What changed in this filing

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Item 1A. Risk Factors

2023-12-21 compared with 2022-12-19 · 67 added, 60 removed, 227 unchanged (36% of the section changed)

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Any reduction in demand would adversely affect our business, results of operations, and financial condition.

Demand for our homes and rental apartments is subject to fluctuations, 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 and prices of new homes compared to existing inventory, and demographic trends.

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 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;

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Adverse changes in mortgage interest 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 quick move-in (or “spec”) homes relative to our built-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.

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In addition, our cost of capital, labor and materials can increase, which could have an adverse impact on our business or financial results.

For example, the current and continued macro-economic conditions of high inflation and rising interest rates, especially the steep increases in mortgage rates during 2022, is one of the primary drivers behind the overall decrease in demand for new homes since our second quarter of fiscal 2022.

Inflation may also accompany higher interest rates, which could adversely impact our customers’ ability to obtain financing on favorable terms, thereby decreasing demand for our homes.

During 2022 and 2023, high inflation and rising interest rates were primary drivers of decreases in home demand, including our homes.

These trends 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.

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If land is not available at reasonable prices, our sales and results of operations could decrease.

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.

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Our ability to execute on our business strategies is uncertain, and we may be unable to achieve our goals.

We cannot guarantee that (i) our strategies, which include expanding our geographic footprint, product lines and price points, and becoming a more capital and operationally efficient home builder, 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;

We cannot guarantee that (i) our strategies, which include expanding our geographic footprint, product lines and price points, becoming a more capital and operationally efficient home builder, and increasing the supply of our quick move-in homes for sale relative to our built-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;

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;

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and on our consolidated financial statements, and the effect, in each case, could be material.

Negative publicity could negatively impact sales, which could cause our revenues or results of operations to decline.

Negative publicity could adversely impact sales, which could cause our revenues or results of operations to decline.

Our business is dependent upon the appeal of the Toll Brothers brand, and its association with quality and luxury is integral to our success.

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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 material write-downs of the book value of the building in accordance with U.S.

generally accepted accounting principles.

In addition, if values of the building or units decline, we may also be required to recognize significant impairments in the future.

Increases in cancellations of existing agreements of sale could have an adverse effect on our business.

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.

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.

At October 31, 2023, we had 6,578 homes with a sales value of $6.95 billion in backlog.

If economic conditions decline, if mortgage financing becomes less available, 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.

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.

The home building industry is highly competitive, and, if other home builders are more successful or offer better value to our customers, our business could decline.

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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.

For example, we have incurred or expect to incur significant costs to repair homes built in Pennsylvania and Delaware.

For example, we have incurred significant costs to repair homes built in Pennsylvania and Delaware.

See Note 7 – “Accrued Expenses” in Item 15(a)1 of this Form 10-K for additional information regarding warranty charges.

We participate in certain joint ventures where we may be adversely impacted by the failure of the joint venture or its participants to fulfill their obligations.

We have investments in and commitments to certain joint ventures with unrelated parties.

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 participate in certain joint ventures where we may be adversely impacted by the actions of the joint venture or its participants.

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, 2023, we had investments of $959.0 million in unconsolidated entities and were committed to invest or advance up to an additional $400.8 million to these unconsolidated entities if they require additional funding.

These joint ventures generally borrow money to help finance their activities.

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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.

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In some areas, municipalities may enact growth control initiatives, which will 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.

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.

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normally, a significant portion of our agreements of sale are entered into with customers in the winter and spring months.

Construction of one of our homes typically proceeds after signing the agreement of sale with our customer and typically require 9 to 12 months to complete, although recently construction times have extended beyond 12 months in many communities due to a variety of reasons, including high demand, labor shortages, supply chain disruption and municipal related delays.

Construction of one of our 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.

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.

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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.

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.

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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.

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If that happens, our operating results could be harmed.

Over the past several years, strong demand for homes combined with supply chain disruptions, labor shortages and municipal related delays has caused our construction cycle to lengthen and the costs of building materials to increase.

In the past several years, 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.

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.

We are subject to one collective bargaining agreement that covers less than 2% of our employees.

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, who are not yet represented by a union, may be unionized.

At any given point in time, the employees of those subcontractors may decide to unionize.

We are implementing a new enterprise resource planning system, and challenges with the implementation of the system may impact our business and operations.

We are in the midst of a multi-year process of implementing a complex new enterprise resource planning system (“ERP”).

The ERP implementation requires the integration of the new ERP with multiple new and existing information systems and business processes, and has been designed to accurately maintain our books and records and provide information to our management teams important to the operation of the business.

Our ERP implementation will continue to require ongoing investment.

If the system as it currently stands or after necessary investments does not result in our ability to maintain accurate books and records, our financial condition, results of operations, and cash flows could be negatively impacted.

Additionally, conversion from our old system to the ERP may cause inefficiencies until the ERP is stabilized and mature.

The implementation of our ERP mandated new procedures and many new controls over financial reporting.

These procedures and controls are not yet mature in their operation and not fully tested by our internal auditors.

If we are unable to adequately implement and maintain procedures and controls relating to our ERP, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired and impact our assessment of the effectiveness of our internal controls over financial reporting.

We are in the process of completing a multi-year implementation of a complex new enterprise resource planning system (“ERP”).

The ERP implementation has required the integration of the new ERP with multiple new and existing information systems and business processes, and has been designed to accurately maintain our books and records and provide information to our management teams important to the operation of the business.

Our ERP implementation will continue to require ongoing maintenance and monitoring.

Conversion from our old system to the new ERP may cause inefficiencies until the ERP is stabilized and mature.

The implementation of our new ERP has mandated new procedures and many new controls over

financial reporting.

These procedures and controls are not yet mature in their operation.

If we are unable to adequately implement and maintain procedures and controls relating to our new ERP, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired and impact our assessment of the effectiveness of our internal controls over financial reporting.

Risks Related to Indebtedness and Financing

If we are not able to obtain suitable financing, or if the interest rates on our debt are increased, or if our credit ratings are lowered, our business and results of operations may decline.

Our business and results of operations depend substantially on our ability to obtain financing, whether from bank borrowings or from financing in the public debt mark ets.

Substantial portions of our revolving credit facility, which provides for approximately $1.90 billion in committed borrowing capacity, and our $650.0 million term loan mature in November 2026,

with smaller portions maturing in November 2025.

In addition, $400.0 million of our senior notes become due and payable in April 2023 and $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 or find additional sources of financing in the future on favorable terms or at all.

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.

Increases in interest rates can make it more difficult and/or expensive for us to obtain the funds 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 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.

Our business and results of operations depend substantially on our ability to obtain financing and lines of credit, whether from bank borrowings or from financing in the public debt mark ets.

Our New Revolving Credit Facility, which provides for approximately $1.90 billion in committed borrowing capacity and letters of credit, and substantial portions of our $650.0 million term loan mature in February 2028, with smaller portions maturing in Novemb 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.

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.

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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 increased significantly during fiscal 2022, which has impacted the demand for our homes during the second half of fiscal 2022, and market conditions and/or government actions could cause mortgage rates to increase even further in the future.

Mortgage rates have increased significantly since January 2022, which has negatively impacted the overall housing market.

Market conditions and/or 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.

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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 World Health Organization declared COVID-19 a pandemic, resulting in federal, state and local governments and private entities mandating various restrictions, including the closures of non-essential businesses for a period of time.

These restrictions had an adverse impact on our business in the spring of 2020.

However, following the initial onset of the pandemic, economic activity resumed and demand for our homes improved significantly in the remainder of fiscal 2020 and remained strong through the first half of fiscal 2022.

The effects of the pandemic on economic activity, combined with the strong demand for new homes, caused many disruptions to our supply chain

and shortages in certain building components and materials, as well as labor shortages.

These conditions caused our construction cycles to lengthen.

There is continuing uncertainty regarding how long the impacts of COVID-19 will affect the U.S.

economy and our supply chain and operations.

The extent to which COVID-19 continues to impact our operational and financial performance will depend on future developments, including whether there is a resurgence in the pandemic and whether variant strains emerge, and the extent of any containment or mitigation measures on our customers, trade partners and employees, all of which are highly uncertain, unpredictable and outside our control.

If COVID-19 or any of its variants continues to have a significant negative impact on the economy, or if a new pandemic emerges, our results of operations and financial condition could be adversely impacted.

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, natural disasters, and other conditions could disrupt the development of our communities, which could harm our sales and results of operations.

Adverse weather conditions and natural disasters, such as hurricanes, tornadoes, earthquakes, floods, droughts, and wildfires, can have serious effects on our ability to develop our residential communities.

We also 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.

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, 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.

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Increased domestic or international instability could have an adverse effect on our 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.

We could be adversely impacted by the loss of key management personnel or if we fail to attract qualified personnel.

Our future success depends, to a significant degree, on the efforts of our senior management and our ability to attract qualified personnel.

Our operations could be adversely affected if key members of our senior management leave the Company or we cannot attract qualified personnel to manage our business.

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 approaching retirement age, retire.

Information technology failures and data security breaches could harm our business.

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In recent years, we have been subject to cyber incidents 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.

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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors