UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended April 30, 2020

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 001-09186

Toll Brothers, Inc.

(Exact name of registrant as specified in its charter)

Delaware			23-2416878
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
250 Gibraltar Road	Horsham	Pennsylvania	19044
(Address of principal executive offices)			(Zip Code)

(215) 938-8000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	TOL	New York Stock Exchange
Guarantee of Toll Brothers Finance Corp. 5.625% Senior Notes due 2024	TOL/24	New York Stock Exchange

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 þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☑	Accelerated filer	☐	Non-accelerated filer	☐
Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

At June 3, 2020, there were approximately 125,629,000 shares of Common Stock, par value $0.01 per share, outstanding.

TOLL BROTHERS, INC.

TABLE OF CONTENTS

	Page No.
Statement on Forward-Looking Information	1
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)	3
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)	4
Condensed Consolidated Statements of Changes in Equity (Unaudited)	5
Condensed Consolidated Statements of Cash Flows (Unaudited)	7
Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3. Quantitative and Qualitative Disclosures About Market Risk	54
Item 4. Controls and Procedures	55
PART II. Other Information
Item 1. Legal Proceedings	56
Item 1A. Risk Factors	56
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 6. Exhibits	59
SIGNATURES	60

STATEMENT ON FORWARD-LOOKING INFORMATION

Certain information included in this report or in other materials we have filed or will file with the Securities and Exchange Commission (“SEC”) (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). One can identify these statements by the fact that they do not relate to matters of a strictly historical or factual nature and generally discuss or relate to future events. These statements contain words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “may,” “can,” “could,” “might,” “should,” “likely”, “will” and other words or phrases of similar meaning. Such statements may include, but are not limited to, information and statements regarding: the impact of the novel coronavirus (“COVID-19”) on the U.S. economy, the markets in which we operate or may operate, and on our business; our strategic objectives and priorities; our land acquisition, land development and capital allocation plans and priorities; market conditions; demand for our homes; anticipated operating results and guidance; home deliveries; financial resources and condition; changes in revenues; changes in profitability; changes in margins; changes in accounting treatment; cost of revenues, including expected labor and material costs; selling, general, and administrative expenses; interest expense; inventory write-downs; home warranty and construction defect claims; unrecognized tax benefits; anticipated tax refunds; sales paces and prices; effects of home buyer cancellations; growth and expansion; joint ventures in which we are involved; anticipated results from our investments in unconsolidated entities; our ability to acquire or dispose of land and pursue real estate opportunities; our ability to gain approvals and open new communities; our ability to market, construct and sell homes and properties; our ability to deliver homes from backlog; our ability to secure materials and subcontractors; our ability to produce the liquidity and capital necessary to conduct normal business operations or to expand and take advantage of opportunities; and the outcome of legal proceedings, investigations, and claims.

From time to time, forward-looking statements also are included in other reports on Forms 10-K, 10-Q, and 8-K; in press releases; in presentations; on our website; and in other materials released to the public. Any or all of the forward-looking statements included in this report and in any other reports or public statements made by us are not guarantees of future performance and 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. The major risks and uncertainties – and assumptions that are made – that affect our business and may cause actual results to differ from these forward-looking statements include, but are not limited to:

•the effects of the ongoing COVID-19 pandemic, which are highly uncertain, unpredictable and outside of our control, including the severity of COVID-19 and the duration of the outbreak, the duration of existing social distancing and shelter-in-place orders, whether there is a secondary outbreak of the virus, further mitigation strategies taken by applicable government authorities, the availability of a vaccine, adequate testing and therapeutic treatments and the prevalence of widespread immunity to COVID-19;

•the effect of general economic conditions, including employment rates, housing starts, interest rate levels, availability of financing for home mortgages and strength of the U.S. dollar;

•market demand for our products, which is related to the strength of the various U.S. business segments and U.S. and international economic conditions;

•the availability of desirable and reasonably priced land and our ability to control, purchase, hold and develop such parcels;

•access to adequate capital on acceptable terms;

•geographic concentration of our operations;

•levels of competition;

•raw material and labor prices and availability;

•the effect of U.S. trade policies, including the imposition of tariffs and duties on home building products and retaliatory measures taken by other countries;

•the effects of weather and the risk of loss from earthquakes, volcanoes, fires, floods, droughts, windstorms, hurricanes, pest infestations and other natural disasters, and the risk of delays, reduced consumer demand, and shortages and price increases in labor or materials associated with such natural disasters;

•the risk of loss from acts of war, terrorism or outbreaks of contagious diseases, such as COVID-19;

•transportation costs;

•federal and state tax policies;

•the effect of land use, environment and other governmental laws and regulations;

•legal proceedings or disputes and the adequacy of reserves;

•risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures, revenues, expenses, earnings, indebtedness, financial condition, losses and future prospects;

•changes in accounting principles;

•risks related to unauthorized access to our computer systems, theft of our homebuyers’ confidential information or other forms of cyber-attack; and

•other factors described in “Risk Factors” included in our Annual Report on Form 10-K for the year ended October 31, 2019 and in other filings we make with the SEC.

Many of the factors mentioned above, elsewhere in this report or in other reports or public statements made by us will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from our forward-looking statements.

Forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.

For a more detailed discussion of these factors, see the information under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K filed with the SEC and in this report.

When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to Toll Brothers, Inc. and its subsidiaries, unless the context otherwise requires. References herein to fiscal year refer to our fiscal years ended or ending October 31.

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TOLL BROTHERS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

	April 30, 2020		October 31, 2019
	(unaudited)
ASSETS
Cash and cash equivalents	$	741,222	$	1,286,014
Inventory	8,195,633		7,873,048
Property, construction, and office equipment, net	278,518		273,412
Receivables, prepaid expenses, and other assets (1)	983,094		715,441
Mortgage loans held for sale, at fair value	141,007		218,777
Customer deposits held in escrow	74,690		74,403
Investments in unconsolidated entities	364,041		366,252
Income taxes receivable	32,606		20,791
	$	10,810,811	$	10,828,138
LIABILITIES AND EQUITY
Liabilities
Loans payable	$	1,556,572	$	1,111,449
Senior notes	2,660,815		2,659,898
Mortgage company loan facility	106,018		150,000
Customer deposits	419,653		385,596
Accounts payable	350,019		348,599
Accrued expenses	998,543		950,932
Income taxes payable	105,469		102,971
Total liabilities	6,197,089		5,709,445
Equity
Stockholders’ equity
Preferred stock, none issued	—		—
Common stock, 152,937 shares issued at April 30, 2020 and October 31, 2019	1,529		1,529
Additional paid-in capital	725,246		726,879
Retained earnings	4,878,017		4,774,422
Treasury stock, at cost — 27,329 and and 11,999 shares at April 30, 2020 and October 31, 2019, respectively	(1,034,999)		(425,183)
Accumulated other comprehensive loss	(5,275)		(5,831)
Total stockholders’ equity	4,564,518		5,071,816
Noncontrolling interest	49,204		46,877
Total equity	4,613,722		5,118,693
	$	10,810,811	$	10,828,138

(1) As of April 30, 2020 and October 31, 2019, receivables, prepaid expenses, and other assets include $142.6 million and $145.8 million, respectively, of assets related to consolidated variable interest entities ("VIEs"). See Note 4, “Investments in Unconsolidated Entities” for additional information regarding VIEs.

See accompanying notes.

3

TOLL BROTHERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Amounts in thousands, except per share data)

(Unaudited)

	Six months ended April 30,				Three months ended April 30,
	2020		2019		2020		2019
Revenues:
Home sales	$	2,813,571	$	3,031,365	$	1,516,234	$	1,712,057
Land sales	66,932		47,910		32,838		4,037
	2,880,503		3,079,275		1,549,072		1,716,094
Cost of revenues:
Home sales	2,310,589		2,416,592		1,250,689		1,374,347
Land sales	58,700		37,174		26,418		2,921
	2,369,289		2,453,766		1,277,107		1,377,268
Selling, general and administrative	371,170		340,609		179,417		178,371
Income from operations	140,044		284,900		92,548		160,455
Other:
Income (loss) from unconsolidated entities	7,870		10,559		(4,271)		4,419
Other income – net	20,131		32,146		13,836		11,285
Income before income taxes	168,045		327,605		102,113		176,159
Income tax provision	35,499		86,231		26,443		46,835
Net income	$	132,546	$	241,374	$	75,670	$	129,324
Other comprehensive income, net of tax	556		112		278		56
Total comprehensive income	$	133,102	$	241,486	$	75,948	$	129,380
Per share:
Basic earnings	$	1.00	$	1.65	$	0.59	$	0.88
Diluted earnings	$	0.99	$	1.63	$	0.59	$	0.87
Weighted-average number of shares:
Basic	133,175		146,687		128,205		146,622
Diluted	134,349		148,081		128,809		148,129

See accompanying notes.

4

TOLL BROTHERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in thousands)

(Unaudited)

For the six months ended April 30, 2020 and 2019:

	Common Stock	Addi- tional Paid-in Capital	Retained Earnings	Treasury Stock	Accum- ulated Other Compre- hensive (Loss)/Income	Non-controlling Interest	Total Equity
	$	$	$	$	$	$	$
Balance, October 31, 2019	1,529	726,879	4,774,422	(425,183)	(5,831)	46,877	5,118,693
Net income			132,546				132,546
Purchase of treasury stock				(633,553)			(633,553)
Exercise of stock options and stock based compensation issuances		(17,828)		22,401			4,573
Employee stock purchase plan issuances		(607)		1,336			729
Stock-based compensation		16,802					16,802
Dividends declared			(28,951)				(28,951)
Other comprehensive income					556		556
Loss attributable to non-controlling interest						(8)	(8)
Capital contributions, net						2,335	2,335
Balance, April 30, 2020	1,529	725,246	4,878,017	(1,034,999)	(5,275)	49,204	4,613,722
Balance, October 31, 2018	1,779	727,053	5,161,551	(1,130,878)	694	8,713	4,768,912
Cumulative effect adjustment upon adoption of ASC 606, net of tax			(17,987)				(17,987)
Net income			241,374				241,374
Purchase of treasury stock				(25,244)			(25,244)
Exercise of stock options and stock based compensation issuances		(19,667)		20,245			578
Employee stock purchase plan issuances		9		711			720
Stock-based compensation		13,916					13,916
Dividends declared			(32,514)				(32,514)
Other comprehensive income					112		112
Loss attributable to non-controlling interest						(4)	(4)
Capital contributions						36,377	36,377
Balance, April 30, 2019	1,779	721,311	5,352,424	(1,135,166)	806	45,086	4,986,240

5

For the three months ended April 30, 2020 and 2019:

	Common Stock	Addi- tional Paid-in Capital	Retained Earnings	Treasury Stock	Accum- ulated Other Compre- hensive (Loss)/Income	Non-controlling Interest	Total Equity
	$	$	$	$	$	$	$
Balance, January 31, 2020	1,529	723,109	4,816,286	(879,820)	(5,553)	49,529	4,705,080
Net income			75,670				75,670
Purchase of treasury stock				(157,529)			(157,529)
Exercise of stock options and stock based compensation issuances		(716)		1,359			643
Employee stock purchase plan issuances		(566)		991			425
Stock-based compensation		3,419					3,419
Dividends declared			(13,939)				(13,939)
Other comprehensive income					278		278
Loss attributable to non-controlling interest						(7)	(7)
Capital distributions, net						(318)	(318)
Balance, April 30, 2020	1,529	725,246	4,878,017	(1,034,999)	(5,275)	49,204	4,613,722
Balance, January 31, 2019	1,779	717,405	5,239,251	(1,139,623)	750	41,627	4,861,189
Net income			129,324				129,324
Purchase of treasury stock				(101)			(101)
Exercise of stock options and stock based compensation issuances		(1,473)		4,201			2,728
Employee stock purchase plan issuances		48		357			405
Stock-based compensation		5,331					5,331
Dividends declared			(16,151)				(16,151)
Other comprehensive income					56		56
Loss attributable to non-controlling interest						(4)	(4)
Capital contributions						3,463	3,463
Balance, April 30, 2019	1,779	721,311	5,352,424	(1,135,166)	806	45,086	4,986,240

See accompanying notes.

6

TOLL BROTHERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Six months ended April 30,
	2020		2019
Cash flow used in operating activities:
Net income	$	132,546	$	241,374
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	30,285		33,314
Stock-based compensation	16,802		13,916
Income from unconsolidated entities	(7,870)		(10,559)
Distributions of earnings from unconsolidated entities	16,427