FinanceLooker

Excrept from filing document 2024-10-31

As of April 30 2024 the aggregate market value of our Common Stock held by non affiliates all persons other than executive officers and directors of Registrant of the Registrant was approximately 12 183 487 000
Portions of the proxy statement of Toll Brothers Inc with respect to the 2025 Annual Meeting of Stockholders scheduled to be held on March 11 2025 are incorporated by reference into Part III of this report
Toll Brothers Inc a corporation incorporated in Delaware in May 1986 began doing business through predecessor entities in 1967 When this report uses the words we us our and the Company it refers 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
We design build market sell and arrange financing for an array of luxury residential single family detached home attached home master planned and urban low mid and high rise communities In recent years we have pursued a strategy of broadening our product lines price points and geographic footprint as well as increasing the number of quick move in or spec homes that we sell relative to our traditional build to order homes We cater to luxury first time move up empty nester move down active adult and second home buyers in the United States as well as urban and suburban renters under the brand names Toll Brothers Apartment Living
In the five years ended October 31 2024 we delivered 49 407 homes from 986 communities including 10 813 homes from 527 communities in fiscal 2024 At October 31 2024 we had 1 041 communities in various stages of planning development or operations containing approximately 74 700 home sites that we owned or controlled through options At fiscal year end were were selling from 408 of these communities
Backlog consists of homes under contract but not yet delivered to our home buyers We had a backlog of 6 47 billion 5 996 homes at October 31 2024 we expect to deliver approximately 97 of these homes in fiscal 2025
We operate our own architectural engineering mortgage title land development insurance smart home technology and landscaping subsidiaries We also develop master planned and golf course communities as well as operate in certain regions our own lumber distribution house component assembly and manufacturing operations
In addition to our residential for sale business we also develop and operate urban and suburban for rent apartment communities primarily through joint ventures These projects are located in various metropolitan areas throughout the country and are generally being operated or developed or we expect will be developed with partners under the brand names Toll Brothers Apartment Living
Our home building communities are generally located in affluent suburban areas near major transit hubs and highways that provide access to employment and urban centers They are generally located on land we have either acquired and developed or acquired fully approved and in some cases improved
We develop individual stand alone single product communities as well as multi product master planned communities Our master planned communities enable us to offer multiple home types and sizes to a broad range of move up first time empty nester active adult and second home buyers We seek to realize efficiencies from shared common costs such as land development and infrastructure over the several communities within the master planned community
Each of our detached home communities offers several home plans with the opportunity for many of our home buyers to select various structural options and exterior styles We design each community to fit existing land characteristics We strive to achieve diversity among architectural styles within a community by offering a variety of house models and several exterior design options for each model preserving existing trees foliage and other natural features whenever feasible and curving street layouts to allow relatively few homes to be seen from any vantage point Our communities have attractive entrances with distinctive signage and landscaping We believe that our added attention to detail gives each community a diversified neighborhood appearance that enhances home values
Our attached home communities generally offer one to four story homes provide for select exterior options and often include commonly owned recreational facilities such as clubhouses playing fields swimming pools and tennis courts
While historically most of our homes have been sold on a build to order basis where we do not begin construction of the home until we have a signed contract with a customer over the past two years we have increased the number of spec homes in most of our communities which are homes started without a signed agreement with a customer In fiscal 2024 and 2023 approximately 49 and 27 of deliveries were spec homes These homes allow us to compete more effectively with existing homes available in the market especially for homebuyers that require a home within a short time frame We sell our spec homes at various stages of construction which allows many buyers of such homes to select their finishing options at our design studios We determine our spec home strategy for each community based on local market factors and maintain a level of spec home inventory based on our current and planned sales pace and construction cadence for the community
We are continuously developing new designs to replace or augment existing ones to ensure that our homes reflect current consumer tastes Increasingly we are modifying designs and the number of options we provide to offer our customers a curated experience while gaining efficiencies in the home building process particularly in respect to our affordable luxury product and our spec homes We use our own architectural staff and also engage third party architectural firms to develop new designs
A wide selection of structural and finishing options are available to our home buyers for additional charges The number and complexity of options available typically increase with the size and base sales price of our homes A greater variety of options are generally available for detached build to order homes as compared to attached homes and spec homes Major structural options include home offices fitness rooms multi generational living suites finished basements and spacious indoor outdoor
We market our high quality homes to both upscale luxury and affordable luxury home buyers Our luxury homes are marketed primarily to buyers who generally have previously owned a home and who are seeking to buy a larger or more desirable home the so called move up market Our affordable luxury homes are marketed primarily to more affluent first time buyers We believe our reputation as a builder of luxury homes in these markets enhances our competitive position with respect to the sale of our smaller more moderately priced homes
We continue to pursue growth initiatives by expanding our product lines and price points to appeal to buyers across the demographic spectrum We have also significantly expanded our geographic footprint over the past decade In addition to our traditional move up home buyer we are focusing on the empty nester market the millennial generation and the affordable luxury buyer
We market to the empty nester or move down market which we believe has strong growth potential We have developed a number of home designs with features such as single story living and first floor primary bedroom suites as well as communities with recreational amenities such as golf courses marinas pool complexes country clubs fitness and recreation centers that we believe appeal to this category of home buyer We have integrated certain of these designs and features in some of our other home types and communities As of October 31 2024 we were selling from 76 age restricted active adult communities in which at least one home occupant must be at least 55 years of age
With the millennial generation in its prime family formation years we also continue to focus on this group with our core suburban homes affordable luxury offerings urban condominiums and luxury rental apartment products
Through our City Living brand with third party joint venture partners we currently are developing two high density high rise urban luxury communities to serve affluent move up families empty nesters and young professionals who are seeking to live in or close to major cities
Our City Living communities are generally high rise condominiums that take an extended period of time to construct We generally start selling homes in these communities after construction has commenced By the time construction has been completed we typically have a significant number of homes under contract with buyers in backlog Once construction has been completed the homes in backlog in these communities are generally delivered quickly Because of the larger upfront costs and longer development time periods associated with high rise projects we generally expect to continue developing future high density high rise urban luxury condominium communities through joint ventures with third parties
We believe that the demographics supporting the luxury first time move up empty nester active adult affordable luxury and second home upscale markets will provide us with an opportunity for growth in the future We continue to believe that many of our communities are in desirable locations that are difficult to replace and that many of these communities have substantial embedded value that may be realized in the future
At October 31 2024 significant site improvements had not yet commenced on approximately 12 000 of the 25 592 available home sites Of the 25 592 available home sites approximately 8 900 were not yet owned by us but were controlled through options
Of our 471 operating communities at October 31 2024 a total of 408 communities were offering homes for sale with the remaining consisting primarily of sold out communities where not all homes had been completed and delivered Of the 408 communities in which homes were being offered for sale at October 31 2024 a total of 329 were detached home communities and 79 were attached home communities
As a result of the breath of our products and geographic footprint we have a wide range of base sales prices for our homes The percentage of the 10 813 homes delivered in fiscal 2024 within the various ranges of base sales price was as follows
The table below provides the average value of all structural and finishing options purchased by our home buyers including lot premiums and excluding incentives as well as the value of these options and premiums as a percent of the base sales price of the homes purchased excluding incentives in fiscal 2024 2023 and 2022
In general the ability to purchase a premium lot or customize a home with structural options and interior finishes varies widely across our product lines and what stage of construction the home is in when a purchase contract is signed which may result in significant variation in the option value as a percentage of base sales price For example our attached homes and our spec homes do not offer the opportunity for buyers to add significant structural options to their homes and thus they have a smaller option value as a percentage of base sales price
For more information regarding revenues net contracts signed income loss before income taxes and assets by segment see Management s Discussion and Analysis of Financial Condition and Results of Operations Segments in Item 7 of this Form 10 K
From time to time we acquire home builders in order to expand our footprint and or product offerings in an existing market or to enter a new market These acquisitions are generally completed using available cash on hand and primarily consist of smaller privately held builders In fiscal 2024 and 2023 we did not make any acquisitions
In fiscal 2022 we acquired substantially all of the assets and operations of a privately held home builder with operations in San Antonio Texas for approximately 48 1 million in cash The assets acquired which consisted of 16 communities were primarily inventory including approximately 450 home sites owned or controlled through land purchase agreements
Before entering into an agreement to purchase a land parcel we complete extensive comparative studies and analyses that assist us in evaluating the acquisition These analyses may include soil tests environmental studies an evaluation of necessary zoning and other governmental entitlements and extensive market research to evaluate which of our product offerings are appropriate for the market In addition to purchasing land parcels outright we strive to enter into option agreements and other arrangements
to defer the acquisition of land until we are closer in time to delivering the completed home to our customer We have also entered into several joint ventures with other builders financial partners or developers to develop land for the use of the joint venture partners or for sale to third parties These structures are generally more capital efficient and less risky than outright land purchases that occur earlier in the entitlement and development process However they are generally more expensive
Our business is subject to many risks including risks associated with obtaining the necessary approvals on a property and completing the land improvements on it In order to reduce the financial risk associated with land acquisitions and holdings and to more efficiently manage our capital where practicable we enter into option agreements also referred to herein as land purchase contracts purchase agreements or options to purchase land on a non recourse basis thereby limiting our financial exposure to amounts expended in obtaining any necessary governmental approvals the costs incurred in the planning and design of the community and in some cases some or all of the cost of the option also referred to as deposits Option agreements enable us to obtain necessary governmental approvals before we acquire title to the land and allow us to acquire lots over a specified period of time at contracted prices The use of these agreements may increase our overall cost basis in the land that we eventually acquire but reduces our risk by allowing us to obtain the necessary development approvals before we expend significant funds to acquire the land In prior periods during the time it took to obtain approvals the value of the purchase agreements and land generally increased however in any given time period this may not happen We have the ability to extend some of these purchase agreements for varying periods of time which in some cases would require an additional payment Our purchase agreements are typically subject to numerous conditions including but not limited to obtaining necessary governmental approvals for the proposed community In certain instances our deposit under an agreement may be returned to us if all approvals are not obtained although predevelopment costs usually will not be recoverable We generally have the right to cancel any of our agreements to purchase land by forfeiture of some or all of the deposits we have made pursuant to the agreement
During fiscal 2024 and 2023 we acquired control of approximately 14 900 and 4 200 home sites respectively net of options terminated and lots sold During fiscal year 2024 and 2023 we forfeited control of over 4 000 lots in each year that were subject to land purchase agreements primarily because the planned community no longer met our development criteria At October 31 2024 we owned or controlled approximately 74 700 home sites as compared to approximately 70 700 home sites at October 31 2023 At October 31 2024 and October 31 2023 the percentage of these home sites optioned was approximately 55 and 49 respectively
We either alone or in joint venture are developing several parcels of land for master planned communities in which we intend to build homes on a portion of the lots with the remaining lots being sold to other builders At October 31 2024 one of these master planned communities was wholly owned while the remaining communities were being developed through joint ventures with other builders or financial partners At October 31 2024 our Land Development Joint Ventures owned approximately 22 700 home sites At October 31 2024 we had agreed to acquire 316 home sites We expect to purchase approximately 9 000 additional home sites from several of our Land Development Joint Ventures over a number of years
Our ability and willingness to continue development activities over the long term will depend on among other things a suitable economic environment and our 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 on acceptable terms
At October 31 2024 the aggregate purchase price of land parcels subject to option and purchase agreements in both operating and future communities was approximately 6 10 billion including 26 8 million of land to be acquired from joint ventures in which we have invested Of the 6 10 billion of land purchase contracts we paid or deposited 549 2 million If we acquire all
of these land parcels we will be required to pay an additional 5 55 billion The purchases of these land parcels are expected to occur over the next several years We have additional land parcels under option that have been excluded from this aggregate purchase price because we do not believe that we will complete the purchase of these land parcels and no additional funds will be required from us to terminate these contracts These option contracts have either been written off or written down to the estimated amount that we expect to recover when the contracts are terminated
We have a substantial amount of land currently under control for which approvals have been obtained or are being sought We devote significant resources to locating suitable land for future development and obtaining the required approvals on land under our control There can be no assurance that the necessary development approvals will be secured for the land currently under our control or for land that we may acquire control of in the future In addition upon obtaining such development approvals we may elect not to complete the purchases of land under option or complete the development of land that we own We generally have been successful in obtaining governmental approvals in the past We believe that we have an adequate supply of land in our existing communities and proposed communities assuming that all properties are developed to maintain our operations at current levels for several years
We expend considerable effort in developing a plan for each community which includes determining the size style and price range of the homes the layout of the streets and individual home sites and the overall community design After the necessary governmental subdivision and other approvals have been obtained which may take several years we improve the land by clearing and grading it installing roads underground utilities recreational amenities and distinctive entrance features and staking out individual home sites
We act as a general contractor for substantially all of our communities Subcontractors perform all home construction and land development work generally under fixed price contracts We generally have multiple sources for the materials we purchase and believe our suppliers have sufficient capacity to support our business operations However factors beyond our control can and have resulted in disruptions to our supply chain the availability of labor and the ability of municipalities to process approvals which can result in increased costs and elongated production cycles See Risk Factors Risks Related to Our Business and Industry in Item 1A and Manufacturing Distribution Facilities in Item 2 of this Form 10 K
Our construction managers coordinate subcontracting activities and supervise all aspects of construction work and quality control One of the ways in which we seek to achieve home buyer satisfaction is by providing our construction managers with incentive compensation arrangements based upon each home buyer s satisfaction as expressed by the buyers responses on pre and post closing questionnaires
The most significant variable affecting the timing of our sales other than housing demand is the opening of the community for sale which occurs after receipt of final land regulatory approvals Receipt of approvals allows us to begin the process of obtaining executed sales contracts from home buyers Although our sales and construction activities vary somewhat by season which can affect the timing of closings any such seasonal effect is relatively insignificant compared to the effect of the timing of receipt of final regulatory approvals the opening of the community and the subsequent timing of closings
We believe that our marketing strategy for our homes has enhanced our reputation as a builder and developer of high quality luxury homes We believe this reputation results in greater demand for all of our product types We generally include attractive design features even in our less expensive homes based on our belief that these enhancements improve our marketing and sales effort
In determining the prices for our homes in addition to management s extensive experience we utilize an internally developed value analysis program that compares our homes with homes offered by other builders and competitive resale homes in each local market area In our application of this program we assign a positive or negative dollar value to differences between our product features and those of our competitors such as home and community amenities location and reputation
We typically have a sales center in each community that is staffed by our own sales personnel Sales personnel are generally compensated with both salary and commission A significant portion of our sales is also derived from the introduction of customers to our communities by local real estate agents to whom we pay a real estate agent commission
We expend great effort and cost in designing and merchandising our model homes which play an important role in our marketing Interior merchandising varies among the models and is carefully selected to reflect the lifestyles of prospective buyers
Visitors to our website www TollBrothers com can obtain detailed information regarding our communities and homes across the country take panoramic or video tours of our homes and design their own homes based upon our available floor plans and
We have increasingly focused our marketing efforts to the digital environment for media buying and have adopted a number of virtual tools and techniques to allow our sales personnel to engage in remote interactions with potential customers
We have a two step sales process The first step takes place when a potential home buyer visits one of our communities either in person or virtually and decides to purchase one of our homes at which point the home buyer signs a non binding deposit agreement and provides a small refundable deposit This deposit will reserve for a short period of time the home site or unit that the home buyer has selected This deposit also locks in the base price of the home Because these deposit agreements are non binding they are not recorded as signed contracts nor are they recorded in backlog Deposit rates are tracked on a weekly basis to help us monitor the strength or weakness in demand in each of our communities If demand for homes in a particular community is strong we determine whether the base sales prices in that community should be increased If demand for the homes in a particular community is weak we determine whether or not sales incentives and or discounts on home prices should be adjusted
The second step in the sales process occurs when we sign a binding agreement of sale contract with the home buyer and the home buyer provides a larger cash down payment that is generally non refundable Cash down payments averaged approximately 8 of the total purchase price of a home in fiscal year 2024 Between the time that the home buyer signs the non binding deposit agreement and the binding agreement of sale which typically takes about three weeks the home buyer is required to complete a financial questionnaire that allows us to determine whether the home buyer has the financial resources necessary to purchase the home If we determine that the home buyer is not financially qualified we will not enter into an agreement of sale During fiscal 2024 2023 and 2022 our customers signed net contracts for 10 07 billion 10 231 homes 7 91 billion 8 077 homes and 9 07 billion 8 255 homes respectively When we report net contracts signed the number and value of contracts signed are reported net of all cancellations occurring during the reporting period whether the cancelled contracts were originally signed in that reporting period or in a prior period Additionally all options selected during the reporting period are reported as sales in that reporting period regardless of when the original contract was signed Only outstanding agreements of sale that have been signed by both the home buyer and us as of the end of the period for which we are reporting are reported as contracts and included in backlog
We maintain relationships with a diversified group of mortgage financial institutions many of which are among the largest in the industry We believe that national regional and community banks continue to recognize the long term value in creating relationships with our affluent home buyers and these banks continue to provide these customers with financing We believe that our home buyers generally are and should continue to be better able to secure mortgages due to their typically lower loan to value ratios and attractive
Our mortgage subsidiary Toll Brothers Mortgage Company TBMC provides mortgage financing for a portion of our home closings Our mortgage subsidiary determines whether the home buyer qualifies for the mortgage that the home buyer is seeking based upon information provided by the home buyer and other sources For those home buyers who qualify our mortgage subsidiary provides the home buyer with a mortgage commitment that specifies the terms and conditions of a proposed mortgage loan based upon then current market conditions
Prior to the actual closing of the home and funding of the mortgage the home buyer may lock in an interest rate based upon the terms of the commitment At the time of rate lock our mortgage subsidiary agrees to sell the proposed mortgage loan to one of several third party established mortgage financing institutions investors that are willing to honor the terms and conditions including the interest rate committed to the home buyer We believe that these investors have adequate financial resources to honor their commitments to our mortgage subsidiary Mortgage loans are sold to investors with limited recourse provisions derived from industry standard representations and warranties in the relevant agreements These representations and warranties primarily involve the absence of misrepresentations by the borrower or other parties the appropriate underwriting of the loan
and in some cases a required minimum number of payments to be made by the borrower The Company generally does not retain any other continuing interest related to mortgage loans sold in the secondary market
At October 31 2024 our mortgage subsidiary was committed to fund 1 84 billion of mortgage loans Of these commitments 168 8 million as well as 182 8 million of mortgage loans receivable had locked in interest rates as of October 31 2024 Our mortgage subsidiary funds its commitments through a combination of its own capital capital provided from us its loan facility and the sale of mortgage loans to various investors Our mortgage subsidiary has commitments from investors to acquire all 351 7 million of these locked in loans and receivables Our home buyers had not locked in the interest rate on the remaining 1 67 billion of mortgage loan commitments as of October 31 2024
We had a backlog of 6 47 billion 5 996 homes at October 31 2024 6 95 billion 6 578 homes at October 31 2023 and 8 87 billion 8 098 homes at October 31 2022 Of the 5 996 homes in backlog at October 31 2024 approximately 97 are expected to be delivered by October 31 2025 This delivery estimate is based on current expectations regarding our backlog conversion rate Our backlog conversion rate can vary based on a number of factors including the availability of subcontractors and qualified trades people the availability of adequate utility infrastructure and services the ability of municipalities to process permits conduct inspections and take similar actions in a timely manner and shortages or delays in availability See Risk Factors Risks Related to Our Business and Industry Component shortages and increased costs of labor and supplies are beyond our control and can result in delays and increased costs to develop our communities in Item 1A of this Form 10 K
The home building business is highly competitive and fragmented We compete with numerous home builders of varying sizes ranging from local to national in scope some of which have greater sales and financial resources than we do Sales of existing homes also provide competition We compete primarily on the basis of price location design quality service and reputation We believe our financial stability relative to many other home builders in our industry is a favorable competitive factor
Our quarterly operating results typically fluctuate with the seasons A significant portion of our agreements of sale are generally entered into with customers in the winter and spring months Weather related events can delay housing starts and closings and increase costs See Risk Factors Risks Related to Our Business and Industry Our quarterly operating results may fluctuate due to the seasonal nature of our business and Risk Factors Risks Related to Other Events and Factors Adverse weather conditions natural disasters and other conditions could disrupt the development of our communities which could harm our sales and results of operation in Item 1A of this Form 10 K
We have investments in joint ventures i to develop lots for the joint venture participants and for sale to outside builders Land Development Joint Ventures ii to develop for sale homes Home Building Joint Ventures iii to develop luxury for rent residential apartments and single family homes and commercial space Rental Property Joint Ventures and iv to provide financing and land banking for residential builders and developers for the acquisition and development of land and home sites Other Joint Ventures At October 31 2024 we had investments of 1 01 billion in these unconsolidated entities and were committed to invest or advance up to an additional 312 8 million to these entities if they require additional funding
In fiscal 2024 2023 and 2022 we recognized loss income from the unconsolidated entities in which we had an investment of 23 8 million 50 1 million and 23 7 million respectively In addition we earned construction and management fee income from these unconsolidated entities of 40 0 million in fiscal 2024 39 2 million in fiscal 2023 and 33 9 million in fiscal 2022
At October 31 2024 we had investments in 16 Land Development Joint Ventures to develop land Some of these Land Development Joint Ventures develop land for the sole use of the venture participants including us and others develop land for sale to the joint venture participants and to unrelated builders At October 31 2024 we had 388 6 million invested in our Land Development Joint Ventures and funding commitments of 243 0 million to six of the Land Development Joint Ventures which will be funded if additional investments in the ventures are required At October 31 2024 eleven of these joint ventures had aggregate loan commitments of 639 6 million and outstanding borrowings against these commitments of 381 6 million At October 31 2024 our Land Development Joint Ventures owned approximately 22 700 home sites
At October 31 2024 we had agreed to acquire 316 home sites from four of our Land Development Joint Ventures for an aggregate purchase price of approximately 26 8 million In addition we expect to purchase approximately 9 000 additional
home sites over a number of years from several of these joint ventures The purchase prices of these home sites will be determined at a future date We count lots in these joint ventures as optioned lots if we have a contractual right to acquire them
At October 31 2024 we had an aggregate 58 4 million of investments in our Home Building Joint Ventures to develop luxury for sale homes In fiscal 2024 the value of net contracts signed by our Home Building Joint Ventures was 125 0 million 101 homes and they delivered 267 6 million 238 homes of revenue
As part of our strategy to expand product lines over the past several years we acquired control of a number of land parcels intended to be developed as for rent apartment or single family rental home projects including several student housing sites At October 31 2024 we had an aggregate of 549 2 million of investments in 40 Rental Property Joint Ventures At October 31 2024 we or joint ventures in which we have an interest controlled 67 land parcels that are planned or operating as for rent apartment projects containing approximately 21 300 units At October 31 2024 joint ventures in which we had an interest had aggregate loan commitments of 3 54 billion and outstanding borrowings against these commitments of 2 75 billion These projects are located in multiple metropolitan areas throughout the country and are being operated or developed or we expect will be developed with partners under the brand names Toll Brothers Apartment Living and Toll Brothers Campus Living
At October 31 2024 we had approximately 4 500 units in for rent apartment projects that were occupied or ready for occupancy 5 700 units in the lease up stage 6 500 units in the design phase or under development and 4 700 units in the planning stage Of the 21 300 units at October 31 2024 13 300 were owned by joint ventures in which we have an interest approximately 2 400 were owned by us and land underlying 5 600 were under contract to be purchased by us
We are subject to various local state and federal statutes ordinances rules and regulations concerning zoning building design construction and similar matters including local regulations that impose restrictive zoning and density requirements In a number of our 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 nonprofit entities In addition we are subject to various licensing registration and filing requirements in connection with the construction advertisement and sale of homes in our communities The impact of these laws and requirements has been to increase our overall costs and they may have delayed and in the future may delay the opening of communities or may have caused and in the future may cause us to conclude that development of particular communities would not be economically feasible even if any or all necessary governmental approvals were obtained See Land Policy in this Item 1 We also may 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 we operate Generally such moratoriums relate to insufficient water or sewage facilities or inadequate road capacity
In order to secure certain approvals in some areas we may be required to provide affordable housing at below market rental or sales prices The impact of these requirements on us depends on how the various state and local governments in the areas in which we engage or intend to engage in development implement their programs for affordable housing To date these restrictions have not had a material impact on us
We also are 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 that apply to any given community vary according to the location and environmental condition of the site and the present and former uses of the site An increased regulatory focus on reducing greenhouse gas emissions has led to legislative mandates in certain jurisdictions that require new homes to be more energy efficient than existing homes or that mandate energy efficient features such as solar panels be included in new construction Complying with these environmental laws may result in delays may cause us to incur substantial compliance and other costs and or may prohibit or severely restrict development in certain environmentally sensitive regions or areas
Before consummating an acquisition of land we generally engage independent environmental consultants to evaluate land for the potential of hazardous or toxic materials wastes or substances and we believe that because of this we have not been significantly affected to date by the presence of such materials on our land
Our mortgage subsidiary is subject to various state and federal statutes rules and regulations including those that relate to licensing lending operations and other areas of mortgage origination and financing The impact of those statutes rules and regulations can be to increase our home buyers cost of financing increase our cost of doing business and restrict our home buyers access to some types of loans
We maintain insurance subject to deductibles and self insured amounts to protect us against various risks associated with our activities including among others general liability all risk property construction defects workers compensation automobile and employee fidelity We accrue for our expected costs associated with the deductibles and self insured amounts
At October 31 2024 we employed approximately 4 900 persons full time as compared to approximately 4 800 employees at October 31 2023 At October 31 2024 approximately 1 of our employees were covered by a collective bargaining agreement
We believe our employees are among our most important resources and are critical to our continued success We focus significant attention on attracting and retaining talented and experienced individuals to manage and support our operations and our management team routinely reviews employee turnover rates at various levels of the organization Management also reviews employee engagement and satisfaction surveys to monitor employee morale and receive feedback on a variety of issues We pay our employees competitively and offer a broad range of company paid benefits which we believe are competitive with others in our industry
We are committed to hiring developing and supporting a diverse and inclusive workplace Our management teams and all of our employees are expected to exhibit and promote honest ethical and respectful conduct in the workplace All of our employees must adhere to a code of conduct that sets standards for appropriate behavior and includes required annual training on preventing identifying reporting and stopping any type of unlawful discrimination
In recent years we have implemented protocols and procedures to protect our employees subcontractors and customers For example we have expanded technologies that allow for virtual interactions in many aspects of our business including customer facing activities Many administrative and operational routines have been modified including with respect to providing our employees with greater flexibility to work remotely Many of these modifications have been well received by our employees with minimal disruption to our operations and have continued through fiscal 2024
We file annual quarterly and current reports proxy statements and other information with the Securities and Exchange Commission the SEC These filings are available over the internet at the SEC s website at http www sec gov
Our principal Internet address is www tollbrothers com We make our annual reports on Form 10 K quarterly reports on Form 10 Q current reports on Form 8 K and any amendments to those reports filed or furnished pursuant to Section 13 a or 15 d of the Securities Exchange Act of 1934 available through our website under Investor Relations our Investor Relations website free of charge as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC
We provide information about our business and financial performance including our Company Overview on our Investor Relations website Additionally we webcast our earnings calls and certain events we participate in with members of the investment community on the Investor Relations portion of our website Further corporate governance information including our code of ethics and business conduct corporate governance guidelines and board committee charters is also available on the Investor Relations portion of our website The content of our websites is not incorporated by reference into this Annual Report on Form 10 K or in any other report or document we file with the SEC and any references to our websites are intended to be inactive textual references only
Certain information included in this report or in other materials we have filed or will file with the 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 One can identify these statements by the fact that they do not relate to matters of 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 related to market conditions mortgage rates inflation rates demand for our homes our build to order and spec strategy sales paces and prices effects of home buyer cancellations our strategic priorities growth and expansion our land acquisition land development and capital allocation priorities anticipated operating results home deliveries financial resources and condition changes in revenues profitability margins and returns changes in accounting treatment cost of revenues including expected labor and material costs availability of labor and materials impacts of tariffs selling general and administrative expenses interest expense inventory write downs home warranty and construction defect claims unrecognized tax benefits anticipated tax refunds joint ventures in which we are involved anticipated results from our investments in unconsolidated entities our ability to acquire 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 the outcome of legal proceedings investigations and claims and the impact of public health or other emergencies
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 assumptions or estimates that differ from actual results or as a consequence of known or unknown risks and uncertainties Many of the factors mentioned in Item 1A Risk Factors below 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
From time to time forward looking statements also are included in other reports on Forms 10 Q and 8 K in press releases in presentations on our website and in other materials released to the public These statements may include guidance regarding our future performance such as our anticipated annual revenue home deliveries and margins that represents management s estimates as of the date of publication Guidance is based upon a number of assumptions and estimates that while presented with numerical specificity is inherently subject to significant business economic and competitive uncertainties and contingencies many of which are beyond our control and are based upon specific assumptions with respect to future business decisions some of which will change Forward looking statements including guidance 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 factors that we believe could cause our actual results to differ materially from expected and historical results see Item 1A Risk Factors below 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 in this section
Demand for our homes and rental apartments is subject to fluctuations and difficult to predict often due to factors outside of our control such as employment levels consumer confidence and spending housing demand availability of financing for homebuyers interest rates availability quality and prices of new homes compared to existing inventory and demographic trends In a housing market downturn our sales and results of operations will be adversely affected we may have significant inventory impairments and other write offs our gross margins may decline significantly from historical levels and we may incur substantial losses from operations At any particular time we cannot accurately predict whether housing market conditions will improve deteriorate or continue as they exist at that time
Adverse changes in economic conditions in markets where we conduct our operations and where prospective purchasers of our homes live could reduce the demand for homes and as a result could adversely affect our business results of operations and financial condition
Adverse changes in economic conditions in markets where we conduct our operations and where prospective purchasers of our homes live have had and may in the future have a negative impact on our business Adverse changes in mortgage rates employment levels job growth consumer confidence perceptions regarding the strength of the housing market and population growth or an oversupply of homes for sale may reduce demand or depress prices for our homes and cause home buyers to cancel their agreements to purchase our homes In addition because we have increased our supply of spec homes relative to our build to order homes adverse changes in economic conditions could cause us to reduce prices more rapidly to avoid carrying large amounts of finished inventory This in turn could adversely affect our results of operations and financial condition
Inflation can adversely affect us by increasing costs of land materials and labor and interest rates All of these factors can have a negative impact on housing affordability and demand for our homes In a highly inflationary environment we may be unable to raise the sales prices of our homes at or above the rate of inflation which could reduce our profit margins In addition our cost of capital labor and materials can increase which could have an adverse impact on our business or financial results Inflation may also accompany or give rise to higher interest rates which could adversely impact our customers ability to obtain financing on favorable terms if at all thereby decreasing demand for our homes In recent years high inflation and rising interest rates were primary drivers of decreases in home demand including our homes If these trends persist they could adversely impact our business and financial results in the future
Conversely deflation could cause an overall decrease in spending and borrowing capacity which could lead to deterioration in economic conditions and employment levels Deflation could also cause the value of our inventories to decline or reduce the value of existing homes These or other factors that increase the risk of significant deflation could have a negative impact on our business or financial results
There are substantial risks inherent in controlling owning and developing land If housing demand declines we may not be able to build sell or rent homes profitably in some of our communities we may not be able to fully recover the costs of some of the land and lots we own and we may forfeit deposits on land that we put under control through option arrangements We acquire land or make payments to control land for expansion into new markets and for replacement of land inventory and expansion within existing markets If housing demand in a given market declines below the levels that we expected when we acquired or gained control of land we may have to sell or rent homes or land for a lower profit margin or record inventory impairment charges on our land and lots Due to the decline in our business during the 2006 2011 downturn in the housing industry we recognized significant inventory impairments We cannot assure you that significant inventory impairments will not occur again in the future
The home building industry is highly competitive for suitable land and the risk inherent in purchasing and developing land increases as consumer demand for housing increases In the long term our operations depend on our ability to obtain land at reasonable prices for the development of our residential communities At October 31 2024 we had approximately 74 700 home sites that we owned or controlled through options In the future changes in the availability of land competition for available land availability of financing to acquire land zoning regulations that limit housing density and other market conditions may hurt our ability to obtain land for new residential communities at acceptable prices If the supply of land appropriate for the development of our residential communities becomes more limited because of these factors or for any other reason the cost of land could increase and or the number of homes that we are able to sell and build could be reduced
We cannot guarantee that i our strategies which include expanding our presence in existing markets and potential expansion into new markets offering a wide variety of products and price points becoming a more capital and operationally efficient home builder and maintaining an appropriate balance of spec homes for sale relative to our build to order homes and any related initiatives or actions including home builder acquisitions will be successful or that they will generate growth earnings or returns at any particular level or within any particular time frame ii in the future we will achieve positive operational or financial results or results in any particular metric or measure equal to or better than those attained in the past or iii we will perform in any period as well as other home builders We also cannot provide any assurance that we will be able to maintain our strategies and any related initiatives or actions in the future and due to unexpectedly favorable or unfavorable market conditions or other factors we may determine that we need to adjust refine or abandon all or portions of our strategies and any
related initiatives or actions though we cannot guarantee that any such adjustments will be successful The failure of any one or more of our present strategies or any related initiatives or actions or the failure of any adjustments that we may pursue or implement would likely have an adverse effect on our ability to increase the value and profitability of our business on our ability to operate our business in the ordinary course on our overall liquidity and on our consolidated financial statements and the effect in each case could be material
Our business is dependent upon the appeal of the Toll Brothers brand and its association with quality and luxury is integral to our success Our strategy has involved growing our business by expanding our luxury brand to new price points product lines and geographies including expansion of our affordable luxury products If we are unable to maintain the position of the Toll Brothers brand our business may be adversely affected by diminishing the distinctive appeal of the brand and tarnishing its image This could result in lower sales and earnings
In addition unfavorable media or investor and analyst reports related to our industry company brand marketing personnel operations business performance or prospects may affect our stock price and the performance of our business regardless of its accuracy Furthermore the speed at which negative publicity is disseminated has increased dramatically through the use of electronic communication including social media outlets websites and other digital platforms Our success in maintaining and enhancing our brand depends on our ability to adapt to this rapidly changing media environment Adverse publicity or negative commentary from media outlets or social media could damage our reputation and reduce the demand for our homes which would adversely affect our business
We can also be affected by poor relations with the residents of communities we develop because efforts made by us to resolve issues or disputes that may arise in connection with the operation or development of their communities or in connection with the transition of a homeowners association could be deemed unsatisfactory by the affected residents and subsequent actions by these residents could adversely affect sales or our reputation In addition we could decide or be required to make material expenditures related to the settlement of such issues or disputes which could adversely affect the results of our operations
A significant portion of our revenues and income from operations are concentrated in California In addition our gross margin in California tends to be higher than Company average Factors beyond our control could have a material adverse effect on our revenues gross margin and or income from operations generated in California These factors include but are not limited to changes in the regulatory and fiscal environment prolonged economic downturns high levels of foreclosures lack of affordability a lack of foreign buyer demand severe weather including drought natural disasters such as earthquakes and wild fires the risk of local governments imposing building moratoriums and of state or local governments imposing regulations that increase building costs environmental incidents and declining population and or growth rates and the related reduction in housing demand in this region If home sale activity or sales prices decline in California our costs may not decline at all or at the same rate and our inventory and lots owned or controlled in the state may be at risk of impairment As a result our consolidated financial results may be adversely affected
The construction cycle for mid rise high rise and multifamily building is generally longer than that of single family detached homes which puts us at greater risk of construction delays and changing market conditions that could adversely affect our operating results in this part of our business
Before a mid rise high rise or multifamily building generates any revenues we make significant expenditures to acquire land to obtain permits development approvals and entitlements and to construct the building It generally takes several years for us to acquire the land and construct market and deliver units or lease units in a high rise building Completion times vary on a building by building basis depending on the complexity of the project its stage of development when acquired our relationship with any joint venture partners that may be involved in a project and the regulatory and community issues involved As a result of these potential delays in the completion of a building we face the risk that demand for housing may decline during this period and we may be forced to sell or lease units at a loss or for prices that generate lower profit margins than we initially anticipated Furthermore if construction is delayed we may face increased costs as a result of inflation or other causes and or asset carrying costs including interest on funds used to acquire the land and construct the building These costs can be significant and can adversely affect our operating results In addition if values of the building or units decline we may also be required to recognize significant impairments in the future
Our condominium and rental multi unit buildings are subject to fluctuations in delivery volume due to their extended construction time levels of pre sales and lease up and quick delivery of units once buildings are complete
Our quarterly operating results will fluctuate depending on the timing of completion of construction of our multi unit condominium buildings levels of pre sales and the relatively short delivery time of the pre sold units once the building is
completed These sales can result in significant gains or losses that we recognize on our Consolidated Statements of Operations and Comprehensive Income as income from unconsolidated entities The timing of these gains or losses cannot be predicted with certainty and as a result can cause our net income to fluctuate from quarter to quarter
In addition to our residential for sale business we also develop operate and or in certain situations sell for rent apartments which we accomplish mainly through joint ventures Often the joint venture through which we develop and lease up a rental property sells the property to a third party or to the joint venture partner upon stabilization These sales can result in significant gains or losses that we recognize on our Consolidated Statements of Operations and Comprehensive Income as income from unconsolidated entities The timing of these gains or losses cannot be predicted with certainty and as a result can cause our net income to fluctuate from quarter to quarter
Our backlog reflects agreements of sale with our home buyers for homes that have not yet been delivered We have received a deposit from our home buyer for each home reflected in our backlog and generally we have the right to retain the deposit if the home buyer does not complete the purchase In some cases however a home buyer may cancel the agreement of sale and receive a complete or partial refund of the deposit for reasons such as state and local law requirements the home buyer s inability to obtain mortgage financing the home buyer s inability to sell their current home or our inability to complete and deliver the home within the specified time Home buyers may also choose to cancel their home agreement and forfeit their deposit The amount of deposit that we require varies by community and market and may be insufficient to compel a home buyer to complete the purchase At October 31 2024 we had 5 996 homes with a sales value of 6 47 billion in backlog If economic conditions decline if mortgage financing becomes less available or more costly or if our homes become less attractive due to market price declines or due to other conditions at or in the vicinity of our communities we could experience an increase in home buyers canceling their agreements of sale with us which could have an adverse effect on our business and results of operations
We operate in a very competitive environment in which we face competition from a number of other home builders in each market in which we operate We compete with large national and regional home building companies and with smaller local home builders for land financing building components and skilled management and labor resources We also compete with the resale home market also referred to as the previously owned or existing home market An oversupply of homes available for sale or the heavy discounting of home prices by some of our competitors could adversely affect demand for our homes and the results of our operations An increase in competitive conditions can have any of the following impacts on us delivery of fewer homes sale of fewer homes higher cancellations by our home buyers an increase in selling incentives and or reduction of prices and realization of lower gross margins due to lower sales prices or an inability to increase sales prices to offset increased costs of the homes delivered If we are unable to compete effectively in our markets our business could decline disproportionately to that of our competitors
We rely on subcontractors to develop our land and construct our homes and on building supply companies to supply components for the construction of our homes The failure of our subcontractors to properly construct our homes and adopt appropriate jobsite safety practices or defects in the components we obtain from building supply companies could have an adverse effect on us
We engage subcontractors to develop our land and construct our homes including by purchasing components used in the construction of our homes from building supply companies Despite our quality control and jobsite safety efforts we may discover that our subcontractors were engaging in improper development construction or safety practices or that the components purchased from building supply companies are not performing as specified The occurrence of such events could require us to repair facilities and homes in accordance with our standards and as required by law or to respond to claims of improper oversight of construction sites The cost of satisfying our legal obligations in these instances may be significant and we may be unable to recover the cost of repair from subcontractors suppliers and insurers
We also can suffer damage to our reputation and may be exposed to possible liability if subcontractors fail to comply with applicable laws including laws involving matters that are not within our control We have implemented policies that are designed to inform subcontractors of observations of hazardous conditions that could jeopardize the safety of individuals or result in penalties or other legal consequences and ultimately to reduce or eliminate unsafe acts and conditions However attempts at mitigation may not be successful and we could be subject to claims relating to actions of or matters relating to our subcontractors
We have investments in and commitments to certain unconsolidated joint ventures with unrelated parties generally involved in land development home building and apartment rental development activities At October 31 2024 we had investments of 1 01 billion in unconsolidated entities and were committed to invest or advance up to an additional 312 8 million to these unconsolidated entities if they require additional funding These joint ventures generally borrow money to help finance their activities In certain circumstances the joint venture participants including us are required to provide guarantees of certain obligations relating to the joint ventures In most of these joint ventures we do not have a controlling interest and as a result are not able to require these joint ventures or their participants to honor their obligations or renegotiate them on acceptable terms If the joint ventures or their participants do not honor their obligations we may be required to expend additional resources or suffer losses which could be significant In addition because we generally do not control these joint ventures our investments may be illiquid and we may not always agree with our partners on major decisions such as asset sales Disputes between us and partners may result in litigation or arbitration that could increase our expenses and distract our management team In addition we may in certain circumstances be liable for the actions of its third party partners
Government regulations and legal challenges may delay the start or completion of our communities increase our expenses or limit our home building activities which could have a negative impact on our operations
We must obtain the approval of numerous governmental authorities in connection with our development and construction activities and these governmental authorities often have broad discretion in exercising their approval authority We incur substantial costs related to compliance with legal and regulatory requirements Any increase in legal and regulatory requirements may cause us to incur substantial additional costs or in some cases cause us to determine that the property is not feasible for development
Various local state and federal statutes ordinances rules and regulations concerning building zoning sales accessibility safety anti discrimination and similar matters apply to and or affect the housing industry Governmental regulation affects construction activities as well as sales activities mortgage lending activities and other dealings with home buyers including anti discrimination laws such as the Fair Housing Act and data privacy laws such as the California Consumer Privacy Act The industry also has experienced an increase in state and local legislation and regulations that limit the availability or use of land Municipalities may also restrict or place moratoriums on the availability of utilities such as water and sewer taps In some areas municipalities may enact growth control initiatives which restrict the number of building permits available in a given year In addition we may be required to apply for additional approvals or modify our existing approvals because of changes in local circumstances or applicable law If municipalities in which we operate take actions like these it could have an adverse effect on our business by causing delays increasing our costs or limiting our ability to operate in those municipalities Further we may experience delays and increased expenses as a result of legal challenges to our proposed communities whether brought by governmental authorities or private parties
Our mortgage subsidiary is subject to various state and federal statutes rules and regulations including those that relate to licensing lending operations and other areas of mortgage origination and financing The impact of those statutes rules and regulations can increase our home buyers cost of financing increase our cost of doing business and restrict our home buyers access to some types of loans
As a home builder we are subject to construction defect and home warranty claims arising in the ordinary course of business These claims are common in the home building industry and can be costly In addition insuring against construction defect and product liability claims has become increasingly difficult due to limited coverage options high costs lack of reinsurance options and the exit of insurers from the market There can be no assurance that any form of insurance coverage will be available in the future or if it is offered that it will be available on reasonable terms If the limits or coverages of our current and former insurance programs prove inadequate or we are not able to obtain adequate or reasonably priced insurance against these types of claims in the future or the amounts currently provided for future warranty or insurance claims are inadequate we may experience losses that could negatively impact our financial results
We record expenses and liabilities based on the estimated costs required to cover our self insured liability under our insurance policies and estimated costs of potential claims and claim adjustment expenses that are above our coverage limits or that are not covered by our insurance policies These estimated costs are based on an analysis of our historical claims and industry data and include an estimate of claims incurred but not yet reported The projection of losses related to these liabilities requires actuarial assumptions that are subject to variability due to uncertainties regarding construction defect claims relative to our markets and the types of products we build insurance industry practices and legal or regulatory actions and or interpretations among other
factors Key assumptions used in these estimates include claim frequencies severities and settlement patterns which can occur over an extended period of time In addition changes in the frequency and severity of reported claims and the estimates to settle claims can impact the trends and assumptions used in the actuarial analysis which could be material to our consolidated financial statements Due to the degree of judgment required and the potential for variability in these assumptions our actual future costs could differ from those estimated and the difference could be material to our consolidated financial statements
Our quarterly operating results fluctuate with the seasons normally a significant portion of our agreements of sale are entered into with customers in the winter and spring months Construction of our build to order homes typically proceeds after signing the agreement of sale with our customer and typically require nine to 12 months to complete although construction times may extend beyond 12 months due to a variety of reasons including high demand labor shortages supply chain disruption and municipal related delays In addition weather related events may occur from time to time delaying starts or closings or increasing costs and reducing profitability In addition delays in opening new communities or new sections of existing communities could have an adverse impact on home sales and revenues Expenses are not incurred and recognized evenly throughout the year Because of these factors our quarterly operating results may be uneven and may be marked by lower revenues and earnings in some quarters than in others
Increases in real estate taxes and other local government fees such as fees imposed on developers to fund schools open space and road improvements and or provide low and moderate income housing could increase our costs and have an adverse effect on our operations In addition increases in local real estate taxes could adversely affect our potential home buyers who may consider those costs in determining whether to make a new home purchase and decide as a result not to purchase one of our homes
Changes in tax laws could reduce or eliminate tax deductions or incentives for homeowners and could make housing less affordable or otherwise reduce the demand for housing which in turn could reduce our sales and hurt our results of operations Further while we believe that our recorded tax balances are adequate it is not possible to predict the effects of possible changes in the tax laws or changes in their interpretation and whether they could have a material adverse impact on our operating results We have filed our tax returns in prior years based upon certain filing positions we believe are appropriate If the Internal Revenue Service or state taxing authorities disagree with these filing positions we may owe additional taxes which could be material
We are subject to extensive environmental regulations which may cause us to incur additional operating expenses subject us to longer construction cycle times or result in material fines or harm to our reputation
We are subject to a variety of local state and federal statutes ordinances rules and regulations concerning the protection of health and the environment including those regulating the emission or discharge of materials into the environment the management of storm water runoff at construction sites the handling use storage and disposal of hazardous substances impacts to wetlands and other sensitive environments and the remediation of contamination at properties that we acquire own or develop In addition state and local jurisdictions have in recent years enacted regulations that require new homes to be more energy efficient than existing homes or to be more weather resistant or have mandated energy efficient features such as solar panels be included in new construction The environmental and housing code regulations applicable to each community in which we operate vary greatly depending on the location of the community site the site s environmental conditions and the present and former use of the site Environmental regulations may cause delays may cause us to incur substantial compliance remediation or other costs and can prohibit or severely restrict development and home building activity In addition noncompliance with these regulations could result in fines and penalties obligations to remediate permit revocations or other sanctions and contamination or other environmental conditions at or in the vicinity of our developments whether or not we were responsible for such conditions may result in claims against us for personal injury property damage or other losses
From time to time the United States Environmental Protection Agency and other federal or state agencies review home builders compliance with environmental laws and may levy fines and penalties for failure to strictly comply with applicable environmental laws or impose additional requirements for future compliance as a result of past failures Any such actions taken with respect to us may increase our costs or harm our reputation Further we expect that increasingly stringent requirements will be imposed on home builders in the future Environmental regulations can also have an adverse impact on the availability and price of certain building components such as lumber
In recent years an increasing number of state and Federal laws and regulations have been enacted or proposed that deal with the effect of climate change on the environment These laws and regulations which are generally intended to directly or indirectly reduce greenhouse gas emissions conserve water or limit other potential climate change impacts may impose restrictions or
additional requirements on land development and home construction in certain areas Such restrictions and requirements could increase our operating and compliance costs or require additional technology and capital investment which could adversely affect our results of operations This is a particular concern in the western United States where some of the most extensive and stringent environmental laws and residential building construction standards in the country have been enacted and where we have significant business operations We believe we are in compliance in all material respects with existing climate related government regulations applicable to our business and such compliance has not had a material impact on our business However given the rapidly changing nature of environmental laws and matters that may arise that are not currently known we cannot predict our future exposure concerning such matters and our future costs to achieve compliance or remedy potential violations could be significant
Additionally increased governmental and societal attention to environmental social and governance ESG matters including expanding mandatory and voluntary reporting diligence and disclosure on topics such as climate change human capital labor and risk oversight could expand the nature scope and complexity of matters that we are required to control assess and report These factors may alter the environment in which we do business and may increase the ongoing costs of compliance and adversely impact our results of operations and cash flows If we are unable to adequately address such ESG matters or fail to comply with all laws regulations policies and related interpretations it could negatively impact our reputation and our business results
We are required to comply with laws and regulations that govern all aspects of our business including land acquisition development home construction labor and employment mortgage origination title and escrow operations sales and warranty It is possible that our employees or entities engaged by us such as subcontractors could intentionally or unintentionally violate some of these laws and regulations Although we endeavor to take immediate action if we become aware of such violations we may incur fines or penalties as a result of these actions and our reputation with governmental agencies and our customers could be damaged
Our ability to develop residential communities may be adversely affected by circumstances beyond our control including work stoppages labor disputes and shortages of qualified trades people such as carpenters roofers masons electricians and plumbers changes in laws relating to union organizing activity lack of availability of adequate utility infrastructure and services our need to rely on local subcontractors who may not be adequately capitalized or insured the ability of municipalities to process permits conduct inspections and take similar actions in a timely manner and shortages delays in availability or fluctuations in prices of building components and materials Any of these circumstances could give rise to delays in the start or completion of or could increase the cost of developing one or more of our residential communities We may not be able to recover these increased costs by raising our home prices because the price for each home especially our build to order homes is typically set months prior to its delivery pursuant to the agreement of sale with the home buyer If that happens our operating results could be harmed
In the recent past strong demand for homes combined with supply chain disruptions labor shortages and municipal related delays caused our construction cycles to lengthen and the costs of building materials to increase Longer construction cycles can lead to increased cancellation rates lower customer satisfaction and brand diminishment In addition shortages and cost increases in building materials and tightness in the labor market can erode our profit margins and adversely affect our results of operations especially if such disruptions shortages and delays persist for extended periods of time Changes in laws government regulations or enforcement priorities such as the imposition of tariffs in particular on materials imported from Canada or Mexico or changes in immigration laws and or their enforcement could result in higher component costs tighter overall labor conditions and a shortage of skilled tradespeople which could in turn adversely affect our business
We are subject to one collective bargaining agreement that covers approximately 1 of our employees We have not experienced any work stoppages due to strikes by unionized workers but we cannot make assurances that there will not be any work stoppages due to strikes or other job actions in the future We engage independent contractors that employ non unionized workers to construct our homes At any given point in time the employees of those subcontractors may decide to unionize
er 2025 and November 2026 In addition 1 60 billion of our senior notes become due and payable at various times from November 2025 through November 2029 We cannot be certain that we will be able to replace existing financing and credit lines or find additional sources of financing in the future on favorable terms or at all
Another source of credit and liquidity for us is our ability to use letters of credit and surety bonds to back certain performance related obligations and as security for certain land option agreements and insurance programs The majority of these letters of credit and surety bonds support our land development and construction obligations to various municipalities other government agencies and utility companies related to infrastructure construction At October 31 2024 we had outstanding letters of credit and surety bonds totaling 180 0 million and 1 16 billion respectively Our letters of credit are generally but not always issued under our Revolving Credit Facility which contains certain financial covenants and other limitations If we are unable to obtain letters of credit or surety bonds when required or the conditions imposed by issuers increase significantly our liquidity and costs of operations could be adversely affected
If we are not able to obtain suitable financing at reasonable terms or replace existing debt and credit facilities when they become due or expire our costs for borrowings may increase and our revenues may decrease or we could be precluded from continuing our operations at current levels or expanding them
Increases in interest rates can make it more difficult and or expensive for us to obtain the funds and credit we need to operate our business The amount of interest we incur on our revolving bank credit facility and term loan exclusive of the amount we have hedged with interest rate swap transactions through October 2025 as further described in Note 6 Loans Payable Senior Notes and Mortgage Company Loan Facility in Item 15 a 1 of this Form 10 K fluctuates based on changes in short term interest rates and the amount of borrowings we incur and letters of credit that are issued Increases in interest rates generally and or any downgrade in the ratings that national rating agencies assign to our outstanding debt securities could increase the interest rates we must pay on any subsequent issuances of debt securities and any such ratings downgrade could also make it more difficult for us to sell such debt securities
Our results of operations also depend on the ability of our potential home buyers to obtain mortgages for the purchase of our homes Mortgage rates have increased significantly since January 2022 which has negatively impacted the overall housing market A variety of factors including market conditions and government actions could cause mortgage rates to increase even further in the future Any uncertainty in the mortgage markets and its impact on the overall mortgage market including the tightening of credit standards future increases in the effective cost of home mortgage financing including as a result of changes to federal tax law and increased government regulation could adversely affect the ability of our customers to obtain financing for a home purchase thus preventing our potential home buyers from purchasing our homes In addition where our potential home buyers must sell their existing homes in order to buy a home from us increases in mortgage costs and or lack of availability of mortgages could prevent the buyers of our potential home buyers existing homes from obtaining the mortgages they need to complete their purchases which would result in our potential home buyers inability to buy a home from us Similar risks apply to those buyers whose contracts are in our backlog of homes to be delivered If our home buyers potential buyers or buyers of our home buyers current homes cannot obtain suitable financing our sales and results of operations could be adversely affected
Generally when our mortgage subsidiary closes a mortgage for a home buyer at a previously locked in rate it already has an agreement in place with an investor to acquire the mortgage following the closing Our mortgage loans are sold to investors with limited recourse provisions derived from industry standard representations and warranties in the relevant agreements These representations and warranties primarily involve the absence of misrepresentations by the borrower or other parties the appropriate underwriting of the loan and in some cases a required minimum number of payments to be made by the borrower We generally do not retain any other continuing interest related to mortgage loans sold in the secondary market However if these recourse provisions are not satisfied the mortgage loans sold to investors could be returned to us In addition if the resale market for our mortgages decline or the underwriting standards of our investors become more stringent our ability to sell future mortgage loans could be adversely affected and either we would have to commit our own funds to long term investments in mortgage loans which could among other things delay the time when we recognize revenues from home sales on our statements of operations or our home buyers would be required to find an alternative source of financing If our home buyers cannot obtain another source of financing in order to purchase our homes our sales and results of operations could be adversely affected
The United States and other countries have experienced and may experience in the future outbreaks of contagious diseases that affect public health and public perception of health risk In 2020 the COVID 19 pandemic resulted in federal state and local governments and private entities mandating various restrictions including the closures of non essential businesses for a period of time which had an adverse impact on our business In addition the effects of the pandemic on economic activity combined with strong demand for new homes that followed the initial onset of the pandemic caused many disruptions to our supply chain and shortages in certain building components and materials as well as labor shortages all of which lengthened our construction cycle times During the pandemic overall economic conditions as well as demand for our homes and our ability to conduct normal business operations became highly unpredictable Outbreaks of contagious diseases similar to the pandemic may occur in the future which could have a significant negative impact on the economy our ability to conduct normal business operations and our results of operations and financial condition
Adverse weather conditions and natural disasters can have serious effects on our ability to develop our residential communities and other aspects of our business To the extent that hurricanes tornadoes severe storms heavy or prolonged precipitation earthquakes droughts floods wildfires or other natural disasters or similar events occur our homes under construction or our building lots in such states could be damaged or destroyed which may result in losses exceeding our insurance coverage Natural disasters can also lead to increased competition for subcontractors which can delay our construction activities even after an event has concluded They may also result in reduced demand for homes in a given community as potential buyers may avoid areas they deem to be at higher risk of loss or they may face higher costs for or may be unable to obtain fire flood or other hazard insurance coverage in certain areas due to local environmental conditions or historical events In addition adverse weather events could prompt governmental authorities to adopt more stringent building codes which would likely increase development costs in affected areas and negatively impact home affordability and or demand
In addition our business may be affected by unforeseen engineering environmental or geological conditions or problems including conditions or problems which arise on lands of third parties in the vicinity of our communities but nevertheless negatively impact our communities Any of these adverse events or circumstances could cause delays in or prevent the completion of or increase the cost of developing one or more of our residential communities and as a result could harm our sales and results of operations
Increased domestic or international instability could adversely impact the economy and significantly reduce demand for homes and the number of new contracts we sign increase the number of cancellations of existing contracts and or increase our operating expenses which could adversely affect our business results of operations and financial condition
Our future success depends to a significant degree on the efforts of our senior management and our ability to attract qualified personnel Competition for qualified personnel in all of our operating markets as well as within our corporate operations is intense Our operations could be adversely affected if key members of our senior management unexpectedly leave the Company if we cannot attract qualified personnel to manage our business or if we are unable to successfully manage transition matters when our senior executives several of whom are retirement eligible under our various compensation plans
We use information technology and other computer resources to carry out important operational and marketing activities as well as maintain our business records including information provided by our customers Many of these resources are provided to us and or maintained on our behalf by third party service providers pursuant to agreements that specify certain security and service level standards Our ability to conduct our business may be impaired if these resources are compromised degraded damaged or fail whether due to a virus or other harmful circumstance intentional breach or disruption of our information technology resources by a third party natural disaster hardware or software corruption failure or error including a failure of security controls incorporated into or applied to such hardware or software telecommunications system failure service provider error or failure intentional or unintentional personnel actions including the failure to follow our security protocols or lost connectivity to our networked resources A significant and extended disruption in the functioning of these resources could impair our operations damage our reputation and cause us to lose customers sales and revenue
In addition breaches of our data security systems including by cyber attacks could result in the unintended public disclosure or the misappropriation of our proprietary information or personal and confidential information about our employees consumers who view our homes home buyers mortgage loan applicants and business partners requiring us to incur significant expense to address and resolve these kinds of issues The release of confidential information may lead to identity theft and related fraud litigation or other proceedings against us by affected individuals and or business partners and or by regulators and the outcome of such proceedings which could include penalties or fines could have a material and adverse effect on our reputation business financial condition and results of operations Depending on its nature a particular breach or series of breaches of our systems may result in the unauthorized use appropriation or loss of confidential or proprietary information on a one time or continuing basis which may not be detected for a period of time In addition the costs of maintaining adequate protection against such threats as they develop in the future or as legal requirements related to data security increase could be material
We have been subject to cyber incidents in the past including an attack that temporarily disrupted access to certain of our systems and an incident involving identity theft through the unauthorized access of one of our third party service provider s information systems Neither of these incidents individually or in the aggregate resulted in any material liability to us any material damage to our reputation or any material disruption to our operations However as a result of a widespread increase in the frequency and number of cyber attacks we expect that we will continue to be the target of additional and increasingly sophisticated cyber attacks and data security breaches and the safeguards we have designed to help prevent these incidents from occurring may not be successful Any further increase in the frequency or scope of cyber attacks may exacerbate these data security risks If we experience additional cyber attacks or data security breaches in the future we could suffer material liabilities our reputation could be materially damaged and our operations could be materially disrupted
We have established processes and policies for assessing identifying and managing material risks posed by cybersecurity threats Our processes and policies are based upon the National Institute of Standards and Technology NIST Cybersecurity Framework with our processes focused on i developing organizational understanding to manage cybersecurity risks ii applying safeguards to protect our systems iii detecting the occurrence of a cybersecurity incident iv responding to a cybersecurity incident and v recovering from a cybersecurity incident Where appropriate these processes and policies are integrated into our overall risk management systems and processes We take a risk based approach to cybersecurity with processes that include
We have engaged knowledgeable third parties to assist us in establishing and improving our policies and monitoring and responding to cyber threats Our processes and policies include the identification of those third party relationships that have the greatest potential to expose us to cybersecurity threats and upon identification we conduct additional due diligence as a part of establishing those relationships We also manage risks related to cybersecurity by maintaining insurance coverage as part of our overall insurance portfolio For additional information concerning cybersecurity risks we face see Item 1A Risk Factors Information technology failures or data security breaches could harm our business
Our Board of Directors has delegated the primary responsibility to oversee cybersecurity matters to our Audit and Risk Committee Our Audit and Risk Committee regularly reviews the measures implemented to identify and mitigate data
protection and cybersecurity risks As part of such reviews our Audit and Risk Committee receives quarterly reports and presentations from team members responsible for overseeing our cybersecurity risk management including our Chief Information Officer CIO which address a wide range of topics including recent developments evolving standards vulnerability assessments third party and independent reviews the threat environment technological trends and information security considerations arising with respect to our peers and third parties
At the management level our cybersecurity program is managed by our CIO Our CIO joined the Company in 2014 and has over 20 years of experience leading information technology teams including with respect to cloud based system integration strategic IT transformations and the unification standardization and implementation of technological solutions Our CIO is supported by our information security team which is led by our Director of Information Cybersecurity who has over 20 years of experience in information security and which is tasked with monitoring detecting preventing and responding to cyber incidents We have also engaged a team of dedicated professionals employed by our cybersecurity consultant which includes our Chief Information Security Officer CISO Our CISO has extensive experience assessing and managing cybersecurity programs and cybersecurity risk and has over 25 years of experience in information security His background includes technical experience strategy and architecture focused roles cyber and threat experience and various leadership roles in all areas of information technology
Pursuant to our Information Technology Incident Response Plan IRP when a cybersecurity event has been identified through our detection processes it is assessed in order to determine whether the event is a cybersecurity incident Our IRP designates the primary manager of a cybersecurity incident describes the parties who should be informed about the incident and outlines the processes for containment eradication recovery and resolution of the incident Depending on the severity and impact of a cybersecurity threat members of our senior management team the Audit and Risk Committee and the full Board of Directors are notified of an incident and kept informed of the mitigation and remediation of the incident We are not aware of any material cybersecurity incidents in the last three years
We own a manufacturing facility of approximately 225 000 square feet located in Morrisville Pennsylvania a manufacturing facility totaling approximately 150 000 square feet located in Emporia Virginia and a manufacturing facility totaling approximately 30 500 square feet in Bartow Florida We also lease from unrelated parties a facility of approximately 56 000 square feet located in Fairless Hills Pennsylvania and two facilities of approximately 38 000 square feet on a combined basis located in Westfield Massachusetts In addition we own a 34 000 square foot manufacturing warehouse and office facility in Culpepper Virginia At these facilities our Toll Integrated Systems subsidiary manufactures open wall panels roof and floor trusses and certain interior and exterior millwork to supply a portion of our construction needs These facilities supply components used in our North Mid Atlantic and portions of our South geographic regions These operations also permit us to purchase wholesale lumber sheathing windows doors certain other interior and exterior millwork and other building materials to supply to our communities We believe that increased efficiencies cost savings quality control and productivity result from the operation of these plants and from the wholesale purchase of materials
We are involved in various claims and litigation arising principally in the ordinary course of business We believe that adequate provision for resolution of all current claims and pending litigation has been made and that the disposition of these matters will not have a material adverse effect on our results of operations and liquidity or on our financial condition
a Our stock incentive plans permit us to withhold from the total number of shares that otherwise would be issued to a performance based restricted stock unit recipient or 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 recipient During the three months ended October 31 2024 we withheld 1 147 of the shares subject to performance based restricted stock units and restricted stock units to cover approximately 159 000 of income tax withholdings and we issued the remaining 3 024 shares to the recipients The shares withheld are not included in the total number of shares purchased in the table above
Our stock incentive plans also permit participants to exercise non qualified stock options using a net exercise method In a net exercise we generally withhold from the total number of shares that otherwise would be issued to the participant 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 income tax withholdings and remit the remaining shares to the participant During the three month period ended October 31 2024 the net exercise method was not employed to exercise options
c On December 13 2023 our Board of Directors authorized the repurchase of 20 million shares of our common stock in open market transactions privately negotiated transactions including accelerated share repurchases issuer tender offers or other financial arrangements or transactions for general corporate purposes including to obtain shares for the Company s equity award and other employee benefit plans This authorization terminated effective December 13 2023 the prior authorization that had been in effect since March 17 2022 Our Board of Directors did not fix any expiration date for the current share repurchase program
Our revolving credit agreement and term loan agreement each require us to maintain a minimum tangible net worth as defined in the respective agreements which limit the amount of share repurchases we may make Based upon these provisions our ability to repurchase our common stock was limited to approximately 3 90 billion as of October 31 2024
During fiscal 2024 we paid aggregate cash dividends of 0 90 per share to our shareholders The payment of dividends is within the discretion of our Board of Directors and any decision to pay dividends in the future and the amount of any such dividend will depend upon an evaluation of a number of factors including our results of operations our capital requirements
our operating and financial condition and any contractual limitations then in effect Our revolving credit agreement and term loan agreement each require us to maintain a minimum tangible net worth as defined in the respective agreement which restricts the amount of dividends we may pay At October 31 2024 under the provisions of our revolving credit agreement and term loan agreement we could have paid up to approximately 3 57 billion of cash dividends
The following graph and chart compares the five year cumulative total return assuming that an investment of 100 was made on October 31 2019 and that dividends were reinvested from October 31 2019 to October 31 2024 for a our common stock b the S P Homebuilding Index and c the S P 500
This discussion and analysis is based on should be read together with and is qualified in its entirety by the Consolidated Financial Statements and Notes thereto in Item 15 a 1 of this Form 10 K beginning at page F 1 It also should be read in conjunction with the disclosure under Forward Looking Statements in Part I of this Form 10 K
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
Unless otherwise stated in this report net contracts signed represents a number or value equal to the gross number or value of contracts signed during the relevant period less the number or value of contracts cancelled during the relevant period which includes contracts that were signed during the relevant period and in prior periods Backlog consists of homes under contract but not yet delivered to our home buyers backlog Backlog conversion represents the percentage of homes delivered in the period from backlog at the beginning of the period backlog conversion
We design build market sell and arrange financing for an array of luxury residential single family detached attached master planned resort style golf and urban low mid and high rise communities principally on land we develop and improve In recent years we have pursued a strategy of broadening our product lines price points and geographic footprint as well as increasing the number of spec homes that we sell relative to our traditional build to order homes We cater to luxury first time move up empty nester move down active adult and second home buyers in the United States as well as urban and suburban renters We also design build market and sell high density high rise urban luxury condominiums with third party joint venture partners At October 31 2024 we were operating in 24 states and in the District of Columbia
In the five years ended October 31 2024 we delivered 49 407 homes from 986 communities including 10 813 homes from 527 communities in fiscal 2024 At October 31 2024 we had 1 041 communities in various stages of planning development or operations containing approximately 74 700 home sites that we owned or controlled through options At fiscal year end we were selling from 408 of these communities
We operate our own architectural engineering mortgage title land development insurance smart home technology and landscaping subsidiaries We also develop master planned and golf course communities as well as operate in certain regions our own lumber distribution house component assembly and component manufacturing operations
In addition to our residential for sale business we also develop and in some cases operate for rent apartments generally through joint ventures See the section entitled Toll Brothers Apartment Living Toll Brothers Campus Living below
In fiscal 2024 we recognized 10 85 billion of revenues consisting of 10 56 billion of home sales revenues and 283 4 million of land sales and other revenues and net income of 1 57 billion as compared to 9 99 billion of revenues consisting of 9 87 billion of home sales revenues and 128 9 million of land sales and other revenues and net income of 1 37 billion in fiscal 2023 Land sales and other revenue pre tax income and net income in fiscal 2024 included 185 0 million 175 2 million and 124 1 million respectively related to the sale of a single parcel of land in northern Virginia to a commercial developer
In fiscal 2024 and 2023 the value of net contracts signed was 10 07 billion 10 231 homes and 7 91 billion 8 077 homes respectively The value of our backlog at October 31 2024 was 6 47 billion 5 996 homes as compared to our backlog at October 31 2023 of 6 95 billion 6 578 homes
At October 31 2024 we had 1 30 billion of cash and cash equivalents and approximately 1 77 billion available for borrowing under our 1 955 billion revolving credit facility the Revolving Credit Facility At October 31 2024 we had no outstanding borrowings under the Revolving Credit Facility and had outstanding letters of credit of approximately 180 0 million
Through fiscal 2024 demand for our homes remained solid despite geopolitical turmoil continued inflationary pressures and mortgage rates that remained elevated compared to the prior decade Despite these conditions the market for new homes and in particular higher end new homes has continued to perform well We believe this is due to a variety of factors including the very low levels of resale inventory on the market favorable demographic trends that include first time millennial buyers who are acquiring homes later in life and a continuation of a structural supply demand imbalance that has resulted from underproduction of homes relative to population growth for well over a decade While home price appreciation and higher mortgage rates have made homes unaffordable for many entry level buyers our more affluent customer base has been less impacted by these trends We believe the favorable trends described above will continue to support demand for our homes for the foreseeable future However historically the home building industry has been highly cyclical and there can be no guarantee that our business will not be disrupted by macroeconomic factors such as negative impacts from inflation or mortgage rates that may trend higher
The home building business is highly competitive and fragmented We compete with numerous home builders of varying sizes ranging from local to national in scope some of which have greater sales and financial resources than we do Sales of existing homes whether by a homeowner or by a financial institution that may have acquired a home through a foreclosure or otherwise also provide competition We compete primarily based on price location design quality service and reputation We believe our size and financial stability relative to many others in our industry provides us with a competitive advantage
Our business is subject to many risks because of the extended length of time that it takes to obtain the necessary approvals on a property complete the land improvements and community amenities and build and deliver a home We attempt to reduce some of these risks and improve our capital efficiency by utilizing one or more of the following methods controlling land for future development through options which enables us to obtain necessary governmental approvals before acquiring title to the land commencing construction of a build to order home only after executing an agreement of sale and receiving a required down payment from the buyer and using subcontractors to perform home and amenity construction and land development work on a fixed price basis
During fiscal 2024 and 2023 we acquired control of approximately 14 900 and 4 200 home sites respectively net of options terminated and land sales In each of fiscal 2024 and 2023 we forfeited control of approximately optioned 4 000 lots primarily because the planned community no longer met our development criteria At October 31 2024 we controlled approximately 74 700 home sites as compared to approximately 70 700 home sites at October 31 2023 and approximately 76 000 home sites at October 31 2022 In addition at October 31 2024 we expected to purchase approximately 9 000 additional home sites from several Land Development Joint Ventures in which we have an interest at prices to be determined
Of the approximately 74 700 total home sites that we owned or controlled through options at October 31 2024 we owned approximately 34 000 and controlled approximately 40 800 through options Of the 74 700 home sites approximately 19 000 were substantially improved
We maintain relationships with a diverse group of mortgage financial institutions many of which are among the largest in the industry We believe that national regional and community banks continue to recognize the long term value in creating relationships with our home buyers and these banks continue to provide these customers with financing
In addition to our residential for sale business we also develop and in some cases operate for rent apartments generally through joint ventures At October 31 2024 we or joint ventures in which we have an interest owned or controlled 67 land parcels that are planned or being developed or operated as for rent apartment projects containing approximately 21 300 units These
projects which are located in multiple metropolitan areas throughout the country are being operated are being developed or will be developed with partners under the brand names Toll Brothers Apartment Living and Toll Brothers Campus Living Of these 21 300 units 13 300 were owned by joint ventures in which we have an interest approximately 2 400 were owned by us and the land parcels underlying 5 600 units were under contract to be purchased by us At October 31 2024 we had approximately 4 500 units in for rent apartment projects that were occupied or ready for occupancy 5 700 units in the lease up stage 6 500 units in the design phase or under development and 4 700 units in the planning stage
In fiscal 2024 three of our Rental Property Joint Ventures sold their assets or we sold a portion of our ownership interest to unrelated parties resulting in aggregate gains of 176 1 million recognized by the joint ventures From our investments in these joint ventures we received cash and recognized our share of the gains of 24 1 million in fiscal 2024 In fiscal 2023 two of our Rental Property Joint Ventures sold their assets to unrelated parties resulting in aggregate gains of 106 2 million recognized by the joint ventures From our investments in these joint ventures we received cash and recognized gains of 50 9 million in fiscal 2023 In addition in fiscal 2023 we sold our ownership interest in one of our Rental Property Joint Ventures and recognized a gain of 16 0 million The gains recognized from these sales are included in Income from unconsolidated entities in our Consolidated Statements of Operations and Comprehensive Income included in Item 15 a 1 of this Form 10 K
The aggregate value of net sales contracts signed increased 27 in fiscal 2024 as compared to fiscal 2023 The value of net sales contracts signed was 10 07 billion 10 231 homes in fiscal 2024 and 7 91 billion 8 077 homes in fiscal 2023 The increase in the aggregate value of net contracts signed in fiscal 2024 as compared to fiscal 2023 was due to a 27 increase in the number of net contracts signed The increase in the number of net contracts signed in fiscal 2024 as compared to fiscal 2023 reflects both solid demand and an increase in the average number of communities that we were selling from in 2024 The average value attributed to each contract signed in fiscal 2024 was generally flat compared to those signed in fiscal 2023 The average value attributed to each contract signed includes the value of each binding agreement of sale that was signed in the period as well as the value of all options selected during the period regardless of when the initial agreement of sale related to such options was signed
The value of our backlog at October 31 2024 2023 and 2022 was 6 47 billion 5 996 homes 6 95 billion 6 578 homes and 8 87 billion 8 098 homes respectively Approximately 97 of the homes in backlog at October 31 2024 are expected to be delivered by October 31 2025 The 7 decrease in the value of homes in backlog at October 31 2024 as compared to October 31 2023 was due to the delivery of more homes out of backlog than were added during fiscal 2024 and a decrease in the average value of each contract signed
U S generally accepted accounting principles GAAP require us to make estimates and assumptions that affect our reported amounts in the consolidated financial statements and accompanying notes Our estimates are based on i currently known facts and circumstances ii prior experience iii assessments of probability iv forecasted financial information and v assumptions that management believes to be reasonable but that are inherently uncertain and unpredictable We use our best judgment when measuring these estimates and if warranted obtain advice from external sources On an ongoing basis we review the accounting policies assumptions estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP However because future events and their effects cannot be determined with certainty actual results could differ from our assumptions and estimates and such differences could be material In times of economic disruption when uncertainty regarding future economic conditions is heightened these estimates and assumptions are subject to greater variability
For a discussion of all our significant accounting policies including our critical accounting policies refer to Note 1 Significant Accounting Policies of the Consolidated Financial Statements We believe that the accounting estimates and assumptions described below involve significant subjectivity and judgment and changes to such estimates or assumptions could have a material impact on our financial condition or operating results Therefore we consider an understanding of the variability and judgment required in making these estimates and assumptions to be critical in fully understanding and evaluating our reported financial results
Inventory is stated at cost unless an impairment exists in which case it is written down to fair value in accordance with GAAP In addition to direct land acquisition land development and home construction costs costs also include interest real estate taxes and direct overhead related to development and construction which are capitalized to inventory during periods beginning with the commencement of development and ending with the completion of construction Because our inventory is considered a long lived asset under GAAP we are required to regularly review the carrying value of each of our communities and write down the value of those communities when we believe the values are not recoverable
When the profitability of an operating community deteriorates the sales pace declines significantly or some other factor indicates a possible impairment in the recoverability of the asset the asset is reviewed for impairment by comparing the estimated future undiscounted cash flow for the community to its carrying value If the estimated future undiscounted cash flow is less than the community s carrying value the carrying value is written down to its estimated fair value Estimated fair value is primarily determined by discounting the estimated future cash flow of each community The discount rate used in determining each asset s fair value reflects inherent risks associated with the related estimated cash flows as well as current risk free rates available in the market and estimated market risk premiums In estimating the future undiscounted cash flow of a community we use various estimates such as i the expected sales pace in a community based upon general economic conditions that will have a short term or long term impact on the market in which the community is located and on competition within the market including the number of home sites available and pricing and incentives being offered in other communities owned by us or by other builders ii the expected sales prices and sales incentives to be offered in a community iii costs expended to date and expected to be incurred in the future including but not limited to land and land development costs home construction interest and overhead costs iv alternative product offerings that may be offered in a community that will have an impact on sales pace sales price building cost or the number of homes that can be built in a particular community and v alternative uses for the property such as the possibility of a sale of the entire community to another builder or the sale of individual home sites Any impairment is charged to cost of home sales revenues in the period in which the impairment is determined
We evaluate all land held for future communities or future sections of operating communities whether owned or optioned to determine whether or not we expect to proceed with the development of the land as originally contemplated This evaluation encompasses the same types of estimates used for operating communities described above as well as an evaluation of the regulatory environment in which the land is located and the estimated probability of obtaining the necessary approvals the estimated time and cost it will take to obtain those approvals alternative land uses and the possible concessions that may be required to be given in order to obtain them Concessions may include cash payments to fund improvements to public places such as parks and streets dedication of a portion of the property for use by the public or as open space or a reduction in the density or size of the homes to be built or commitment to build or fund certain dedicated workforce and affordable housing units Based upon this review we decide i as to land under contract to be purchased whether the contract will likely be terminated or renegotiated and ii as to land we own whether the land will likely be developed as contemplated or in an alternative manner or should be sold We then further determine whether costs that have been capitalized to the community are recoverable or should be written off The write off is charged to cost of revenues in the period in which the need for the write off is determined
The estimates used in the determination of the estimated cash flows and fair value of both current and future communities are based on factors known to us at the time such estimates are made and our expectations of future operations and economic conditions Should the estimates or expectations used in determining estimated fair value deteriorate in the future we may be required to recognize additional impairment charges and write offs related to current and future communities and such amounts could be material
We recognized inventory impairment charges and the expensing of costs that we believed not to be recoverable in each of the three fiscal years ended October 31 2024 2023 and 2022 as shown in the table below amounts in thousands
For our standard attached and detached homes land land development and related costs both incurred and estimated to be incurred in the future are amortized to the cost of homes closed based upon the total number of homes expected to be constructed in each community Any changes resulting from a change in the estimated number of homes to be constructed or in the estimated costs subsequent to the commencement of delivery of homes are allocated to the remaining undelivered homes in the community Home construction and related costs are charged to the cost of homes closed under the specific identification method For our master planned communities the estimated land common area development and related costs including the cost of golf courses net of their estimated residual value are allocated to individual communities within a master planned community on a relative sales value basis Any changes resulting from a change in the estimated number of homes to be constructed or in the estimated costs are allocated to the remaining home sites in each of the communities of the master planned community
For high rise mid rise projects land land development construction and related costs both incurred and estimated to be incurred in the future are generally amortized to the cost of units closed based upon an estimated relative sales value of the units closed to the total estimated sales value Any changes resulting from a change in the estimated total costs or revenues of the project are allocated to the remaining units to be delivered
We rely on certain estimates to determine our construction and land development costs Construction and land costs are comprised of direct and allocated costs including estimated future costs In determining these costs we compile community budgets that are based on a variety of assumptions including future construction schedules and costs to be incurred Actual results can differ from budgeted amounts for various reasons including construction delays labor or material shortages slower absorptions increases in costs that have not yet been committed changes in governmental requirements or other unanticipated issues encountered during construction and development and other factors beyond our control To address uncertainty in these budgets we assess update and revise community budgets on a regular basis utilizing the most current information available to estimate home construction and land costs
We provide all of our home buyers with a limited warranty as to workmanship and mechanical equipment We also provide many of our home buyers with a limited 10 year warranty as to structural integrity We accrue for expected warranty costs at the time each home is closed and title and possession are transferred to the home buyer Warranty costs are accrued based upon historical experience related to product type geographic location and other community specific factors Adjustments to our warranty liabilities related to homes delivered in prior years are recorded in the period in which a change in our estimate occurs Over the past decade we have had a significant number of warranty claims related to water intrusion issues primarily impacting homes built in Pennsylvania and Delaware Our review process for these claims includes an analysis of many factors to determine the estimated costs to resolve such claims including the closing dates of the homes the number of claims received our inspection of homes an estimate of the number of homes we expect to repair the type and cost of repairs that have been performed in each community the estimated costs to remediate pending and future claims and the previously recorded amounts related to these claims We also monitor legal developments relating to these types of claims and review the volume relative merits and adjudication of claims in litigation or arbitration
We maintain and require the majority of our subcontractors to maintain general liability insurance including construction defect and bodily injury coverage and workers compensation insurance These insurance policies protect us against a portion of our risk of loss from claims related to our home building activities subject to certain self insured retentions deductibles and other coverage limits self insured liability We also provide general liability insurance for our subcontractors in Arizona California Colorado Nevada Washington and certain areas of Texas where eligible subcontractors are enrolled as insureds under our general liability insurance policies in each community in which they perform work For those enrolled subcontractors we absorb their general liability associated with the work performed on our homes within the applicable community as part of our overall general liability insurance and our self insurance through our captive insurance subsidiary
We record expenses and liabilities based on the estimated costs required to cover our self insured liability and the estimated costs of potential claims and claim adjustment expenses that are not covered by our insurance policies These estimated costs are based on an analysis of our historical claims and industry data and include an estimate of claims incurred but not yet reported IBNR
We engage a third party actuary that uses our historical claim and expense data input from our internal legal and risk management groups as well as industry data to estimate our liabilities on an undiscounted basis related to unpaid claims IBNR associated with the risks that we are assuming for our self insured liability and other required costs to administer current and expected claims These estimates are subject to uncertainty due to a variety of factors the most significant being the long period of time between the delivery of a home to a home buyer and when a structural warranty or construction defect claim is made and the ultimate resolution of the claim Though state regulations vary construction defect claims are reported and resolved over a prolonged period of time which can extend for 10 years or longer As a result the majority of the estimated liability relates to IBNR Adjustments to our liabilities related to homes delivered in prior years are recorded in the period in which a change in our estimate occurs
The projection of losses related to these liabilities requires actuarial assumptions that are subject to variability due to uncertainties regarding construction defect claims relative to our markets and the types of product we build insurance industry practices and legal or regulatory actions and or interpretations among other factors Key assumptions used in these estimates include claim frequencies severity and settlement patterns which can occur over an extended period of time In addition changes in the frequency and severity of reported claims and the estimates to settle claims can impact the trends and assumptions used in the actuarial analysis which could be material to our consolidated financial statements Due to the degree of judgment required and the potential for variability in these underlying assumptions our actual future costs could differ from those estimated and the difference could be material to our consolidated financial statements
We have not made any material changes in our methodology used to establish our self insurance reserves during the past three fiscal years Over the past three fiscal years adjustments to our estimates have not been material
We evaluate our investments in unconsolidated entities for indicators of impairment on a quarterly basis A series of net operating losses of an investee the inability to recover our invested capital or other factors may indicate that a loss in value of our investment in the unconsolidated entity has occurred If a loss exists we further review to determine if the loss is other than temporary in which case we write down the investment to its estimated fair value The amount of impairment recognized is the excess of the investment s carrying amount over its estimated fair value
The evaluation of our investments in unconsolidated entities for other than temporary impairment entails a detailed cash flow analysis using many estimates including but not limited to 1 projected future distributions from the unconsolidated entities 2 discount rates applied to the future distributions and 3 various other factors For our unconsolidated entities that develop for sale homes and condominiums these other factors include those that are similar to how we evaluate our inventory for impairment as described above such as expected sales pace expected sales price expected incentives and costs incurred and anticipated For our unconsolidated entities that own develop and manage for rent residential apartments these other factors may include rental trends expected future expenses and cap rates Our assumptions on the projected future distributions from unconsolidated entities are also dependent on market conditions sufficiency of financing and capital competition and anticipation of cash receipts
We believe our assumptions on discount rates require significant judgment because the selection of the discount rate may significantly impact the estimated fair value of our investments in unconsolidated entities A higher discount rate reduces the estimated fair value of our investments in unconsolidated entities while a lower discount rate increases the estimated fair value of our investments in unconsolidated entities During the year ended October 31 2024 we utilized discount rates ranging from 10 to 15 in our valuations Because of changes in economic conditions actual results could differ materially from management s assumptions and may require material valuation adjustments to our investments in unconsolidated entities to be recorded in the future
The following table compares certain items in our Consolidated Statements of Operations and Comprehensive Income and other supplemental information for fiscal 2024 and 2023 amounts in millions unless otherwise stated For more information regarding results of operations by operating segment see Segments in this MD A
Note Due to rounding amounts may not add Net contracts signed value is net of all cancellations that occurred in the period It includes the value of each binding agreement of sale that was signed in the period plus the value of all options that were selected during the period regardless of when the initial agreements of sale related to such options were signed
A discussion and analysis regarding Results of Operations and Analysis of Financial Condition for the year ended October 31 2023 as compared to the year ended October 31 2022 is included in Part II Item 7 MD A to our Annual Report on Form 10 K for the fiscal year ended October 31 2023 filed with the SEC on December 21 2023
The increase in home sales revenues in fiscal 2024 as compared to fiscal 2023 was attributable to a 13 increase in the number of homes delivered offset in part by a 5 decrease in the average price of homes delivered The increase in the number of homes delivered in fiscal 2024 as compared to fiscal 2023 was principally due to higher backlog conversion and an increase in the number of spec homes delivered in fiscal 2024 offset in part by a decrease in the number of homes in backlog at October 31 2023 as compared to the number of homes in backlog at October 31 2022 The decrease in the average delivered home price was mainly due to increase in homes delivered in less expensive product types geographic regions
Home sales cost of revenues as a percentage of homes sales revenues in fiscal 2024 was 73 4 as compared to 73 1 in fiscal 2023 The increase in fiscal 2024 was principally due to a shift in the mix of revenues to lower margin products areas and increased inventory impairment charges offset in part by lower interest expense as a percentage of home sales revenues We recognized inventory impairments and write offs of 59 4 million or 0 6 of home sales revenues and 30 7 million or 0 3 of home sales revenues in fiscal 2024 and fiscal 2023 respectively Interest cost in fiscal 2024 was 129 0 million or 1 2 of home sales revenues as compared to 139 4 million or 1 4 of home sales revenues in fiscal 2023
Our revenues from land sales and other generally consist of the following 1 land sales to joint ventures in which we retain an interest 2 lot sales to third party builders within our master planned communities 3 bulk land sales to third parties of land we have decided no longer meets our development criteria 4 sales of land parcels to third parties typically because there is a superior economic use of the property and 5 sales of commercial and retail properties generally located at our urban luxury condominium communities Land sales to joint ventures in which we retain an interest are generally sold at our land basis and therefore little to no gross margin is earned on these sales
The increase in land sales and other cost of revenues as a percentage of land sales and other revenues in fiscal 2024 compared to fiscal 2023 was primarily due to the sale of a single land parcel to a commercial developer in our second quarter for net cash proceeds of 180 7 million which resulted in a pre tax gain of 175 2 million In addition we incurred lower impairment charges in fiscal 2024 We recognized 4 4 million of impairment charges in fiscal 2024 in connection with planned land sales This compares to 30 6 million of land sales and other impairment charges recognized in fiscal 2023
SG A spending increased by 72 8 million in fiscal 2024 as compared to fiscal 2023 As a percentage of home sales revenues SG A was 9 3 and 9 2 in fiscal 2024 and 2023 respectively The dollar increase in SG A was primarily due to an increase in variable spending such as selling expenses associated with increased home sales revenues The increase in SG A as a percentage of home sales revenues was primarily due to general cost inflation
We recognize our proportionate share of the earnings and losses from the various unconsolidated entities in which we have an investment Many of our unconsolidated entities are land development projects high rise mid rise condominium construction projects or for rent apartment projects and for rent single family home projects which do not generate revenues and earnings for a number of years during the development of the property Once development is complete for land development projects and high rise mid rise condominium construction projects these unconsolidated entities will generally over a relatively short period of time generate revenues and earnings until all of the assets of the entity are sold Further once for rent apartments and for rent single family home projects are complete and stabilized we often monetize a portion of these projects through a recapitalization or a sale of all or a portion of our ownership interest in the joint venture resulting in an income producing event Because of the long development periods associated with these projects the earnings recognized from these entities may vary significantly from quarter to quarter and year to year
For our Rental Property Joint Ventures specifically these entities typically generate operating losses until the related property reaches stabilization For the fiscal years 2024 and 2023 our earnings related to the Rental Property Joint Ventures include approximately 50 3 million and 32 9 million respectively of our share of net operating losses incurred by these joint ventures of which approximately 29 8 million and 26 1 million respectively was our share of the depreciation expense recognized by these joint ventures
We recognized a loss from unconsolidated entities of 23 8 million in fiscal 2024 as compared to income of 50 1 million in fiscal 2023 This decrease was mainly due to 50 9 million of gains recognized in fiscal 2023 related to property sales compared to 24 1 million of such gains in fiscal 2024 We also recognized a 16 0 million gain as the result of the sale of our ownership interest in a Rental Property Joint Venture in fiscal 2023 No similar sales occurred in fiscal 2024 Fiscal 2024 was
also impacted by higher losses incurred by various Rental Property Joint Ventures reduced income at one Home Building Joint Venture due to its underlying assets being sold out lower earnings from a Land Development Joint Venture due to reduced sales volume and an increase in other than temporary impairment charges recognized We recognized other than temporary impairment charges in fiscal 2024 of 6 6 million related to two investments in Rental Property Joint Ventures No similar impairment charges were recognized in fiscal 2023
The increase in income from ancillary businesses in fiscal 2024 as compared to fiscal 2023 was principally due to higher earnings from our mortgage and title operations due to increased closing volume and a 4 4 million gain from a bulk sale of security monitoring accounts by our smart home technology business offset in part by higher operating losses incurred in our apartment living operations In fiscal 2024 and fiscal 2023 we also recognized 8 9 million and 8 4 million respectively of write offs related to previously incurred costs that we believed not to be recoverable in our apartment living operations
In fiscal 2024 and 2023 income from ancillary businesses included management fees earned on our apartment rental development high rise urban luxury condominium and other unconsolidated entities and operations totaling 35 7 million and 34 7 million respectively
The increase in other in fiscal 2024 was principally due to a 5 0 million gain related to an investment we held in a privately held company that sold substantially all of its assets to a third party during the year
We recognized a 514 4 million income tax provision in fiscal 2024 Based upon the federal statutory rate of 21 0 for fiscal 2024 our federal tax provision would have been 438 0 million The difference between the tax provision recognized and the tax provision based on the federal statutory rate was mainly due to the provision for state income taxes of 103 9 million 2 7 million of other permanent differences and a 2 6 million increase in unrecognized tax benefits offset in part by a benefit of 17 5 million from excess tax benefits related to stock based compensation 2 1 million of reversal of accruals for uncertain tax positions and 13 0 million of miscellaneous and other deferred tax adjustments
We recognized a 470 3 million income tax provision in fiscal 2023 Based upon the federal statutory rate of 21 0 for fiscal 2023 our federal tax provision would have been 386 9 million The difference between the tax provision recognized and the tax provision based on the federal statutory rate was mainly due to the provision for state income taxes of 90 7 million and a 2 2 million increase in unrecognized tax benefits offset in part by a benefit of 7 3 million from excess tax benefits related to stock based compensation 2 8 million of other permanent differences and a 2 3 million benefit of federal energy efficient home credits
Funding for our business has been and continues to be provided principally by cash flow from operating activities before inventory additions credit arrangements with third parties and the public capital markets
Our cash flows from operations generally provide us with a significant source of liquidity Our cash flows provided by operating activities supplemented with our short term borrowings and long term debt have been sufficient to fund our
operations while allowing us to invest in activities that support the long term growth of our Company Our primary uses of cash include inventory additions in the form of land acquisitions and deposits to obtain control of land land development working capital to fund day to day operations and investments in existing and future unconsolidated joint ventures We may also use cash to fund capital expenditures such as investments in our information technology systems We also use cash to pay dividends on our common stock to repay debt and make share repurchases We believe our sources of cash and liquidity will continue to be adequate to fund operations finance our strategic operating initiatives repay debt fund our share repurchases and pay dividends for the foreseeable future
At October 31 2024 we had 1 30 billion of cash and cash equivalents on hand and approximately 1 77 billion available for borrowing under our Revolving Credit Facility The Revolving Credit Facility provides us with a committed borrowing capacity of 1 955 billion which we have the ability to increase up to 3 00 billion with the consent of lenders and is scheduled to mature on February 14 2028 Toll Brothers Inc and substantially all of its 100 owned home building subsidiaries are guarantors of the borrower s obligations under the Revolving Credit Facility We are also a party to a 650 0 million unsecured Term Loan Facility of which 487 5 million matures February 14 2028 101 6 million matures on November 1 2025 and the remaining 60 9 million matures on November 1 2026
In fiscal 2025 we expect our principal demand for funds will be for inventory additions in the form of land acquisition land development home construction costs and deposits to control land which could occur directly or indirectly through builder acquisitions operating expenses including our general and administrative expenses investments and funding of capital improvements investments in existing and future unconsolidated joint ventures repayment of community level debt common stock repurchases and dividend payments Demand for funds include interest and principal payments on current and future debt financing We expect to meet our short term liquidity requirements primarily through our cash and cash equivalents on hand and net cash flows provided by operations Additional sources of funds include distributions from our unconsolidated joint ventures borrowing capacity under our Revolving Credit Facility and borrowings from banks and other lenders
We believe we will have sufficient liquidity available to fund our business needs commitments and contractual obligations in a timely manner for the next twelve months We may however seek additional financing to fund future growth or refinance our existing indebtedness through the debt capital markets but we cannot be assured that such financing will be available on favorable terms or at all
Beyond fiscal 2025 our principal demands for funds will be for the payments of the principal amount of our long term debt as it becomes due or matures land purchases and inventory additions needed to grow our business long term capital investments and investments in unconsolidated joint ventures common stock repurchases and dividend payments
Over the longer term to the extent the sources of capital described above are insufficient to meet our needs we may also conduct additional public offerings of our securities refinance debt or dispose of certain assets to fund our operating activities and debt service We expect these resources will be adequate to fund our ongoing operating activities as well as provide capital for investment in future land purchases and related development activities and future joint ventures
We are a party to many agreements that include contractual obligations and commitments to make payments to third parties These obligations impact our short term and long term liquidity and capital resource needs Certain contractual obligations are reflected on the Consolidated Balance Sheet as of October 31 2024 while others are considered future commitments Our contractual obligations primarily consist of long term debt and related interest payments payments due on our mortgage company loan facility purchase obligations related to expected acquisition of land under purchase agreements and land development agreements many of which are secured by letters of credit or surety bonds operating leases obligations under our deferred compensation plan and obligations under our supplemental executive retirement plans We also enter into certain short term lease commitments commitments to fund our existing or future unconsolidated joint ventures letters of credit and other purchase obligations in the normal course of business For more information regarding our primary obligations refer to Note 6 Loans Payable Senior Notes and Mortgage Company Loan Facility and Note 14 Commitments and Contingencies to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10 K for amounts outstanding as of October 31 2024 related to debt and commitments and contingencies respectively
We also operate through a number of joint ventures and have undertaken various commitments as a result of those arrangements At October 31 2024 we had investments in these entities of 1 01 billion and were committed to invest or advance up to an additional 312 8 million to these entities if they require additional funding At October 31 2024 we had agreed to terms for the acquisition of 316 home sites from four joint ventures for an estimated aggregate purchase price of 26 8
million In addition we expect to purchase approximately 9 000 additional home sites over a number of years from several joint ventures in which we have interests The purchase price of these home sites will be determined at a future date
The unconsolidated joint ventures in which we have investments generally finance their activities with a combination of partner equity and debt financing In some instances we and our joint venture partner have guaranteed debt of unconsolidated entities These guarantees may include any or all of the following i project completion guarantees including any cost overruns ii repayment guarantees generally covering a percentage of the outstanding loan iii carry cost guarantees which cover costs such as interest real estate taxes and insurance iv environmental indemnities provided to lenders that holds them harmless from and against losses arising from the discharge of hazardous materials from the property and non compliance with applicable environmental laws and v indemnifications of lenders from bad boy acts of the unconsolidated entity
In these situations where we have joint and several guarantees with our joint venture partner we generally seek to implement a reimbursement agreement with our partner that provides that neither party is responsible for more than its proportionate share or agreed upon share of the guarantee however we are not always successful In addition if the joint venture partner does not have adequate financial resources to meet its obligations under such a reimbursement agreement we may be liable for more than our proportionate share We believe that as of October 31 2024 in the event we had become legally obligated to perform under a guarantee of the obligation of an unconsolidated entity due to a triggering event the collateral in such entity should be sufficient to repay all or a significant portion of the obligation If it is not we and our partners would need to contribute additional capital to the entity At October 31 2024 we had guaranteed the debt of certain unconsolidated entities that have loan commitments aggregating 3 03 billion of which if the full amount of the debt obligations were borrowed we estimate 646 9 million to be our maximum exposure related to repayment and carry cost guarantees At October 31 2024 the unconsolidated entities had borrowed an aggregate of 2 20 billion of which we estimate 560 4 million to be our maximum exposure related to repayment and carry cost guarantees The terms of these guarantees generally range from 1 month to 3 0 years These maximum exposure estimates do not take into account any recoveries from the underlying collateral or any reimbursement from our partners nor do they include any potential exposures related to project completion guarantees or the indemnities noted above which are not estimable
Outside of the normal course of operations one of our principal liquidity needs is the payment of principal and interest on outstanding indebtedness We are required by the terms of certain loan documents to meet certain covenants such as financial ratios and reporting requirements As of October 31 2024 we were in compliance with all such covenants and requirements on our term loan credit facility and other loans payable Refer to Note 6 Loans Payable Senior Notes and Mortgage Company Loan Facility in the Notes to the Consolidated Financial Statements in Item 15 a 1 of this Form 10 K for additional information
Cash provided by operating activities during fiscal 2024 was 1 01 billion Cash provided by operating activities was generated primarily from 1 1 57 billion of net income plus the following non cash activities 81 2 million of depreciation and amortization a net deferred tax benefit of 80 3 million 72 8 million of impairments and write offs 29 6 million of stock based compensation 23 8 million of losses from unconsolidated entities and 2 39 3 million of distributions received from unconsolidated entities and 31 9 million in current income taxes net This activity was offset in part by an increase of 575 7 million in inventory a decrease of 77 2 million in net customer deposits 78 5 million in mortgage loan originations net of sales and a decrease of 21 8 million in accounts payable and accrued expenses
Cash provided by operating activities during fiscal 2023 was 1 27 billion Cash provided by operating activities was generated primarily from 1 1 37 billion of net income plus the following non cash activities 76 5 million of depreciation and amortization 69 5 million of impairments and write offs 24 8 million of stock based compensation 50 1 million of income earned from unconsolidated entities and a net deferred tax expense of 36 2 million and 2 88 4 million of distributions received from unconsolidated entities and 78 9 million in mortgage loan sales net of originations This activity was offset in part by a decrease of 162 6 million in current income taxes net an increase of 135 9 million in receivables prepaid assets and other assets a decrease of 88 3 million in net customer deposits a decrease of 23 7 million in accounts payable and accrued expenses and an increase of 22 2 million in inventory
Cash used in investing activities during fiscal 2024 was 167 6 million primarily related to 193 2 million used to fund our investments in unconsolidated entities and 73 6 million for the purchase of property and equipment This activity was offset in part by 101 4 million of cash received as returns from our investments in unconsolidated entities
Cash used in investing activities during fiscal 2023 was 150 6 million primarily related to 216 4 million used to fund our investments in unconsolidated entities and 73 0 million for the purchase of property and equipment This activity was offset in part by 112 7 million of cash received as returns from our investments in unconsolidated entities and 26 0 million of cash proceeds from the sale of assets including ownership interests in unconsolidated entities
We used 816 5 million of cash from financing activities in fiscal 2024 primarily for the repurchase of 627 1 million of our common stock payments of 100 1 million of loans payable net of new borrowings and the payment of dividends on our common stock of 93 4 million This activity was offset by 4 1 million of proceeds from stock based benefit plans
We used 1 17 billion of cash from financing activities in fiscal 2023 primarily for the repurchase of 561 6 million of our common stock the redemption of 400 0 million of senior notes payments of 160 3 million of loans payable net of new borrowings the payment of dividends on our common stock of 91 1 million and 5 4 million of payments for debt issuance costs This activity was offset by 48 3 million of proceeds from stock based benefit plans
The long term impact of inflation on us is manifested in increased costs for land land development construction and overhead We generally enter into contracts to acquire land a significant period of time before development and sales efforts begin Accordingly to the extent land acquisition costs are fixed subsequent increases or decreases in the sales prices of homes will affect our profits Because the sales price of each of our homes is fixed at the time a buyer enters into a contract to purchase a home and because we contract to sell a substantial number of our homes before we begin construction any inflation of costs in excess of those anticipated would likely result in lower gross margins for these homes We generally attempt to minimize that effect by entering into fixed price contracts with our subcontractors and material suppliers for specified periods of time which generally do not exceed one year
In general housing demand is adversely affected by increases in interest rates and other housing costs Additionally interest rates the length of time that land remains in inventory and the proportion of inventory that is financed affect our interest costs If we are unable to raise sales prices enough to compensate for higher costs or if mortgage rates increase significantly affecting prospective buyers ability to adequately finance home purchases our home sales revenues gross margins and net income could be adversely affected Increases in sales prices whether the result of inflation or demand may affect the ability of prospective buyers to afford new homes See Risk Factors Risks Related to Our Business and Industry Significant inflation higher interest rates or deflation could adversely affect our business and financial results in Item 1A of this Form 10 K
At October 31 2024 our 100 owned subsidiary Toll Brothers Finance Corp the Subsidiary Issuer had issued and outstanding 1 60 billion aggregate principal amount of senior notes maturing on various dates between November 15 2025 and November 1 2029 the Senior Notes For further information regarding the Senior Notes see Note 6 to our Consolidated Financial Statements under the caption Senior Notes
The obligations of the Subsidiary Issuer to pay principal premiums if any and interest are guaranteed jointly and severally on a senior basis by Toll Brothers Inc and substantially all of its 100 owned home building subsidiaries the Guarantor Subsidiaries and together with us the Guarantors The guarantees are full and unconditional and the Subsidiary Issuer and each of the Guarantor Subsidiaries are consolidated subsidiaries of Toll Brothers Inc Our non home building subsidiaries and several of our home building subsidiaries together the Non Guarantor Subsidiaries do not guarantee the Senior Notes The Subsidiary Issuer generates no operating revenues and does not have any independent operations other than the financing of our other subsidiaries by lending the proceeds of its public debt offerings including the Senior Notes Our home building operations are conducted almost entirely through the Guarantor Subsidiaries Accordingly the Subsidiary Issuer s cash flow and ability to service the Senior Notes is dependent upon the earnings of the Company s subsidiaries and the distribution of those earnings to the Subsidiary Issuer whether by dividends loans or otherwise Holders of the Senior Notes have a direct claim only against the Subsidiary Issuer and the Guarantors The obligations of the Guarantors under their guarantees will be limited as necessary to recognize certain defenses generally available to guarantors including those that relate to fraudulent conveyance or transfer voidable preference or similar laws affecting the rights of creditors generally under applicable law
The indentures under which the Senior Notes were issued provide that any of our subsidiaries that provide a guarantee of our obligations under the Revolving Credit Facility will guarantee the Senior Notes The indentures further provide that any Guarantor Subsidiary may be released from its guarantee so long as i no default or event of default exists or would result from release of such guarantee ii the Guarantor Subsidiary being released has consolidated net worth of less than 5 of the Company s consolidated net worth as of the end of our most recent fiscal quarter iii the Guarantor Subsidiaries released from their guarantees in any fiscal year comprise in the aggregate less than 10 or 15 if and to the extent necessary to permit the cure of a default of our consolidated net worth as of the end of our most recent fiscal quarter iv such release would not have a material adverse effect on ours and our subsidiaries home building business and v the Guarantor Subsidiary is released from its guaranty under the Revolving Credit Facility If there are no guarantors under the Revolving Credit Facility all Guarantor Subsidiaries under the indentures will be released from their guarantees
The following summarized financial information is presented for Toll Brothers Inc the Subsidiary Issuer and the Guarantor Subsidiaries on a combined basis after intercompany transactions and balances have been eliminated among Toll Brothers Inc the Subsidiary Issuer and the Guarantor Subsidiaries as well as their investment in and equity in earnings from the Non Guarantor Subsidiaries
Our geographic reporting segments are consistent with how our chief operating decision makers are assessing operating performance and allocating capital The following tables summarize information related to revenues net contracts signed and
Corporate and other is comprised principally of general corporate expenses such as our executive offices the corporate finance accounting audit tax human resources risk management information technology marketing and legal groups interest income income from certain of our ancillary businesses including our apartment rental development business and our high rise urban luxury condominium operations and income from our Rental Property Joint Ventures and Other Joint Ventures
Corporate and other is comprised principally of cash and cash equivalents restricted cash investments in our Rental Property Joint Ventures expected recoveries from insurance carriers and suppliers manufacturing facilities our apartment rental development operations and our mortgage and title subsidiaries
A discussion and analysis regarding our Segments Results of Operations and Analysis of Financial Condition for the year ended October 31 2023 as compared to the year ended October 31 2022 is included in Part II Item 7 MD A to our Annual Report on Form 10 K for the fiscal year ended October 31 2023 filed with the SEC on December 21 2023
The decrease in the number of homes delivered in fiscal 2024 as compared to fiscal 2023 was mainly due to a decrease in the number of homes in backlog at October 31 2023 as compared to the number of homes in backlog at October 31 2022 offset in part by a higher backlog conversion in fiscal 2024 and an increase in the number of spec homes delivered The increase in the average delivered price in fiscal 2024 was primarily due to a shift in the number of homes delivered to more expensive areas and or products as well as sales price increases
The increase in the number of net contracts signed in fiscal 2024 as compared to fiscal 2023 was principally due to an increase in the number of selling communities in fiscal 2024 The increase in the average value of each contract signed in the fiscal 2024 period was primarily due to a shift in the number of contracts signed to more expensive areas and or products and a decrease in average sales incentives in fiscal 2024
decreased SG A spend partially offset by lower income from unconsolidated entities The decrease in home sales costs of revenues as a percentage of home sale revenues in fiscal 2024 was primarily due to a shift in product mix areas to higher margin areas and lower interest expense as a percentage of home sales revenue The decrease in income from unconsolidated entities was principally due to one joint venture delivering its final home in fiscal 2023 In addition we recognized 15 6 million of land impairment charges in fiscal 2023 in connection with planned land sales No similar charges were recognized in fiscal 2024
The increase in the number of homes delivered in fiscal 2024 as compared to fiscal 2023 was mainly due to an increase in the number of homes in backlog at October 31 2023 as compared to the number of homes in backlog at October 31 2022 higher backlog conversion and an increase in the number of spec homes delivered in fiscal 2024 The decrease in the average price of homes delivered in fiscal 2024 was primarily due to a shift in the number of homes delivered to less expensive areas and or products as well as an increase in the number of spec homes delivered
The increase in the number of net contracts signed in fiscal 2024 as compared to fiscal 2023 was principally due to an increase in the number of selling communities partially offset by a modestly lower community sales pace The decrease in the average value of each contract signed in fiscal 2024 was mainly due to shifts in the number of contracts signed to less expensive areas and or products and an increase in average sales incentives
The increase in income before income taxes in fiscal 2024 as compared to fiscal 2023 was mainly due the sale of a land parcel to a commercial developer that resulted in a pre tax gain of 175 2 million and higher earnings from increased revenues offset in part with higher home sales costs of revenues as a percentage of home sale revenues and increased SG A spend The increase in home sales costs of revenues as a percentage of home sale revenues in fiscal 2024 was primarily due to a shift in product mix areas to lower margin areas
Inventory impairment charges were 15 2 million and 15 9 million in fiscal 2024 and 2023 respectively In addition in fiscal 2024 and 2023 we recognized 0 6 million and 10 3 million respectively in land impairment charges included in land sales and other cost of revenues in connection with planned land sales
The increase in the number of homes delivered in fiscal 2024 as compared to fiscal 2023 was mainly due to a higher backlog conversion and an increase in the number of spec homes delivered in fiscal 2024 partially offset by a decrease in the number of homes in backlog at October 31 2023 as compared to the number of homes in backlog at October 31 2022 The slight decrease in the average price of homes delivered in fiscal 2024 was primarily due to a shift in the number of homes delivered to less expensive areas and or products
The increase in the number of net contracts signed in fiscal 2024 as compared to fiscal 2023 was principally due to an increase in the number of selling communities The increase in the average value of each contract signed in fiscal 2024 was mainly due to a shift in the number of contracts signed to more expensive areas partially offset by an increase in average sales incentives
The increase in income before income taxes in fiscal 2024 as compared to fiscal 2023 was principally due to higher earnings from increased home sales revenues and lower home sales costs of revenues as a percentage of home sales revenues offset in part by higher SG A costs resulting from increased sales volume The decrease in home sales cost of revenues as a percentage of home sales revenues was mainly due to a shift in product mix areas to higher margin areas and lower interest expense as a percentage of home sales revenue offset by higher inventory impairment changes in fiscal 2024 Inventory impairment charges were 3 4 million and 1 8 million in fiscal 2024 and 2023 respectively
The increase in the number of homes delivered in fiscal 2024 as compared to fiscal 2023 was mainly due to higher backlog conversion and an increase in the number of spec homes delivered in fiscal 2024 partially offset by a decrease in the number of
homes in backlog at October 31 2023 as compared to the number of homes in backlog at October 31 2022 The decrease in the average price of homes delivered in fiscal 2024 was primarily due to a shift in the number of homes delivered to less expensive areas or product types
The increase in the number of net contracts signed in fiscal 2024 as compared to fiscal 2023 was principally due to improved demand in fiscal 2024 offset in part by a decrease in the number of selling communities The increase in the average value of each contract signed in fiscal 2024 was mainly due to shifts in the number of contracts signed to more expensive areas and or products partially offset by an increase in average sales incentives
The decrease in income before income taxes in fiscal 2024 as compared to fiscal 2023 was mainly due lower earnings from decreased revenues higher home sales cost of revenues as a percentage of home sales revenues and increased SG A spend partially offset by higher earnings from land sales and other revenues The increase in home sales cost of revenues as a percentage of home sales revenues was primarily due to a shift in product mix areas to lower margin areas and lower interest expense as a percentage of home sales revenues and higher inventory impairment charges Inventory impairment charges were 26 0 million and 5 7 million in fiscal 2024 and 2023 respectively
The increase in the number of homes delivered in fiscal 2024 as compared to fiscal 2023 was mainly due to higher backlog conversion and an increase in the number of spec homes delivered in fiscal 2024 partially offset by a decrease in the number of homes in backlog at October 31 2023 as compared to the number of homes in backlog at October 31 2022 The decrease in the average price of homes delivered in fiscal 2024 was primarily due to higher sales incentives and a shift in the number of homes delivered to less expensive areas and or product types
The increase in the number of net contracts signed in fiscal 2024 as compared to fiscal 2023 was principally due to an increase in demand in fiscal 2024 partially offset by an decrease in the number of selling communities The decrease in the average value of each contract signed in fiscal 2024 was mainly due to a shift in the number of contracts signed in less expensive areas or product types offset in part by a decrease in average sale incentives
The decrease in income before income taxes in fiscal 2024 as compared to fiscal 2023 was primarily due to lower earnings from decreased revenues and higher home sales cost of revenues as a percentage of home sales revenues The increase in home sales cost of revenues as a percentage of home sales revenues was primarily due to a shift in product mix areas to lower margin areas and an increase in inventory impairment charges partially offset by lower interest expense as a percentage of home sales revenues Inventory impairment charges were 13 7 million and 6 7 million in fiscal 2024 and 2023 respectively In addition we recognized a 2 2 million impairment charge in land sales and other cost of revenues in fiscal 2023 in connection with a planned land sale No similar charges were recognized in fiscal 2024
In fiscal 2024 and 2023 loss before income taxes was 204 6 million and 142 4 million respectively The increase in the loss before income taxes in fiscal 2024 was principally due to 27 7 million of gains from litigation settlements net recognized in fiscal 2023 which did not recur in fiscal 2024 In addition fiscal 2023 was positively impacted by 50 9 million of gains
recognized from property sales by two of our Rental Property Joint Ventures and a 16 0 million gain from the sale of our ownership interest in one of our Rental Property Joint Ventures The fiscal 2024 period was positively impacted by a 5 0 million gain related to our investment in a privately held company that sold substantially all of its assets to a third party a 4 4 million gain from a bulk sale of security monitoring accounts by our smart home technology business higher earnings from our mortgage and title company operations primarily due to increased volume offset by higher losses by various Rental Property Joint Ventures
We are exposed to market risk primarily due to fluctuations in interest rates We incur both fixed rate and variable rate debt For fixed rate debt changes in interest rates generally affect the fair market value of the debt instrument but not our earnings or cash flow Conversely for variable rate debt changes in interest rates generally do not affect the fair market value of the debt instrument but do affect our earnings and cash flow We do not have the obligation to prepay fixed rate debt prior to maturity and as a result interest rate risk and changes in fair market value should not have a significant impact on our fixed rate debt until we are required or elect to refinance it
Based upon the amount of variable rate debt outstanding at October 31 2024 and holding the variable rate debt balance constant each 1 increase in interest rates would increase the interest incurred by us by approximately 9 1 million per year without consideration of the Company s interest rate swap transactions
In November 2020 we entered into five interest rate swap transactions to hedge 400 0 million of the 650 0 million Term Loan Facility which is included in the variable rate debt column in the table above The interest rate swaps effectively fix the interest cost on the 400 0 million at 0 369 plus the spread set forth in the pricing schedule in the Term Loan Facility through October 2025 The spread was 0 90 as of October 31 2024 These interest rate swaps were designated as cash flow hedges
Any controls and procedures no matter how well conceived and operated can provide only reasonable not absolute assurance that the objectives of the control system are met Further the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to costs Because of the inherent limitations in all control systems no evaluation of controls can provide absolute assurance that all control issues and instances of fraud if any within the Company have been detected Because of the inherent limitations in a cost effective control system misstatements due to error or fraud may occur and not be detected however our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives
Our Chief Executive Officer and Chief Financial Officer with the assistance of management evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a 15 e and 15d 15 e under the Securities Exchange Act of 1934 as amended Exchange Act as of the end of the period covered by this report Evaluation Date Based on that evaluation our Chief Executive Officer and Chief Financial Officer concluded that as of the Evaluation Date our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded processed summarized and reported within the time periods specified in the SEC s rules and forms and that such information is accumulated and communicated to management including our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure
Management s Annual Report on Internal Control Over Financial Reporting and the attestation report of our independent registered public accounting firm on internal control over financial reporting on pa
There has not been any change in our internal control over financial reporting as that term is defined in Rules 13a 15 f and 15d 15 f under the Exchange Act during our quarter ended October 31 2024 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting
During the period covered by this Annual Report on Form 10 K no director or officer of the Company adopted or terminated a Rule 10b5 1 trading arrangement or non Rule 10b5 1 trading arrangement as each term is defined in Item 408 a of Regulation S K
The following table includes information with respect to all persons serving as executive officers as of the date of this Form 10 K All executive officers serve at the pleasure of our Board of Directors
Douglas C Yearley Jr joined us in 1990 specializing in land acquisitions and project finance He has been an officer since 1994 holding the position of Senior Vice President from January 2002 until November 2005 the position of Regional President from November 2005 until November 2009 and the position of Executive Vice President from November 2009 until June 2010 when he was promoted to Chief Executive Officer On November 1 2018 he was appointed to the position of Chairman of the Board and Chief Executive Officer Mr Yearley was first elected as a Director in June 2010
Robert Parahus joined us in 1986 and served in various positions with us including Regional President from 2006 through October 31 2019 During this time he oversaw the Company s home building operations in New Jersey New York Connecticut Massachusetts and Florida and had oversight responsibility for Toll Integrated Systems the Company s building component manufacturing operations He was appointed to the position of Executive Vice President and Co Chief Operating Officer effective November 1 2019 with responsibility for the Company s North Mid Atlantic and South regions Effective November 1 2021 Mr Parahus was promoted to President and Chief Operating Officer
Martin P Connor joined us as Vice President and Assistant Chief Financial Officer in December 2008 and was appointed a Senior Vice President in December 2009 Mr Connor was appointed to his current position of Senior Vice President and Chief Financial Officer in September 2010 From June 2008 to December 2008 Mr Connor was President of Marcon Advisors LLC a finance and accounting consulting firm that he founded From October 2006 to June 2008 Mr Connor was Chief Financial Officer and Director of Operations for O Neill Properties a diversified commercial real estate developer in the Mid Atlantic area Prior to October 2006 he spent over 20 years at Ernst Young LLP as an Audit and Advisory Business Services Partner responsible for the real estate practice for Ernst Young LLP in the Philadelphia marketplace During the period from 1998 to 2005 he served on the Toll Brothers Inc audit engagement Mr Connor is a director of Univest Financial Corporation a publicly traded banking and financial services provider serving customers primarily in Pennsylvania and New Jersey
We have adopted a Code of Ethics for the Principal Executive Officer and Senior Financial Officers Code of Ethics that applies to our principal executive officer principal financial officer principal accounting officer controller and persons performing similar functions designated by our Board of Directors The Code of Ethics is available on our Internet website at www tollbrothers com under Investor Relations Corporate Governance If we were to amend or waive any provision of our Code of Ethics we intend to satisfy our disclosure obligations with respect to any such waiver or amendment by posting such information on our Internet website set forth above rather than by filing a Form 8 K
The Company has an insider trading policy governing the purchase sale and other dispositions of the Company s securities that applies to all Company personnel including directors officers employees and other covered persons as well as the Company itself The Company also follows procedures for the repurchase of its securities The Company believes that its insider trading policy and repurchase procedures are reasonably designed to promote compliance with insider trading laws rules and regulations and listing standards applicable to the Company A copy of the Company s insider trading policy is filed as Exhibit 19 1 to this Form 10 K
The information required in this item will be included in the Voting Securities and Beneficial Ownership and Equity Compensation Plan Information sections of our 2025 Proxy Statement and is incorporated herein by reference
The information required in this item will be included in the Corporate Governance and Certain Relationships and Transactions sections of our 2025 Proxy Statement and is incorporated herein by reference
The information required in this item will be included in the Ratification of the Re Appointment of Independent Registered Public Accounting Firm section of the 2025 Proxy Statement and is incorporated herein by reference
Second Restated Certificate of Incorporation of the Registrant dated September 8 2005 is hereby incorporated by reference to Exhibit 3 1 of the Registrant s Form 10 Q for the quarter ended July 31 2005
Certificate of Amendment of the Second Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of the State of Delaware is hereby incorporated by reference to Exhibit 3 1 of the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on March 22 2010
Certificate of Amendment of the Second Restated Certificate of Incorporation of the Registrant dated as of March 16 2011 is hereby incorporated by reference to Exhibit 3 1 of the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on March 18 2011
Certificate of Amendment of the Second Restated Certificate of Incorporation of the Registrant dated as of March 8 2016 is hereby incorporated by reference to Annex B to the Registrant s definitive proxy statement on Schedule 14A its 2016 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on February 2 2016
By Laws of Toll Brothers Inc as Amended and Restated June 13 2023 is hereby incorporated by reference to Exhibit 3 01 to the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on June 13 2023
Indenture dated as of February 7 2012 among Toll Brothers Finance Corp the Registrant and the other guarantors named therein and The Bank of New York Mellon as trustee is hereby incorporated by reference to Exhibit 4 1 to the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on February 7 2012
Authorizing Resolutions dated as of October 30 2015 relating to the 350 000 000 principal amount of 4 875 Senior Notes due 2025 of Toll Brothers Finance Corp guaranteed on a senior basis by the Registrant and certain of its subsidiaries is hereby incorporated by reference to Exhibit 4 2 to the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on October 30 2015
Form of Global Note for Toll Brothers Finance Corp s 4 875 Senior Notes due 2025 is hereby incorporated by reference to Exhibit 4 3 to the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on October 30 2015
Authorizing Resolutions dated as of March 10 2017 relating to the 300 000 000 principal amount of 4 875 Senior Notes due 2027 of Toll Brothers Finance Corp guaranteed on a senior basis by the Registrant and certain of its subsidiaries is hereby incorporated by reference to Exhibit 4 2 to the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on March 10 2017
Form of Global Note for Toll Brothers Finance Corp s 4 875 Senior Notes due 2027 is hereby incorporated by reference to Exhibit 4 3 to the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on March 10 2017
Authorizing Resolutions dated as of June 12 2017 relating to the 150 000 000 principal amount of 4 875 Senior Notes due 2027 of Toll Brothers Finance Corp guaranteed on a senior basis by the Registrant and certain of its subsidiaries is hereby incorporated by reference to Exhibit 4 2 to the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on June 12 2017
Form of Global Note for Toll Brothers Finance Corp s 4 875 Senior Notes due 2027 is hereby incorporated by reference to Exhibit 4 3 to the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on June 12 2017
Authorizing Resolution dated as of January 22 2018 relating to the 400 000 000 aggregate principal amount of 4 350 Senior Notes due 2028 of Toll Brothers Finance Corp guaranteed on a senior basis by Toll Brothers Inc and certain of its subsidiaries is hereby incorporated by reference to Exhibit 4 2 to the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on January 22 2018
Form of Global Note for the Issuer s 4 350 Senior Notes due 2028 is hereby incorporated by reference to Exhibit 4 3 to the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on January 22 2018
Authorizing Resolution dated as of September 12 2019 relating to the 400 000 000 aggregate principal amount of 3 800 Senior Notes due 2029 of Toll Brothers Finance Corp guaranteed on a senior basis by Toll Brothers Inc and certain of its subsidiaries is hereby incorporated by reference to Exhibit 4 2 to the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on September 12 2019
Form of Global Note for the Issuer s 3 800 Senior Notes due 2029 is hereby incorporated by reference to Exhibit 4 3 to the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on September 12 2019
First Supplemental Indenture dated as of April 27 2012 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 3 of the Registrant s Form 10 Q for the quarter ended April 30 2012
Second Supplemental Indenture dated as of April 30 2013 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 4 of the Registrant s Form 10 Q for the quarter ended April 30 2013
Third Supplemental Indenture dated as of April 30 2014 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 1 of the Registrant s Form 10 Q for the quarter ended April 30 2014
Fourth Supplemental Indenture dated as of July 31 2014 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 1 of the Registrant s Form 10 Q for the quarter ended July 31 2014
Fifth Supplemental Indenture dated as of October 31 2014 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 55 of the Registrant s Form 10 K for the year ended October 31 2014
Sixth Supplemental Indenture dated as of January 30 2015 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 3 of the Registrant s Form 10 Q for the quarter ended January 31 2015
Seventh Supplemental Indenture dated as of April 30 2015 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 3 of the Registrant s Form 10 Q for the quarter ended April 30 2015
Eighth Supplemental Indenture dated as of October 30 2015 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 34 of the Registrant s Form 10 K for the year ended October 31 2015
Ninth Supplemental Indenture dated as of January 29 2016 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 2 of the Registrant s Form 10 Q for the quarter ended January 31 2016
Tenth Supplemental Indenture dated as of April 29 2016 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 2 of the Registrant s Form 10 Q for the quarter ended April 30 2016
Eleventh Supplemental Indenture dated as of October 31 2016 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 41 of the Registrant s Form 10 K for the year ended October 31 2016
Twelfth Supplemental Indenture dated as of October 31 2016 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 42 of the Registrant s Form 10 K for the year ended October 31 2016
Thirteenth Supplemental Indenture dated as of January 31 2017 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 2 of the Registrant s Form 10 Q for the quarter ended January 31 2017
Fourteenth Supplemental Indenture dated as of April 28 2017 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 2 of the Registrant s Form 10 Q for the quarter ended April 30 2017
Fifteenth Supplemental Indenture dated as of July 31 2017 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 2 of the Registrant s Form 10 Q for the quarter ended July 31 2017
Sixteenth Supplemental Indenture dated as of October 31 2017 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 55 of the Registrant s Form 10 K for the year ended October 31 2017
Seventeenth Supplemental Indenture dated as of October 31 2017 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 56 of the Registrant s Form 10 K for the year ended October 31 2017
Eighteenth Supplemental Indenture dated as of April 13 2018 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 3 of the Registrant s Form 10 Q for the quarter ended April 30 2018
Nineteenth Supplemental Indenture dated as of April 30 2018 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 4 of the Registrant s Form 10 Q for the quarter ended April 30 2018
Twentieth Supplemental Indenture dated as of October 31 2018 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 62 of the Registrant s Form 10 K for the year ended October 31 2018
Twenty First Supplemental Indenture dated as of January 31 2019 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 2 of the Registrant s Form 10 Q for the quarter ended January 31 2019
Twenty Second Supplemental Indenture dated as of October 30 2019 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 41 of the Registrant s Form 10 K for the year ended October 31 2019
Twenty third Supplemental Indenture dated as of October 30 2019 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 42 of the Registrant s Form 10 K for the year ended October 31 2019
Twenty fourth Supplemental Indenture dated as of April 30 2020 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 1 of the Registrant s Form 10 Q for the quarter ended April 30 2020
Twenty fifth Supplemental Indenture dated as of October 30 2020 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 44 of the Registrant s Form 10 K for the year ended October 31 2020
Twenty sixth Supplemental Indenture dated as of April 30 2021 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 1 of the Registrant s Form 10 Q for the quarter ended April 30 2021
Twenty seventh Supplemental Indenture dated as of July 29 2022 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 1 of the Registrant s Form 10 Q for the quarter ended July 31 2022
Twenty eighth Supplemental Indenture dated as of October 31 2022 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 43 of the Registrants s Form 10 K for the year ended October 31 2022
Twenty ninth Supplemental Indenture dated as of January 31 2023 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 1 of the Registrants s Form 10 Q for the quarter ended January 31 2023
Thirtieth Supplemental Indenture dated as of July 31 2023 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 1 of the Registrants s Form 10 Q for the quarter ended July 31 2023
Thirty first Supplemental Indenture dated as of October 31 2023 to the Indenture dated as of February 7 2012 by and among the parties listed on Schedule A thereto and The Bank of New York Mellon as successor Trustee is hereby incorporated by reference to Exhibit 4 43 of the Registrant s Form 10 K for the year ended October 31 2023
Thirty Second Supplemental Indenture dated as of April 30 2024 to the Indenture dated as of February 7 2012 by and among the party listed on Schedule A hereto and The Bank of New York Mellon as successor trustee is hereby incorporated by reference to Exhibit 4 1 of the Registrant s Form 10 Q for the quarter ended July 31 April 30 2024
Thirty Third Supplemental Indenture dated as of July 31 2024 to the Indenture dated as of February 7 2012 by and among the party listed on Schedule A hereto and The Bank of New York Mellon as successor trustee is hereby incorporated by reference to Exhibit 4 1 of the Registrant s Form 10 Q for the quarter ended July 31 2024
Thirty Fourth Supplemental Indenture dated as of October 31 2024 to the Indenture dated as of February 7 2012 by and among the party listed on Schedule A hereto and The Bank of New York Mellon as successor trustee
Credit Agreement dated as of February 14 2023 by and among First Huntingdon Finance Corp Toll Brothers Inc the Lenders party thereto and Mizuho Bank Ltd as Administrative Agent is hereby incorporated by reference to Exhibit 10 1 to the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on February 15 2023
Credit Agreement by and among First Huntingdon Finance Corp Toll Brothers Inc the lenders party thereto and SunTrust Bank as Administrative Agent dated February 3 2014 is hereby incorporated by reference to Exhibit 10 2 of the Registrant s Form 8 K filed with the Securities and Exchange Commission on February 5 2014
Amendment No 1 dated as of May 19 2016 to the Credit Agreement dated as of February 3 2014 among First Huntingdon Finance Corp Toll Brothers Inc the Lenders party thereto and SunTrust Bank as Administrative Agent 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 24 2016
Amendment No 2 dated August 2 2016 to Credit Agreement dated as of February 3 2014 as amended by and among First Huntingdon Finance Corp Toll Brothers Inc the designated guarantors party thereto the lenders party thereto and SunTrust Bank as Administrative Agent is hereby incorporated by reference to Exhibit 10 1 of the Registrant s Form 8 K filed with the Securities and Exchange Commission on August 4 2016
Amendment No 3 dated November 1 2018 to Credit Agreement dated as of February 3 2014 as amended by and among First Huntingdon Finance Corp Toll Brothers Inc the designated guarantors party thereto the lenders party thereto and SunTrust Bank as Administrative Agent is hereby incorporated by reference to Exhibit 10 1 of the Registrant s Form 8 K filed with the Securities and Exchange Commission on November 2 2018
Amendment No 4 dated as of October 31 2019 to the Credit Agreement dated as of February 3 2014 as amended by and First Huntingdon Finance Corp Toll Brothers Inc the designated guarantors party thereto the lenders party thereto and SunTrust Bank as Administrative Agent is hereby incorporated by reference to Exhibit 10 2 of the Registrant s Form 8 K filed with the Securities and Exchange Commission on November 1 2019
Amendment No 5 dated as of February 14 2023 to the Credit Agreement dated as of February 3 2014 as amended by Amendment No 1 dated as of May 19 2016 Amendment No 2 dated as of August 2 2016 Amendment No 3 dated as of November 1 2018 and Amendment No 4 dated as of October 31 2019 among First Huntingdon Finance Corp Toll Brothers Inc the Lenders party thereto and Truist Bank as Administrative Agent is hereby incorporated by reference to Exhibit 10 2 to the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on February 15 2023
Term Loan Extension Agreements effective as of October 31 2020 with respect to the Term Loan Credit Agreement dated as of February 3 2014 as amended by Amendment No 1 dated as of May 19 2016 Amendment No 2 dated as of August 2 2016 Amendment No 3 dated as of November 1 2018 and Amendment No 4 dated as of November 1 2019 among the Registrant the Borrower the lenders party thereto and SunTrust Bank as Administrative Agent is hereby incorporated by reference to Exhibit 10 2 to the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on October 31 2020
Term Loan Extension Agreements effective as of October 31 2021 with respect to the Term Loan Credit Agreement dated as of February 3 2014 as amended by Amendment No 1 dated as of May 19 2016 Amendment No 2 dated as of August 2 2016 Amendment No 3 dated as of November 1 2018 and Amendment No 4 dated as of November 1 2019 among the Registrant the Borrower the lenders party thereto and Truist Bank as successor by merger to SunTrust Bank as Administrative Agent is hereby incorporated by reference to Exhibit 10 2 to the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on October 31 2020
Toll Brothers Inc Employee Stock Purchase Plan 2017 is hereby incorporated by reference to Annex A to the Registrant s Definitive Proxy Statement on Schedule 14A for its 2017 Annual Meeting of Stockholders filed with the SEC on January 31 2017
Amendment No 1 dated as of December 13 2017 to the Toll Brothers Inc Employee Stock Purchase Plan 2017 is hereby incorporated by reference to Exhibit 10 7 of the Registrant s Form 10 K for the year ended October 31 2017
Amendment No 2 dated as of June 19 2018 to the Toll Brothers Inc Employee Stock Purchase Plan 2017 is hereby incorporated by reference to Exhibit 10 8 of the Registrant s Form 10 K for the year ended October 31 2018
Toll Brothers Inc Stock Incentive Plan for Employees 2014 is hereby incorporated by reference to Annex A to the Registrant s definitive proxy statement on Schedule 14A for its 2014 Annual Meeting of Stockholders filed with the SEC on February 3 2014
Form of Non Qualified Stock Option Grant pursuant to the Toll Brothers Inc Stock Incentive Plan for Employees 2014 is incorporated by reference to Exhibit 10 16 of the Registrant s Form 10 K for the period ended October 31 2014
Toll Brothers Inc Amended and Restated Stock Incentive Plan for Non Employee Directors 2007 amended and restated as of September 17 2008 is hereby incorporated by reference to Exhibit 4 1 of the Registrant s Amendment No 1 to its Registration Statement on Form S 8 No 333 144230 filed with the Securities and Exchange Commission on October 29 2008
Form of Non Qualified Stock Option Grant pursuant to the Toll Brothers Inc Stock Incentive Plan for Non Employee Directors 2007 is hereby incorporated by reference to Exhibit 10 2 of the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on December 19 2007
Form of Addendum to Non Qualified Stock Option Grant pursuant to the Toll Brothers Inc Amended and Restated Stock Incentive Plan for Non Employee Directors 2007 is hereby incorporated by reference to Exhibit 10 6 of the Registrant s Form 10 Q for the quarter ended July 31 2007
Toll Brothers Inc Stock Incentive Plan for Non Executive Directors 2016 is hereby incorporated by reference to Annex A to the Registrant s definitive proxy statement on Schedule 14A for its 2016 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on February 2 2016
Toll Brothers Inc 2019 Omnibus Incentive Plan is hereby incorporated by reference to Exhibit 10 2 of the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on March 14 2019
Form of Non Qualified Stock Option Grant pursuant to the Toll Brothers Inc 2019 Omnibus Incentive Plan is hereby incorporated by reference to Exhibit 10 28 of the Registrant s Form 10 K for the year ended October 31 2019
Form of Restricted Stock Unit Agreement pursuant to the Toll Brothers Inc 2019 Omnibus Incentive Plan is hereby incorporated by reference to Exhibit 10 29 of the Registrant s Form 10 K for the year ended October 31 2019
Form of Restricted Stock Unit Agreement Performance Based pursuant to the Toll Brothers Inc 2019 Omnibus Incentive Plan is hereby incorporated by reference to Exhibit 10 30 of the Registrant s Form 10 K for the year ended October 31 2019
Toll Brothers Inc Supplemental Executive Retirement Plan as amended effective as of October 29 2019 is hereby incorporated by reference to Exhibit 10 1 to the Registrant s Current Report on Form 10 Q filed with the Securities and Exchange Commission on October 30 2019
Toll Bros Inc Non Qualified Deferred Compensation Plan amended and restated as of November 1 2008 is incorporated by reference to Exhibit 10 45 of the Registrant s Form 10 K for the period ended October 31 2008
Amendment Number 1 dated November 1 2010 to the Toll Bros Inc Non Qualified Deferred Compensation Plan amended and restated as of November 1 2008 is incorporated by reference to Exhibit 10 40 of the Registrant s Form 10 K for the period ended October 31 2010
Amendment Number 2 dated December 30 2010 to the Toll Bros Inc Non Qualified Deferred Compensation Plan amended and restated as of November 1 2008 is incorporated by reference to Exhibit 10 28 of the Registrant s Form 10 K for the period ended October 31 2014
Amendment Number 3 dated December 22 2011 to the Toll Bros Inc Non Qualified Deferred Compensation Plan amended and restated as of November 1 2008 is incorporated by reference to Exhibit 10 29 of the Registrant s Form 10 K for the period ended October 31 2014
Toll Bros Inc Nonqualified Deferred Compensation Plan amended and restated effective as of December 31 2014 is incorporated by reference to Exhibit 10 1 of the Registrant s Form 10 Q for the quarter ended January 31 2015
Toll Brothers Inc Executive Severance Plan is hereby incorporated by reference to Exhibit 10 1 of the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on March 14 2019
Form of Indemnification Agreement between the Registrant and the members of its Board of Directors is hereby incorporated by reference to Exhibit 10 1 to the Registrant s Current Report on Form 8 K filed with the Securities and Exchange Commission on March 17 2009
The following financial statements from Toll Brothers Inc Annual Report on Form 10 K for the year ended October 31 2024 filed on December 20 2024 formatted in iXBRL Inline eXtensible Business Reporting Language i Consolidated Balance Sheets ii Consolidated Statements of Operations and Comprehensive Income iii Consolidated Statements of Changes in Equity iv Consolidated Statements of Cash Flows and v the Notes to Consolidated Financial Statements
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves they should not be relied on for that purpose In particular any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time
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 on December 20 2024
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
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in the Securities Exchange Act Rule 13a 15 f Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles Internal control over financial reporting includes those policies and procedures that i pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company ii provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and iii provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
Under the supervision and with the participation of our management including our principal executive officer and our principal financial officer we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in
We have audited Toll Brothers Inc s internal control over financial reporting as of October 31 2024 based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework the COSO criteria In our opinion Toll Brothers Inc the Company maintained in all material respects effective internal control over financial reporting as of October 31 2024 based on the COSO criteria
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the 2024 consolidated financial statements of the Company and our report dated December 20 2024 expressed an unqualified opinion thereon
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Annual Report on Internal Control Over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects
Our audit included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
We have audited the accompanying consolidated balance sheets of Toll Brothers Inc the Company as of October 31 2024 and 2023 the related consolidated statements of operations and comprehensive income changes in equity and cash flows for each of the three years in the period ended October 31 2024 and the related notes collectively referred to as the consolidated financial statements In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Company at October 31 2024 and 2023 and the results of its operations and its cash flows for each of the three years in the period ended October 31 2024 in conformity with U S generally accepted accounting principles
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of October 31 2024 based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework and our report dated December 20 2024 expressed an unqualified opinion thereon
These financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit and risk committee and that 1 relate to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements taken as a whole and we are not by communicating the critical audit matters below providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate
As described in Notes 1 and 7 of the consolidated financial statements the Company maintains general liability insurance including construction defect and bodily injury coverage and workers compensation insurance These insurance policies protect the Company against a portion of the risk of loss from claims related to home building activities subject to certain self insured retentions deductibles and other coverage limits The Company accrues for expected costs associated with the self insured retentions deductibles and other coverage limits which constitute the accrual for self insurance The Company s accrual for self insurance was 242 3 million as of October 31 2024
The Company records expenses and accrues liabilities based on the estimated costs required to cover its self insured liability and the estimated costs of potential claims and claim adjustment expenses that are above coverage limits or that are not covered by insurance policies These estimated costs are based on an analysis of historical claims and industry data The majority of the accrual for self insurance is an estimate of claims incurred but not yet reported IBNR
The Company engages a third party actuary that uses historical claim and expense data input from the Company s internal legal and risk management groups as well as industry data to estimate the IBNR associated with the risks that the Company is assuming for its accrual for self insurance and other required costs to administer current and expected claims These estimates are subject to uncertainty due to a variety of factors the most significant being the long period of time between the delivery of a home to a home buyer and when a structural warranty or construction defect claim may be made and the ultimate resolution of the claim
Auditing the Company s estimate of IBNR was especially challenging as evaluating the projection of losses related to these liabilities requires actuarial assumptions that are subject to variability due to uncertainties regarding construction defect claims relative to markets and types of products the Company builds insurance industry practices and legal or regulatory actions and or interpretations among other factors Key assumptions used in these estimates include claim frequencies severity and settlement patterns which can occur over an extended period of time In addition the estimate of IBNR is sensitive to significant assumptions including changes in the frequency and severity of reported claims and loss development factors for reported claims
We obtained an understanding evaluated the design and tested the operating effectiveness of controls over management s review of the estimate of IBNR including controls over the significant assumptions and the data inputs used in the actuarial analysis For example we tested controls over management s review of the actuarial analysis including its review of the model and methodology significant assumptions and the data inputs used in the analysis
To test the estimate of IBNR we performed audit procedures that included among others testing the significant assumptions as well as the completeness and accuracy of the underlying data used by the Company as inputs to develop the assumptions We reviewed the Company s contractual self insured retentions deductibles and other coverage limits We also evaluated management s conclusions about the Company s legal and contractual obligations with respect to certain claims We involved our internal actuarial specialists to assist in evaluating the Company s estimate of IBNR including evaluating the appropriateness of the model and methodology used by management evaluating the reasonableness of the actuarial assumptions used by management and independently calculating an estimate of IBNR We also evaluated the Company s disclosures in its consolidated financial statements
As described in Notes 1 and 3 of the consolidated financial statements the Company states its inventory at cost unless an impairment exists in which case the inventory is written down to fair value For the year ended October 31 2024 the Company recorded inventory impairment charges of 52 8 million to operating communities and land owned for future communities The Company regularly evaluates whether there are any impairment indicators for inventory present at the community level If impairment indicators are present the Company reviews the carrying value of each community s inventory by comparing the estimated future undiscounted cash flows to the carrying value For inventory for which the carrying value exceeds the future undiscounted cash flows the Company writes down the carrying value of the inventory to its estimated fair value primarily based on a discounted cash flow model
Auditing management s accounting for inventory impairment and its tests for recoverability was especially challenging and involved a high degree of subjectivity as a result of the assumptions and estimates inherent in these evaluations In particular management s assumptions and estimates included future home and or land sales prices and the pace of future sales which were sensitive to expectations about future demand operations and economic factors Additionally the fair value of certain communities was highly sensitive to relatively small changes in one or more of those assumptions
We obtained an understanding evaluated the design and tested the operating effectiveness of controls over management s inventory impairment review process For example we tested controls over management s review of the significant assumptions and data inputs utilized in the calculation of future undiscounted cash flows
To test the Company s estimated future cash flows used to test for the recoverability of a community and if applicable the measurement of an impairment loss we performed audit procedures that included among others testing the significant assumptions discussed above and the underlying data used by the Company in its impairment analyses evaluating the methodologies applied by management and recalculating the total undiscounted cash flows in each analysis In certain cases we involved our internal real estate valuation specialists to assist in performing these procedures We compared the significant assumptions used by management to historical sales data sales trends and observable market specific data We assessed the historical accuracy of management s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of inventory that would result from changes in the assumptions We also evaluated the Company s disclosures in its consolidated financial statements
1 As of October 31 2024 and 2023 Receivables prepaid expenses and other assets and Investments in unconsolidated entities include 105 3 million and 89 6 million respectively of assets related to consolidated variable interest entities VIEs See Note 4 Investments in Unconsolidated Entities for additional information regarding VIEs
The consolidated financial statements include the accounts of Toll Brothers Inc the Company we us or our a Delaware corporation and its majority owned subsidiaries All significant intercompany accounts and transactions have been eliminated
The preparation of financial statements in accordance with U S generally accepted accounting principles GAAP requires us to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes In times of economic disruption when uncertainty regarding future economic conditions is heightened these estimates and assumptions are subject to greater variability As a result actual results could differ from the estimates and assumptions we make that affect the amounts reported in the Consolidated Financial Statements and accompanying notes and such differences may be material
Investments with original maturities of three months or less are classified as cash equivalents Our cash balances exceed federally insurable limits We monitor the cash balances in our operating accounts and adjust the cash balances as appropriate however these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets To date we have experienced no loss or lack of access to cash in our operating accounts
Inventory is stated at cost unless an impairment exists in which case it is written down to fair value in accordance with the Financial Accounting Standards Board FASB Accounting Standards Codification ASC 360 Property Plant and Equipment ASC 360 In addition to direct land acquisition costs land development costs and home construction costs costs also include interest real estate taxes and direct overhead related to development and construction which are capitalized to inventory during the period beginning with the commencement of development and ending with the completion of construction For those communities that have been temporarily closed no additional capitalized interest is allocated to a community s inventory until it reopens While the community remains closed carrying costs such as real estate taxes are expensed as incurred
We capitalize certain interest costs to qualified inventory during the development and construction period of our communities in accordance with ASC 835 20 Capitalization of Interest ASC 835 20 Capitalized interest is charged to home sales cost of sales revenues when the related inventory is delivered Interest incurred on home building indebtedness in excess of qualified inventory as defined in ASC 835 20 is charged to the Consolidated Statements of Operations and Comprehensive Income in the period incurred During fiscal 2024 2023 and 2022 the Company s qualified inventory exceeded its indebtedness and substantially all interest incurred excluding interest related to our mortgage company subsidiary s operations was capitalized to inventory See Note 3 Inventory
Once a parcel of land has been approved for development and we open one of our typical communities it may take four or more years to fully develop sell and deliver all the homes in such community Longer or shorter time periods are possible depending on the number of home sites in a community and the sales and delivery pace of the homes in a community Our master planned communities consisting of several smaller communities may take up to 10 years or more to complete Because our inventory is considered a long lived asset under GAAP we are required under ASC 360 to regularly review the carrying value of each community and write down the value of those communities for which we believe the values are not recoverable
When the profitability of an operating community deteriorates the sales pace declines significantly or some other factor indicates a possible impairment in the recoverability of the asset the asset is reviewed for impairment by comparing the estimated future undiscounted cash flow for the community to its carrying value If the estimated future undiscounted cash flow is less than the community s carrying value the carrying value is written down to its estimated fair value Estimated fair value is primarily determined by discounting the estimated future cash flow of each community The impairment is charged to home sales cost of revenues in the period in which the impairment is determined In estimating the future undiscounted cash flow of a community we use various estimates such as i the expected sales pace in a community based upon general economic conditions that will have a short term or long term impact on the market in which the community is located and on competition within the market including the number of home sites available and pricing and incentives being
offered in other communities owned by us or by other builders ii the expected sales prices and sales incentives to be offered in a community iii costs expended to date and expected to be incurred in the future including but not limited to land and land development home construction interest and overhead costs iv alternative product offerings that may be offered in a community that will have an impact on sales pace sales price building cost or the number of homes that can be built on a particular site and v alternative uses for the property such as the possibility of a sale of the entire community to another builder or the sale of individual home sites
We evaluate all land held for future communities or future sections of operating communities whether owned or under contract to determine whether or not we expect to proceed with the development of the land as originally contemplated This evaluation encompasses the same types of estimates used for operating communities described above as well as an evaluation of the regulatory environment applicable to the land and the estimated probability of obtaining the necessary approvals the estimated time and cost it will take to obtain the approvals and the possible concessions that may be required to be given in order to obtain them Concessions may include cash payments to fund improvements to public places such as parks and streets dedication of a portion of the property for use by the public or as open space or a reduction in the density or size of the homes to be built Based upon this review we decide i as to land under contract to be purchased whether the contract will likely be terminated or renegotiated and ii as to land owned whether the land will likely be developed as contemplated or in an alternative manner or should be sold We then further determine whether costs that have been capitalized to the community are recoverable or should be written off The write off is charged to home sales cost of revenues in the period in which the need for the write off is determined
The estimates used in the determination of the estimated cash flows and fair value of both current and future communities are based on factors known to us at the time such estimates are made and our expectations of future operations and economic conditions Should the estimates or expectations used in determining estimated fair value deteriorate in the future we may be required to recognize additional impairment charges and write offs related to current and future communities and such amounts could be material
We are required to consolidate variable interest entities VIEs in which we have a controlling financial interest in accordance with ASC 810 Consolidation ASC 810 A controlling financial interest will have both of the following characteristics i the power to direct the activities of a VIE that most significantly impact the VIE s economic performance and ii the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE
Our variable interest in VIEs may be in the form of equity ownership contracts to purchase assets management services and development agreements between us and a VIE loans provided by us to a VIE or other member and or guarantees provided by members to banks and other parties
We have a significant number of land purchase contracts and financial interests in other entities which we evaluate in accordance with ASC 810 We analyze our land purchase contracts and the entities in which we have an investment to determine whether the land sellers and entities are VIEs and if so whether we are the primary beneficiary We examine specific criteria and use our judgment when determining if we are the primary beneficiary of a VIE Factors considered in determining whether we are the primary beneficiary include risk and reward sharing experience and financial condition of other member s voting rights involvement in day to day capital and operating decisions representation on a VIE s executive committee existence of unilateral kick out rights or voting rights level of economic disproportionality between us and the other member s and contracts to purchase assets from VIEs The determination whether an entity is a VIE and if so whether we are the primary beneficiary may require significant judgment
Property construction and office equipment are recorded at cost and are stated net of accumulated depreciation of 310 5 million and 285 7 million at October 31 2024 and 2023 respectively For property and equipment related to onsite sales centers depreciation is recorded using the units of production method as homes are delivered For all other property and equipment depreciation is recorded using a straight line method over the estimated useful lives of the related assets In fiscal 2024 2023 and 2022 we recognized 80 9 million 75 5 million and 75 9 million of depreciation expense respectively
Residential mortgage loans held for sale are measured at fair value in accordance with the provisions of ASC 825 Financial Instruments ASC 825 We believe the use of ASC 825 improves consistency of mortgage loan valuations between the date the borrower locks in the interest rate on the pending mortgage loan and the date of the mortgage loan sale At the end of the reporting period we determine the fair value of our mortgage loans held for sale and the forward loan commitments we have entered into as a hedge against the interest rate risk of our mortgage loans using the market approach to determine fair value The evaluation is based on the current market pricing of mortgage loans with similar terms and values as of the reporting date and such pricing is applied to the mortgage loan portfolio We recognize the difference between the fair value and the unpaid principal balance of mortgage loans held for sale as a gain or loss In addition we recognize the change in fair value of our forward loan commitments as a gain or loss Interest income on mortgage loans held for sale is calculated based upon the stated interest rate of each loan In addition net origination costs and fees associated with residential mortgage loans originated are expensed as incurred These gains and losses interest income and origination costs and fees are recognized in Other income net in the Consolidated Statements of Operations and Comprehensive Income
We have investments in a number of unconsolidated entities including joint ventures with independent third parties Investments in 50 or less owned partnerships and affiliates are accounted for using the equity method unless it is determined that we have effective control of the entity in which case we would consolidate the entity Under the equity method of accounting we recognize our proportionate share of the earnings and losses of these entities Additionally we track cumulative earnings and distributions from our investments in unconsolidated entities For cash flow classification to the extent distributions do not exceed cumulative earnings we designate such distributions as return on capital and reflected in the operating section of our Consolidated Statements of Cash Flows Distributions in excess of cumulative earnings are treated as return of capital and reflected in the investing section of our Consolidated Statements of Cash Flows
In accordance with ASC 323 Investments Equity Method and Joint Ventures we review each of our investments on a quarterly basis for indicators of impairment A series of net operating losses of an investee the inability to recover our invested capital or other factors may indicate that a loss in value of our investment in the unconsolidated entity has occurred If a loss exists we further review the investment to determine if the loss is other than temporary in which case we write down the investment to its estimated fair value The evaluation of our investment in unconsolidated entities other than those that own rental properties entails a detailed cash flow analysis using many estimates including but not limited to expected sales pace expected sales prices expected incentives costs incurred and anticipated sufficiency of financing and capital competition market conditions and anticipated cash receipts in order to determine projected future distributions from the unconsolidated entity In addition for investments in rental properties we review rental trends expected future expenses and expected cash flows to determine estimated fair values of the properties
Our unconsolidated entities that develop land or develop for sale homes and condominiums evaluate their inventory in a similar manner as we do See Inventory above for more detailed disclosure on our evaluation of inventory For our unconsolidated entities that own develop and manage for rent residential apartments we review rental trends expected future expenses and expected future cash flows to determine estimated fair values of the underlying properties If a valuation adjustment is recorded by an unconsolidated entity related to its assets our proportionate share is reflected in income from unconsolidated entities with a corresponding decrease to our investment in unconsolidated entities
We are a party to several joint ventures with unrelated parties to develop and sell land that is owned by the joint ventures We recognize our proportionate share of the earnings from the sale of home sites to other builders including our joint venture partners We do not recognize earnings from the home sites we purchase from these ventures at the time of purchase instead our cost basis in those home sites is reduced by our share of the earnings realized by the joint venture from sales of those home sites to us
We use ASC 820 Fair Value Measurements and Disclosures ASC 820 to measure the fair value of certain assets and liabilities ASC 820 provides a framework for measuring fair value in accordance with GAAP establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and requires certain disclosures about fair value measurements
Our objective in entering into derivative transactions is to manage our exposure to interest rate movements associated with certain variable rate debt mortgage loans held for sale interest rate lock commitments and forward loan commitments we have entered into related to our mortgage operations We recognize derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value
We have entered into interest rate swaps related to a portion of our variable rate debt These derivative transactions are designated as cash flow hedges The entire change in the fair value of these derivative transactions included in the assessment of hedge effectiveness is initially reported in Accumulated other comprehensive income loss and subsequently reclassified to home sales cost of revenues in the accompanying Consolidated Statements of Operations and Comprehensive Income when the hedged transaction affects earnings If it is determined that a derivative is not highly effective as a hedge or if the hedged forecasted transaction is no longer probable of occurring the amount recognized in Accumulated other comprehensive income loss is released to earnings
Our derivative transactions related to our mortgage loans held for sale interest rate lock commitments and our forward loan commitments are not designated as hedges and therefore the entire change in the fair value of these derivative transactions is included as a gain or loss in Other income net in the accompanying Consolidated Statements of Operations and Comprehensive Income
Treasury stock is recorded at cost Issuance of treasury stock is accounted for on a first in first out basis Differences between the cost of treasury stock and the re issuance proceeds are charged to additional paid in capital When treasury stock is cancelled any excess purchase price over par value is charged directly to retained earnings In fiscal 2023 we cancelled 15 million shares of treasury stock No treasury stock was cancelled in fiscal 2024 and 2022
Revenues and cost of revenues from home sales are recognized at the time each home is delivered and title and possession are transferred to the buyer For the majority of our home closings our performance obligation to deliver a home is satisfied in less than one year from the date a binding sale agreement is signed In certain states where we build we may not be able to complete certain outdoor features prior to the closing of the home To the extent these separate performance obligations are not complete upon the home closing we defer the portion of the home sales revenues related to these obligations and subsequently recognize the revenue upon completion of such obligations As of October 31 2024 the home sales revenues and related costs we deferred related to these obligations were immaterial Our contract liabilities consisting of deposits received from customers for sold but undelivered homes totaled 488 7 million and 540 7 million at October 31 2024 and October 31 2023 respectively Of the outstanding customer deposits held as of October 31 2023 we recognized 476 5 million in home sales revenues during the fiscal year ended October 31 2024 Of the outstanding customer deposits held as of October 31 2022 we recognized 542 0 million in home sales revenues during the fiscal year ended October 31 2023
For our standard attached and detached homes land land development and related costs both incurred and estimated to be incurred in the future are amortized to the cost of homes closed based upon the total number of homes to be constructed in each community Any changes resulting from a change in the estimated number of homes to be constructed or in the estimated land land development and related costs subsequent to the commencement of delivery of homes are allocated to the remaining undelivered homes in the community Home construction and related costs are charged to the cost of homes closed under the specific identification method The estimated land common area development and related costs of master planned communities including the cost of golf courses net of their estimated residual value are allocated to individual communities within a master planned community on a relative sales value basis Any changes resulting from a change in the estimated number of homes to be constructed or in the estimated costs are allocated to the remaining home sites in each of the communities of the master planned community
For high rise mid rise projects land land development construction and related costs both incurred and estimated to be incurred in the future are generally amortized to the cost of units closed based upon an estimated relative sales value of the units closed to the total estimated sales value Any changes resulting from a change in the estimated total costs or revenues of the project are allocated to the remaining units to be delivered
Our revenues from land sales and other generally consist of 1 land sales to joint ventures in which we retain an interest 2 lot sales to third party builders within our master planned communities 3 bulk land sales to third parties of land we have decided no longer meets our development criteria 4 sales of land parcels to third parties typically because there is a superior economic use of the property and 5 sales of commercial and retail properties generally located at our high rise urban luxury condominium projects In general our performance obligation for each of these land sales is fulfilled upon the delivery of the land which generally coincides with the receipt of cash consideration from the counterparty For land sale transactions that contain repurchase options revenues and related costs are not recognized until the repurchase option expires In addition when we sell land to a joint venture in which we retain an interest we do not recognize revenue or gains on the sale to the extent of our retained interest in such joint venture
Forfeited customer deposits are recognized in Home sales revenues in our Consolidated Statements of Operations and Comprehensive Income in the period in which the customer defaults on or cancels the contract and we determine that we have the right to retain the deposit
In order to promote sales of our homes we may offer our home buyers sales incentives These incentives will vary by type of incentive and by amount on a community by community and home by home basis Incentives are reflected as a reduction in home sales revenues Incentives are recognized at the time the home is delivered to the home buyer and we receive the sales proceeds
Advertising costs are expensed as incurred Advertising costs including brochures and signage were 63 1 million 49 6 million and 42 5 million for the years ended October 31 2024 2023 and 2022 respectively
We provide all of our home buyers with a limited warranty as to workmanship and mechanical equipment We also provide many of our home buyers with a limited 10 year warranty as to structural integrity We accrue for expected warranty costs at the time each home is closed and title and possession are transferred to the home buyer Warranty costs are accrued based upon historical experience Adjustments to our warranty liabilities related to homes delivered in prior periods are recorded in the period in which a change in our estimate occurs
We maintain and require the majority of our subcontractors to maintain general liability insurance including construction defect and bodily injury coverage and workers compensation insurance These insurance policies protect us against a portion of our risk of loss from claims related to our home building activities subject to certain self insured retentions deductibles and other coverage limits self insured liability We also provide general liability insurance for our subcontractors in Arizona California Colorado Nevada Washington and certain areas of Texas where eligible subcontractors are enrolled as insureds under our general liability insurance policies in each community in which they perform work For those enrolled subcontractors we absorb their general liability associated with the work performed on our homes within the applicable community as part of our overall general liability insurance and our self insured liability
We record expenses and liabilities based on the estimated costs required to cover our self insured liability and the estimated costs of potential claims and claim adjustment expenses that are above our coverage limits or that are not covered by our insurance policies These estimated costs are based on an analysis of our historical claims and industry data and include an estimate of claims incurred but not yet reported IBNR
We engage a third party actuary that uses our historical claim and expense data input from our internal legal and risk management groups as well as industry data to estimate our liabilities on an undiscounted basis related to unpaid claims IBNR associated with the risks that we are assuming for our self insured liability and other required costs to administer current and expected claims These estimates are subject to uncertainty due to a variety of factors the most significant being the long period of time between the delivery of a home to a home buyer and when a structural warranty or construction defect claim may be made and the ultimate resolution of the claim Though state regulations vary construction defect claims may be reported and resolved over a prolonged period of time which can extend for 10 years or longer As a result the majority of the estimated
The projection of losses related to these liabilities requires actuarial assumptions that are subject to variability due to uncertainties regarding construction defect claims relative to our markets and the types of product we build insurance industry practices and legal or regulatory actions and or interpretations among other factors Key assumptions used in these estimates include claim frequencies severity and settlement patterns which can occur over an extended period of time In addition changes in the frequency and severity of reported claims and the estimates to settle claims can impact the trends and assumptions used in the actuarial analysis which could be material to our consolidated financial statements Due to the degree of judgment required and the potential for variability in these underlying assumptions our actual future costs could differ from those estimated and the difference could be material to our consolidated financial statements
We measure compensation cost for share based compensation on the grant date Fair value for restricted stock units is determined based on the quoted price of our common shares on the New York Stock Exchange on the grant date adjusted for post vesting restrictions applicable to retirement eligible participants We used a lattice model for the valuation of our stock option grants The option pricing models used are designed to estimate the value of options that unlike employee stock options and restricted stock units can be traded at any time and are transferable In addition to restrictions on trading employee stock options and restricted stock units 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
We recognize compensation expense ratably over the shorter of the vesting period or the period between the grant date and the time the award becomes nonforfeitable by the participant For shared based awards containing performance conditions we estimate the fair value of the award by evaluating the performance conditions quarterly and estimating the number of shares underlying award that are probable of being issued Based on this estimate we recognize compensation expense ratably over the vesting period We record cumulative adjustments in the period in which estimates change Stock based compensation expense is generally included in Selling general and administrative expense in our Consolidated Statements of Operations and Comprehensive Income We recognize forfeitures of stock based awards as a reduction to compensation expense in the period in which they occur
Transactional legal expenses for land acquisition and entitlement and financing are capitalized and expensed over their appropriate life We expense legal fees related to litigation warranty and insurance claims when incurred
Deferred tax assets and liabilities are recorded based on temporary differences between the amounts reported for financial reporting purposes and the amounts reported for income tax purposes A valuation allowance must be established when based upon available evidence it is more likely than not that all or a portion of the deferred tax assets will not be realized See Income Taxes Valuation Allowance below
Federal and state income taxes are calculated on reported pre tax earnings based on current tax law and also include in the applicable period the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities Such provisions differ from the amounts currently receivable or payable because certain items of income and expense are recognized for financial reporting purposes in different periods than for income tax purposes Significant judgment is required in determining income tax provisions and evaluating tax positions
ASC 740 Income Taxes ASC 740 clarifies the accounting for uncertainty in income taxes recognized and prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return ASC 740 also provides guidance on de recognition classification interest and penalties accounting in interim periods disclosure and transition ASC 740 requires a company to recognize the financial statement effect of a tax position when it is more likely than not defined as a substantiated likelihood of more than 50 based on the technical merits of the position that the position will be sustained upon examination A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to be recognized in the financial statements based upon the largest amount of benefit that is greater than 50 likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information Our inability to determine that a tax position meets the more likely than not recognition threshold does not mean that the Internal Revenue Service IRS or any other taxing authority will disagree with the position that we have taken
If a tax position does not meet the more likely than not recognition threshold despite our belief that our filing position is supportable the benefit of that tax position is not recognized in the Consolidated Statements of Operations and Comprehensive Income and we are required to accrue potential interest and penalties until the uncertainty is resolved Potential interest and penalties are recognized as a component of the provision for income taxes Differences between amounts taken in a tax return and amounts recognized in the financial statements are considered unrecognized tax benefits We believe that we have a reasonable basis for each of our filing positions and intend to defend those positions if challenged by the IRS or other taxing jurisdictions If the IRS or other taxing authorities do not disagree with our position and after the statute of limitations expires we will recognize the unrecognized tax benefit in the period that the uncertainty of the tax position is eliminated
We assess the need for valuation allowances for deferred tax assets in each period based on whether it is more likely than not that some portion of the deferred tax asset would not be realized If based on the available evidence it is more likely than not that such asset will not be realized a valuation allowance is established against a deferred tax asset The realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income in either the carryback or carryforward periods under tax law This assessment considers among other matters the nature consistency and magnitude of current and cumulative income and losses forecasts of future profitability the duration of statutory carryback or carryforward periods our experience with operating loss and tax credit carryforwards being used before expiration tax planning alternatives and outlooks for the U S housing industry and broader economy Changes in existing tax laws or rates could also affect our actual tax results Due to uncertainties in the estimation process particularly with respect to changes in facts and circumstances in future reporting periods actual results could differ from the estimates used in our assessment that could have a material impact on our consolidated results of operations or financial position
Disaggregation Disclosures Subtopic 220 40 Disaggregation of Income Statement Expenses ASU 2024 03 which requires disclosure of certain costs and expenses on an interim and annual basis in the notes to the financial statements ASU 2024 03 will be effective for our fiscal year 2028 The amendments in this update are to be applied on a prospective basis with the option for retrospective application Early adoption is permitted We are currently evaluating the impact this standard will have on our disclosures
In November 2023 the FASB issued ASU No 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures ASU 2023 07 ASU 2023 07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker CODM and included within each reported measure of segment profit or loss an amount and description of its composition for other segment items to reconcile to segment profit or loss and the title and position of the entity s CODM The amendments in this update also expand the interim segment disclosure requirements ASU 2023 07 will be effective for our fiscal year ending October 31 2025 and for interim periods starting in our first quarter of fiscal 2026 Early adoption is permitted and the amendments in this update are required to be applied on a retrospective basis We are currently evaluating the impact this standard will have on our disclosures
In December 2023 the FASB issued ASU 2023 09 Income Taxes Topic 740 Improvements to Income Tax Disclosures ASU 2023 09 which requires expanded disclosure of our income tax rate reconciliation and income taxes paid ASU 2023 09 will be effective for our fiscal year ending October 31 2026 and may be applied either retrospectively or prospectively We are currently evaluating the impact this standard will have on our disclosures
In March 2024 the SEC issued final rules on the enhancement and standardization of climate related disclosures The rules require disclosure of material climate related risks activities to mitigate or adapt to such risks governance and management of
such risks and material greenhouse gas GHG emissions from operations owned or controlled Scope 1 and or indirect emissions from purchased energy consumed in operations Scope 2 Additionally the rules require disclosures in the notes to the financial statements of the effects of severe weather events and other natural conditions subject to certain materiality thresholds On March 15 2024 a federal appellate court imposed a temporary stay pending judicial review of these new rules and on April 4 2024 the SEC voluntarily stayed implementation pending completion of the judicial review We are currently awaiting the outcome of the litigation or other actions the SEC may take with respect to this rule
In fiscal 2022 we acquired substantially all of the assets and operations of a privately held home builder with operations in San Antonio Texas for approximately 48 1 million in cash The assets acquired which consisted of 16 communities were primarily inventory including approximately 450 home sites owned or controlled through land purchase agreements This acquisition was accounted for as an asset acquisition and was not material to our results of operations or financial condition
Operating communities include communities offering homes for sale communities that have sold all available home sites but have not completed delivery of the homes and communities preparing to open for sale The carrying value attributable to operating communities includes the cost of homes under construction land and land development costs the carrying cost of home sites in current and future phases of these communities and the carrying cost of model homes
The amounts we have provided for inventory impairment charges and the expensing of costs that we believed not to be recoverable included in home sales cost of revenues in each of the three fiscal years ended October 31 2024 2023 and 2022 are shown in the table below amounts in thousands
We have also recognized 4 4 million 30 6 million and 6 8 million of impairment charges on land held for sale included in land sales and other cost of revenues during the fiscal years ended October 31 2024 2023 and 2022 respectively
At October 31 2024 we evaluated our land purchase contracts including those to acquire land for apartment developments to determine whether any of the selling entities were VIEs and if they were whether we were the primary beneficiary of any of them Under these land purchase contracts we do not possess legal title to the land our maximum exposure to loss is generally limited to deposits paid to the sellers and predevelopment costs incurred and the creditors of the sellers generally have no recourse against us At October 31 2024 we determined that 297 land purchase contracts with an aggregate purchase price of 5 59 billion on which we had made aggregate deposits totaling 522 1 million were VIEs but that we were not the primary beneficiary of any VIE related to such land purchase contracts At October 31 2023 we determined that 251 land purchase contracts with an aggregate purchase price of 3 79 billion on which we had made aggregate deposits totaling 421 4 million were VIEs but that we were not the primary beneficiary of any VIE related to such land purchase contracts See Note 7 Accrued Expenses for information regarding liabilities related to consolidated inventory not owned
We have investments in various unconsolidated entities and our ownership interest in these investments range from 2 5 to 50 These entities are structured as joint ventures and either i develop land for the joint venture participants and for sale to outside builders Land Development Joint Ventures ii develop for sale homes Home Building Joint Ventures or iii develop luxury for rent residential apartments and single family homes commercial space and a hotel Rental Property Joint Ventures
1 Our total investment includes 158 0 million related to eight unconsolidated joint venture related variable interests in VIEs and our maximum exposure to losses related to these VIEs is approximately 369 8 million as of October 31 2024 inclusive of our investment in these joint ventures Our ownership interest in such unconsolidated Joint Venture VIEs ranges from 25 to 50
1 Our total investment includes 121 6 million related to 11 unconsolidated joint venture related variable interests in VIEs and our maximum exposure to losses related to these VIEs is approximately 329 3 million as of October 31 2023 inclusive of our investment in joint ventures Our ownership interest in such unconsolidated Joint Venture VIEs ranges from 25 to 50
Certain joint ventures in which we have investments obtained debt financing to finance a portion of their activities The table below provides information at October 31 2024 regarding the debt financing obtained by category amounts in thousands
From time to time certain of our rental property joint ventures sell assets to unrelated parties In fiscal 2024 2023 and 2022 certain of our Rental Property Joint Ventures sold their underlying assets and we recognized our proportionate share of the gains of 24 1 million 50 9 million and 21 0 million respectively which is included in Loss income from unconsolidated entities in our Consolidated Statements of Operations and Comprehensive Income
In fiscal 2023 we sold our ownership interest in one of our Rental Property Joint Ventures and recognized a gain of 16 0 million which is included in Income from unconsolidated entities in our Consolidated Statements of Operations and Comprehensive Income No similar gains were recognized in fiscal 2024 or 2022
In fiscal 2024 and 2022 we recognized other than temporary impairment charges on our investments in certain Rental Property Joint Ventures of 6 6 million and 8 0 million respectively No similar impairments were recognized in fiscal 2023
In fiscal 2024 2023 and 2022 we purchased land from unconsolidated entities principally related to our acquisition of lots from our Land Development Joint Ventures totaling 139 2 million 110 7 million and 54 8 million respectively Our share of income from the lots we acquired was insignificant in each period
In our normal course of business we may contribute land to certain of our joint ventures in exchange for an ownership interest In fiscal 2023 and 2022 we sold land to unconsolidated entities which principally involved land sales to our Home Building and Rental Property Joint Ventures totaling 44 2 million and 434 2 million respectively These amounts are included in Land sales and other revenue on our Consolidated Statements of Operations and Comprehensive Income and are generally sold at or near our land basis
At October 31 2024 and 2023 we had receivables due from joint ventures totaling 9 8 million and 12 6 million respectively primarily related to amounts we funded on behalf of our partners that had not yet been reimbursed and amounts due to us for management fees earned
The unconsolidated entities in which we have investments generally finance their activities with a combination of partner equity and debt financing In some instances we have guaranteed portions of debt of unconsolidated entities These guarantees may include any or all of the following i project completion guarantees including any cost overruns ii repayment guarantees generally covering a percentage of the outstanding loan iii carry cost guarantees which cover costs such as interest real estate taxes and insurance iv an environmental indemnity provided to the lender that holds the lender harmless from and against losses arising from the discharge of hazardous materials from the property and non compliance with applicable environmental laws and v indemnification of the lender from bad boy acts of the unconsolidated entity
In some instances we and our joint venture partner have provided joint and several guarantees in connection with loans to unconsolidated entities In these situations we generally seek to implement a reimbursement agreement with our partner that
provides that neither party is responsible for more than its proportionate share or agreed upon share of the guarantee however we are not always successful In addition if the joint venture partner does not have adequate financial resources to meet its obligations under such a reimbursement agreement we may be liable for more than our proportionate share
We believe that as of October 31 2024 in the event we become legally obligated to perform under a guarantee of an obligation of an unconsolidated entity due to a triggering event the collateral in such entity should be sufficient to repay all or a significant portion of the obligation If it is not we and our partners would need to contribute additional capital to the venture
The maximum exposure estimates presented above do not take into account any recoveries from the underlying collateral or any reimbursement from our partners nor do they include any potential exposures related to project completion guarantees or the indemnities noted above which are not estimable We have not made payments under any of the outstanding guarantees nor have we been called upon to do so
We have both unconsolidated and consolidated joint venture related variable interests in VIEs Information regarding our involvement in unconsolidated joint venture related variable interests in VIEs has been disclosed throughout information presented above
As shown above we are the primary beneficiary of certain VIEs due to our controlling financial interest in such ventures as we have the power to direct the activities that most significantly impact the joint ventures performance and the obligation to absorb expected losses or receive benefits from the joint ventures The assets of these VIEs can only be used to settle the obligations of the VIEs In addition in certain of the joint ventures in the event additional contributions are required to be funded to the joint ventures prior to the admission of any additional investor at a future date we will fund 100 of such contributions including our partner s pro rata share which we expect would be funded through an interest bearing loan For other VIEs we are not the primary beneficiary because the power to direct the activities of such VIEs that most significantly impact their performance was either shared by us and such VIEs other partners or such activities were controlled by our
partner For VIEs where the power to direct significant activities is shared business plans budgets and other major decisions are required to be unanimously approved by all partners Management and other fees earned by us are nominal and believed to be at market rates and there is no significant economic disproportionality between us and other partners
The Condensed Combined Balance Sheets as of the dates indicated and the Condensed Combined Statements of Operations for the periods indicated for the unconsolidated entities in which we have an investment aggregated by type are included below in thousands
1 Our underlying equity in the net assets of the unconsolidated entities was more than our net investment in unconsolidated entities by 3 0 million and 40 9 million as of October 31 2024 and 2023 respectively and these differences are primarily a result of interest capitalized on our investments the estimated fair value of the guarantees provided to the joint ventures distributions from entities in excess of the carrying amount of our net investment unrealized gains on our retained joint venture interests other than temporary impairments we have recognized and gains recognized from the sale of our ownership interests
2 Other income generated by Rental Property Joint Ventures for the years ending October 31 2024 2023 and 2022 include gains of 176 1 million 106 2 million and 29 9 million related to the sale of assets by multiple Rental Property Joint Ventures
3 Differences between our income loss from unconsolidated entities and our percentage interest in the underlying net income loss of the entities are primarily a result of distributions from entities in excess of the carrying amount of our investment promote earned on the gains recognized by join ventures and those promoted cash flows being distributed other than temporary impairments we have recognized recoveries of previously incurred charges unrealized gains on our retained joint venture interests gains recognized from the sale of our investment to our joint venture partner and our share of the entities profits related to home sites purchased by us which reduces our cost basis of the home sites acquired
We are party to a 650 0 million senior unsecured term loan facility the Term Loan Facility with a syndicate of banks of which 487 5 million matures February 14 2028 101 6 million matures on November 1 2025 and the remaining 60 9 million matures on November 1 2026 There are no payments required before these stated maturity dates Under the Term Loan Facility we may select interest rates equal to i SOFR plus an applicable margin ii the base rate as defined in the agreement plus an applicable margin or iii the federal funds Euro rate as defined in the agreement plus an applicable margin in each case based on our leverage ratio At October 31 2024 the interest rate on the Term Loan Facility was 5 73 per annum Toll Brothers Inc and substantially all of its 100 owned home building subsidiaries are guarantors under the Term Loan Facility The Term Loan Facility contains substantially the same financial covenants as the Revolving Credit Facility described below
In November 2020 we entered into five interest rate swap transactions to hedge 400 0 million of the Term Loan Facility through October 2025 The interest rate swaps effectively fix the interest cost on the 400 0 million at 0 369 plus the spread set forth in the pricing schedule in the Term Loan Facility which was 0 90 as of October 31 2024 These interest rate swaps were designated as cash flow hedges
At October 31 2024 we had a 1 955 billion senior unsecured revolving credit facility the Revolving Credit Facility with a syndicate of banks that is scheduled to mature on February 14 2028 The Revolving Credit Facility provides us with a committed borrowing capacity of 1 955 billion which we have the ability to increase up to 3 00 billion with the consent of lenders Under the Revolving Credit Facility up to 100 of the commitment is available for letters of credit Toll Brothers Inc and substantially all of its 100 owned home building subsidiaries are guarantors of the borrower s obligations under the Revolving Credit Facility
Both our Revolving Credit Facility and Term Loan Facility require us to maintain certain financial covenants which include not exceeding a defined maximum leverage ratio and maintaining a minimum tangible net worth In addition our ability to repurchase our common stock and pay cash dividends is limited by these agreements However during fiscal 2024 these limitations did not meaningfully restrict the amount of cash dividends paid or stock repurchased We were in compliance with all covenants and requirements as of October 31 2024
At October 31 2024 we had no outstanding borrowings under the Revolving Credit Facility and had outstanding letters of credit of 180 0 million At October 31 2024 the interest rate on outstanding borrowings under the Revolving Credit Facility would have been 6 03 per annum
Loans payable other primarily represent purchase money mortgages on properties we acquired that the seller had financed project level financing and various revenue bonds that were issued by government entities on our behalf to finance community infrastructure and our manufacturing facilities Information regarding our loans payable at October 31 2024 and 2023 is included in the table below amounts in thousands
The senior notes are the unsecured obligations of Toll Brothers Finance Corp our 100 owned subsidiary The payment of principal and interest is fully and unconditionally guaranteed jointly and severally by us and substantially all of our 100 owned home building subsidiaries together with Toll Brothers Finance Corp the Senior Note Parties The senior notes rank equally in right of payment with all the Senior Note Parties existing and future unsecured senior indebtedness including the Revolving Credit Facility and the Term Loan Facility The senior notes are structurally subordinated to the prior claims of creditors including trade creditors of our subsidiaries that are not guarantors of the senior notes Each series of senior notes is redeemable in whole or in part at any time at our option at prices that vary based upon the then current rates of interest and the remaining original term of the senior notes to be redeemed
During fiscal 2023 and until December 2023 our wholly owned mortgage subsidiary Toll Brothers Mortgage Company TBMC was party to a mortgage warehousing facility that contained substantially the same terms as those described in the paragraph below
On December 5 2023 TBMC executed a new Warehousing Agreement New Warehousing Agreement with a bank which provides for loan purchases up to 75 0 million subject to certain sublimits In addition the New Warehousing Agreement provides for an accordion feature under which TBMC may request that the aggregate commitments under the New Warehousing Agreement be increased to an amount up to 150 0 million for a short period of time TBMC is also subject to an under usage fee based on outstanding balances as defined in the New Warehousing Agreement Prior to its scheduled expiration on December 3 2024 the New Warehousing Agreement was amended to extend the expiration date to December 2 2025 No other changes were made to the terms of the New Warehousing Agreement as a result of the amendment The New Warehousing Agreement bears interest at SOFR plus 1 75 per annum with a SOFR floor of 2 50 At October 31 2024 the interest rate on the New Warehousing Agreement was 6 59 per annum
At October 31 2024 and 2023 there was 150 0 million and 100 1 million respectively outstanding under the agreements which are included in liabilities in our Consolidated Balance Sheets At October 31 2024 and 2023 amounts outstanding under the agreements were collateralized by 182 8 million and 104 7 million respectively of mortgage loans held for sale which are included in assets in our Consolidated Balance Sheets As of October 31 2024 there were no aggregate outstanding purchase price limitations reducing the amount available to TBMC There are several restrictions on purchased loans under the agreement including that they cannot be sold to others they cannot be pledged to anyone other than the agent and they cannot support any other borrowing or repurchase agreements
At the time each home is closed and title and possession are transferred to the home buyer we record an initial accrual for expected warranty costs on that home Our initial accrual for expected warranty costs is based upon historical warranty claim experience Adjustments to our warranty liabilities related to homes delivered in prior periods are recorded in the period in
1 The decrease increase in accruals for warranty charges are expected to be recovered from our insurance carriers or suppliers which are recorded as receivables included in Receivables prepaid expenses and other assets on our Consolidated Balance Sheets
We are subject to state tax in the jurisdictions in which we operate We estimate our state tax liability based upon the individual taxing authorities regulations estimates of income by taxing jurisdiction and our ability to utilize certain tax saving strategies Based on our estimate of the allocation of income or loss among the various taxing jurisdictions and changes in tax regulations and their impact on our tax strategies we estimated that our rate for state income taxes before federal benefit will be 6 3 in fiscal 2024 Our state income tax rate before federal benefit was 6 2 and 5 6 in fiscal 2023 and 2022 respectively
The statute of limitations has expired on our federal tax returns for fiscal years through 2020 The statute of limitations for our major state tax jurisdictions remains open for examination for fiscal year 2019 and subsequent years
Our unrecognized tax benefits are included in the current portion of Income taxes payable on our Consolidated Balance Sheets If these unrecognized tax benefits reverse in the future they would have a beneficial impact on our effective tax rate at that time During the next 12 months it is reasonably possible that the amount of unrecognized tax benefits will change but we are not able to provide a range of such change The anticipated changes will be principally due to the expiration of tax statutes settlements with taxing jurisdictions increases due to new tax positions taken and the accrual of estimated interest and penalties
The amounts accrued for interest and penalties are included in the current portion of Income taxes payable on our Consolidated Balance Sheets The following table provides information as to the amounts recognized in our tax provision before reduction for applicable taxes and reversal of previously accrued interest and penalties of potential interest and penalties in the fiscal years ended October 31 2024 2023 and 2022 and the amounts accrued for potential interest and penalties at October 31 2024 and 2023 amounts in thousands
In accordance with GAAP we assess whether a valuation allowance should be established based on our determination of whether it is more likely than not that some portion or all of the deferred tax assets would not be realized At October 31 2024 and 2023 we determined that it was more likely than not that our deferred tax assets would be realized Accordingly at October 31 2024 and 2023 we did not have valuation allowances recorded against our federal or state deferred tax assets
We file tax returns in the various states in which we do business Each state has its own statutes regarding the use of tax loss carryforwards Some of the states in which we do business do not allow for the carryforward of losses while others allow for carryforwards ranging from five years to an indefinite carryforward period
Our authorized capital stock consists of 400 million shares of common stock 0 01 par value per share common stock and 15 million shares of preferred stock 0 01 par value per share At October 31 2024 we had 99 8 million shares of common stock issued and outstanding 2 4 million shares of common stock reserved for outstanding stock options and restricted stock units 3 2 million shares of common stock reserved for future stock option and award issuances and 232 780 shares of common stock reserved for issuance under our employee stock purchase plan As of October 31 2024 no shares of preferred stock have been issued
In March 2024 our Board of Directors approved an increase in the quarterly dividend from 0 21 to 0 23 per share During the fiscal years October 31 2024 2023 and 2022 we declared and paid aggregate cash dividends of 0 90 0 83 and 0 77 per share respectively to our shareholders
From time to time our Board of Directors has renewed its authorization to repurchase up to 20 million shares of our common stock in open market transactions privately negotiated transactions including accelerated share repurchases issuer tender offers or other financial arrangements or transactions for general corporate purposes including to obtain shares for the Company s equity award and other employee benefit plans Most recently on December 13 2023 the Board of Directors renewed its authorization to repurchase 20 million shares of our common stock and terminated effective the same date the existing authorization that had been in effect since May 17 2022 The Board of Directors did not fix any expiration date for this repurchase program
1 Average price per share includes costs associated with the purchases For the fiscal 2024 and 2023 periods it also includes the excise tax accrued on our share repurchases as a result of the Inflation Reduction Act of 2022
On March 17 2010 our Board of Directors adopted a Certificate of Amendment to the Second Restated Certificate of Incorporation of the Company the Certificate of Amendment The Certificate of Amendment includes an amendment approved by our stockholders at the 2010 Annual Meeting of Stockholders that restricts certain transfers of our common stock The Certificate of Amendment s transfer restrictions generally restrict any direct or indirect transfer of our common stock if the effect would be to increase the direct or indirect ownership of any Person as defined in the Certificate of Amendment from less than 4 95 to 4 95 or more of our common stock or increase the ownership percentage of a Person owning or deemed to own 4 95 or more of our common stock Any direct or indirect transfer attempted in violation of this restriction would be void as of the date of the prohibited transfer as to the purported transferee
We grant various types of restricted stock units to our employees and our non employee directors under our stock incentive plans We also granted stock options to certain of our employees and non employee directors through fiscal year 2023 Restricted stock unit awards may be based on performance conditions market conditions or service over a requisite time period time based 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 equity awards granted after its adoption and no additional equity awards may be granted under such prior plans As a result the Omnibus Plan is the sole plan out of which 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 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 provides for the issuance of stock appreciation rights and restricted and unrestricted stock awards and stock units which may be performance based Stock options and restricted stock units granted under the Omnibus Plan generally vest over a four year period for employees and prior to fiscal 2024 a two year period for non employee directors Beginning in fiscal 2024 stock based compensation awards granted to non employee directors vest over a one year period Shares issued upon the exercise of a stock option or settlement of restricted stock units are either from shares held in treasury or newly issued shares At October 31 2024 2023 and 2022 we had 3 2 million 3 7 million and 5 0 million shares respectively available for grant under the plans
At October 31 2024 the aggregate unamortized value of outstanding stock based compensation awards was approximately 21 8 million and the weighted average period over which we expect to recognize such compensation costs was approximately 2 5 years
In fiscal 2024 2023 and 2022 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 is 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 of the base award depending on actual achievement as compared to the target performance goals Shares earned based on actual performance vest pro rata over a four year period provided the recipients continue to be employed by us as specified in the award document or cliff vest at the end of a three year performance period measured from the grant date
Compensation expense related to these grants is based on the Company s performance against the related performance criteria the elapsed portion of the performance or vesting period and the grant date fair value of the award
Common stock equivalents represent the dilutive effect of outstanding in the money stock options using the treasury stock method and shares expected to be issued upon the conversion of restricted stock units under our equity award programs
The fair values of the interest rate swap contracts are included in Receivables prepaid expenses and other assets in our Consolidated Balance Sheets and are determined using widely accepted valuation techniques including discounted cash flow analysis based on the expected cash flows of each swap contract Although the Company has determined that the significant inputs such as interest yield curve and discount rate used to value its interest rate swap contracts fall within Level 2 of the fair value hierarchy the credit valuation adjustments associated with our counterparties and our own credit risk utilize Level 3 inputs such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties However as of October 31 2024 and 2023 we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our interest rate swap contract positions and have determined that the credit valuation adjustments were not significant to the overall valuation of our interest rate swap contracts As a result we have determined that our interest rate swap contracts valuations in their entirety are classified in Level 2 of the fair value hierarchy
At the end of the reporting period we determine the fair value of our mortgage loans held for sale and the forward loan commitments we have entered into as a hedge against the interest rate risk of our mortgage loans and commitments using the market approach to determine fair value The evaluation is based on the current market pricing of mortgage loans with similar terms and values as of the reporting date and the application of such pricing to the mortgage loan portfolio We recognize the difference between the fair value and the unpaid principal balance of mortgage loans held for sale as a gain or loss In addition we recognize the change in fair value of our forward loan commitments as a gain or loss These gains and losses are included in Other income net in our Consolidated Statements of Operations and Comprehensive Income Interest income on mortgage loans held for sale is calculated based upon the stated interest rate of each loan and is also included in Other income net
IRLCs represent individual borrower agreements that commit us to lend at a specified price for a specified period as long as there is no violation of any condition established in the commitment contract These commitments have varying degrees of interest rate risk We utilize best efforts forward loan commitments Forward Commitments to hedge the interest rate risk of the IRLCs and residential mortgage loans held for sale Forward Commitments represent contracts with third party investors for the future delivery of loans whereby we agree to make delivery at a specified future date at a specified price The IRLCs and Forward Commitments are considered derivative financial instruments under ASC 815 Derivatives and Hedging which requires derivative financial instruments to be recorded at fair value We estimate the fair value of such commitments based on the estimated fair value of the underlying mortgage loan and in the case of IRLCs the probability that the mortgage loan will fund within the terms of the IRLC The fair values of IRLCs and forward loan commitments are included in either Receivables prepaid expenses and other assets or Accrued expenses in our Consolidated Balance Sheets as appropriate To manage the risk of non performance of investors regarding the Forward Commitments we assess the creditworthiness of the investors on a periodic basis
We recognize inventory impairment and land impairment charges based on the difference in the carrying value of the inventory and its fair value at the time of the evaluation The fair value of the aforementioned inventory was determined using Level 3 criteria Estimated fair value is primarily determined by discounting the estimated future cash flow of each community In determining the fair value related to land impairments we consider recent offers received prices for land in recent comparable sales transactions and other factors We record land impairments related to land parcels we plan to sell to third parties within land sales and other cost of revenues See Note 1 Significant Accounting Policies Inventory for additional information regarding our methodology on determining fair value As further discussed in Note 1 determining the fair value of a community s inventory involves a number of variables many of which are interrelated If we used a different input for any of the various unobservable inputs used in our impairment analysis the results of the analysis may have been different absent any other changes Impairments on operating communities were not significant in each of the three fiscal years ended October 31 2024 2023 and 2022 and accordingly we did not disclose the ranges of certain quantitative unobservable inputs utilized in determining the fair value of such impaired operating communities
The table below provides as of the dates indicated the book value excluding any bond discounts premiums and deferred issuance costs and estimated fair value of our debt at October 31 2024 and 2023 amounts in thousands
The estimated fair value of loans payable was based upon contractual cash flows discounted at interest rates that we believed were available to us for loans with similar terms and remaining maturities as of the applicable valuation date
We maintain salary deferral savings plans covering substantially all employees We recognized an expense net of plan forfeitures with respect to the plans of 19 2 million 17 1 million and 17 1 million for the fiscal years ended October 31 2024 2023 and 2022 respectively which is included in Selling general and administrative expense in the Consolidated Statements of Operations and Comprehensive Income
We have an unfunded nonqualified deferred compensation plan that permits eligible employees to defer a portion of their compensation The deferred compensation together with certain of our contributions earns various rates of return depending upon when the compensation was deferred A portion of the deferred compensation and interest earned may be forfeited by a participant if he or she elects to withdraw the compensation prior to the end of the deferral period We accrued 36 6 million and 35 6 million at October 31 2024 and 2023 respectively for our obligations under the plan which is included in Accrued expenses in the Consolidated Balance Sheets
We have two unfunded defined benefit retirement plans Retirement benefits generally vest when the participant reaches normal retirement age Unrecognized prior service costs are being amortized over the period from the date participants enter the plans until their interests are fully vested We used a 4 98 5 83 and 5 26 discount rate in our calculation of the present value of our projected benefit obligations at October 31 2024 2023 and 2022 respectively The rates represent the approximate long term investment rate at October 31 of the fiscal year for which the present value was calculated Information related to the plans is based on actuarial information calculated as of October 31 2024 2023 and 2022
The table below provides based upon the estimated retirement dates of the participants in the retirement plans the amounts of benefits we would be required to pay in each of the next five fiscal years and for the five fiscal years ended October 31 2034 in the aggregate in thousands
We are involved in various claims and litigation arising principally in the ordinary course of business We believe that adequate provision for resolution of all current claims and pending litigation has been made and that the disposition of these matters will not have a material adverse effect on our results of operations and liquidity or on our financial condition
Generally our agreements to acquire land parcels do not require us to purchase those land parcels although we in some cases forfeit any deposit balance outstanding if and when we terminate an agreement If market conditions are weak approvals needed to develop the land are uncertain or other factors exist that make the purchase undesirable we may choose not to acquire the land Whether a purchase agreement is legally terminated or not we review the amount recorded for the land parcel subject to the purchase agreement to determine whether the amount is recoverable While we may not have formally terminated the purchase agreements for those land parcels that we do not expect to acquire we write off any nonrefundable deposits and costs previously capitalized to such land parcels in the periods that we determine such costs are not recoverable
In addition we expect to purchase approximately 9 000 additional home sites over a number of years from several joint ventures in which we have investments the purchase prices of these home sites will be determined at a future date
At October 31 2024 we also had similar purchase contracts to acquire land for apartment developments of approximately 209 3 million of which we had outstanding deposits in the amount of 9 8 million We intend to develop these projects in joint ventures with unrelated parties in the future
We have additional land parcels under option that have been excluded from the aforementioned aggregate purchase amounts since we do not believe that we will complete the purchase of these land parcels and no additional funds will be required from us to terminate these contracts
At October 31 2024 we had investments in a number of unconsolidated entities were committed to invest or advance additional funds and had guaranteed a portion of the indebtedness and or loan commitments of these entities See Note 4 Investments in Unconsolidated Entities for more information regarding our commitments to these entities
At October 31 2024 we had outstanding surety bonds amounting to 820 2 million primarily related to our obligations to governmental entities to construct improvements in our communities We have an additional 337 3 million of surety bonds outstanding that guarantee other obligations Although significant construction and development activities have been completed related to these improvements the bonds are generally not released until all construction and development activities are completed and acceptance by the counterparty is received The aggregate amount of surety bonds outstanding is in excess of the estimated cost of the remaining work to be performed We do not believe that it is probable that any outstanding bonds will be drawn upon
At October 31 2024 we had outstanding letters of credit of 180 0 million under our Revolving Credit Facility These letters of credit were issued to secure our various financial obligations including insurance policy deductibles and other claims land deposits and security to complete improvements in communities in which we are operating We do not believe that it is probable that any outstanding letters of credit will be drawn upon
At October 31 2024 we had provided financial guarantees of 28 5 million related to fronted letters of credit to secure obligations related to certain of our insurance policy deductibles and other claims
Our mortgage subsidiary provides mortgage financing for a portion of our home closings For those home buyers to whom our mortgage subsidiary provides mortgages we determine whether the home buyer qualifies for the mortgage based upon information provided by the home buyer and other sources For those home buyers who qualify our mortgage subsidiary provides the home buyer with a mortgage commitment that specifies the terms and conditions of a proposed mortgage loan based upon then current market conditions Prior to the actual closing of the home and funding of the mortgage the home buyer will lock in an interest rate based upon the terms of the commitment At the time of rate lock our mortgage subsidiary agrees to sell the proposed mortgage loan to one of several outside recognized mortgage financing institutions investors that is willing to honor the terms and conditions including interest rate committed to the home buyer We believe that these investors have adequate financial resources to honor their commitments to our mortgage subsidiary
Mortgage loans are sold to investors with limited recourse provisions derived from industry standard representations and warranties in the relevant agreements These representations and warranties primarily involve the absence of misrepresentations by the borrower or other parties the appropriate underwriting of the loan and in some cases a required minimum number of payments to be made by the borrower The Company generally does not retain any other continuing interest related to mortgage loans sold in the secondary market
We lease certain facilities equipment and properties held for rental apartment operation or development under non cancelable operating leases which in the case of certain rental properties have an initial term of 99 years We recognize lease expense for these leases on a straight line basis over the lease term Right of use ROU assets and lease liabilities are recorded on the balance sheet for all leases with an expected term over one year A majority of our facility lease agreements include rental payments based on a pro rata share of the lessor s operating costs which are variable in nature Our lease agreements do not contain any residual value guarantees or material restrictive covenants
ROU assets are classified within Receivables prepaid expenses and other assets and the corresponding lease liability is included in Accrued expenses in our Consolidated Balance Sheets We elected the short term lease recognition exemption for all leases that at the commencement date have a lease term of 12 months or less and do not include an option to purchase the underlying asset that we are reasonably certain to exercise For such leases we do not recognize ROU assets or lease liabilities and instead recognize lease payments in our Consolidated Statements of Operations and Comprehensive Income on a straight line basis At October 31 2024 ROU assets and lease liabilities were 108 3 million and 128 6 million respectively At October 31 2023 ROU assets and lease liabilities were 102 8 million and 123 9 million respectively Payments on lease liabilities totaled 22 5 million and 20 2 million and 17 7 million for the years ending October 31 2024 2023 and 2022 respectively
Lease expense includes costs for leases with terms in excess of one year as well as short term leases with terms of one year or less For the fiscal years ending October 31 2024 2023 and 2022 our total lease expense was 24 3 million 27 1 million and 25 6 million respectively inclusive of variable lease costs of approximately 4 1 million 4 2 million and 3 3 million respectively Short term lease costs and sublease income was de minimis
The majority of our facility leases give us the option to extend the lease term The exercise of lease renewal options is at our discretion For several of our facility leases we are reasonably certain the option will be exercised and thus the renewal term has been included in our calculation of the ROU asset and lease liability The weighted average remaining lease term and weighted average discount rate used in calculating these facility lease liabilities excluding our land leases were 7 2 years and 5 9 respectively at October 31 2024 and 7 2 years and 5 8 respectively at October 31 2023
We have a small number of land leases with initial terms of 99 years We are not reasonably certain that if given the option we would extend these leases We have therefore excluded the renewal terms from our ROU asset and lease liability for these leases
The weighted average remaining lease term and weighted average discount rate used in calculating these land lease liabilities were 93 4 years and 4 5 respectively at October 31 2024 and 94 4 years and 4 5 respectively at October 31 2023
In fiscal 2022 we entered into a 192 5 million settlement agreement with Southern California Gas Company to resolve our claims associated with a natural gas leak that occurred from October 2015 through February 2016 at the Aliso Canyon underground storage facility located near certain of our communities in southern California As a result net of legal fees and expenses we recorded a pre tax gain of 148 4 million of which 141 2 million was recorded in Other Income net in our Consolidated Statements of Operations and Comprehensive Income in fiscal 2022 The remainder was recorded as an offset to previously incurred expenses Coincident with this settlement we seeded a new Toll Brothers charitable foundation with 10 0 million which was recorded in Selling general and administrative in our Consolidated Statements of Operations and Comprehensive Income in fiscal 2022
Income from ancillary businesses is generated by our mortgage title landscaping smart home technology apartment living city living and golf course and country club operations The table below provides revenues and expenses for these ancillary businesses for the years ended October 31 2024 2023 and 2022 amounts in thousands
In fiscal 2024 and 2022 our smart home technology business recognized gains of 4 4 million and 9 0 million respectively from bulk sales of security monitoring accounts which is included in income from ancillary businesses above No similar gains were recognized in fiscal 2023
In fiscal 2024 2023 and 2022 we recognized 8 9 million and 8 4 million and 0 3 million of write offs related to previously incurred costs that we believed not to be recoverable in our apartment rental development business operations respectively
In fiscal 2024 and 2023 income from ancillary businesses included management fees earned on our apartment rental development high rise urban luxury condominium and other unconsolidated entities and operations totaling 35 7 million and 34 7 million respectively In fiscal 2022 income from ancillary businesses included management fees earned on our apartment rental development and other unconsolidated entities and operations totaling 25 9 million Prior to fiscal 2023 management fees earned on our high rise luxury condominium unconsolidated entities were included in Management fees earned by home building operations above
Corporate and other is comprised principally of general corporate expenses such as our executive offices the corporate finance accounting audit tax human resources risk management information technology marketing and legal groups interest income income from certain of our ancillary businesses including our apartment rental development business and our high rise urban luxury condominium operations and income from our Rental Property Joint Ventures and Other Joint Ventures
Corporate and other is comprised principally of cash and cash equivalents restricted cash investments in our Rental Property Joint Ventures expected recoveries from insurance carriers and suppliers manufacturing facilities our apartment rental development operations and our mortgage and title subsidiaries
The amounts we have provided for inventory impairment charges and the expensing of costs that we believed not to be recoverable for each of our segments for the years ended October 31 2024 2023 and 2022 are shown in the table below amounts in thousands
In the year ended October 31 2024 we recognized 4 4 million of land impairment charges included in land sales and other cost of revenues of which 0 6 million and 3 8 million were in our Mid Atlantic and Corporate and other segments respectively In the year ended October 31 2023 we recognized 30 6 million of land impairment charges included in land sales and other cost of revenues of which 15 6 million 10 3 million 2 2 million and 2 5 million were in our North Mid Atlantic Pacific and Corporate and other segments respectively In the year ended October 31 2022 we recognized 6 8 million of land impairment charges included in land sales and other cost of revenues in our North segment
The net carrying value of our investments in unconsolidated entities and our equity in earnings losses from such investments for each of our segments as of the dates indicated are shown in the table below amounts in thousands

Company Name	Toll Brothers, Inc. Vist SEC web-site
Category	OPERATIVE BUILDERS
Trading Symbol	TOL