What changed in this filing

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Item 1A. Risk Factors

2024-12-20 compared with 2023-12-21 · 55 added, 63 removed, 231 unchanged (34% 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 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.

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;

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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 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.

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.

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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.

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 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.

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.

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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, 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;

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.

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;

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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 includes growing our business by expanding our luxury brand to new price points, product lines and geographies, including expansion of our affordable luxury products.

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.

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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 any media outlets could damage our reputation and reduce the demand for our homes, which would adversely affect our business.

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.

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A significant portion of our revenues and income from operations are concentrated in California.

Factors beyond our control could have a material adverse effect on our revenues and/or income from operations generated 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:

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lack of affordability;

a decline in foreign buyer demand;

a lack of foreign buyer demand;

severe weather including drought;

the risk of local governments imposing building moratoriums and of state or local governments imposing regulations that increase building costs;

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;

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As a result, our consolidated financial results may be adversely affected.

In the construction of a mid-rise, high-rise or multifamily building, whether a for-sale or a for-rent property, we incur significant costs before we can begin construction, sell and deliver the units to our customers, or commence the collection of rent and recover our costs.

We may be subject to delays in construction that could lead to higher costs that could adversely affect our operating results.

Changing market conditions during the construction period could negatively impact sales prices and rents, which could adversely affect our operating results.

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;

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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

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.

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.

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.

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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 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 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.

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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.

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.

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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 activities, and these governmental authorities often have broad discretion in exercising their approval authority.

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.

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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 will restrict the number of building permits available in a given year.

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.

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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, TBMC, 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.

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.

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These claims are common in the home building industry and can be costly.

In addition, the costs of insuring against construction defect and product liability claims are high, and the amount of coverage offered by insurance companies is limited.

There can be no assurance that this coverage will not be further restricted and become more 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.

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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 underlying assumptions, our actual future costs could differ from those estimated, and the difference could be material to our consolidated financial statements.

Over the past several years, we have had a significant number of water intrusion claims related to homes we built in Pennsylvania and Delaware.

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

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, 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.

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 may fluctuate due to the seasonal nature of our business.

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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 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.

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.

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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 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 have mandated energy efficient features, such as solar panels, be included in new construction.

The environmental 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.

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.

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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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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 is typically set months prior to its delivery pursuant to the agreement of sale with the home buyer.

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 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 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.

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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 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

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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.

Our Revolving Credit Facility, which provides for $1.955 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.

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.

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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.

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.

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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.

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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.

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.

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

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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.

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.

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.

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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.

UNRESOLVED STAFF COMMENTS

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