basis with respect to economic and market
feasibility. During the year ended October 31, 2000, such feasibility
analyses resulted in approximately $1,618,000 of capitalized costs related to
proposed communities being charged to expense because they were no longer
deemed to be recoverable.
There can be no assurance that the Company will be successful in securing
necessary development approvals for the land currently under its control or for
land which the Company may acquire control of in the future or, that upon
obtaining such development approvals, the Company will elect to complete its
purchases of land under option or complete the development of land that it
owns. The Company has generally been successful in the past in obtaining
governmental approvals, has substantial land currently owned or under its
control for which it has obtained or is seeking such approvals (as set forth
in the table above), and devotes significant resources to locating suitable
land for future development and to obtaining the required approvals on land
under its control. Failure to locate sufficient suitable land or to obtain
necessary governmental approvals may impair the ability of the Company over
the long-term to maintain current levels of development activities.
The Company believes that it has an adequate supply of land in its existing
communities or held for future development (assuming that all properties are
developed) to maintain its operations at its current levels for several years.
Community Development
The Company expends considerable effort in developing a concept for each
community, which includes determination of size, style and price range of the
homes, layout of the streets and individual lots, and overall community design.
After obtaining the necessary governmental subdivision and other approvals,
which may sometimes take several years, the Company improves the land by
grading and clearing it, installing roads, recreational amenities,
underground utility lines, erecting distinctive entrance structures, and
staking out individual home sites.
Each community is managed by a project manager who is usually located at the
site. Working with construction managers, marketing personnel and, when
required, other Company and outside professionals such as engineers,
architects and legal counsel, the project manager is responsible for
supervising and coordinating the various developmental steps from acquisition
through the approval stage, marketing, selling, construction and customer
service, including monitoring the progress of work and controlling
expenditures. Major decisions regarding each community are made by senior
members of the Company's management.
The Company recognizes revenues from home sales only when title and possession
are transferred to the buyer, which generally occurs shortly after home
construction is substantially completed. The most significant variable
affecting the timing of the Company's revenue stream, other than housing
demand, is receipt of final regulatory approvals, which, in turn, permits
the Company to begin the process of obtaining executed sales contracts from
homebuyers. Receipt of such final approvals is not seasonal. Although the
Company's sales and construction activities vary somewhat by season,
affecting the timing of closings, any such seasonal effect is relatively
insignificant compared to the effect of receipt of final governmental approvals.
Subcontractors perform all home construction and land development work,
generally under fixed-price contracts. Toll Brothers acts as a general
contractor and purchases some, but not all, of the building supplies it
requires(See "Manufacturing/Distribution Facilities" in Item 2).
While the Company has experienced some shortages from time to time in the
availability of subcontractors in some markets, it does not anticipate any
material effect from these shortages on its homebuilding operations. The
Company's construction managers and assistant construction managers coordinate
subcontracting activities and supervise all aspects of construction work and
quality control. One of the ways the Company seeks to achieve home buyer
satisfaction is by providing its construction managers with incentive
compensation arrangements based on each home buyer's satisfaction as expressed
by their responses on pre-closing and post-closing checklists.
The Company maintains insurance to protect against certain risks associated
with its activities including, among others, general liability, "all-risk"
property, workers' compensation, automobile, and employee fidelity. The
Company believes the amount and extent of such insurance coverages are adequate.
Marketing
The Company believes that its marketing strategy, which emphasizes its more
expensive "Estate" and "Executive" product lines of homes, has enhanced the
Company's reputation as a builder-developer of high-quality upscale housing.
The Company believes this reputation results in greater demand for all of the
Company's lines of homes. To enhance this image, the Company generally
includes attractive decorative features such as chair rails, crown moldings,
dentil moldings, vaulted and coffered ceilings and other aesthetic items,
even in its less expensive homes, based on its belief that this additional
construction expense improves its marketing effort.
In determining the prices for its homes, the Company utilizes, in addition to
management's extensive experience, a Company-designed value analysis program
that compares Toll Brothers homes with homes offered by other builders in each
local marketing area. In its application of this program, the Company assigns a
positive or negative dollar value to differences between itself and its
competitors' product features, such as house and community amenities,
location and reputation.
Toll Brothers expends great effort in designing and decorating its model homes,
which play an important role in its marketing. In its models, Toll Brothers
creates an attractive atmosphere, with bread baking in the oven, fires burning
in fireplaces, and music playing in the background. Interior decorating varies
among the models and is carefully selected to reflect the lifestyles of
prospective buyers. During the past several years, the Company has received
numerous awards from various home builder associations for its interior
merchandising.
The Company typically locates a sales office in each community which is
generally staffed by Company sales personnel, who are compensated with both
salary and commission. A significant portion of Toll Brothers' sales is
derived from the introduction of customers to its communities by local
cooperating realtors.
The Company advertises extensively in newspapers, other local and regional
publications, and on billboards. The Company also uses videotapes and
attractive color brochures to market its communities. The Internet is also an
important source of information for our customers. A visitor to the Company's
award winning website can obtain information regarding the Company's
communities and homes across the country and take panoramic or video tours of
its homes. The Company's web address is www.tollbrothers.com.
All Toll Brothers homes are sold under the Company's limited warranty as to
workmanship and mechanical equipment. Many homebuyers are also provided with a
limited ten-year warranty as to structural integrity.
Competition
The homebuilding business is highly competitive and fragmented. The Company
competes with numerous home builders of varying sizes, ranging from local to
national in scope, some of which have greater sales and financial resources
than the Company. Resales of homes also provide competition. The Company
competes primarily on the basis of price, location, design, quality, service
and reputation; however, during the past several years, the Company's financial
stability, relative to others in its industry, has become an increasingly
favorable competitive factor. The Company believes that, due to the increased
availability of capital, competition has increased during the past several
years.
Regulation and Environmental Matters
The Company is subject to various local, state and federal statutes,
ordinances, rules and regulations concerning zoning, building design,
construction and similar matters, including local regulations which impose
restrictive zoning and density requirements in order to limit the number of
homes that can eventually be built within the boundaries of a particular
locality. In a number of the Company's markets there has been an increase in
state and local legislation authorizing the acquisition of land, as dedicated
open space, mainly by governmental, quasi-public and non-profit entities. In
addition, the Company is subject to various licensing, registration and
filing requirements in connection with the construction, advertisement and
sale of homes in its communities. These laws have not had a material effect
on the Company, except to the extent that their application may have caused
the Company to conclude that development of a proposed community would not be
economically feasible, even if any or all necessary governmental approvals
were obtained.(See "Land Policy" in this Item 1). The Company may also
be subject to periodic delays or may be precluded entirely from developing
communities due to building moratoriums in one or more of the areas in which it
operates. Generally, such moratoriums relate to insufficient water or sewage
facilities, or inadequate road capacity.
In order to secure certain approvals, in some areas, the Company may have to
provide affordable housing at below market rental or sales prices. The impact
on the Company will depend on how the various state and local governments in
the areas in which the Company engages, or intends to engage, in development
implement their programs for affordable housing. To date, these restrictions
have not had a material impact on the Company.
The Company is also subject to a variety of local, state and federal statutes,
ordinances, rules and regulations concerning protection of public health and
the environment ("environmental laws"). The particular environmental laws which
apply to any given community vary greatly according to the location of the
site, the site's environmental condition and the present and former uses of
the site. These environmental laws may result in delays, may cause the
Company to incur substantial compliance and other costs, and/or may prohibit
or severely restrict development in certain environmentally sensitive regions
or areas.
The Company maintains a policy of engaging independent environmental
consultants to evaluate land for the potential of hazardous or toxic
materials, wastes or substances prior to consummating its acquisition.
Because it has generally obtained such assessments for the land it has
purchased, the Company has not been significantly affected to date by the
presence of such materials.
Employees
As of October 31, 2000, the Company employed 2,479 full-time persons; of these,
97 were in executive positions, 327 were engaged in sales activities, 256 were
in project management activities, 847 were in administrative and clerical
activities, 643 were in construction activities, 139 were in architectural
and engineering activities and 170 were in manufacturing and distribution.
The Company considers its employee relations to be good.
Factors That May Affect Our Future Results
(Cautionary Statements Under the Private Securities Litigation Reform Act of
1995)
Certain information included in this report or in other materials we have filed
or will file with the Securities and Exchange Commission (as well as
information included in oral statements or other written statements made or
to be made by the Company) contains or may contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended.
You can identify these statements by the fact that they do not relate
strictly to historical or current facts. They contain words like
"anticipate", "estimate", "expect", "project", "intend", "plan", "believe",
"may", "can", "could", "might" and other words or phrases of similar meaning
in connection with any discussion of future operating or financial
performance. Such statements include information relating to construction
activities, plans for future development of residential communities, land
acquisition and related activities as well as capital spending, financing
sources and the effects of regulation and competition. From time to time,
forward-looking statements are also included in the Company's other periodic
reports on Forms 10-Q and 8-K, in press releases and in other material
released to the public.
Any or all of the forward-looking statements included in this report and in any
other reports or public statements of the Company may turn out to be
inaccurate. This can occur as a result of incorrect assumptions or as a
consequence of known or unknown risks and uncertainties. Many factors
mentioned in this report or in other reports or public statements of the
Company, such as government regulation and the competitive environment, will
be important in determining the Company's future performance. Consequently,
actual results may differ materially from those that might be anticipated
from our forward-looking statements.
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. However,
any further disclosures made on related subjects in our subsequent reports on
Forms 10-K, 10-Q and 8-K should be consulted. The following cautionary
discussion of risks, uncertainties and possible inaccurate assumptions
relevant to our business includes factors we believe could cause our actual
results to differ materially from expected and historical results. Other
factors beyond those listed below, including factors unknown to us and
factors known to us which we have not determined are material, could also
adversely affect us. This discussion is provided as permitted by the Private
Securities Litigation Reform Act of 1995, and all of our forward-looking
statements are expressly qualified in their entirety by the cautionary
statements contained or referenced to in this section.
We operate in a very competitive environment, which is characterized by
competition from a number of other home builders in each market in which
we operate. Actions or changes in plans by competitors may negatively
affect the Company.
Our business can be affected by changes in general economic and market
conditions as well as local economic and market conditions where our
operations are conducted and where prospective purchasers of our homes
live.
The plans for future development of our residential communities can be
affected by a number of factors including, for example, time delays in
obtaining necessary governmental permits and approvals and legal challenges
to our proposed communities.
Our operations depend on our ability to continue to obtain land for the
development of our residential communities at reasonable prices. Changes
in competition, availability of financing, customer trends and market
conditions may impact our ability to obtain land for new residential
communities.
The development of our residential communities may be affected by
circumstances beyond our control, including weather conditions, work
stoppages, labor disputes, unforeseen engineering, environmental or
geological problems and unanticipated shortages or increases in the cost
of materials and labor. Any of these circumstances could give rise to
delays in the completion of, or increase the cost of, developing one or
more of our residential communities.
We believe that our recorded tax balances are adequate. However, it is not
possible to predict the effects of possible changes in the tax laws or
changes in their interpretation. These changes or interpretations, if made,
could have a material negative effect on our operating results.
The interest rate on our revolving credit agreement is subject to
fluctuation based on changes in short-term interest rates and the ratings
which national rating agencies assign to our outstanding debt securities.
Our interest expense could increase as a result of these factors.
Our business and earnings are substantially dependent on our ability to
obtain financing for our development activities. Increases in interest
rates, concerns about the market or the economy, or consolidation or
dissolution of financial institutions could increase our cost of borrowing
and/or reduce our ability to obtain the funds required for our future
operations.
Our business and earnings are also substantially dependent on the ability
of our customers to finance the purchase of their homes. Limitations on the
availability of financing or increases in the cost of such financing could
adversely affect our operations.
Claims have been brought against us in various legal proceedings, which
have not had, and are not expected to have, a material adverse effect on
the business or the financial condition of the Company; however, additional
legal and tax claims may arise from time to time, and it is possible that
our cash flows and results of operations could be affected from time to
time by the resolution of one or more of such matters.
There is intense competition to attract and retain management and key
employees in the markets where our operations are conducted. Our business
could be adversely affected in the event of our inability to recruit or
retain key personnel in one or more of the markets in which we conduct our
operations.
ITEM 2. PROPERTIES
Headquarters
Toll Brothers' corporate offices, which are owned by the Company, contain
approximately 70,000 square feet, and are located at 3103 Philmont Avenue,
Huntingdon Valley, Montgomery County, Pennsylvania.
Manufacturing/Distribution Facilities
Toll Brothers owns a facility of approximately 200,000 square feet located in
Morrisville, Pennsylvania. The Company also owns a facility of approximately
100,000 square feet located in Emporia, Virginia which it acquired in 1999. In
both facilities it manufactures open wall panels, roof and floor trusses, and
certain interior and exterior millwork to supply a portion of the Company's
construction needs. These operations also permit Toll Brothers to purchase
wholesale lumber, plywood, windows, doors, certain other interior and
exterior millwork and other building materials to supply to its communities.
The Company believes that increased efficiency, cost savings and productivity
result from the operation of these plants and from such wholesale purchases
of material. The Pennsylvania plant generally does not sell or supply to any
purchaser other than Toll Brothers. The Virginia plant sells wall panels and
roof and floor trusses to outside purchasers as well as to Toll Brothers.
Regional and Other Facilities
The Company leases office and warehouse space in various locations, none of
which is material to the business of the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and litigation arising principally in
the ordinary course of business. The Company believes that the disposition of
these matters will not have a material adverse effect on the business or the
financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended October 31, 2000.
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table includes information with respect to all executive
officers of the Company as of October 31, 2000. All executive officers serve
at the pleasure of the Board of Directors of the Company.
Name Age Positions
Robert I. Toll 59 Chairman of the Board,
Chief Executive Officer
And Director
Zvi Barzilay 54 President, Chief Operating
Officer and Director
Joel H. Rassman 55 Senior Vice President,
Treasurer, Chief Financial
Officer and Director
Robert I. Toll, with his brother Bruce E. Toll, the Vice Chairman of the
Board and a Director of the Company, co-founded the Company's predecessors'
operations in 1967. He has been the Company's Chief Executive Officer and
Chairman of the Board since the Company's inception.
Zvi Barzilay joined the Company as a project manager in 1980 and has been an
officer of the Company since 1983. Mr. Barzilay was elected a Director of the
Company in 1994. He has held the position of Chief Operating Officer since May
1998 and the position of President since November 1998.
Joel H. Rassman has been a Senior Vice President of the Company since joining
the Company in 1984. Mr. Rassman has been a Director of the Company since 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is principally traded on the New York Stock Exchange
(Symbol: TOL). It is also listed on the Pacific Exchange.
The following table sets forth the price range of the Company's common stock on
the New York Stock Exchange for each fiscal quarter during the two years ended
October 31, 2000.
Three Months Ended
October 31 July 31 April 30 January 31
2000
High $35 $24 5/8 $23 1/16 $19 3/4
Low $23 1/2 $18 7/16 $16 $16 1/8
1999
High $21 1/2 $23 7/16 $23 1/4 $25 7/16
Low $15 5/8 $19 13/16 $17 1/2 $21 5/8
The Company has not paid any cash dividends on its common stock to date and
expects that, for the foreseeable future, it will follow a policy of retaining
earnings in order to finance the continued development of its business.
The payment of dividends is within the discretion of the Company's Board of
Directors and any decision to pay dividends in the future will depend upon an
evaluation of a number of factors, including the earnings, capital
requirements, the operating and financial condition of the Company, and any
contractual limitation then in effect. In this regard, the Company's 8 3/4%
Senior Subordinated Notes due 2006, 7 3/4% Senior Subordinated Notes due
2007, 8 1/8% Senior Subordinated Notes due 2009 and 8% Senior Subordinated
Notes due 2009, contain restrictions on the amount of dividends the Company
may pay on its common stock. In addition, the Company's Bank Revolving Credit
Agreement requires the maintenance of minimum consolidated stockholders'
equity which restricts the amount of dividends the Company may pay. As of
October 31, 2000, under the most restrictive of these provisions, the Company
could have paid up to approximately $271,000,000 of cash dividends.
At October 31, 2000, there were approximately 694 record holders of the
Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial and housing data
of the Company as of and for each of the five fiscal years ended October 31,
2000. It should be read in conjunction with the Consolidated Financial
Statements and Notes thereto, included in this report beginning at page F-1,
and Management's Discussion and Analysis of Financial Condition and Results
of Operations, included in Item 7 of this report.
Summary Consolidated Income Statement Data (Amounts in thousands, except per
share data)
Year Ended October 31
2000 1999 1998 1997 1996
Revenues $1,814,362 $1,464,115 $1,210,816 $971,660 $760,707
Income before income taxes,
extraordinary item $ 230,966 $ 162,750 $ 134,293 $107,646 $ 85,793
Income before
extraordinary item $ 145,943 $ 103,027 $ 85,819 $ 67,847 $ 53,744
Extraordinary loss - (1,461) (1,115) (2,772)
Net income $ 145,943 $ 101,566 $ 84,704 $ 65,075 $ 53,744
EARNINGS PER SHARE
Basic
Income before
extraordinary item $ 4.02 $ 2.81 $ 2.35 $ 1.99 $ 1.59
Extraordinary loss - (.04) (.03) (.08)
Net income $ 4.02 $ 2.77 $ 2.32 $ 1.91 $ 1.59
Weighted average number
of shares outstanding 36,269 36,689 36,483 34,127 33,865
Diluted*
Income before
extraordinary item $ 3.90 $ 2.75 $ 2.25 $ 1.86 $ 1.50
Extraordinary loss - (.04) (.03) (.07)
Net income $ 3.90 $ 2.71 $ 2.22 $ 1.78 $ 1.50
Weighted average number
of shares outstanding 37,413 37,436 38,360 37,263 36,879
*Due to rounding, amounts may not add
Summary Consolidated Balance Sheet Data (Amounts in thousands)
October 31
2000 1999 1998 1997 1996
Inventory $1,712,383 $1,443,282 $1,111,223 $ 921,595 $772,471
Total assets $2,030,254 $1,668,062 $1,254,468 $1,118,626 $837,926
Debt
Loans payable $ 326,537 $ 213,317 $ 182,292 $ 189,579 $132,109
Subordinated debt 469,499 469,418 269,296 319,924 208,415
Collateralized mortgage
obligations payable __________ 1,145 1,384 2,577 2,816
Total $ 796,036 $ 683,880 $ 452,972 $ 512,080 $343,340
Stockholders' equity $ 745,145 $ 616,334 $ 525,756 $ 385,252 $314,677
Housing Data
Year ended October 31: 2000 1999 1998 1997 1996
Number of homes
closed 3,945 3,555 3,099 2,517 2,109
Sales value of homes
closed
(in thousands) $1,762,930 $1,438,171 $1,206,290 $ 968,253 $759,303
Number of homes
contracted (1) 4,418 3,845 3,387 2,701 2,398
Sales value of homes
contracted
(in thousands) (1) $2,149,366 $1,640,990 $1,383,093 $1,069,279 $884,677
As of October 31:
Number of homes
in backlog (1) 2,779 2,381 1,892 1,551 1,367
Sales value of homes
in backlog
(in thousands) (1) $1,434,946 $1,067,685 $ 814,714 $ 627,220 $526,194
(1) New contracts for fiscal 2000 and 1999 included $14,844,000 (54 homes) and
$13,141,000 (46 homes), respectively, from an unconsolidated 50% owned joint
venture. Backlog as of October 31, 2000 and 1999 included $9,425,000
(33 homes) and $13,756,000 (54 homes), respectively, from this joint venture.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth comparisons of certain income statement items
related to the Company's operations (dollars in millions):
Year ended October 31, 2000 1999 1998
$ % $ % $ %
Home sales
Revenues 1,762.9 1,438.2 1,206.3
Costs 1,337.1 75.8 1,117.9 77.7 933.9 77.4
Land sales
Revenues 38.7 17.3
Costs 29.8 77.0 13.4 77.1
Equity earnings in
unconsolidated joint
ventures 3.3
Interest and other 9.5 8.6 4.5
Total revenues 1,814.4 1,464.1 1,210.8
Selling, general and
administrative expenses 170.4 9.4 130.2 8.9 106.7 8.8
Interest expense 46.2 2.5 39.9 2.7 35.9 3.0
Total costs and expenses 1,583.4 87.3 1,301.4 88.9 1,076.5 88.9
Operating income 231.0 12.7 162.7 11.1 134.3 11.1
Note: Percentages for selling, general and administrative expense, interest
expense and total costs and expenses are based on total revenues.
FISCAL 2000 COMPARED TO FISCAL 1999
Housing Sales
Housing revenues for fiscal 2000 were higher than those of the fiscal of
1999 by approximately $325 million, or 23%. The revenue increase was primarily
attributable to an 11% increase in the number of homes delivered and a 10%
increase in the average price of the homes delivered. The increase in the
average price of the homes delivered was the result of increased selling
prices, a shift in the location of homes delivered to more expensive areas
and an increase in the number of homes delivered from our highly amenitized
country club communities. The increase in the number of homes delivered is
primarily due to a 7% increase in the number of communities from which the
Company was delivering homes and the larger backlog of homes to be delivered
at the beginning of fiscal 2000 as compared to fiscal 1999.
The value of new sales contracts signed totaled $2.15 billion (4,418 homes)
and $1.64 billion (3,845 homes) for fiscal 2000 and 1999, respectively. The
increase in the value of new contracts signed in fiscal 2000 was primarily
attributable to an increase in the average selling price of the homes (due
primarily to the location, size and increase in base selling prices) and an
increase both in the average number of communities in which the Company was
offering homes for sale and in the number of contracts signed per community.
As of October 31, 2000, the backlog of homes under contract was $1.43 billion
(2,779 homes), approximately 34% higher than the $1.07 billion (2,381 homes)
backlog as of October 31, 1999. The increase in backlog at October 31, 2000
was primarily attributable to the increase in the number of new contracts
signed and price increases, as previously discussed. Based on the Company's
current backlog and current healthy demand, the Company believes that fiscal
2001 will be another record year.
Housing costs as a percentage of housing sales decreased in fiscal 2000 as
compared to fiscal 1999. The decrease was largely the result of selling prices
increasing at a greater rate than costs, lower land and improvement costs,
improved operating efficiences offset in part by higher inventory write-offs.
The Company incurred $7.4 million in write-offs in fiscal 2000, as compared
to $5.1 million in fiscal 1999.
Land Sales
In March 1999, the Company aquired land for homes, apartments, retail, office
and industrial space in the master planned community of South Riding, located
in Loudoun County, Virginia. The Company will use some of the property for
its own homebuilding operations and will also sell home sites and commercial
parcels to other builders. The Company recorded its first sale of land from
this operation in the third quarter of fiscal 1999. The Company is also
developing several master planned communities in which it may sell land to
other builders. The increase in land sales in fiscal 2000 over fiscal 1999
was due to the full year of operations in fiscal 2000 compared to six months
in fiscal 1999 at South Riding and the first sale of lots at one of its other
master planned communities.
Equity Earnings in Unconsolidated Joint Ventures
In fiscal 1998, the Company entered into a joint venture to develop and sell
land owned by its venture partner. Under the terms of the agreement, the
Company has the right to purchase a specified number of home sites on which
to build homes with the majority of the home sites to be sold to other
builders. In fiscal 2000, the joint venture sold its first group of home
sites to other builders and to the Company. The Company recognizes its share
of earnings from the sale of home sites to other builders.The Company reduces
its cost basis in the home sites it purchases from the joint venture by its
share of the earnings on those home sites.
Interest and Other Income
Interest and other income increased approximately $900,000 in fiscal 2000 as
compared to fiscal 1999. The increase was principally due to gains from the
sale of miscellaneous assets, offset in part by a reduction of fee income.
Selling, General and Administrative Expenses ("SG&A")
SG&A spending increased by $40.1 million, or 31%, in fiscal 2000 as compared
to fiscal 1999. This increased spending was primarily due to the increase
in the number of communities from which the Company was selling, the increase
in the number of homes delivered, costs associated with the Company's
expansion into new markets, expenses incurred in the opening of divisional
offices to manage the growth and spending related to the development of its
master planned communities and land sales.
FISCAL 1999 COMPARED TO FISCAL 1998
Home Sales
Revenues from home sales for fiscal 1999 as compared to 1998 increased by
approximately $232 million, or 19%. The increase in revenues was attributable
to a 15% increase in the number of homes delivered and a 4% increase in the
average price of the homes delivered. The increased number of homes delivered
was due to the greater number of communities from which the Company was
delivering homes in fiscal 1999 as compared to fiscal 1998, the larger
backlog of homes at the beginning of 1999 as compared to the beginning of
1998, and an increase in the number of homes sold during fiscal 1999 over the
number sold in fiscal 1998. Part of the increase in the number of communities
was attributable to the acquisition of the homebuilding operations of the
Silverman Companies in March 1999.
The increase in the average selling price per home delivered in fiscal 1999 as
compared to fiscal 1998 was the result of a shift in the location of homes
delivered to more expensive areas, changes in product mix to larger homes and
increases in selling prices, offset in part by the delivery of lower priced
products of the Silverman Companies.
The value of new sales contracts signed in fiscal 1999 amounted to $1.64
billion (3,845 homes) compared to $1.38 billion (3,387 homes) in fiscal 1998.
The increase in the value of new contracts signed was primarily attributable
to an increase in the number of communities in which the Company was offering
homes for sale, an increase in the number of contracts signed per community
and an increase in the average selling price of the homes (due primarily to
the location, size and increase in base selling prices).
As of October 31, 1999, the backlog of homes under contract was $1.07 billion
(2,381 homes), approximately 31% higher than the $815 million (1,892 homes)
backlog as of October 31, 1998. The increase in backlog at October 31, 1999 was
primarily attributable to the increase in the number of new contracts signed
and price increases, as previously discussed.
Home costs as a percentage of home revenues increased in 1999 as compared to
1998. The increase was the result of the higher percentage of closings from
some of the Company's newer markets (Arizona, Florida, Nevada, North
Carolina, Texas and Michigan) in 1999, which generally had higher costs as a
percentage of revenue as compared to the Company's more established markets.
The Company also had higher inventory writeoffs in 1999 ($5.1 million) as
compared to 1998 ($2.0 million). These cost increases were partially offset
by lower costs as a percentage of revenues in the Company's more established
markets resulting from increased selling prices and lower overhead costs.
Land Sales
In March 1999, the Company acquired land for homes, apartments, retail,
office and industrial space in the master planned community of South Riding,
located in Loudoun County, Virginia. The Company will use some of the
property for its own homebuilding operations and also will sell home sites
and commercial parcels to other builders. Land sales revenues from South
Riding, which amounted to $17.3 million in fiscal 1999, should continue for
the next several years.
Interest and Other Income
The increase in interest and other income in fiscal 1999 as compared to fiscal
1998 was primarily the result of the Company's expansion of its ancillary
businesses such as title insurance, mortgage operations and construction
management.
Selling, General and Administrative Expenses ("SG&A")
SG&A expenses for fiscal 1999 increased by $23.5 million over 1998. The
increased spending was primarily attributable to the increased number of
communities in which the Company was operating, the geographic expansion of
the Company's homebuilding operations, the increase in the number of homes
sold and the expansion of the Company's ancillary businesses. As a percentage
of revenues, SG&A in fiscal 1999 was slightly higher than in 1998.
INTEREST EXPENSE
The Company determines interest expense on a specific lot-by-lot basis for its
homebuilding operations and on a parcel-by-parcel basis for its land sales.
As a percentage of total revenues, interest expense will vary depending on
many factors including the period of time that the land was owned, the length
of time that the homes delivered during the period were under construction,
and the interest rates and the amount of debt carried by the Company in
proportion to the amount of its inventory during those periods. As a
percentage of total revenues, interest expense was lower in fiscal 2000 as
compared to fiscal 1999 and lower in fiscal 1999 as compared to fiscal 1998.
INCOME TAXES
Income taxes for fiscal 2000, 1999, and 1998 were provided at effective rates
of 36.8%, 36.7% and 36.1%, respectively.
EXTRAORDINARY LOSS FROM EXTINGUISHMENT OF DEBT
In January 1999, the Company called for redemption all of its outstanding
9 1/2% Senior Subordinated Notes due 2003 at 102% of principal amount plus
accrued interest. The redemption resulted in the recognition of an
extraordinary loss in 1999 of $1.5 million, net of $857,000 of income tax
benefit. The loss represented the redemption premium and a write-off of
unamortized deferred issuance costs.
In February 1998, the Company entered into a five-year bank credit facility.
The Company recognized an extraordinary charge in 1998 of $1.1 million, net
of $655,000 of income tax benefit, related to the retirement of its previous
revolving credit agreement and prepayment of $62 million of fixed rate
long-term bank loans.
CAPITAL RESOURCES AND LIQUIDITY
Funding for the Company's operations has been principally provided by cash
flows from operations, unsecured bank borrowings and, from time to time, the
public debt and equity markets.
Cash flow from operations, before inventory additions, has improved as
operating results have improved. The Company anticipates that the cash flow
from operations, before inventory additions, will continue to improve as a
result of an increase in revenues from the delivery of homes from its
existing backlog as well as from new sales contracts and from land sales. The
Company has used the cash flow from operations, bank borrowings and public
debt to acquire additional land for new communities, to fund additional
expenditures for land development and construction costs needed to meet the
requirements of the increased backlog and continuing expansion of the number
of communities in which the Company is offering homes for sale, and to reduce
debt. The Company expects that inventories will continue to increase and is
currently negotiating and searching for additional opportunities to obtain
control of land for future communities.
The Company has a $465 million unsecured revolving credit facility with sixteen
banks which extends through February 2003. As of October 31, 2000, the
Company had $80 million of loans and approximately $36 million of letters of
credit outstanding under the facility.
The Company believes that it will be able to fund its activities through a
combination of existing cash resources, cash flow from operations and other
sources of credit similar in nature to those the Company has accessed in the
past.
INFLATION
The long-term impact of inflation on the Company is manifested in increased
land, land development, construction and overhead costs, as well as in
increased sales prices. The Company generally contracts for land
significantly before development and sales efforts begin. Accordingly, to the
extent land acquisition costs are fixed, increases or decreases in the sales
prices of homes may affect the Company's profits. Since the sales prices of
homes are fixed at the time a buyer contracts to acquire a home and the
Company generally sells its homes prior to commencement of construction, any
inflation of costs in excess of those anticipated may result in lower gross
margins. The Company generally attempts to minimize that effect by entering
into fixed-price contracts with its subcontractors and material suppliers for
specified periods of time, which generally do not exceed one year.
Housing demand, in general, is adversely affected by increases in interest
costs, as well as in housing costs. Interest rates, the length of time that
land remains in inventory, and the proportion of inventory that is financed
affect the Company's interest costs. If the Company is unable to raise sales
prices enough to compensate for higher costs, or if mortgage interest rates
increase significantly, affecting prospective buyers' ability to adequately
finance a home purchase, the Company's revenues, gross margins and net income
would be adversely affected. Increases in sales prices, whether the result of
inflation or demand, may affect the ability of prospective buyers to afford a
new home.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the financial statements, listed in Item 14(a)(1) and (2),
which appear at pages F-1 through F-21 of this report and which are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following is incorporated herein by reference:
the information in Part I, Item 4A of this report;
the information in the Company's Proxy Statement for the 2001 Annual
Meeting of Stockholders (the "2001 Proxy Statement") beginning
immediately following the caption "Proposal One - Election of Four
Directors for Terms Ending 2004" to but not including the subcaption
"Meetings and Committees of the Board of Directors"; and
the information in the 2001 Proxy Statement beginning immediately
following the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" to but not including the caption "Certain Transactions".
ITEM 11. EXECUTIVE COMPENSATION
The following information is incorporated herein by reference:
the information in the 2001 Proxy Statement in the section captioned
"Proposal One - Election of Four Directors for Terms Ending 2004",
beginning immediately following the sub-caption "Compensation of
Directors" to but not including the caption "Proposal Two" and
the information in the 2001 Proxy Statement beginning immediately
following the caption "Executive Compensation" to but not including the
sub-caption "Formation of Real Estate Entities".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the 2001 Proxy Statement captioned "Voting Securities and
Security Ownership" beginning immediately following the sub-caption "Security
Ownership of Principal Stockholders and Management" to but not including the
caption "Proposal One Election of Four Directors for Terms Ending 2004"
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following information is incorporated herein by reference:
the information in the 2001 Proxy Statement in the section captioned
"Executive Compensation" beginning immediately following the sub-caption
"Compensation Committee Interlocks and Insider Participation" to but not
including the caption "Report of the Compensation Committees on Executive
Compensation";
the information in the 2001 Proxy Statement beginning immediately
following the caption "Certain Transactions" to but not including the
caption "Stockholder Proposals"; and
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedule
1. Financial Statements
Page
Report of Independent Auditors F-1
Consolidated Statements of Income for the
Years Ended October 31, 2000, 1999 and 1998 F-2
Consolidated Balance Sheets as of
October 31, 2000 and 1999 F-3
Consolidated Statements of Cash Flows for the
Years Ended October 31, 2000, 1999, and 1998 F-4
Notes to Consolidated Financial Statements F-5 - F-19
Summary Consolidated Quarterly Financial Data F-20
2. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
for the Years Ended October 31,
2000, 1999 and 1998 F-21
Schedules not listed above have been omitted because
they are either not applicable or the required information
is included in the financial statements or notes thereto.
3. Exhibits
The following exhibits are included with this report or incorporated
herein by reference:
Exhibit
Number Description
3.1 Certificate of Incorporation, as amended, is hereby incorporated by
reference to Exhibit 3.1 of the Registrant's Form 10-K for the
fiscal year ended October 31, 1989.
3.2 Amendment to the Certificate of Incorporation dated March 11,
1993, is hereby incorporated by reference to Exhibit 3.1 of
Registrant's Form 10-Q for the quarter ended January 31, 1993.
3.3 By-laws, as amended, are hereby incorporated by reference to
Exhibit 3.2 of the Registrant's Form 10-K for the fiscal year
ended October 31, 1989.
3.4 Amendment to the by-laws dated July 11, 2000 is hereby
incorporated by reference to Exhibit 3.1 of the registrant's
form 10-Q for the quarter ended July 31, 2000.
4.1 Specimen Stock Certificate is hereby incorporated by reference to
Exhibit 4.1 of the Registrant's Form 10-K for the fiscal year
ended October 31, 1991.
4.2 Indenture dated as of March 15, 1993, among Toll Corp., as
issuer, the Registrant, as guarantor, and NBD Bank, National
Association, as Trustee, including Form of Guarantee, is hereby
incorporated by reference to Exhibit 4.1 of Toll Corp.'s
Registration Statement on Form S-3 filed with the Securities and
Exchange Commission, March 10, 1993, File No. 33-58350.
4.3 Indenture dated as of November 12, 1996 between Toll Corp., as
issuer, the Registrant, as guarantor, NBD Bank, a Michigan
banking corporation, as Trustee, including form of guarantee, is
hereby incorporated by reference to Exhibit 4.1 of the
Registrant's Form 8-K dated November 6, 1996 filed with the
Securities and Exchange Commission.
4.4 Indenture dated as of January 26, 1999 between Toll Corp. As
issuer, the Registrant, as guarantor, and NBD Bank, a Michigan
banking corporation, as Trustee, including form of guarantee, is
hereby incorporated by reference to Exhibit 4.1 of the
Registrant's Form 8-K filed on July 13, 1999 with the Securities
and Exchange Commission.
Exhibit
Number Description
4.5 Authorizing Resolutions, dated as of November 6, 1996, relating
to the $100,000,000 principal amount of 8 3/4% Senior
Subordinated Notes of Toll Corp. due 2006, guaranteed on a Senior
Subordinated Basis by Toll Brothers, Inc., is hereby incorporated
by reference to Exhibit 4.2 of the Registrant's Form 8-K filed on
November 15, 1996 with the Securities and Exchange Commission.
4.6 Authorizing Resolutions, dated as of September 16, 1997, relating
to the $100,000,000 principal amount of 7 3/4% Senior
Subordinated Notes due 2007 of Toll Corp., guaranteed on a Senior
Subordinated basis by Toll Brothers, Inc. is hereby incorporated
by reference to Exhibit 4.5 of the Registrant's Form 10-K for the
fiscal year ended October 31, 1997.
4.7 Authorizing Resolutions, dated as of January 22, 1999, relating
to the $170,000,000 principal amount of 8.125% Senior
Subordinated Notes of Toll Corp. due 2009, guaranteed on a Senior
Subordinated basis by Toll Brothers, Inc., is hereby incorporated
by reference to Exhibit 4.1 of the Registrant's Form 8-K filed on
January 25, 1999 with the Securities and Exchange Commission.
4.8 Authorizing Resolutions, dated as of April 13, 1999, relating to
$100,000,000 principal amount of 8% Senior Subordinated Notes of
Toll Corp. due 2009, guaranteed on a Senior Subordinated basis by
Toll Brothers, Inc. is hereby incorporated by reference to
Exhibit 4.1 of the Registrant's Form 8-K filed on April 14, 1999
with the Securities and Exchange Commission.
4.9 Rights Agreement dated as of June 12, 1997 by and between the Company
and ChaseMellon Shareholder Service, L.L.C., as Rights Agent, is hereby
incorporated by reference to Exhibit 1 to the Company's Registration
Statement on Form 8A dated June 20, 1997.
4.10 Amendment to Rights Agreement dated as of July 31, 1998, by and between
the Company and ChaseMellon Shareholder Service, L.L.C. as Rights Agent
incorporated herein by reference to Exhibit 1 to the Company's
Registration Statement on Form 8-A/A dated August 21, 1998.
Exhibit
Number Description
10.1 Credit Agreement dated as of February 25, 1998 among First Huntingdon
Finance Corp., The Registrant, The First National Bank of Chicago,
(Administrative Agent); Bank of America National Trust and Savings
Association; (Co-Agent); CoreStates Bank, N.A., (Co-Agent); Credit
Lyonnais New York Branch (Co-Agent); Comerica Bank; Nationsbank,
National Association; Fleet National Bank; Guaranty Federal Bank,
F.S.B.; Mellon Bank, N.A.; Banque Paribas; Bayerische Vereinsbank AG,
New York Branch; Kredietbank N.V.; Suntrust Bank, Atlanta; The Fuji
Bank Limited; and Bank Hapoalim B.M. Philadelphia Branch is hereby
incorporated by reference to Exhibit 10.1 of the Registrant's Form
10-Q for the quarter ended April 30, 1998.
10.2* Toll Brothers, Inc. Amended and Restated Stock Option Plan (1986), as
amended and restated by the Registrant's Board of Directors on February
24, 1992 and adopted by its shareholders on April 6, 1992, is hereby
incorporated by reference to Exhibit 19(a) of the Registrant's Form 10-Q
for the quarterly period ended April 30, 1992.
10.3* Toll Brothers, Inc. Amended and Restated Stock Purchase Plan is hereby
incorporated by reference to Exhibit 4 of the Registrant's Registration
Statement on Form S-8 filed with the Securities and Exchange Commission
on August 4, 1987, File No. 33-16250.
10.4* Toll Brothers, Inc. Key Executives and Non-Employee Directors Stock Option
Plan (1993) is hereby incorporated by reference to Exhibit 10.1 of the
Registrant's Form 8K filed with the Securities and Exchange Commission on
May 25, 1994.
10.5* Amendment to the Toll Brothers, Inc. Key Executives and Non-Employee
Directors Stock Option Plan (1993) is hereby incorporated by reference to
Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q for the
quarter ended April 30, 1995.
10.6* Toll Brothers, Inc. Cash Bonus Plan is hereby incorporated by reference to
Exhibit 10.2 of the Registrant's Form 8-K filed with the Securities and
Exchange Commission on May 25, 1994.
10.7* Amendment to the Toll Brothers, Inc. Cash Bonus Plan dated May 29, 1996 is
hereby incorporated by reference to Exhibit 10.7 of the Registrant's Form
10-K for the year ended October 31, 1996.
Exhibit
Number Description
10.8* Amendment to the Toll Brothers, Inc. Cash Bonus Plan dated December 10,
1998.
10.9* Toll Brothers, Inc. Stock Option and Incentive Stock Plan (1995) is hereby
incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1995.
10.10*Amendment to the Toll Brothers, Inc. Stock Option and Incentive Stock Plan
(1995) dated May 29, 1996 is hereby incorporated by reference to Exhibit
10.9 the Registrant's Form 10-K for the year ended October 31, 1997.
10.11* Toll Brothers, Inc. Stock Incentive Plan (1998) is hereby incorporated by
reference to Exhibit 4 of the Registant's Registration Statement on Form
S-8 filed with the Securities and Exchange Commission on June 25, 1998,
File No. 333-57645.
10.12* Stock Redemption Agreement between the Registrant and Robert I. Toll,
dated October 28, 1995, is hereby incorporated by reference to Exhibit
10.7 of the Registrants Form 10-K for the year ended October 31, 1995.
10.13* Stock Redemption Agreement between the Registrant and Bruce E. Toll,
dated October 28, 1995, is hereby incorporated by reference to Exhibit
10.8 of the Registrants Form 10-K for the year ended October 31, 1995.
10.14* Agreement dated March 5, 1998 between the Registrant and Bruce E. Toll
regarding Mr. Toll's resignation and related matters is hereby
incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1998.
10.15* Consulting and Non-Competition Agreement dated March 5, 1998 between the
Registrant and Bruce E. Toll is hereby incorporated by reference to
Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended April 30, 1998.
10.16* Amendment to the Agreement dated March 5, 1998 between the
Regsitrant and Bruce E. Toll and to the Consulting and Non-Competition
Agreement dated March 5, 1998 between the Registrant and Bruce E. Toll
is hereby in corporated to Exhibit 10.1 of the Registrant's Form 10-Q
for the quarter ended July 31, 2000.
Exhibit
Number Description
10.17* Agreement between the Registrant and Joel H. Rassman, dated June 30,
1988, is hereby incorporated by reference to Exhibit 10.8 of Toll Corp.'s
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on September 9, 1988, File No. 33-23162.
12 Statement RE: Computation of Ratios of Earnings to Fixed Charges.
22 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
*This exhibit is a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this report.
(b) Reports on Form 8-K
During the fourth quarter of the fiscal year ended
October 31, 2000, the Company did not file a current report on
Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Township
of Lower Moreland, Commonwealth of Pennsylvania on December 14, 2000.
TOLL BROTHERS, INC.
By: /s/ Robert I. Toll
Robert I. Toll
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert I. Toll Chairman of the Board December 14, 2000
Robert I. Toll Of Directors and
Chief Executive Officer
(Principal Executive Officer)
/s/ Bruce E. Toll Vice Chairman of the Board December 14, 2000
Bruce E. Toll and Director
/s/ Zvi Barzilay President, Chief Operating December 14, 2000
Zvi Barzilay Officer and Director
/s/ Joel H. Rassman Senior Vice President, December 14, 2000
Joel H. Rassman Treasurer, Chief Financial
Officer and Director
(Principal Financial Officer)
/s/ Joseph R. Sicree Vice President and December 14, 2000
Joseph R. Sicree Chief Accounting Officer
(Principal Accounting Officer)
Signature Title Date
/s/ Robert S. Blank Director December 14, 2000
Robert S. Blank
/s/ Edward G. Boehne Director December 14, 2000
Edward G. Boehne
/s/ Richard J. Braemer Director December 14, 2000
Richard J. Braemer
/s/ Roger S. Hillas Director December 14, 2000
Roger S. Hillas
/s/ Carl B. Marbach Director December 14, 2000
Carl B. Marbach
/s/ Paul E. Shapiro Director December 14, 2000
Paul E. Shapiro
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Toll Brothers, Inc.
We have audited the accompanying consolidated balance sheets of Toll Brothers,
Inc. and subsidiaries at October 31, 2000 and 1999, and the related
consolidated statements of income and cash flows for each of the three years
in the period ended October 31, 2000. Our audits also included the financial
statement schedule listed in the Index at item 14(a). These financial
statements and schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Toll Brothers,
Inc. and subsidiaries at October 31, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended October 31, 2000, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
December 12, 2000
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
Year Ended October 31
2000 1999 1998
Revenues:
Home sales $1,762,930 $1,438,171 $1,206,290
Land sales 38,730 17,345
Equity earnings in
unconsolidated joint ventures 3,250
Interest and other 9,452 8,599 4,526
1,814,362 1,464,115 1,210,816
Costs and expenses:
Home sales 1,337,060 1,117,872 933,853
Land sales 29,809 13,375
Selling, general and administrative 170,358 130,213 106,729
Interest 46,169 39,905 35,941
1,583,396 1,301,365 1,076,523
Income before income taxes and
extraordinary loss 230,966 162,750 134,293
Income taxes 85,023 59,723 48,474
Income before extraordinary loss 145,943 103,027 85,819
Extraordinary loss (1,461) (1,115)
Net income $ 145,943 $ 101,566 $ 84,704
Earnings per share
Basic:
Income before extraordinary loss $ 4.02 $ 2.81 $ 2.35
Extraordinary loss (.04) (.03)
Net income $ 4.02 $ 2.77 $ 2.32
Diluted:
Income before extraordinary loss $ 3.90 $ 2.75 $ 2.25
Extraordinary loss (.04) (.03)
Net income $ 3.90 $ 2.71 $ 2.22
Weighted average number of shares:
Basic 36,269 36,689 36,483
Diluted 37,413 37,436 38,360
See accompanying notes.
CONSOLIDATED BALANCE SHEETS (Amounts in thousands)
October 31
2000 1999
ASSETS
Cash and cash equivalents $ 161,860 $ 96,484
Inventory 1,712,383 1,443,282
Property, construction and office
equipment, net 24,075 19,633
Receivables, prepaid expenses and other
assets 113,025 87,469
Investments in unconsolidated entities 18,911 21,194
$2,030,254 $1,668,062
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Loans payable $ 326,537 $ 213,317
Subordinated notes 469,499 469,418
Customer deposits on sales contracts 104,924 82,495
Accounts payable 110,927 84,777
Accrued expenses 185,141 141,835
Income taxes payable 88,081 59,886
Total liabilities 1,285,109 1,051,728
Stockholders' equity
Preferred stock, none issued
Common stock, 37,028 and 37,035 shares
issued at October 31, 2000 and 1999,
respectively 359 365
Additional paid-in capital 105,454 105,239
Retained earnings 668,608 522,665
Treasury stock, at cost-
1,133 shares and 581 shares at October 31,
2000 and 1999, respectively (29,276) (11,935)
Total stockholders' equity 745,145 616,334
$2,030,254 $1,668,062
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands)
Year Ended October 31
2000 1999 1998
Cash flows from operating activities:
Net income $145,943 $101,566 $ 84,704
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 8,528 6,594 5,611
Equity earnings in unconsolidated joint ventures(3,250)
Extraordinary loss from extinguishment of debt 2,318 1,770
Deferred tax provision 5,191 1,569 324
Changes in operating assets and liabilities, net of
assets and liabilities acquired:
Increase in inventory (264,303) (282,764) (179,132)
Increase in receivables, prepaid
expenses and other assets (28,025) (32,524) (11,862)
Increase in customer deposits on sales contracts22,429 11,557 16,700
Increase in accounts payable and accrued expenses71,492 62,769 35,265
Increase in current income taxes payable 25,132 8,045 5,912
Net cash used in operating activities (16,863) (120,870) (40,708)
Cash flows from investing activities:
Purchase of property and equipment, net (9,415) (8,331) (2,834)
Acquisition of company, net of cash acquired (11,090)
Investment in unconsolidated entities (15,193) (6,001)
Distribution from unconsolidated entities 13,589
Net cash provided by (used in)
investing activities 4,174 (34,614) (8,835)
Cash flows from financing activities:
Proceeds from loans payable 559,843 177,500 55,000
Principal payments of loans payable (460,482) (187,551) (74,416)
Net proceeds from issuance of subordinated notes 267,716
Redemption of subordinated notes (71,359)
Proceeds from stock-based benefit plans 11,936 2,223 4,874
Purchase of treasury stock (33,232) (16,704) (3,347)
Net cash provided by (used in)
financing activities 78,065 171,825 (17,889)
Net increase(decrease)in cash and cash equivalents65,376 16,341 (67,432)
Cash and cash equivalents, beginning of year 96,484 80,143 147,575
Cash and cash equivalents, end of year 161,860 $ 96,484 $ 80,143
See accompanying notes.
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Toll
Brothers, Inc. (the "Company"), a Delaware corporation, and its majority-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated. Investments in 20% to 50% owned partnerships and affiliates are
accounted for on the equity method and investments in less then 20% owned
affiliates are accounted for on the cost method.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
Income Recognition
The Company is primarily engaged in the development, construction and sale of
residential homes. Revenues and cost of sales are recorded at the time each
home sale is closed and title and possession have been transferred to the
buyer. Closing normally occurs shortly after construction is substantially
completed.
Land sales revenues and cost of sales are recognized at the time that title and
possession of the property has been transferred to the buyer.
Cash and Cash Equivalents
Liquid investments or investments with original maturities of three months or
less are classified as cash equivalents. The carrying value of these
investments approximates their fair value.
Property, Construction and Office Equipment
Property, construction and office equipment are recorded at cost and are stated
net of accumulated depreciation of $30,288,000 and $25,761,000 at October 31,
2000 and 1999, respectively. Depreciation is recorded by using the
straight-line method over the estimated useful lives of the assets.
Inventories
Inventories are stated at the lower of cost or fair value. In addition to
direct land acquisition, land development and home construction costs, costs
include interest, real estate taxes and direct overhead costs related to
development and construction, which are capitalized to inventories during the
period beginning with the commencement of development and ending with the
completion of construction.
Land, land development and related costs are amortized to cost of homes closed
based upon the total number of homes to be constructed in each community. Home
construction and related costs are charged to cost of homes closed under the
specific identification method.
The Company capitalizes certain project marketing costs and charges them
against income as homes are closed.
Treasury Stock
Treasury stock is recorded at cost. Re-issuances of treasury stock are
accounted for on a first-in, first out basis. Differences between the cost of
treasury shares and the re-issuance proceeds are charged to additional
paid-in capital.
Acquisition
In March 1999, the Company acquired the homebuilding operations of the
Silverman Companies, a Detroit, Michigan homebuilder and developer of luxury
apartments, for cash and the assumption of debt. The acquisition price was
not material to the financial position of the Company.
Segment Reporting
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information," establishes
standards for the manner in which public enterprises report information about
operating segments. The Company has determined that its operations primarily
involve one reportable segment, homebuilding.
New Accounting Pronouncement
SFAS No. 133, "Accounting for Derivitive Instruments and for Hedging
Activities," establishes accounting and reporting standards of derivative
instruments embedded in other contracts, and for hedging activities. The
Company will adopt SFAS No. 133, as amended, in the first quarter of 2001.
Such adoption is not expected to have a material impact on the Company's
reported results of operations, financial position or cash flows.
2. Inventory
Inventory consisted of the following(amounts in thousands):
October 31
2000 1999
Land and land development costs $ 558,503 $ 506,869
Construction in progress 992,098 794,599
Sample homes 60,511 57,995
Land deposits and costs of
future development 68,560 55,575
Deferred marketing costs 32,711 28,244
$1,712,383 $1,443,282
Construction in progress includes the cost of homes under construction, land
and land development costs and the carrying cost of lots that have been
substantially improved.
For the years ended October 31, 2000 and 1999 the Company provided for
inventory writedowns and the expensing of costs which it believed not to be
recoverable of $7,448,000, $5,092,000, and $2,010,000, respectively.
Interest capitalized in inventories is charged to interest expense when the
related inventories are closed. Changes in capitalized interest for the three
years ended October 31, 2000 were as follows(amounts in thousands):
2000 1999 1998
Interest capitalized,
beginning of year $ 64,984 $ 53,966 $ 51,687
Interest incurred 60,236 51,396 38,331
Interest expensed (46,169) (39,905) (35,941)
Write-off to cost
and expenses (608) (473) (111)
Interest capitalized,
end of year $ 78,443 $ 64,984 $ 53,966
3. Loans Payable and Subordinated Notes
Loans payable consisted of the following(amounts in thousands):
October 31
2000 1999
Revolving credit facility
due February 2003 $80,000 $80,000
Term loan due July 2001 56,000
Term loan due March 2002 50,000 50,000
Term loan due July 2005 170,000
Other 26,537 27,317
$326,537 $213,317
The Company has a $465,000,000 unsecured revolving credit facility with
sixteen banks which extends through February 2003. Interest is payable on
borrowings at .575% above the Eurodollar rate or at other specified variable
rates as selected by the Company from time to time. The Company fixed the
interest rate on $20,000,000 of borrowing at 6.39% until March 2002 through
an interest rate swap with a bank. Had the Company not entered into the
interest rate swap, the interest rate on this borrowing would have been 7.2%
at October 31, 2000. As of October 31, 2000, letters of credit and
obligations under escrow agreements of $35,896,000 were outstanding.
The agreement contains various covenants, including financial covenants
related to consolidated stockholders' equity, indebtedness and inventory. The
agreement requires the Company to maintain a minimum consolidated
stockholders' equity which restricts the payment of cash dividends and the
repurchase of Company stock to approximately $271,000,000 as of October 31,
2000.
The Company borrowed $50,000,000 from three banks at a fixed rate of 7.72%
repayable in March 2002. The Company has borrowed $170,000,000 from eight banks
at a fixed rate of 8.25% repayable in July 2005. Both loans are unsecured and
the agreements contain substantially the same financial covenants as the
Company's revolving credit facility.
The carrying value of the loans payable approximates their estimated fair value.
Subordinated notes consisted of the following(amounts in thousands):
October 31,
2000 1999
8 3/4% Senior Subordinated Notes
due November 15, 2006 $100,000 100,000
7 3/4% Senior Subordinated Notes
due September 15, 2007 100,000 100,000
8 1/8% Senior Subordinated Notes
due February 1, 2009 170,000 170,000
8% Senior Subordinated Notes
due May 1, 2009 100,000 100,000
Bond discount (501) (582)
$469,499 $469,418
All issues of senior subordinated notes are subordinated to all senior
indebtedness of the Company. The indentures restrict certain payments by the
Company including cash dividends and the repurchase of Company stock. The notes
are redeemable in whole or in part at the option of the Company at various
prices on or after November 15, 2001 with regard to the 8 3/4% notes, on or
after September 15, 2002 with regard to the 7 3/4% notes, on or after
February 1, 2004 with regard to the 8 1/8% notes, and on or after May 1, 2004
with regard to the 8% notes.
As of October 31, 2000, the aggregate fair value of all the outstanding
subordinated notes, based upon their indicated market prices, was approximately
$437,570,000.
The annual aggregate maturities of the Company's loans and notes during the
next five fiscal years are: 2001 - $12,703,000; 2002 - $55,176,000;
2003 - $82,861,000 and 2004 - $395,000; and 2005 - $170,342,000.
4. Income taxes
The Company's estimated combined federal and state tax rate before providing
for the effect of permanent book-tax differences ("Base Rate") was 37% in
2000, 1999 and 1998. The effective tax rates in 2000, 1999, and 1998 were
36.8% 36.7%, 36.1%, respectively. The primary differences between the
Company's Base Rate and effective tax rate were tax-free income, and in 1998,
an adjustment due to the recomputation of the Company's deferred tax
liability resulting from the change in the Company's estimated Base Rate and
the deductibility of certain expenses at a higher basis for tax purposes than
for book purposes.
The provisions for income taxes for each of the three years ended October 31,
2000 were as follows (amounts in thousands):
2000 1999 1998
Federal $78,105 $54,874 $44,865
State 6,918 4,849 3,609
$85,023 $59,723 $48,474
Current $79,832 $58,154 $48,150
Deferred 5,191 1,569 324
$85,023 $59,723 $48,474
The components of income taxes payable consisted of the following (amounts in
thousands):
October 31
2000 1999
Current $63,775 $40,772
Deferred 24,306 19,114
$88,081 $59,886
The components of net deferred taxes payable consisted of the following
(amounts in thousands):
October 31
2000 1999
Deferred tax liabilities:
Capitalized interest $26,287 $21,204
Deferred expenses 13,743 7,640
Total 40,030 28,844
Deferred tax assets:
Inventory valuation reserves 4,555 2,193
Inventory valuation differences 2,184 1,763
Deferred income 2,170
Accrued expenses
deductible when paid 178 271
Other 6,637 5,503
Total 15,724 9,730
Net deferred tax liability $24,306 $19,114
5. Stockholders' Equity
The Company's authorized capital stock consists of 45,000,000 shares of Common
Stock, $.01 par value per share, and 1,000,000 shares of Preferred Stock,
$.01 par value per share. The Company's Certificate of Incorporation, as
amended, authorizes the Board of Directors to increase the number of
authorized shares of Common Stock to 100,000,000 shares and the number of
shares of authorized Preferred Stock to 15,000,000 shares.
Changes in stockholders' equity for the three years ended October 31, 2000
were as follows (amounts in thousands):
Additional
Common Stock Paid-In Retained Treasury
Shares Amount Capital Earnings Stock Total
# $ $ $ $ $
Balance, November 1,1997 34,275 343 48,514 336,395 - 385,252
Net income 84,704 84,704
Purchase of treasury stock (133) (1) (3,346) (3,347)
Exercise of stock options 285 3 3,240 1,405 4,648
Executive bonus award 161 1 3,563 3,564
Employee stock plan
purchases 10 93 130 223
Conversion of debt 2,337 23 50,689 50,712
Balance, October 31, 1998 36,935 369 106,099 421,099 (1,811)525,756
Net income 101,566 101,566
Purchase of treasury stock (801) (8) (16,696)(16,704)
Exercise of stock options 177 2 (1,143) 3,699 2,558
Executive bonus award 106 1 342 2,119 2,462
Employee stock plan
purchases 12 (15) 221 206
Contribution to employee
401(k) Plan 25 1 (44) 533 490
Balance, October 31, 1999 36,454 365 105,239 522,665(11,935)616,334
Net income 145,943 145,943
Purchase of treasury stock(1,355) (14) (33,218)(33,232)
Exercise of stock options 672 7 588 13,345 13,940
Executive bonus award 80 1 (225) 1,620 1,396
Employee stock plan purchases 6 (8) 131 123
Contribution to employee
401(k) Plan 38 (140) 781 641
Balance, October 31, 2000 35,895 359 105,454 668,608(29,276)745,145
Stockholder Rights Plan
Common shares outstanding are subject to stock purchase rights. The rights,
which are exercisable only under certain conditions, entitle the holder,
other than an acquiring person (and certain related parties of an acquiring
person), as defined in the plan, to purchase common shares at prices
specified in the rights agreement. Unless earlier redeemed, the rights will
expire on July 11, 2007.The rights were not exercisable at October 31, 2000.
Redemption of Common Stock
In order to help provide for an orderly market in the Company's Common Stock in
the event of the death of either Robert I. Toll or Bruce E. Toll (the "Tolls"),
or both of them, the Company and the Tolls have entered into agreements in
which the Company has agreed to purchase from the estate of each of the Tolls
$10,000,000 of the Company's Common Stock (or a lesser amount under certain
circumstances) at a price equal to the greater of fair market value (as
defined) or book value (as defined). Further, the Tolls have agreed to allow
the Company to purchase $10,000,000 of life insurance on each of their lives.
In addition, the Tolls granted the Company an option to purchase up to an
additional $30,000,000 (or a lesser amount under certain circumstances) of
the Company's Common Stock from each of their estates. The agreements expire
in October 2005.
In April 1997, the Company's Board of Directors authorized the repurchase of up
to 3,000,000 shares of its Common Stock, par value $.01, from time to time, in
open market transactions or otherwise, for the purpose of providing shares for
its various employee benefit plans. As of October 31, 2000, the Company had
repurchased 2,289,000 shares of which 1,156,000 shares had been re-issued under
its various employee benefit plans.
6. Stock-Based Benefit Plans
Stock-Based Compensation Plans
The Company accounts for its stock option plans according to Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees"
("APB 25"). Accordingly, no compensation costs are recognized upon issuance
or exercise of stock options.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of the estimated value of employee option grants and their impact
on net income using option pricing models which are designed to estimate the
value of options which, unlike employee stock options, can be traded at any
time and are transferable. In addition to restrictions on trading, employee
stock options may include other restrictions such as vesting periods.
Further, such models require the input of highly subjective assumptions
including the expected volatility of the stock price. Therefore, in
management's opinion, the existing models do not provide a reliable single
measure of the value of employee stock options.
At October 31, 2000, the Company's stock-based compensation plans consisted of
its four stock option plans. Net income and net income per share as reported
in these consolidated financial statements and on a pro forma basis, as if
the fair-value based method described in SFAS No. 123 had been adopted, were
as follows (in thousands, except per share amounts):
Year Ended October 31,
2000 1999 1998
Net income As reported $145,943 $101,566 $84,704
Pro forma $136,622 $ 93,402 $72,841
Basic net income per share As reported $ 4.02 $ 2.77 $ 2.32
Pro forma $ 3.77 $ 2.55 $ 2.00
Diluted net income per share As reported $ 3.90 $ 2.71 $ 2.22
Pro forma $ 3.65 $ 2.50 $ 1.91
Weighted-average grant date fair
value per share of options granted $ 9.03 $ 10.98 $ 12.01
For the purposes of providing the pro forma disclosures, the fair value of
options granted was estimated using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants in each of the
three fiscal years ended October 31, 2000.
2000 1999 1998
Risk-free interest rate 5.80% 6.14% 4.68%
Expected life (years) 7.7 7.1 7.2
Volatility 35.7% 34.9% 35.1%
Dividends none none none
Stock Option Plans
The Company's four stock option plans for employees, officers and non-employee
directors provide for the granting of incentive stock options and
non-statutory options with a term of up to ten years at a price not less than
the market price of the stock at the date of grant. The Company's Stock
Option and Incentive Stock Plan (1995) provides for automatic increases each
January 1 in the number of shares available for grant by 2% of the number of
shares issued (including treasury shares). The Company's Stock Incentive Plan
(1998) provides for automatic increases each November 1 in the number of
shares available for grant by 2.5% of the number of shares issued (including
treasury shares). The 1995 Plan and the 1998 Plan each restricts the number
of options available for grant in a year to a maximum of 2,500,000 shares and
the number of options that may be granted thereunder in a calendar year to
the lesser of the number of shares available for grant thereunder or
2,500,000 shares. No additional options may be granted under the Company's
Stock Option Plan (1986).
The following summarizes stock option activity for the four plans during the
three years ended October 31, 2000:
Number Weighted Average
of Options Exercise Price
Outstanding,
November 1, 1997 3,684,175 $16.03
Granted 1,720,575 26.41
Exercised (293,015) 14.04
Cancelled (169,217) 22.85
Outstanding,
October 31, 1998 4,942,518 $19.53
Granted 1,252,800 22.81
Exercised (176,470) 11.39
Cancelled (127,255) 22.97
Outstanding,
October 31, 1999 5,891,593 $20.40
Granted 1,879,750 17.53
Exercised (678,288) 17.69
Cancelled (89,299) 20.95
Outstanding,
October 31, 2000 7,003,756 $19.88
Options exercisable and their weighted average exercise price as of October 31,
2000, 1999 and 1998 were 3,874,223 shares and $19.92, 3,736,905 shares and
$18.93, and 3,286,706 shares and $17.90, respectively.
Options available for grant at October 31, 2000, 1999 and 1998 under all the
plans were 2,313,251, 3,188,657, and 3,893,663, respectively.
The following table summarizes information about stock options outstanding at
October 31, 2000:
Options Outstanding Options Exercisable
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
(in years)
$ 9.94 -$15.88 1,031,200 3.0 $12.13 1,031,200 $12.13
17.13 - 20.25 3,361,385 7.4 18.29 1,356,195 19.23
22.31 - 25.56 1,913,671 7.7 23.87 789,328 24.13
27.44 - 29.50 697,500 7.2 28.01 697,500 28.01
$ 9.94 -$29.50 7,003,756 6.8 $19.88 3,874,223 $19.92
Bonus Award Shares
Under the terms of the Company's Cash Bonus Plan covering Robert I. Toll, Mr.
Toll is entitled to receive cash bonus awards based upon the pretax earnings
and stockholders' equity of the Company. In December 1998, Mr. Toll and the
Board of Directors agreed that any bonus payable for each of the three fiscal
years ended October 31, 2001 will be made (except for specific conditions) in
shares of the Company's Common Stock using the value of the stock as of the
date of the agreement ($24.25 per share). The stockholders approved the plan
at the Company's 1999 Annual Meeting. The Company recognized compensation
expense in 2000 of $4,413,000 and in 1999 of $1,395,000 which represented the
fair market value of the shares issued to Robert. I. Toll (135,792 shares in
2000 and 79,686 shares in 1999). On October 31, 2000 and 1999, the closing
price of the Company's Common Stock on the New York Stock Exchange was $32.50
and $17.50, respectively.
In May 1996, the Board of Directors, Robert I. Toll and Bruce E. Toll agreed to
a similar type of plan and payment arrangement for each of the three fiscal
years ended October 31, 1998 based upon the value of the Company's Common
Stock on the date of the agreement ($17.125 per share). The stockholders
approved the plan at the Company's 1997 Annual Meeting. In March 1998, in
connection with Bruce E. Toll's withdrawal from the day-to-day operations of
the business, the Board of Directors and Bruce E. Toll agreed to modify his
cash bonus award whereby his 1998 cash bonus award would be paid in cash and
the amount would be calculated based upon 50% of the estimated bonus that
would have been earned. The Company recognized $3,944,000 as compensation
expense in 1998 which represented the fair market value of the shares issued
to Robert I. Toll (106,186 shares) and the cash bonus paid to Bruce E. Toll.
Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan enables substantially all
employees to purchase the Company's Common Stock for 95% of the market price
of the stock on specified offering dates or at 85% of the market price of the
stock on specified offering dates subject to restrictions. The plan, which
terminates in December 2007, provides that 300,000 shares be reserved for
purchase. As of October 31, 2000, a total of 233,242 shares were available for
issuance.
The number of shares and the average prices per share issued under this plan
during each of the three fiscal years ended October 31, 2000, 1999 and 1998
were 6,309 shares and $19.41, 12,182 shares and $16.97, and 9,916 shares and
$22.48,respectively. No compensation expense was recognized by the Company
under this plan.
7. Earnings Per Share Information
Information pertaining to the calculation of earnings per share for each of the
three years ended October 31, 2000 is as follows:(amounts in thousands)
2000 1999 1998
Basic weighted average
shares 36,269 36,689 36,483
Common stock equivalents 1,144 747 1,437
Convertible subordinated notes 440
Diluted weighted average shares 37,413 37,436 38,360
Earnings addback related
to interest on convertible
subordinated notes,
net of income tax benefits --- --- $ 315
8. Employee Retirement Plan
The Company maintains a salary deferral savings plan covering substantially all
employees. The plan provides for Company contributions totaling 2% of all
eligible compensation, plus 2% of eligible compensation above the social
security wage base, plus matching contributions of up to 2% of eligible
compensation of employees electing to contribute via salary deferrals.
Company contributions with respect to the plan totaled $ 2,579,000,
$1,876,000, and $1,591,000, for the years ended October 31, 2000, 1999 and
1998, respectively.
9. Extraordinary Loss from Extinguishment of Debt
In January 1999, the Company called for redemption of all of its outstanding 9
1/2% Senior Subordinated Notes due 2003 at 102% of principal amount plus
accrued interest. The redemption resulted in an extraordinary loss in fiscal
1999 of $1,461,000, net of $857,000 of income tax benefit. The loss
represented the redemption premium and a write-off of unamortized deferred
issuance costs.
In February 1998, the Company entered into a five-year bank credit facility.
The Company recognized an extraordinary charge in fiscal 1998 of $1,115,000,
net of $655,000 of income tax benefit, related to the retirement of its
previous revolving credit agreement and prepayment of $62 million of
fixed-rate long-term bank loans.
10. Commitments and Contingencies
As of October 31, 2000, the Company had agreements to purchase land and
improved home sites for future development with purchase prices aggregating
approximately $648,347,000 of which $32,934,000 had been paid or deposited.
Purchase of the properties is contingent upon satisfaction of certain
requirements by the Company and the sellers.
As of October 31, 2000, the Company had agreements of sale outstanding to
deliver 2,779 homes with an aggregate sales value of approximately
$1,434,946,000.
As of October 31, 2000, the Company was committed to make approximately
$63,000,000 of mortgage loans to its homebuyers and to others. All loans with
committed interest rates are covered by take-out committments from third party
lenders, resulting in no interest rate risk to the Company. The Company also
arranges through outside mortgage lenders, a variety of mortgage programs which
are offered to its homebuyers.
The Company is involved in various claims and litigation arising in the
ordinary course of business. The Company believes that the disposition of
these matters will not have a material effect on the business or on the
financial condition of the Company.
11. Related Party Transactions
In order to take advantage of commercial real estate opportunities which may
present themselves from time to time, the Company formed Toll Brothers Realty
Trust (the "Trust"), a venture which is effectively owned one-third by the
Company, one-third by a number of senior executives and/or directors including
Robert I. Toll, Bruce E. Toll (and certain family members), Zvi Barzilay (and
certain family members), and Joel H. Rassman, and one-third by the Pennsylvania
State Employees Retirement System (collectively the "Shareholders").
In June 2000, the Shareholders entered into a subscription agreement whereby
each group agreed to invest additional capital in an amount not to exceed
$9,259,000 if required by the Trust. The commitment expires in June 2002.
As of October 31, 2000, the Company had an investment of $7,233,000 in the
Trust. This investment is accounted for on the equity method.
The Company provides development, finance and management services to the
Trust and received fees under the terms of various agreements in the amount
of $1,392,000 and $2,524,000 in fiscal 2000 and 1999, respectively.
On September 18, 2000 and October 12, 2000, the Company repurchased 200,000
shares and 50,000 shares of its common stock, respectively, from Bruce E.
Toll at $30 per share. The high and low trading price of the Company's common
stock on the New York Stock Exchange was $30.50 and $28.875 on September 18,
2000 and $32.0625 and $29.25 on October 12, 2000.
12. Supplemental Disclosure to Statements of Cash Flows
The following are supplemental disclosures to the statements of cash flows for
each of the three years ended October 31, 2000 (amounts in thousands):
2000 1999 1998
Supplemental disclosures of cash flow information:
Interest paid, net of amount capitalized $21,548 $17,469 $13,430
Income taxes paid $54,700 $49,250 $40,835
Supplemental disclosures of noncash activities:
Cost of residential inventories acquired
through seller financing $ 8,321 $ 7,504 $13,500
Investment in unconsolidated subsidiary
acquired through seller financing $ 4,500
Income tax benefit relating to exercise
of employee stock options $ 2,128 $ 541 $ 748
Stock bonus awards $ 1,395 $2,462 $ 3,564
Contributions to employee retirement plan $ 641 $ 490
Conversion of subordinated debt $50,712
Acquisition of company:
Fair value of assets acquired $56,026
Liabilities assumed 44,934
Cash paid $11,092
Summary Consolidated Quarterly Financial Data (Unaudited)
(Amounts in thousands, except per share data)
Three Months Ended
Oct. 31 July 31 April 30 Jan. 31
Fiscal 2000:
Revenues $614,793 $464,532 $390,486 $344,551
Income before income taxes 92,484 $ 58,791 $ 44,363 $ 35,328
Net income 58,366 $ 37,234 $ 27,950 $ 22,393
Earnings per share
Basic:
Net income * $ 1.62 $ 1.03 $ .77 $ .61
Diluted:
Net income * $ 1.52 $ 1.00 $ .75 $ .61
Weighted average number of shares:
Basic 36,061 36,146 36,396 36,471
Diuted 38,486 37,219 37,036 36,909
Fiscal 1999:
Revenues $442,884 $405,694 $342,671 $272,866
Income before income taxes
and extraordinary loss $ 52,919 $ 47,541 $ 34,721 $ 27,569
Income before extraordinary loss $ 33,436 $ 30,073 $ 22,080 $ 17,438
Net income $ 33,436 $ 30,073 $ 22,080 $ 15,977
Earning per share
Basic:
Income before extraordinary loss $ .92 $ .82 $ .60 $ .47
Net income $ .92 $ .82 $ .60 $ .43
Diluted:
Income before extraordinary loss $ .90 $ .80 $ .59 $ .46
Net income $ .90 $ .80 $ .59 $ .42
Weighted average number of shares:
Basic 36,462 36,614 36,717 36,963
Diluted 36,971 37,400 37,339 38,033
* Due to rounding, the sum of the quarterly earnings per share amounts does not
equal the reported earnings per share for the year.
TOLL BROTHERS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
Balance at Charged to Charged Balance
Beginning Costs to at End
of and Other of
Description Period Expenses Accounts Deductions Period
Net realizable value
reserves for inventory
of land and land
development costs:
Year ended
October 31, 1998
New Jersey $ 3,708 $ 3,708
Year ended
October 31, 1999:
New Jersey $ 3,708 $ 3,708
Year ended
October 31, 2000:
New Jersey $ 3,708 $ 3,708