TOL

Toll Brothers, Inc. 10-K Summary

Business Context and Reporting Period

Company: Toll Brothers, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: October 31, 2001
Business Overview: Toll Brothers designs, builds, markets, and arranges financing for single-family detached and attached homes in middle-income and high-income residential communities. The Company operates in 21 states across six regions, targeting "move-up," "empty-nester," and age-qualified homebuyers. As of October 31, 2001, the Company operated in 249 communities with over 21,000 home sites owned or controlled.

Key Financial Metrics

Operational Data:

• Homes Closed: 4,358 (Fiscal 2001) vs. 3,945 (Fiscal 2000).
• Average Base Sales Price: $492,000 (Detached) and $299,000 (Attached).
• Backlog (Oct 31, 2001): $1.41 billion (2,727 homes).

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 23% to $2.23 billion, driven by a 12% increase in average home price and a 10% increase in homes delivered.
• Profitability: Net income rose 46% to $213.7 million. Operating margin improved from 12.7% to 15.2% due to selling prices increasing faster than costs and improved operating efficiencies.
• Debt Levels: Total debt increased 33% to $1.06 billion, reflecting increased borrowing to fund land acquisitions and development. The Company issued $150 million in Senior Subordinated Notes in November 2001.
• Inventory: Inventory increased 27% to $2.18 billion, consistent with the Company's strategy to expand land holdings and development activities.
• Backlog: Backlog value decreased slightly by 1.6% to $1.41 billion, though the number of homes remained robust.

Guidance, Outlook, and Risks

Management Commentary & Outlook:

• The Company expects substantially all homes in the current backlog to be delivered by October 31, 2002.
• Management anticipates that home-building revenues for fiscal 2002 may be lower than fiscal 2001 due to a lower backlog and fewer outstanding deposits at year-end.
• The Company plans to have over 160 selling communities by January 31, 2002, and approximately 175 by October 31, 2002.

Risks and Contingencies:

• September 11 Impact: The terrorist attacks caused a temporary slowdown in business and consumer confidence. While deposit trends improved post-October 2001, volatility remains.
• Land Acquisition: Future growth depends on the ability to locate land and obtain governmental approvals. Delays or failures in approvals could impair operations.
• Interest Rates: The Company has significant variable-rate debt. A 1% increase in interest rates would increase annual interest expense by approximately $1.44 million.
• Competition: The homebuilding industry is highly competitive; actions by competitors could negatively affect market share and pricing.

Investor Verification Checklist

• Backlog Conversion: Verify the rate at which the $1.41 billion backlog converts to revenue in fiscal 2002, given management's caution regarding lower future revenues.
• Land Inventory Valuation: Review the $2.18 billion inventory balance and the $13 million in write-offs to assess potential future impairment risks in specific markets.
• Debt Covenants: Confirm compliance with the revolving credit facility covenants, specifically the minimum consolidated stockholders' equity requirement which restricts dividends and stock repurchases.
• Interest Rate Exposure: Monitor the mix of fixed vs. variable debt and the impact of rising rates on the $144 million variable-rate debt portfolio.
• Regulatory Approvals: Track the status of the 149 proposed communities (18,000 sites) to ensure timely development approvals are obtained.