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 July 31, 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 September 1, 2020, there were approximately 126,183,000 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	36
Item 3. Quantitative and Qualitative Disclosures About Market Risk	55
Item 4. Controls and Procedures	55
PART II. Other Information
Item 1. Legal Proceedings	57
Item 1A. Risk Factors	57
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 6. Exhibits	60
SIGNATURES	61

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 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, and the effectiveness of economic relief measures implemented by governments;

•the effect of general economic conditions, including potential impacts from political uncertainty, civil unrest, 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;

•the price and availability of lumber, other raw materials and labor;

•transportation costs;

•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;

•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.

1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TOLL BROTHERS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

	July 31, 2020		October 31, 2019
	(unaudited)
ASSETS
Cash and cash equivalents	$	559,348	$	1,286,014
Inventory	8,034,515		7,873,048
Property, construction, and office equipment, net	313,513		273,412
Receivables, prepaid expenses, and other assets (1)	968,416		715,441
Mortgage loans held for sale, at fair value	161,540		218,777
Customer deposits held in escrow	78,094		74,403
Investments in unconsolidated entities	412,766		366,252
Income taxes receivable	9,239		20,791
	$	10,537,431	$	10,828,138
LIABILITIES AND EQUITY
Liabilities
Loans payable	$	1,082,025	$	1,111,449
Senior notes	2,661,301		2,659,898
Mortgage company loan facility	122,189		150,000
Customer deposits	437,008		385,596
Accounts payable	375,900		348,599
Accrued expenses	1,014,822		950,932
Income taxes payable	118,058		102,971
Total liabilities	5,811,303		5,709,445
Equity
Stockholders’ equity
Preferred stock, none issued	—		—
Common stock, 152,937 shares issued at July 31, 2020 and October 31, 2019	1,529		1,529
Additional paid-in capital	722,115		726,879
Retained earnings	4,978,832		4,774,422
Treasury stock, at cost — 26,997 and 11,999 shares at July 31, 2020 and October 31, 2019, respectively	(1,022,406)		(425,183)
Accumulated other comprehensive loss	(4,996)		(5,831)
Total stockholders’ equity	4,675,074		5,071,816
Noncontrolling interest	51,054		46,877
Total equity	4,726,128		5,118,693
	$	10,537,431	$	10,828,138

(1) As of July 31, 2020 and October 31, 2019, receivables, prepaid expenses, and other assets include $155.0 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.

2

TOLL BROTHERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Amounts in thousands, except per share data)

(Unaudited)

	Nine months ended July 31,				Three months ended July 31,
	2020		2019		2020		2019
Revenues:
Home sales	$	4,441,383	$	4,788,335	$	1,627,812	$	1,756,970
Land sales	90,609		56,631		23,677		8,721
	4,531,992		4,844,966		1,651,489		1,765,691
Cost of revenues:
Home sales	3,629,525		3,818,347		1,318,936		1,401,755
Land sales	80,959		43,406		22,259		6,232
	3,710,484		3,861,753		1,341,195		1,407,987
Selling, general and administrative	531,819		527,318		160,649		186,709
Income from operations	289,689		455,895		149,645		170,995
Other:
Income (loss) from unconsolidated entities	5,304		17,759		(2,566)		7,200
Other income – net	24,917		40,867		4,786		8,721
Income before income taxes	319,910		514,521		151,865		186,916
Income tax provision	72,603		126,829		37,104		40,598
Net income	$	247,307	$	387,692	$	114,761	$	146,318
Other comprehensive income, net of tax	835		168		279		56
Total comprehensive income	$	248,142	$	387,860	$	115,040	$	146,374
Per share:
Basic earnings	$	1.89	$	2.65	$	0.91	$	1.01
Diluted earnings	$	1.87	$	2.63	$	0.90	$	1.00
Weighted-average number of shares:
Basic	131,024		146,041		126,722		144,750
Diluted	132,032		147,479		127,399		146,275

See accompanying notes.

3

TOLL BROTHERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in thousands)

(Unaudited)

For the nine months ended July 31, 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			247,307				247,307
Purchase of treasury stock				(633,873)			(633,873)
Exercise of stock options and stock based compensation issuances		(24,687)		34,875			10,188
Employee stock purchase plan issuances		(713)		1,775			1,062
Stock-based compensation		20,636					20,636
Dividends declared			(42,897)				(42,897)
Other comprehensive income					835		835
Loss attributable to non-controlling interest						(6)	(6)
Capital contributions, net						4,183	4,183
Balance, July 31, 2020	1,529	722,115	4,978,832	(1,022,406)	(4,996)	51,054	4,726,128
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			387,692				387,692
Purchase of treasury stock				(167,474)			(167,474)
Exercise of stock options and stock based compensation issuances		(21,951)		26,412			4,461
Employee stock purchase plan issuances		(42)		1,018			976
Stock-based compensation		19,351					19,351
Dividends declared			(48,301)				(48,301)
Other comprehensive income					168		168
Loss attributable to non-controlling interest						(5)	(5)
Capital contributions						36,664	36,664
Balance, July 31, 2019	1,779	724,411	5,482,955	(1,270,922)	862	45,372	4,984,457

4

For the three months ended July 31, 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, April 30, 2020	1,529	725,246	4,878,017	(1,034,999)	(5,275)	49,204	4,613,722
Net income			114,761				114,761
Purchase of treasury stock				(320)			(320)
Exercise of stock options and stock based compensation issuances		(6,858)		12,473			5,615
Employee stock purchase plan issuances		(107)		440			333
Stock-based compensation		3,834					3,834
Dividends declared			(13,946)				(13,946)
Other comprehensive income					279		279
Income attributable to non-controlling interest						2	2
Capital contributions, net						1,848	1,848
Balance, July 31, 2020	1,529	722,115	4,978,832	(1,022,406)	(4,996)	51,054	4,726,128
Balance, April 30, 2019	1,779	721,311	5,352,424	(1,135,166)	806	45,086	4,986,240
Net income			146,318				146,318
Purchase of treasury stock				(142,230)			(142,230)
Exercise of stock options and stock based compensation issuances		(2,284)		6,167			3,883
Employee stock purchase plan issuances		(51)		307			256
Stock-based compensation		5,435					5,435
Dividends declared			(15,787)				(15,787)
Other comprehensive income					56		56
Loss attributable to non-controlling interest						(1)	(1)
Capital contributions						287	287
Balance, July 31, 2019	1,779	724,411	5,482,955	(1,270,922)	862	45,372	4,984,457

See accompanying notes.

5

TOLL BROTHERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Nine months ended July 31,
	2020		2019
Cash flow provided by operating activities:
Net income	$	247,307	$	387,692
Adjustments to reconcile net income to net provided by operating activities:
Depreciation and amortization	46,700		51,423
Stock-based compensation	20,636		19,351
Income from unconsolidated entities	(5,304)		(17,759)
Distributions of earnings from unconsolidated entities	17,996		25,919
Income from foreclosed real estate and distressed loans	(602)		(487)
Deferred tax provision	14,804		7,045
Inventory impairments and write-offs	21,934		31,636
Gain on the sale of golf club properties and an office building	(12,970)		(13,331)
Other	44		(536)
Changes in operating assets and liabilities
Increase in inventory	(124,235)		(264,965)
Origination of mortgage loans	(1,191,066)		(1,074,392)
Sale of mortgage loans	1,250,109		1,078,105
Increase in receivables, prepaid expenses, and other assets	(172,790)		(155,843)
Decrease in income taxes receivable	11,552
Increase in customer deposits – net	47,222		44,726
Decrease in accounts payable and accrued expenses	(29,742)		(109,775)
Increase in income taxes payable			13,652
Net cash provided by operating activities	141,595		22,461
Cash flow used in investing activities:
Purchase of property, construction, and office equipment – net	(75,001)		(61,278)
Investments in unconsolidated entities	(47,310)		(43,260)
Return of investments in unconsolidated entities	42,639		112,373
Investment in foreclosed real estate and distressed loans	(866)		(602)
Return of investments in foreclosed real estate and distressed loans	1,751		1,649
Proceeds from the sale of golf club properties and an office building	15,617		33,539
Business acquisitions	(60,349)		(92,840)
Net cash used in investing activities	(123,519)		(50,419)
Cash flow used in financing activities:
Proceeds from loans payable	3,250,010		1,940,998
Debt issuance costs			(1,948)
Principal payments of loans payable	(3,334,431)		(1,696,827)
Redemption of senior notes			(