Stock-Based Benefit Plans

12 Months Ended

Oct. 31, 2019

Stock-Based Benefit Plans [Abstract]

Stock-Based Benefit Plans

Stock-Based Benefit Plans

We grant stock options, restricted stock, and various types of restricted stock units to our employees and our nonemployee directors under our stock incentive plans. On March 12, 2019, shareholders approved the Toll Brothers, Inc. 2019 Omnibus Incentive Plan (the “Omnibus Plan”), which, succeeded the Toll Brothers, Inc. Stock Incentive Plan for Employees (2014) and the Toll Brothers, Inc. Stock Incentive Plan for Non-Executive Directors (2016) with respect to prospective equity awards, and no additional equity awards may be granted under such prior plans. As a result, the Omnibus Plan is the sole plan that new equity awards may be granted to employees (including executive officers), directors and other eligible participants under the plan. The Omnibus Plan provides for the granting of incentive stock options (solely to employees) and nonqualified stock options with a term of up to 10 years at a price not less than the market price of the stock at the date of grant. The Omnibus Plan also provide for the issuance of stock appreciation rights and restricted and unrestricted stock awards and stock units, which may be performance-based. At October 31, 2019, 2018, and 2017, we had 7.7 million; 5.1 million; and 5.8 million shares, respectively, available for grant under the Omnibus Plan.

Prior to the adoption of the Omnibus Plan, the Company had granted equity awards under four separate stock incentive plans for employees, officers, and directors with respect to which equity awards remained outstanding as of October 31, 2019. No additional equity awards may be granted under these plans. Stock options granted under these plans were made with a term of up to 10 years at a price not less than the market price of the stock at the date of grant. Stock options and restricted stock units granted under these plans generally vested over a four-year period for employees and a two-year period for nonemployee directors.

The following table provides information regarding the amount of total stock-based compensation expense recognized by us for fiscal 2019, 2018, and 2017 (amounts in thousands):

	2019		2018		2017
Total stock-based compensation expense recognized	$	26,180	$	28,312	$	28,466
Income tax benefit recognized	$	6,749	$	7,902	$	11,125

At October 31, 2019, 2018, and 2017, the aggregate unamortized value of outstanding stock-based compensation awards was approximately $18.7 million, $20.9 million, and $24.2 million, respectively.

Information about our more significant stock-based compensation programs is outlined below.

Stock Options:

Stock options granted to employees generally vest over a four-year period, although certain grants may vest over a longer or shorter period. Stock options granted to nonemployee directors generally vest over a two-year period. Shares issued upon the exercise of a stock option are either from shares held in treasury or newly issued shares.

The fair value of each option award is estimated on the date of grant using a lattice-based option valuation model that uses ranges of assumptions noted in the following table. Expected volatilities were based on implied volatilities from traded options on our stock, historical volatility of our stock, and other factors. The expected lives of options granted were derived from the historical exercise patterns and anticipated future patterns and represent the period of time that options granted are expected to be outstanding. The ranges set forth below result from certain groups of employees exhibiting different behaviors. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

The following table summarizes the weighted-average assumptions and fair value used for stock option grants in each of the fiscal years ended October 31, 2019, 2018, and 2017:

	2019	2018	2017
Expected volatility	28.61% - 31.34%	27.66% - 31.83%	29.93% - 41.05%
Weighted-average volatility	30.46%	30.33%	34.72%
Risk-free interest rate	2.65% - 2.76%	2.17% - 2.35%	1.96% - 2.52%
Expected life (years)	4.63 - 8.50	5.00 - 8.50	4.60 - 9.24
Dividends	1.36%	0.67%	none
Weighted-average fair value per share of options granted	$10.22	$16.09	$12.16

The fair value of stock option grants is recognized evenly over the vesting period of the options or over the period between the grant date and the time the option becomes nonforfeitable by the employee, whichever is shorter. Information regarding the stock compensation expense related to stock options for fiscal 2019, 2018 and 2017 was as follows (amounts in thousands):

	2019		2018		2017
Stock compensation expense recognized - options	$	5,181	$	7,497	$	10,337

At October 31, 2019, total compensation cost related to nonvested stock option awards not yet recognized was approximately $4.7 million, and the weighted-average period over which we expect to recognize such compensation costs was approximately 1.2 years.

The following table summarizes stock option activity for our plans during each of the fiscal years ended October 31, 2019, 2018, and 2017 (amounts in thousands, except per share amounts):

	2019				2018				2017
	Number of options		Weighted- average exercise price		Number of options		Weighted- average exercise price		Number of options		Weighted- average exercise price
Balance, beginning	5,503		$	28.84	6,120		$	27.60	8,514		$	26.36
Granted	344		32.42		210		47.84		595		31.61
Exercised	(1,044	)	21.87		(797	)	24.16		(2,863	)	24.54
Canceled	(23	)	34.47		(30	)	33.08		(126	)	32.10
Balance, ending	4,780		$	30.59	5,503		$	28.84	6,120		$	27.60
Options exercisable, at October 31,	3,799		$	29.52	4,231		$	27.03	4,266		$	25.42

The weighted average remaining contractual life (in years) for options outstanding and exercisable at October 31, 2019, was 4.8 and 4.0, respectively.

The intrinsic value of options outstanding and exercisable is the difference between the fair market value of our common stock on the applicable date (“Measurement Value”) and the exercise price of those options that had an exercise price that was less than the Measurement Value. The intrinsic value of options exercised is the difference between the fair market value of our common stock on the date of exercise and the exercise price.

The following table provides information pertaining to the intrinsic value of options outstanding and exercisable at October 31, 2019, 2018, and 2017 (amounts in thousands):

	2019		2018		2017
Intrinsic value of options outstanding	$	45,551	$	30,477	$	112,886
Intrinsic value of options exercisable	$	39,350	$	29,010	$	87,978

Information pertaining to the intrinsic value of options exercised and the fair market value of options that became vested or modified in each of the fiscal years ended October 31, 2019, 2018, and 2017, is provided below (amounts in thousands):

	2019		2018		2017
Intrinsic value of options exercised	$	16,491	$	18,165	$	32,951
Fair market value of options vested	$	7,723	$	10,007	$	10,897

Our stock option plans permit optionees to exercise stock options using a “net exercise” method at the discretion of the Executive Compensation Committee of the Board of Directors (“Executive Compensation Committee”). In a net exercise, we withhold from the total number of shares that otherwise would be issued to an optionee upon exercise of the stock option that number of shares having a fair market value at the time of exercise equal to the option exercise price and applicable minimum income tax withholdings and remit the remaining shares to the optionee. In fiscal 2018, the net exercise method was not utilized to exercise options.

The following table provides information regarding the use of the net exercise method for fiscal 2019 and 2017:

	2019		2017
Options exercised	33,250		15,000
Shares withheld	21,842		14,472
Shares issued	11,408		528
Average fair market value per share withheld	$	33.03	$	32.98
Aggregate fair market value of shares withheld (in thousands)	$	721	$	477

Performance-Based Restricted Stock Units:

In fiscal 2019, 2018, and 2017, the Executive Compensation Committee approved awards of performance-based restricted stock units (“Performance-Based RSUs”) relating to shares of our common stock to certain members of our senior management. The number of shares earned for Performance-Based RSUs are based on the attainment of certain operational performance metrics approved by the Executive Compensation Committee in the year of grant. The number of shares underlying the Performance-Based RSUs that may be issued to the recipients ranges from, 0% to 150% for grants awarded in fiscal 2019 and 0% to 110% for grants awarded in fiscal 2018 and prior, of the base award depending on actual achievement as compared to the target performance goals. Shares earned based on actual performance generally vest pro-rata over a four-year period provided the recipients continue to be employed by us as specified in the award document.

The value of the Performance-Based RSUs was determined to be equal to the estimated number of shares of our common stock to be issued multiplied by the closing price of our common stock on the New York Stock Exchange (“NYSE”) on the date the Performance-Based RSU awards were approved by the Executive Compensation Committee (“Valuation Date”). We evaluate the performance goals quarterly and estimate the number of shares underlying the Performance-Based RSUs that are probable of being issued. The following table provides information regarding the issuance, valuation assumptions, and amortization of the Performance-Based RSUs issued in fiscal 2019, 2018, and 2017:

	2019		2018		2017
Number of shares underlying Performance-Based RSUs to be issued	158,721		135,554		168,417
Aggregate number of Performance-Based RSUs outstanding at October 31	645,538		786,857		940,117
Closing price of our common stock on Valuation Date	$	34.86	$	47.84	$	31.61
Aggregate grant date fair value of Performance-Based RSUs issued (in thousands)	$	5,533	$	6,485	$	5,324
Performance-Based RSU expense recognized (in thousands)	$	5,514	$	6,949	$	7,031
Unamortized value of Performance-Based RSUs at October 31 (in thousands)	$	3,431	$	3,824	$	4,599

Shares earned with respect to Performance-Based RSUs issued in December 2012, 2013, and 2014 were delivered in fiscal 2017, 2018, and 2019, respectively. The recipients of these Performance-Based RSUs elected to use a portion of the shares underlying the Performance-Based RSUs to pay the required income withholding taxes on the payout. In fiscal 2019, the gross value of the payout was $9.7 million (300,040 shares), the minimum income tax withholding was $4.0 million (123,409 shares) and the net value of the shares delivered was $5.7 million (176,631 shares). In fiscal 2018, the gross value of the payout was $13.7 million (288,814 shares), the minimum income tax withholding was $6.0 million (126,330 shares) and the net value of the shares delivered was $7.7 million (162,484 shares). In fiscal 2017, the gross value of the payout was $9.6 million (302,514 shares), the minimum income tax withholding was $4.2 million (133,098 shares) and the net value of the shares delivered was $5.4 million (169,416 shares).

Total Shareholder Return Restricted Stock Units:

In fiscal 2019, 2018, and 2017, the Executive Compensation Committee approved awards of relative total shareholder return performance-based restricted stock units (“TSR RSUs”) relating to 48,710, 39,411 and 46,361 target shares, respectively, of our common stock to certain members of our senior management. Shares underlying the TSR RSUs granted are earned by comparing our total shareholder return during specified performance periods to the total shareholder returns of companies in a performance peer group as defined in the award document. The specified performance periods are as follows:

	Performance Period	Target Number of TSR RSUs issued
Fiscal 2019	November 1, 2018 to October 31, 2021	48,710
Fiscal 2018	November 1, 2017 to October 31, 2020	39,411
Fiscal 2017	November 1, 2016 to October 31, 2019	46,361

The TSR RSUs generally vest at the end of a 3-year period provided the recipients continue to be employed by us as specified in the award document. Based upon our ranking in the performance peer group, the recipient of the TSR RSUs may earn a total award ranging from 0% to 150% for awards granted in fiscal 2019 and 0% to 200% for awards granted in fiscal 2018 and prior, of the target number of TSR RSUs granted. In fiscal 2019, recipients of the fiscal 2017 TSR RSUs earned 0% of the target based on total shareholder return ranking in the performance peer group during the three-year period ending October 31, 2019. In fiscal 2018, recipients earned 76.81% of the 52,679 target TSR RSUs awarded in fiscal 2016 based upon our total shareholder return ranking in the performance peer group during the three-year period ended October 31, 2018. In fiscal 2017, recipients of earned 83.05% of the 57,230 target TSR RSUs awarded in fiscal 2016 based upon our total shareholder return ranking in the performance peer group during the two-year period ended October 31, 2017.

We estimated the fair value of the TSR RSUs at the grant date using a Monte Carlo simulation. The following table summarizes the assumptions used in the Monte Carlo simulation and the fair value per share of the TSR RSUs granted in fiscal 2019, 2018, and 2017:

	2019	2018	2017
Weighted-average volatility	29.06%	26.58%	26.91%
Risk-free interest rate	2.64%	1.92%	1.52%
Dividends	none	none	none
Weighted-average fair value per share of TSR RSUs	$36.46	$52.62	$39.21

The length of each performance period was used as the expected term in the simulation for each respective tranche.

The following table provides information on expense recognized and the unamortized value of our TSR RSUs for fiscal 2019, 2018, and 2017 (amounts in thousands):

	2019		2018		2017
TSR RSUs expense recognized	$	1,673	$	2,502	$	3,400
Unamortized value of TSR RSUs at October 31	$	1,875	$	1,773	$	2,200

Our stock incentive plans permit us to withhold from the total number of shares that otherwise would be issued to a TSR RSU recipient upon distribution that number of shares having a fair value at the time of distribution equal to the applicable income tax withholdings due and remit the remaining shares to the restricted stock unit recipient. The following table provides

information regarding the number of shares withheld, the income tax withholding due, and the remaining shares issued to the recipients for fiscal 2019 and 2018:

	2019		2018
Number of shares withheld	16,643		13,974
Income tax withholdings due	$	537,902	$	470,364
Remaining shares issued to the recipients	23,817		33,553

Time-Based Restricted Stock Units:

In fiscal 2019, 2018, and 2017, we issued time-based restricted stock units (“RSUs”) to various officers, employees, and nonemployee directors. These RSUs generally vest in annual installments over a two- to four-year period. The value of the RSUs was determined to be equal to the number of shares of our common stock underlying the RSUs multiplied by the closing price of our common stock on the NYSE on the date the RSUs were awarded. The following table provides information regarding these RSUs for fiscal 2019, 2018, and 2017:

	2019		2018		2017
Time-Based RSUs issued:
Number of RSUs issued	449,380		296,790		377,564
Weighted average closing price per share of our common stock on date of issuance	$	33.04	$	47.84	$	31.61
Aggregate fair value of RSUs issued (in thousands)	$	14,848	$	14,198	$	11,935
Time-Based RSU expense recognized (in thousands):	$	13,627	$	11,193	$	7,572

	2019		2018		2017
At October 31:
Aggregate number of Time-Based RSUs outstanding	1,137,936		850,853		673,224
Cumulative unamortized value of Time-Based RSUs (in thousands)	$	8,694	$	8,818	$	6,783

Our stock incentive plans permit us to withhold from the total number of shares that otherwise would be issued to a restricted stock unit recipient upon distribution that number of shares having a fair value at the time of distribution equal to the applicable income tax withholdings due and remit the remaining shares to the restricted stock unit recipient. The following table provides information regarding the number of shares withheld, the income tax withholding due, and the remaining shares issued to the recipients for fiscal 2019, 2018, and 2017:

	2019		2018		2017
Number of shares withheld	29,681		23,289		20,400
Income tax withholdings due	$	1,042	$	1,145	$	664,300
Remaining shares issued to the recipients	82,795		58,552		52,757

Employee Stock Purchase Plan

Our employee stock purchase plan enables substantially all employees to purchase our common stock at 95% of the market price of the stock on specified offering dates without restriction or at 85% of the market price of the stock on specified offering dates subject to restrictions. The plan, which terminates in December 2027, provides that 500,000 shares be reserved for purchase. At October 31, 2019, 407,000 shares were available for issuance.

The following table provides information regarding our employee stock purchase plan for fiscal 2019, 2018, and 2017:

	2019		2018		2017
Shares issued	41,744		35,471		33,314
Average price per share	$	31.80	$	34.08	$	32.25
Compensation expense recognized (in thousands)	$	184	$	171	$	147