SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9186
TOLL BROTHERS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 23-2416878
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3103 Philmont Avenue, Huntingdon Valley, Pennsylvania 19006-4298
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 938-8000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock (par value $.01) New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
As of December 31, 1997, the aggregate market value of the Common Stock held
by non-affiliates of the Registrant was approximately $622,451,000.
As of December 31, 1997, there were 34,687,182 shares of Common Stock
outstanding.
Documents Incorporated by Reference:
Toll Brothers, Inc. Proxy Statement with respect to its 1998 Annual Meeting of
Shareholders, scheduled to be held on March 5, 1998, is incorporated into
Part III hereof.
<PAGE>
PART I
ITEM 1. BUSINESS
General
Toll Brothers, Inc. ("Toll Brothers" or the "Company"), a Delaware corporation
formed in May 1986, commenced its business operations, through predecessor
entities, in 1967. Toll Brothers designs, builds, markets and arranges
financing for single family detached and attached homes in middle and high
income residential communities catering to both move-up and empty nester
homebuyers in fifteen states and six regions around the country. The
communities are generally located on land the Company has either developed or
acquired fully approved and in some cases improved. Currently, Toll Brothers
operates predominantly in major suburban residential areas in southeastern
Pennsylvania, central New Jersey, the Virginia and Maryland suburbs of
Washington, D.C., the Boston, Massachusetts metropolitan area, southern
Connecticut, Westchester County, New York, Orange County and Los Angeles
County, California, the suburbs of Raleigh and Charlotte,North Carolina, and
Scottsdale, Arizona. It is also developing communities in the suburbs of
Dallas and Austin, Texas, in several markets on the east and west coasts of
Florida, in Columbus, Ohio and in Nashville, Tennessee. In November 1997 the
Company began operations in Las Vegas, Nevada with the acquisition of certain
assets of Coleman Homes, Inc.. The Company has acquired property in the San
Francisco Bay area and expects to begin offering homes for sale there in
fiscal 1998. The Company markets its homes primarily to middle-income and
upper-income buyers, emphasizing high quality construction and customer
satisfaction.
As of October 31, 1997, the Company was offering homes for sale in 116
communities. Single family detached homes were being offered at prices,
excluding customized options, generally ranging from $166,000 to $688,000,
with an average base sales price of $376,000. Attached home prices, excluding
customized options, generally range from $100,000 to $505,000, with an
average base sales price of $193,000. In the five years ended October 31, 1997,
Toll Brothers delivered 9,358 homes in 206 communities.
In recognition of its achievements, the Company has received numerous awards
from national, state and local homebuilder publications and associations. In
fiscal 1996, the Company was selected "America's Best Builder" by the National
Association of Home Builders (the "NAHB") and Builder magazine in recognition of
its excellent financial performance, unique custom-production system for
building luxury homes in high volume and the excellence of its designs. The
Company also received the National Housing Quality Award from the NAHB, which
recognizes the Company's outstanding commitment to total quality management
and continuous improvement. In 1994, the Company received one of the first
place awards in the "Build America Beautiful" Awards Program, sponsored by
Better Homes and Gardens magazine, the NAHB and Keep America Beautiful, Inc.,
its recognition of the Company's programs to improve the handling of solid
waste on construction sites. In addition, the Company was named "The Builder
of the Year" in 1988 by Professional Builder magazine.
On October 31, 1997 and 1996, the Company had backlogs of $627,220,000 (1,551
homes) and $526,194,000 (1,367 homes), respectively. Substantially all homes
in backlog at October 31, 1997 are expected to be delivered by October 31, 1998.
<PAGE>
As of October 31, 1997, the Company was offering homes for sale in 116
communities and owned or controlled through options, over 9,900 home sites in
communities under development, as well as land for approximately 12,000 planned
home sites in proposed communities.
The Company generally attempts to reduce certain risks homebuilders encounter by
controlling land for future development through options whenever possible
(which) allows the Company to obtain the necessary governmental approvals before
acquiring title to the land), by beginning construction of homes after an
agreement of sale has been executed with a buyer and by using subcontractors to
perform home construction and land development work on a fixed-price basis. In
order to obtain better terms or prices or due to competitive pressures, the
Company has purchased several properties outright, or acquired the underlying
mortgage, prior to obtaining all of the necessary governmental approvals needed
to commence development.
The Communities
Toll Brothers' communities are generally located in suburban areas near major
highways with access to major cities. Through 1981, all communities were located
in southeastern Pennsylvania. The Company began selling homes in central New
Jersey in 1982, in Massachusetts in 1987, in Maryland in 1988, in Virginia and
Connecticut in 1992, in New York in 1993, in Southern California and North
Carolina in 1994, in the suburbs of Dallas, Texas and Florida in 1995, in
Austin, Texas in 1996 and in Columbus, Ohio and Nashville, Tennessee in 1997. In
addition, in August 1995, the Company acquired certain assets, including two
existing communities under development and options on several future
communities, of Geoffrey H. Edmunds & Associates, a privately owned
Scottsdale, Arizona,luxury homebuilder. In November 1997 the Company acquired
certain assets of Coleman Homes, Inc. in Las Vegas, Nevada including four
existing communities. The Company has also acquired property in the San
Francisco Bay Area and expects to begin offering homes for sale there in fiscal
1998.
The Company emphasizes its high-quality, detached single family homes that are
marketed primarily to the "upscale" luxury market, generally those persons who
have previously owned a principal residence - the so-called "move-up" market.
The Company believes its reputation as a developer of homes for this market
enhances its competitive position with respect to the sale of more moderately
priced detached homes, as well as attached homes. The Company also markets to
the 50+ year-old "empty nester" and believes that this market has strong growth
potential. The Company has developed a number of home designs that it believes
will appeal to this category of home buyer and integrated these designs into its
communities along with its other homes.
Each single family home community offers several home plans, with the
opportunity to select various exterior styles. The communities are designed
to fit existing land characteristics, blending winding streets, cul-de-sacs
and underground utilities to establish a pleasant environment. The Company
strives to create a diversity of architectural styles within an overall
planned community. This diversity arises from variations among the models
offered and in exterior design options of homes of the same basic floor plan,
from the preservation of existing trees and foliage whenever practicable, and
from the curving street layout, which allows relatively few homes to be seen
from any vantage point. Normally, homes of the same type or color may not be
built next to each other. The communities have attractive entrances with
distinctive signage and landscaping. The Company believes this avoids a
"development" appearance and gives the community a diversified neighborhood
look that enhances home value.
<PAGE>
Attached home communities are generally one to three stories, provide for
limited exterior options and often contain commonly-owned recreational
acreage with swimming pools and tennis courts. These communities have
associations through which homeowners act jointly for their common interest.
It is the Company's belief that the homes built by Toll Brothers in its named
communities provide homeowners with additional value upon resale.
The Homes
Most single family detached-home communities offer at least three different home
plans, each with several substantially different architectural styles. For
example, the same basic floor plan may be selected with a Colonial, Georgian,
Federal or Provincial design, and exteriors may be varied further by the use of
stone, stucco, brick or siding. Attached home communities generally offer two or
three different floor plans with two, three or four bedrooms.
In all of Toll Brothers' communities, certain options are available to the
purchaser for an additional charge. The options typically are more numerous and
significant on the more expensive homes. Major options include additional
garages, additional rooms, finished lofts, and additional fireplaces. As a
result of the additional charges for such options, the average sales price was
approximately 17% higher than the base sales price during fiscal 1997.
The range of base sales prices for the Company's lines of homes as of
October 31, 1997, was as follows:
Single Family Detached Homes:
Move-up $166,000 - $414,000
Executive 240,000 - 602,000
Estate 275,000 - 688,000
Attached Homes:
Townhomes 100,000 - 212,000
Carriage Homes 190,000 - 505,000
Contracts for the sale of homes are at fixed prices. The prices at which homes
are offered have generally increased from time to time during the sellout period
for each community; however, there can be no assurance that sales prices will
increase in the future.
The Company uses some of the same basic home designs in similar communities.
However, the Company is continuously developing new designs to replace or
augment existing ones to assure that its homes are responsive to current
consumer preferences. For new designs, the Company has its own architectural
staff and also engages unaffiliated architectural firms. During the past two
years, the Company has introduced approximately 60 new models.
<PAGE>
The following table summarizes certain information with respect to residential
communities of Toll Brothers under development as of October 31, 1997:
<TABLE>
<CAPTION>
HOMES UNDER
NUMBER OF HOMES HOMES CONTRACT AND HOME SITES
STATE COMMUNITIES APPROVED CLOSED NOT CLOSED AVAILABLE
<S> <C> <C> <C> <C> <C>
Arizona 18 1,430 296 166 968
California 7 739 189 112 438
Connecticut 6 233 103 60 70
Florida 11 678 82 32 564
Massachusetts 8 737 465 60 212
New Jersey:
North central 5 659 130 47 482
Central 18 1,110 247 284 579
South central 6 1,038 456 114 468
New York 7 447 79 49 319
North Carolina 6 664 170 52 442
Ohio 2 91 0 1 90
Pennsylvania 33 3,399 1,145 289 1,965
Tennessee 1 46 0 0 46
Texas 8 872 64 44 764
Virginia/Maryland 15 1,794 621 241 932
Total 151(1) 13,937 4,047 1,551 8,339(2)
</TABLE>
(1) Of these 151 communities, 116 had homes being offered for sale, 17 had
not yet opened for sales, and 18 had been sold out but not all closings had
been completed. Of the 116 communities in which homes were being offered for
sale, 110 were single family detached-home communities containing a total of
110 homes under construction but not under contract (exclusive of model homes)
and 6 were attached home communities containing a total of 27 homes under
construction but not under contract (exclusive of model homes).
(2) On October 31, 1997, significant site improvements had not commenced on
approximately 4,460 of the 8,339 available home sites. Of the 8,339 available
home sites, 887 were not owned, but were controlled through options.
Land Policy
Before entering into a contract to acquire land, the Company completes extensive
comparative studies and analyses on detailed Company-designed forms that assist
it in evaluating the acquisition. Toll Brothers generally attempts to follow a
policy of acquiring options to purchase land for future communities. However,
in order to obtain better terms or prices, or due to competitive pressures, the
Company has at times acquired property outright. In addition, the Company has
at times acquired the underlying mortgage on a property and subsequently
obtained title to that property.
The options or purchase agreements are generally on a non-recourse basis,
thereby limiting the Company's financial exposure to the amounts invested in
property and pre-development costs. The use of options or purchase agreements
may increase the price of land that the Company eventually acquires, but
significantly reduces risk. It also allows the Company to obtain necessary
development approvals before acquisition of the land, which generally
enhances the value of the options and the land eventually acquired. The
Company's purchase agreements are typically subject to numerous conditions
including, but not limited to, the Company's ability to obtain necessary
governmental approvals for the proposed community. Often, the down payment on
<PAGE>
the agreement will be returned to the Company if all approvals are not
obtained, although pre-development costs may not be recoverable. The Company
has the ability to extend many of these options for varying periods of time,
in some cases by the payment of an additional deposit and in some cases
without an additional payment. The Company has the right to cancel any of its
land agreements by forfeiture of the Company's down payment on the agreement.
In such instances, the Company generally is not able to recover any
pre-development costs.
During the early 1990's, due to the recession and the difficulties other
builders and land developers had in obtaining financing, the number of buyers
competing for land in the Company's market areas diminished, while the number
of sellers increased, resulting in more advantageous prices for land
acquisitions made by the Company. Further, many of the land parcels offered
for sale were fully approved, and often improved, subdivisions. Generally,
such types of subdivisions previously had not been available for acquisition
in the Company's market area. The Company purchased several such subdivisions
outright and acquired control of several others through option contracts.
Due to the improvement in the economy and the improved availability of capital
during the past several years, the Company has seen an increase in competition
for available land in its market areas. The continuation of the Company's
development activities over the long term will be dependent upon its continued
ability to locate, enter into contracts to acquire, obtain governmental
approvals for, consummate the acquisition of, and improve suitable parcels of
land.
While the Company believes that there is significant diversity in its Northeast
and Mid-Atlantic markets and that this diversity provides protection from the
vagaries of individual local economies, it believes that a greater geographic
diversification will provide additional protection and more opportunities for
growth. During the past three years, the Company has expanded into Arizona,
California, Florida, North Carolina, Ohio, Tennessee and Texas. In November
1997, the Company commenced operations in Las Vegas, Nevada. The Company
continues to explore additional geographic areas for expansion.
The following is a summary of the parcels of land that the Company either owns
or controls through options at October 31, 1997 for proposed communities, as
distinguished from those currently under development:
<TABLE>
<CAPTION>
Number of Number of Number of
State Communities Acres Homes Planned
<S> <C> <C> <C>
Arizona 1 25 53
California 8 342 556
Florida 9 929 1,423
Massachusetts 4 493 319
Michigan 4 605 600
Nevada (2) 4 38 380
New Jersey: (1)
South central 2 420 673
North central 4 386 267
Central 16 1,260 2,283
New York 3 204 130
North Carolina 6 775 923
Ohio 1 140 98
Pennsylvania/Delaware 14 1,158 1,512
Rhode Island 1 50 75
Tennessee 1 152 135
Texas 2 94 180
Virginia/Maryland 11 1,441 2,468
Total 91 8,512 12,075(3)
</TABLE>
<PAGE>
(1) New Jersey includes two communities which contain plans for 170 units
which will either be rented or sold at lower than market rentals or
prices.
(2) Consists of the communities acquired from Coleman Homes, Inc. in November
1997 which were under contract as of October 31, 1997.
(3) Of the 12,075 planned home sites, 3,817 lots were owned.
The aggregate purchase price of land parcels under option at October 31, 1997
was approximately $362,017,000 of which $17,095,000 had been paid or deposited.
The Company evaluates all of the land under control for proposed communities on
an ongoing basis with respect to economic and market feasibility. During the
year ended October 31, 1997 such feasibility analyses resulted in approximately
$100,000 of capitalized costs related to proposed communities being charged
to expense because they were no longer deemed to be recoverable.
There can be no assurance that the Company will be successful in securing
necessary development approvals for the land currently under its control or
for land which the Company may acquire control of in the future or, that upon
obtaining such development approvals, the Company will elect to complete its
purchases under such options. The Company has generally been successful in
the past in obtaining governmental approvals, has substantial land currently
under its control for which it is seeking such approvals (as set forth in the
table above), and devotes significant resources to locating suitable additional
land for development and to obtaining the required approvals on land under its
control. Failure to locate sufficient suitable land or to obtain necessary
governmental approvals, however, may impair the ability of the Company over
the long-term to maintain current levels of development activities.
The Company generally has not purchased land for speculation or with the
contemplation of selling it for profit.
The Company believes that it has an adequate supply of land in its existing
communities and in land held for future development (assuming that all
properties are developed) to maintain its operations at its current levels for
several years.
Community Development
The Company expends considerable effort in developing a concept for each
community, which includes determination of size, style and price range of the
homes, layout of the streets and individual lots, and overall community design.
After obtaining the necessary governmental subdivision and other approvals,
which can sometimes require several years, the Company improves the land by
grading and clearing the site, installing roads, underground utility lines and
pipes, erecting distinctive entrance structures, and staking out individual
home sites.
Each community is managed by a project manager who is located at the site.
Working with construction supervisors, marketing personnel and, when required,
other Company and outside professionals such as engineers, architects and legal
counsel, the project manager is responsible for supervising and coordinating the
various developmental steps from acquisition through the approval stage,
marketing, construction and customer service, including monitoring the progress
of work and controlling expenditures. Major decisions regarding each community
are made by senior members of the Company's management.
The Company recognizes revenue only upon the closing of a home sale (the point
at which title and possession are transferred to the buyer), which generally
occurs shortly after construction is substantially completed. The most
significant variable affecting the timing of the Company's revenue stream,
other than housing demand, is receipt of final regulatory approvals, which, in
turn, permits the Company to begin the process of obtaining executed contracts
for sales of homes. Receipt of such final approvals is not seasonal. Although
the Company's sales and construction activities vary somewhat with the seasons,
affecting the timing of closings, any such seasonal effect is relatively
insignificant compared to the effect of receipt of final governmental approvals.
Subcontractors perform all home construction and land development work,
generally under fixed-price contracts. Toll Brothers acts as a general
contractor and purchases some, but not all, of the building supplies it
requires (see "PROPERTIES - Manufacturing/Distribution Facility"). The Company
is not, and does not anticipate, experiencing a shortage of either
subcontractors or supplies of building materials. The Company's construction
superintendents and assistant superintendents coordinate subcontracting
activities and supervise all aspects of construction work and quality control.
One of the ways the Company seeks to achieve home buyer satisfaction is by
providing its construction superintendents with incentive compensation
arrangements based on each home buyer's responses on pre-closing and
post-closing checklists.
The Company maintains insurance to protect against certain risks associated
with its activities. These insurance coverages include, among others, general
liability, "all-risk" property, workers' compensation, automobile, and employee
fidelity. The Company believes the amounts and extent of such insurance
coverages are adequate.
Marketing
The Company believes that its marketing strategy, which emphasizes its more
expensive "Estate" and "Executive" lines of homes, has enhanced the Company's
reputation as a builder-developer of high-quality upscale housing. The Company
believes this reputation results in greater demand for all of the Company's
lines of homes. The Company generally includes attractive decorative moldings
such as chair rails, crown moldings, dentil moldings and other aesthetic
features, even in its less expensive homes, on the basis that this additional
construction expense is important to its marketing effort.
In addition to relying on management's extensive experience, the Company
determines the prices for its homes through a Company-designed value analysis
program that compares a Toll Brothers home with homes offered by other builders
in the relevant marketing area. The Company accomplishes this by assigning a
positive or negative dollar value to differences in product features, such as
amenities, location and marketing.
Toll Brothers expends great effort in creating its model homes, which play an
important role in the Company's marketing. In its models, Toll Brothers creates
an attractive atmosphere, with bread baking in the oven, fires burning in
fireplaces, and background music. Interior decorations vary among the models
and are carefully selected based upon the lifestyles of the prospective
buyers. During the past several years, the Company has received a number of
awards from various homebuilder associations for its interior merchandising.
The sales office located in each community is generally staffed by Company sales
personnel, who are compensated with salary and commission. In addition, a
significant portion of Toll Brothers' sales is derived from the introduction of
customers to its communities by local cooperating realtors.
The Company advertises extensively in newspapers, other local and regional
publications and on billboards. The Company also uses videotapes and
attractive color brochures to describe each community. The Company has
established a web site on the Internet (http://www.tollbrothers.com) to provide
its customers with additional information on the Company and its homes.
<PAGE>
All Toll Brothers homes are sold under the Company's one-year limited warranty
as to workmanship and two-year limited warranty as to mechanical equipment. Many
homebuyers are also provided with a limited ten-year warranty as to structural
integrity.
Customer Financing
The Company makes arrangements with a variety of mortgage lenders to provide
homebuyers a range of conventional mortgage financing programs. By making
available an array of attractive mortgage programs to qualified purchasers, the
Company is able to better coordinate and expedite the entire sales transaction
by ensuring that mortgage commitments are received and that closings take place
on a timely and efficient basis. During fiscal 1997, approximately 60% of the
Company's closings were financed through mortgage programs offered by the
Company. In addition, during the same period, the Company's home buyers, on
average, financed approximately 71% of the purchase price of their homes.
The Company secures the availability of a variety of competitive market rate
mortgage products from both national and regional lenders. Such availability is
generally obtained at no cost to the Company and is committed for varying
lengths of time and amounts.
The Company also obtains forward commitments for fixed and variable rate
mortgage financing which contain various rate protection features. Such
commitments have generally cost the Company from zero to one-half of one
percent of the mortgage funds reserved and typically have terms of 9 to 18
months. As of October 31, 1997, there were approximately $139 million of such
commitments available, which expire at various dates through September 1998.
Competition
The homebuilding business is highly competitive and fragmented. The Company
competes with numerous homebuilders of varying size, ranging from local to
national in scope, some of which have greater sales and financial resources
than the Company. Resales of homes also provide competition. The Company
competes primarily on the basis of price, location, design, quality, service
and reputation; however, during the past several years, the Company's financial
stability, relative to others in its industry, has become an increasingly
favorable competitive factor. The Company believes that, due to the increased
availability of capital, competition has increased during the past several
years.
Regulation and Environmental Matters
The Company is subject to various local, state and federal statutes,
ordinances, rules and regulations concerning zoning, building design,
construction and similar matters, including local regulations which impose
restrictive zoning and density requirements in order to limit the number of
homes that can eventually be built within the boundaries of a particular
locality. In addition, the Company is subject to registration and filing
requirements in connection with the construction, advertisement and sale of
homes in its communities in certain states and localities in which it
operates. These laws have not had a material effect on the Company, except
to the extent that application of such laws may have caused the Company to
conclude that development of a proposed community would not be economically
feasible, even if any or all necessary governmental approvals were obtained
(See "Business-Land Policy"). The Company may also be subject to periodic
delays or may be precluded entirely from developing communities due to building
moratoriums in the areas in which it operates. Generally, such moratoriums
relate to insufficient water or sewage facilities or inadequate road capacity.
<PAGE>
In order to secure certain approvals, the Company may have to provide affordable
housing at below market rental or sales prices. The impact on the Company
will depend on how the various state and local governments in the areas in
which the Company engages, or intends to engage, in development implement
their programs for affordable housing. To date, these restrictions have not
had a material impact on the Company. The Company is also subject to a
variety of local, state and federal statutes, ordinances, rules and
regulations concerning protection of health and the environment
("environmental laws"), as well as the effects of environmental factors. The
particular environmental laws which apply to any given community vary greatly
according to the community site, the site's environmental conditions and the
present and former uses of the site. These environmental laws may result in
delays, may cause the Company to incur substantial compliance and other costs,
and may prohibit or severely restrict development in certain environmentally
sensitive regions or areas.
The Company maintains a policy of engaging, prior to consummating the purchase
of land, independent environmental consultants to assess such land for the
potential of hazardous or toxic materials, wastes or substances. Because it
has generally obtained such assessments for the land it has purchased, the
Company has not been significantly affected to date by the presence of such
materials.
Employees
As of October 31, 1997, the Company employed 1,346 full-time persons; of these,
47 were in executive positions, 174 were engaged in sales activities, 146 in
project management activities, 399 in administrative and clerical activities,
379 in construction activities, 83 in engineering activities and 118 in the
panel plant operations. The Company considers its employee relations to be good.
ITEM 2. PROPERTIES
Headquarters
Toll Brothers' corporate offices, containing approximately 70,000 square feet,
are located in a modern facility at 3103 Philmont Avenue, Huntingdon Valley,
Montgomery County, Pennsylvania. The facility was purchased by the Company in
September 1988.
Manufacturing/Distribution Facility
Toll Brothers owns a facility of approximately 200,000 square feet in which it
manufactures open wall panels, roof and floor trusses, and certain interior and
exterior millwork to supply a portion of the Company's construction needs. This
operation also permits Toll Brothers to purchase wholesale lumber, plywood,
windows, doors, certain other interior and exterior millwork and other building
materials to supply its communities. The Company believes that increased
efficiency, cost savings and productivity result from the operation of this
plant and from such wholesale purchases of material. This plant generally does
not sell or supply to any purchasers other than Toll Brothers. The property,
which is located in Morrisville, Pennsylvania,is adjacent to U.S. Route 1, a
major thoroughfare, and is served by rail.
Regional and Other Facilities
The Company leases office and warehouse space in various locations, none of
which is material to the business of the Company.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and litigation arising principally in
the ordinary course of business. The Company believes that the disposition of
these matters will not have a material adverse effect on the business or the
financial condition of the Company.
The Company, members of its board and certain of its officers were named as
defendants in an action filed in the Delaware Chancery Court in October 1997,
entitled Camody v. Toll Brothers, Inc. The plantiff, who purports to represent
a class of Company stockholders, seeks declaratory and injunctive relief
invalidating the Company's Shareholder Rights Plan, claiming certain of its
terms are unauthorized by Delaware's General Corporation Law and that adoption
of the Plan was a violation of fiduciary duty. Defendants have moved to dismiss
the Complaint. The Company does not expect the litigation will have a material
impact on the Company or its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended October 31, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The section entitled "Proposal One: Election of Directors" of the Company's
Proxy Statement for the 1998 Annual Meeting of Shareholders is incorporated
herein by reference.
The following table includes information with respect to all executive officers
of the Company as of October 31, 1997. All executive officers serve at the
pleasure of the Board of Directors of the Company.
Name Age Positions
Robert I. Toll 56 Chairman of the Board,
Chief Executive Officer and
Director
Bruce E. Toll 54 President, Chief Operating
Officer,Secretary and
Director
Zvi Barzilay 51 Executive Vice President
and Director
Joel H. Rassman 52 Senior Vice President,
Treasurer, Chief
Financial Officer
and Director
Robert and Bruce Toll, who are brothers, co-founded the Company's predecessors'
operations in 1967. Their principal occupations since inception have been
related to their various homebuilding and other real estate related activities.
Zvi Barzilay joined the Company as a project manager in 1980 and has been an
officer since 1983. In 1994, Mr. Barzilay was elected a Director of the
Company.
Joel H. Rassman has been a senior vice president of the Company since joining
the Company in 1984. Mr. Rassman was elected a Director of the Company in 1996.
<PAGE> PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is principally traded on the New York Stock Exchange
(Symbol: TOL). It is also listed on the Pacific Stock Exchange.
The following table sets forth the price range of the Company's common stock
on the New York Stock Exchange for each fiscal quarter during the two years
ended October 31, 1997.
<TABLE>
<CAPTION>
Three Months Ended
1997 October 31 July 31 April 30 January 31
<S> <C> <C> <C> <C>
High $25 1/2 $21 1/16 $19 7/8 $20 1/4
Low $20 5/16 $17 5/8 $17 1/2 $16 7/8
1996 October 31 July 31 April 30 January 31
High $17 7/8 $18 5/8 $20 5/8 $23 1/2
Low $16 $14 5/8 $15 3/8 $16 5/8
</TABLE>
The Company has not paid any cash dividends on its common stock to date and
expects that for the foreseeable future it will follow a policy of retaining
earnings in order to finance the continued development of its business.
Payment of dividends is within the discretion of the Company's Board of
Directors and will depend upon the earnings, capital requirements and
operating and financial condition of the Company, among other factors. The
Company's 9 1/2% Senior Subordinated Notes due March 15, 2003, 8 3/4%
Senior Subordinated Notes due 2006 and 7 3/4% Senior Subordinated Notes due
2007, contain restrictions on the amount of dividends the Company may pay on
its common stock. In addition, the Company's Bank Revolving Credit Agreement
requires the maintenance of minimum shareholders' equity which restricts the
amount of dividends the Company may pay. As of October 31, 1997, under the
most restrictive of the agreements, the Company could pay up to approximately
$108,967,000 of cash dividends.
At December 31, 1997, there were approximately 658 record holders of the
Company's common stock.
<PAGE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial and housing
data of the Company as of and for each of the five fiscal years ended October
31, 1997. It should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Summary Consolidated Income Statement Data (Amounts in thousands, except per
share data)
<TABLE>
<CAPTION>
Year Ended October 31
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Revenues $971,660 $760,707 $646,339 $504,064 $395,261
Income before income taxes,
extraordinary item and
change in accounting $107,646 $ 85,793 $ 79,439 $ 56,840 $ 43,928
Income before extraordinary
item and change in
accounting $ 67,847 $ 53,744 $ 49,932 $ 36,177 $ 27,419
Extraordinary loss (2,772) (668)
Cumulative effect of change
in accounting 1,307
Net income $ 65,075 $ 53,744 $ 49,932 $ 36,177 $ 28,058
Earnings per share
Primary
Income before extraordinary
item and change in
accounting $ 1.94 $ 1.56 $ 1.47 $ 1.08 $ .82
Extraordinary loss (.08) (.02)
Cumulative effect of change
in accounting .04
Net income $ 1.86 $ 1.56 $ 1.47 $ 1.08 $ .84
Weighted average number of
shares outstanding 34,918 34,492 33,909 33,626 33,467
Fully-diluted*
Income before extraordinary
item and change in
accounting $ 1.86 $ 1.50 $ 1.41 $ 1.05 $ .82
Extraordinary loss (.07) (.02)
Cumulative effect of change
in accounting .04
Net income $ 1.78 $ 1.50 $ 1.41 $ 1.05 $ .84
Weighted average number of
shares outstanding 37,354 36,891 36,651 35,664 33,583
*Due to rounding, amounts may not add
</TABLE>
PAGE
<PAGE>
Summary Consolidated Balance Sheet Data (Amounts in thousands)
<TABLE>
<CAPTION>
October 31
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Inventory $ 921,925 $772,471 $623,830 $506,347 $402,515
Total assets $1,118,626 $837,926 $692,457 $586,893 $475,998
Debt
Loans payable $ 189,579 $132,109 $ 59,057 $ 17,506 $ 24,779
Subordinated debt 319,924 208,415 221,226 227,969 174,442
Collateralized mortgage
obligations payable 2,577 2,816 3,912 4,686 10,810
Total $ 512,080 $343,340 $284,195 $250,161 $210,031
Shareholders' equity $ 385,252 $314,677 $256,659 $204,176 $167,006
</TABLE>
Housing Data
<TABLE>
<CAPTION>
Year ended October 31: 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Number of homes
closed 2,517 2,109 1,825 1,583 1,324
Sales value of homes
closed
(in thousands) $ 968,253 $759,303 $643,017 $501,822 $392,560
Number of homes
contracted 2,701 2,398 1,846 1,716 1,595
Sales value of homes
contracted
(in thousands) $1,069,279 $884,677 $660,467 $586,941 $490,883
As of October 31:
Number of homes
in backlog 1,551 1,367 1,078 1,025 892
Sales value of homes
in backlog
(in thousands) $ 627,220 $526,194 $400,820 $370,560 $285,441
</TABLE>
PAGE
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following table sets forth certain income statement items related to the
Company's operations as percentages of total revenues:
Year Ended October 31: 1997 1996 1995
Revenues 100.0% 100.0% 100.0%
Costs and expenses:
Land and housing construction 77.0 76.4 75.0
Selling, general and administrative 8.9 9.1 9.2
Interest 3.0 3.2 3.4
Total costs and expenses 88.9 88.7 87.6
Operating income 11.1% 11.3% 12.4%
FISCAL 1997 COMPARED TO FISCAL 1996
Revenues for fiscal 1997 of $972 million exceeded fiscal 1996 revenues of
$761 million by $211 million or 28%. The increase in revenues was
attributable to a 19% increase in the number of homes delivered and a 7%
increase in the average delivered price. The increase in the number of homes
delivered was due to an increase in 1997 in the number of communities
delivering homes, the larger backlog of homes as of the beginning of fiscal
1997 as compared to 1996 and an increase in 1997 in the number
of homes sold per community. The increase in the number of selling
communities was the result of the Company's geographic expansion as well as
a greater penetration of its existing markets. The Company anticipates that
the number of selling communities will continue to grow due to its continued
penetration of its existing markets, its expansion into Northern California
and its acquisition in November 1997, of a number of communities from Coleman
Homes, Inc. in Las Vegas, Nevada. The increase in the average price per home
delivered in fiscal 1997 was due to a continuing shift in the location of the
homes to more expensive areas, a change in product mix to larger homes, an
increase in the value of options that homebuyers selected and increases in
selling prices. The Company believes that revenues will continue to grow in
fiscal 1998 based upon its backlog as of October 31, 1997 and the
aforementioned anticipated increase in the number of selling communities.
Land and construction costs as a percentage of revenues increased in fiscal
1997 as compared to 1996 due principally to increased material and overhead
costs, to increased costs in the Company's newer markets ( Arizona,
California, Florida, North Carolina and Texas) resulting from generally
higher construction costs as a percentage of selling price and to relatively
less efficient construction and construction-related activities in these
markets. The cost increases were partially offset by the lower amount of
inventory writedowns recognized in 1997 ($2.0 million) as compared
to 1996 ($4.6 million). The Company expects that its newer markets will
become more efficient in fiscal 1998 but will continue to be less profitable
than its more established markets due to greater competition in these newer
markets. The Company does not expect to see a significant reduction in total
construction costs as a percentage of total revenues despite expected
improvements in its newer markets because revenues from these markets and
their associated higher costs will be a greater proportion of total revenues
and costs. In addition, the Company's margins will be impacted by the
inefficiencies of expansion into Ohio, Tennessee, Northern California and
Nevada.
<PAGE>
Selling, general and administrative expenses ("SG&A) as a percentage of revenues
decreased in fiscal 1997 as compared to fiscal 1996 due to revenues
increasing in 1997 at a faster pace than SG&A spending. The increase in
spending was primarily attributable to the Company's geographic expansion
and the increase in the number of communities that it was operating in 1997
as compared to 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues for fiscal 1996 of $761 million exceeded those of fiscal 1995 by
$114 million or 18%. This increase in revenues was due to an increase in both
the number of homes and average price per home delivered. The increase in the
number of homes delivered was due to the higher backlog of homes at October
31, 1995 as compared to October 31, 1994 and to the greater number of homes
sold during fiscal 1996 as compared to fiscal 1995. The increase in the
number of homes sold was the result of the higher number of selling
communities that the Company had in 1996 over 1995 and an increase in the
average number of homes sold per community. The increase in the average
delivered price per home was due principally to a change in product mix to
larger homes, a shift to more expensive locations, an increase in the value
of options that the homebuyers selected and increases in selling prices in a
number of the Company's communities. The increase in the average delivered
price was partially offset by an increase in sales incentives provided to
the homebuyers.
Land and construction costs as a percentage of revenues increased in fiscal
1996 as compared to fiscal 1995. The increase was due principally to
increased material and overhead costs, increased costs of sales incentives
and the additional start-up costs, generally higher construction costs and
the inefficiencies of production associated with the Company's expansion into
California, Arizona, Texas, North Carolina and Florida. The increased
overhead costs were due principally to the severe winter weather conditions
that the Company encountered in many of its markets in fiscal 1996. The cost
increases were partially offset by the lower amount of inventory writedowns
in 1996 ($4.6 million) as compared to 1995($5.4 million).
Selling, general and administrative expenses amounted to $69.7 million or
9.1% of revenues in fiscal 1996 as compared to $59.7 million or 9.2% of
revenues in fiscal 1995. The increased spending was attributable to the
greater number of communities that the Company was operating in 1996 as
compared to 1995 as well as the additional costs associated with the Company's
geographic expansion.
INTEREST EXPENSE
Interest expense is determined on a specific lot-by-lot basis and will vary
depending on many factors including the period of time that the land under
the home was owned, the length of time that the house was under construction,
and the interest rates and the amount of debt carried by the Company in
proportion to the amount of its inventory during those periods.
INCOME TAXES
Income taxes for fiscal 1997, 1996 and 1995 were provided at effective rates
of 37.0%, 37.4% and 37.1%, respectively.
EXTRAORDINARY LOSS FROM EXTINGUISHMENT OF DEBT
In January 1997, the Company called for redemption in March 1997 of all its
outstanding 10 1/2% Senior Subordinated Notes due 2002 at 103% of principal
amount plus accrued interest. The redemption resulted in an extraordinary
loss of $2,772,000, net of $1,659,000 of income taxes. The redemption and
related refinancing will result in the reduction of the Company's interest
costs of approximately $2,000,000 annually.
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
Funding for the Company's residential development activities is principally
provided by cash flows from operations, unsecured bank borrowings, from time
to time, and public debt and equity markets.
Cash flow from operations, before inventory additions, has improved as operating
results improved and the Company anticipates that the cash flow from operations
will continue to improve as a result of an increase in revenues from the
delivery of homes from the existing backlog as well as from new sales
contracts. The Company has used the cash flow from operations, bank
borrowings and public debt to acquire additional land for new communities,
to fund additional expenditures for land development and construction costs
needed to meet the requirements of the increased backlog and continuing
expansion of the number of communities in which the Company is offering homes
for sale and to reduce debt. The Company expects that inventories will continue
to increase and is currently negotiating and searching for additional
opportunities to obtain control of land for future communities.
In December 1997, the Company called for redemption on January 14, 1998, the $51
million outstanding of its 4 3/4% Convertible Senior Subordinated Notes due
2004 at 102.969% of principal amount. The notes are convertible at a
conversion price of $21.75 per share at the option of the noteholder. The
closing price of the Company's Common Stock on December 9, 1997 was $26.50.
The Company expects to use existing available cash for the redemption.
The Company has a $250 million unsecured revolving credit facility with fifteen
banks which extends through June 2002. The facility reduces by 50% in June
2000 unless extended as provided for in the agreement. As of October 31,
1997, the Company had $50 million of loans and approximately $27 million of
letters of credit outstanding under the facility.
In November 1996 and September 1997, the Company sold $100 million of 8 3/4%
Senior Subordinated Notes due 2006 and $100 million of 7 3/4% Senior
Subordinated Notes due 2007, respectively. In addition, in March 1997, the
Company borrowed $50 million from two banks for a five-year period at a fixed
rate of 7.72%.
In April 1997, Standard and Poor's Ratings Group upgraded the Company's
Corporate Credit Rating to BBB- and the ratings on its Senior Subordinated
Notes to BB+.
The Company believes that it will be able to fund its activities through a
combination of existing cash resources, operating cash flow and existing
sources of credit.
INFLATION
The long-term impact of inflation on the Company is manifested in increased
land, land development, construction and overhead costs, as well as in
increased sales prices.
The Company generally contracts for land significantly before development and
sales efforts begin. Accordingly, to the extent land acquisition costs are
fixed, increases or decreases in the sales prices of homes may affect the
Company's profits. Since the sales prices of homes are fixed at the time of
sale and the Company generally sells its homes prior to commencement of
construction, any inflation of costs in excess of those anticipated may
result in lower gross margins. The Company generally attempts to minimize
that effect by entering into fixed-price contracts with its subcontractors
and material suppliers for specified periods of time, which generally do not
exceed one year.
<PAGE>
Housing demand, in general, is adversely affected by increases in interest
costs, as well as in housing costs. Interest rates, the length of time that
land remains in inventory and the proportion of inventory that is financed
affect the Company's interest costs. If the Company is unable to raise sales
prices enough to compensate for higher costs, or if mortgage interest rates
increase significantly, affecting prospective buyers' ability to adequately
finance a home purchase, the Company's revenues, gross margins and net income
would be adversely affected. Increases in sales prices, whether the result
of inflation or demand, may affect the ability of prospective buyers to afford
a new home.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements as set forth in item 14(a)(1) and (2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to executive officers of the
Company is set forth in Part I. The information required by this item with
respect to the Directors of the Company is incorporated by reference to the
Company's Proxy Statement for the 1998 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the Com
pany's Proxy Statement for the 1998 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
Company's Proxy Statement for the 1998 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's Proxy Statement for the 1998 Annual Meeting of Shareholders.
STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included herein and in other Company statements, reports and
S.E.C. filings is forward-looking within the meaning of the Private Securities
Litigation Reform Act of 1995, including, but not limited to, statements
concerning anticipated operating results, financial resources, growth and
expansion. Such forward-looking information involves important risks and
uncertainties that could significantly affect actual results and cause them
to differ materially from expectations expressed therein.
<PAGE>
These risks and uncertainties include local, regional and national economic
conditions, the effects of governmental regulation, the competitive
environment in which the Company operates, fluctuations in interest rates,
changes in home prices, the availability and cost of land for future growth,
the availability of capital, the availability and cost of labor and materials,
and weather conditions.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedule
1. Financial Statements
Page
Report of Independent Auditors F-1
Consolidated Statements of Income for the
Years Ended October 31, 1997, 1996 and 1995 F-2
Consolidated Balance Sheets as of
October 31, 1997 and 1996 F-3
Consolidated Statements of Cash Flows for the
Years Ended October 31, 1997, 1996 and 1995 F-4
Notes to Consolidated Financial Statements F-5 - F-15
Summary Consolidated Quarterly Data F-16
2. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
for the Years Ended October 31,
1997, 1996 and 1995 F-17
Schedules not listed above have been omitted because
they are either not applicable or the required information
is included in the financial statements or notes thereto.
3. Exhibits required to be filed by Item 601 of Regulation S-K:
Exhibit
Number Description
3.1 Certificate of Incorporation, as amended, is hereby incorporated by
reference to Exhibit 3.1 of the Registrant's Form 10-K for the fiscal
year ended October 31, 1989.
3.2 Amendment to the Certificate of Incorporation dated March 11, 1993, is
hereby incorporated by reference to Exhibit 3.1 of Registrant's Form
10-Q for the quarter ended January 31, 1993.
3.3 By-laws, as amended, are hereby incorporated by reference to Exhibit 3.2
of the Registrant's Form 10-K for the fiscal year ended October 31,
1989.
4.1 Specimen Stock Certificate is hereby incorporated by reference to
Exhibit 4.1 of the Registrant's Form 10-K for the fiscal year ended
October 31, 1991.
<PAGE>
Exhibit
Number Description
4.2 Indenture dated as of March 15, 1993, among Toll Corp., as issuer, the
Registrant, as guarantor, and NBD Bank, National Association, as
Trustee,including Form of Guarantee, is hereby incorporated by
reference to Exhibit 4.1 of Toll Corp.'s Registration Statement on
Form S-3 filed with the Securities and Exchange Commission, March 10,
1993, File No. 33-58350.
4.3 Indenture dated as of January 15, 1994 between Toll Corp., as issuer,
the Registrant, as guarantor, Security Trust Company, N.A., as Trustee,
including Form of Guarantee, is incorporated by reference to Exhibit 4.1
of Toll Corp.'s Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on January 23, 1995, File No.
33-51775.
4.4 Indenture dated as of November 12, 1996 between Toll Corp., as issuer,
the Registrant, as guarantor, NBD Bank, a Michigan banking corporation,
as Trustee, including form of guarantee, is hereby incorporated by
reference to Exhibit 4.1 of the Registrant's Form 8-K dated November 6,
1996 filed with the Securities and Exchange Commission.
4.5 Authorizing Resolutions, dated as of September 16, 1997, relating to the
$100,000,000 principal amount of 7 3/4% Senior Subordinated Notes due
2007 of Toll Corp., guaranteed on a Senior Subordinated basis by Toll
Brothers, Inc.
4.6 Rights Agreement dated as of June 12, 1997 by and between the Company
and Chase Mellon Shareholder Service, L.L.C., as Rights Agent, is
hereby incorporated by reference to Exhibit, to the Company's
Registration Statement on Form 8A dated June 20, 1997.
10.1 Revolving credit agreement, dated as of November 1, 1993 as amended
through May 8, 1996, among First Huntingdon Finance Corp., the
Registrant,PNC Bank, National Association, CoreStates Bank, N.A.,
The First National Bank of Chicago, NationsBank National Association,
Bank Hapoalim B.M., Kleinwort Benson Limited, Mellon Bank, The Fuji
Bank, Limited, Credit Lyonnais, New York Branch, Banque Paribas,
Krieditbank N.V., Comerica Bank, Bayerische Vereinsbank AG, New York
Branch, The Industrial Bank of Japan Trust Company, The Sanwa Bank
Limited and PNC Bank, National Association, as Agent, is hereby
incorporated by reference to Exhibit 10.1 of the Registrant's Form
10-K for the year ended October 31, 1996.
10.2 Toll Brothers, Inc. Amended and Restated Stock Option Plan (1986), as
amended and restated by the Registrant's Board of Directors on February
24, 1992 and adopted by its shareholders on April 6, 1992, is hereby
incorporated by reference to Exhibit 19(a) of the Registrant's Form 10-Q
for the quarterly period ended April 30, 1992.
10.3 Toll Brothers, Inc. Amended and Restated Stock Purchase Plan is hereby
incorporated by reference to Exhibit 4 of the Registrant's Registration
Statement on Form S-8 filed with the Securities and Exchange
Commission on August 4, 1987, File No. 33-16250.
<PAGE>
Exhibit
Number Description
10.4 Toll Brothers, Inc. Key Executives and Non-Employee Directors Stock
Option Plan (1993) is hereby incorporated by reference to Exhibit
10.1 of the Registrant's Form 8K filed with the Securities and
Exchange Commission on May 25, 1994.
10.5 Amendment to the Toll Brothers, Inc. Key Executives and Non-Employee
Directors Stock Option Plan (1993) is hereby incorporated by reference
to Exhibit 10.2 of the Registrant's's Quarterly Report on Form 10-Q
for the quarter ended April 30, 1995.
10.6 Toll Brothers, Inc. Cash Bonus Plan 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 25, 1994.
10.7 Amendment to the Toll Brothers, Inc. Cash Bonus Plan dated May 29,
1996 is hereby incorporated by reference to Exhibit 10.7 of the
Registrant's Form 10-K for the year ended October 31, 1996.
10.8 Toll Brothers, Inc. Stock Option and Incentive Stock Plan (1995) is
hereby incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended April 30, 1995.
10.9 Amendment to the Toll Brothers, Inc. Stock Option and Incentive Stock
Plan (1995) dated May 29, 1996 is hereby incorporated by reference to
Exhibit 10.9 of the Registrant's Form 10-K for the year ended October
31, 1997.
10.10 Stock Redemption Agreement between the Registrant and Robert I. Toll,
dated October 28, 1995, is hereby incorporated by reference to Exhibit
10.7 of the Registrants Form 10-K for the year ended October 31, 1995.
10.11 Stock Redemption Agreement between the Registrant and Bruce E. Toll,
dated October 28, 1995, is hereby incorporated by reference to Exhibit
10.8 of the Registrants Form 10-K for the year ended October 31, 1995.
10.12 Agreement between the Registrant and Joel H. Rassman, dated June 30,
1988, is hereby incorporated by reference to Exhibit 10.8 of Toll
Corp.'s Registration Statement on Form S-1 filed with the Securities
and Exchange Commission on September 9, 1988, File No. 33-23162.
10.13 Agreement regarding sharing of office expenses, dated May 29, 1986,
among Robert Toll, Bruce Toll and the Registrant, is hereby incorporated
by reference to Exhibit 10.8 of the Registrant's Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on July
8, 1986, File No. 33-6066.
11 Statement regarding computation of Per Share Earnings.
22 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule
<PAGE>
(b) Reports on Form 8-K
Form 8-K filed on September 17, 1997 regarding the Terms Agreement and
Authorizing Resolution pertaining to the Toll Corp., 7 3/4% Senior
Subordinated Notes due 2007.
PAGE
<PAGE>
SIGNATURES
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, in the Township of Lower
Moreland, Commonwealth of Pennsylvania on December 17, 1997.
TOLL BROTHERS, INC.
By: /s/ Robert I. Toll
Robert I. Toll
Chairman of the Board and
Chief Executive Officer
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.
Signature Title Date
/s/ Robert I. Toll Chairman of the Board December 17, 1997
Robert I. Toll of Directors and Chief
Executive Officer
(Principal Executive
Officer)
/s/ Bruce E. Toll President, Chief Operating December 17, 1997
Bruce E. Toll Officer, Secretary
and Director
/s/ Zvi Barzilay Executive Vice President December 17, 1997
Zvi Barzilay and Director
/s/ Joel H. Rassman Senior Vice President, December 17, 1997
Joel H. Rassman Treasurer, Chief
Financial Officer and
Director
(Principal Financial Officer)
/s/ Joseph R. Sicree Vice President and December 17, 1997
Joseph R. Sicree Chief Accounting Officer
(Principal Accounting
Officer)
/s/ Robert S. Blank Director December 17, 1997
Robert S. Blank
/s/ Richard J. Braemer Director December 17, 1997
Richard J. Braemer
/s/ Roger S. Hillas Director December 17, 1997
Roger S. Hillas
/s/ Carl B. Marbach Director December 17, 1997
Carl B. Marbach
/s/ Paul E. Shapiro Director December 17, 1997
Paul E. Shapiro
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Toll Brothers, Inc.
We have audited the accompanying consolidated balance sheets of Toll Brothers,
Inc. and subsidiaries at October 31, 1997 and 1996, and the related
consolidated statements of income, and cash flows for each of the three
years in the period ended October 31, 1997. Our audits also included the
financial statement schedule listed in the Index at item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Toll
Brothers, Inc. and subsidiaries at October 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended October 31, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
December 9, 1997
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended October 31
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Housing sales $968,253 $759,303 $643,017
Interest and other 3,407 1,404 3,322
971,660 760,707 646,339
Costs and expenses:
Land and housing construction 748,323 580,990 485,009
Selling, general and administrative 86,301 69,735 59,684
Interest 29,390 24,189 22,207
864,014 674,914 566,900
Income before income taxes and
extraordinary loss 107,646 85,793 79,439
Income taxes 39,799 32,049 29,507
Income before extraordinary loss 67,847 53,744 49,932
Extraordinary loss (2,772)
Net income $ 65,075 $ 53,744 $ 49,932
Earnings per share
Primary:
Income before extraordinary loss $ 1.94 $ 1.56 $ 1.47
Extraordinary loss $ (.08)
Net income $ 1.86 $ 1.56 $ 1.47
Fully-diluted:*
Income before extraordinary loss $ 1.86 $ 1.50 $ 1.41
Extraordinary loss $ (.07)
Net income $ 1.78 $ 1.50 $ 1.41
Weighted average number of shares
Primary 34,918 34,492 33,909
Fully-diluted 37,354 36,891 36,651
</TABLE>
* Due to rounding, the amounts may not add.
See accompanying notes.
<PAGE>
<PAGE>
CONSOLIDATED BALANCE SHEETS (Amounts in thousands)
<TABLE>
<CAPTION>
October 31
1997 1996
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 147,575 $ 22,891
Inventory 921,595 772,471
Property, construction and office
equipment, net 15,074 12,948
Receivables, prepaid expenses and other
assets 31,793 26,783
Mortgage notes receivable 2,589 2,833
$1,118,626 $837,926
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Loans payable $ 189,579 $132,109
Subordinated notes 319,924 208,415
Customer deposits on sales contracts 52,698 43,387
Accounts payable 48,600 42,423
Accrued expenses 75,237 58,211
Collateralized mortgage obligations payable 2,577 2,816
Income taxes payable 44,759 35,888
Total liabilities 733,374 523,249
Shareholders' equity
Preferred stock, none issued
Common stock, 34,275 and 33,919 shares
issued at October 31, 1997 and 1996, respectively 343 339
Additional paid-in capital 48,514 43,018
Retained earnings 336,395 271,320
Total shareholders' equity 385,252 314,677
$1,118,626 $837,926
</TABLE>
See accompanying notes.
PAGE
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands)
Year Ended October 31
<TABLE>
<CAPTION>
1997 1996 1995
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 65,075 $ 53,744 $ 49,932
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 4,055 3,306 2,943
Loss (gain) from repurchase of subordinated debt 540 (355)
Extraordinary loss from bond redemption 4,431
Deferred tax provision (benefit) 3,332 877 (476)
Inventory valuation provisions 1,000 3,800
Changes in operating assets and liabilities:
Increase in inventory (120,280) (138,059)(118,720)
Increase in receivables, prepaid
expenses and other assets (3,994) (2,783) (3,345)
Increase in customer deposits on sales contracts9,311 7,193 6,123
Increase in accounts payable and accrued
expenses 25,498 22,223 8,625
Increase(decrease) in income taxes payable 5,722 (1,805) 4,957
Net cash used in operating activities (6,850) (53,764) (46,516)
Cash flows from investing activities:
Sale of marketable securities 3,674
Purchase of property and equipment, net (5,329) (3,596) (2,452)
Principal repayments of mortgage
notes receivable 244 1,107 684
Net cash (used in) provided by investing activities (5,085) (2,489) 1,906
Cash flows from financing activities:
Proceeds from loans payable 145,000 173,028 160,000
Principal payments of loans payable (116,613) (111,738)(121,159)
Net proceeds from issuance of subordinated debt 195,700
Repurchase of subordinated debt (90,434) (13,096) (6,256)
Principal payments of collateralized mortgage
obligations payable (239) (1,096) (780)
Proceeds from stock-based benefit plans 3,205 4,274 2,551
Net cash provided by financing activities 136,619 51,372 34,356
Net increase (decrease)in cash and cash equivalents 124,684 (4,881) (10,254)
Cash and cash equivalents, beginning of year 22,891 27,772 38,026
Cash and cash equivalents, end of year $147,575 $ 22,891 $ 27,772
</TABLE>
See accompanying notes.
<PAGE>
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
Basis of presentation
The accompanying consolidated financial statements include the accounts of Toll
Brothers, Inc. (the "Company"), a Delaware corporation, and its majority-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Income recognition
The Company is primarily engaged in the development, construction and sale of
residential housing. Revenues and cost of sales are recorded at the time each
home sale is closed and title and possession have been transferred to the
buyer. Closing normally occurs shortly after construction is substantially
completed.
Cash and cash equivalents
Liquid investments or investments with original maturities of three months or
less are classified as cash equivalents. The carrying value of these investments
approximates fair market value.
Property, construction and office equipment
Property, construction and office equipment are recorded at cost and are stated
net of accumulated depreciation of $18,985,000 and $16,159,000 at October 31,
1997 and 1996, respectively. Depreciation is recorded by using the straight-
line method over the estimated useful lives of the assets.
Inventories
Inventories are stated at the lower of cost or fair value. In addition to
direct land acquisition, land development and housing construction costs,
costs include interest, real estate taxes and direct overhead costs related
to development and construction, which are capitalized to inventories during
the period beginning with the commencement of development and ending with the
completion of construction.
Land, land development and related costs are amortized to cost of homes closed
based upon the total number of homes to be constructed in each community.
Housing construction and related costs are charged to cost of homes closed under
the specific identification method.
The Company capitalizes certain project marketing costs and charges them against
income as homes are closed.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("FAS 121"), established standards for the recognition and measurement of
impairment losses on long-lived assets. The Company adopted FAS 121 in the
first quarter of fiscal 1997. The adoption did not result in the recognition
of an impairment loss.
<PAGE>
Earnings per share
The computation of primary and fully-diluted earnings per share is based on the
weighted average number of shares of common stock and common stock equivalents
outstanding. In addition, the computation of fully-diluted earnings per share
assumes the conversion of the Company's 4 3/4% Convertible Senior Subordinated
Notes due 2004 at $21.75 per share for the period that the notes were
outstanding.
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS
128"), requires the calculation and dual presentation of Basic and Diluted
earnings per share ("EPS") and is effective for financial statements issued for
periods ending after December 15, 1997; earlier application of FAS 128 is not
permitted. Had FAS 128 been adopted, Basic EPS before extraordinary loss would
have been $1.99, $1.59 and $1.49 for the year ended October 31, 1997, 1996 and
1995, respectively. Diluted EPS before extraordinary loss would have been $1.86,
$1.50 and $1.42, respectively.
Stock-based compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), establishes a fair value based method of accounting
for stock-based compensations plans, including stock options. FAS 123 allows the
Company to continue accounting for stock option plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), but requires it to provide pro forma net income and earnings per
share information "as if" the new fair value approach had been adopted.
Because the Company continued to account for its stock option plans under
APB 25, there was no impact on the Company's consolidated financial
statements resulting from implementation of FAS 123.
2. Inventory
Inventory consisted of the following(amounts in thousands):
<TABLE>
<CAPTION>
October 31
1997 1996
<S> <C> <C>
Land and land development costs $234,855 $204,527
Construction in progress 590,295 491,552
Sample homes 47,920 40,017
Land deposits and costs of
future development 28,314 20,349
Deferred marketing and
financing costs 20,211 16,026
$921,595 $772,471
</TABLE>
Construction in progress includes the cost of homes under
construction, land and land development costs and the carrying
cost of lots that have been substantially
improved.
<PAGE>
For the years ended October 31, 1997, 1996 and 1995, the Company provided for
inventory writedowns and the expensing of costs which it believed not to be
recoverable of $2,048,000, $4,611,000 and $5,366,000, respectively.
Interest capitalized in inventories is charged to interest expense when the
related inventories are closed. Changes in capitalized interest for the
three years ended October 31, 1997 were as follows(amounts in thousands):
1997 1996 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Interest capitalized,
beginning of year $ 46,191 $ 43,142 $ 39,835
Interest incurred 35,242 27,695 25,780
Interest expensed (29,390) (24,189) (22,207)
Write off to cost
and expenses (356) (457) (266)
Interest capitalized,
end of year $ 51,687 $ 46,191 $ 43,142
</TABLE>
3. Loans Payable and Subordinated Notes
Loans payable consisted of the following
(amounts in thousands):
October 31
1997 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Revolving credit facility - term portion $ 50,000 $ 50,000
Term loan due July 2001 68,000 68,000
Term loan due March 2002 50,000
Other 21,579 14,109
$189,579 $132,109
</TABLE>
The Company has a $250,000,000 unsecured revolving credit facility with fifteen
banks which extends through June 2002. The facility reduces by 50% in June 2000
unless extended as provided for by the agreement. Interest is payable on short-
term borrowings at .95% above the Eurodollar rate or at other specified
variable rates as selected by the Company from time to time. The Company fixed
the interest rate on $50,000,000 of borrowing at 7.54% until June 2000.
As of October 31, 1997, letters of credit and obligations under escrow
agreements of $26,973,000 were outstanding. The agreement contains various
covenants, including financial covenants related to consolidated shareholders'
equity, indebtedness and inventory. The agreement requires that the Company
maintain a minimum consolidated shareholders' equity which restricts
the payment of cash dividends and the repurchase of Company stock to
approximately $108,967,000 as of October 31, 1997.
In July 1996, the Company borrowed $68,000,000 from eight banks for a period
of five years at a fixed interest rate of 7.91%. In March 1997, the Company
borrowed $50,000,000 from two banks for a period of five years at a fixed
rate of 7.72%. Both loans are unsecured and the agreements contain the same
financial covenants as the Company's revolving credit facility.
The carrying value of the loans payable approximates the estimated fair market
value.
<PAGE>
Subordinated notes consisted of the following(amounts in thousands):
<TABLE>
<CAPTION>
October 31,
1997 1996
<S> <C> <C>
10 1/2% Senior Subordinated Notes,
due March 15,2002 $ 87,800
9 1/2% Senior Subordinated Notes,
due March 15,2003 $ 69,960 69,960
4 3/4% Convertible Senior Subordinated Notes,
due January 15, 2004 50,999 50,999
8 3/4% Senior Subordinated Notes
due November 15, 2006 100,000
7 3/4% Senior Subordinated Notes
due September 15, 2007 100,000
Bond discount (1,035) (344)
$ 319,924 $ 208,415
</TABLE>
In November 1996 and September 1997, the Company issued $100,000,000 of 8 3/4%
Senior Subordinated Notes due 2006 and $100,000,000 of 7 3/4% Senior
Subordinated Notes due 2007, respectively.
All issues of senior subordinated notes and convertible senior subordinated
notes are subordinated to all senior indebtedness of the Company. The
indentures related to the 9 1/2% notes, 8 3/4% notes and the 7 3/4% notes
restrict certain payments by the Company including cash dividends and the
repurchase of Company stock. The notes are redeemable in whole or in part at
the option of the Company at various prices on or after March 15, 1998 with
regard to the 9 1/2% notes, on or after January 15, 1997 with regard to the
4 3/4% convertible notes, on or after November 15, 2001 with regard to the
8 3/4% notes and on or after September 15, 2002 with regard to the 7 3/4%
notes.
The 4 3/4% convertible notes are convertible into shares of Common Stock of the
Company at the option of the noteholders at any time prior to maturity at a
conversion price of $21.75 per share. In December 1997, the Company called
for redemption all of its oustanding 4 3/4% convertible notes on January 14,
1998 at 102.969% of principal plus accrued interest (an equivalent value of
approximately $22.91 per share). The closing price of the Company's Common
Stock on December 9, 1997 was $26.50. If the notes are converted into Common
Stock of the Company prior to redemption, there will be no impact on the
Company's income statement in fiscal 1998. If all noteholders redeem their
notes for cash, the Company will recognize an extraordinary loss of
approximately $1.8 million, net of taxes.
The Company redeemed all of its outstanding 10 1/2% Senior Subordinated Notes
due 2002 at 103% of principal amount plus accrued interest in March 1997. The
redemption resulted in an extraordinary loss in the first quarter of fiscal
1997 of $2,772,000, net of $1,659,000 of income taxes. The loss represents
the redemption premium and the write-off of unamortized deferred issuance costs.
During fiscal 1996 and 1995, the Company repurchased $12,900,000 and $6,801,000,
respectively, of the various issues of notes in open market purchases. The
gains and losses from the repurchases were immaterial and included in other
income.
<PAGE>
As of October 31, 1997, the aggregate fair market value of all the outstanding
subordinated notes, based upon their quoted market prices, was approximately
$331,891,000.
The annual aggregate maturities of the Company's loans and notes during the
next five fiscal years are: 1998 -$ 5,396,000; 1999 - $5,656,000; 2000 -
$57,447,000, 2001 - $71,080,000 and 2002 - $50,000,000.
4. Income taxes
The provision for income taxes includes federal and state taxes. Substantially
all of the difference between the effective tax rate (37.0%, 37.4% and 37.1% for
1997, 1996 and 1995, respectively) used in these provisions and the statutory
federal tax rate of 35% was due to state taxes, net of federal tax benefit.
The provisions for income taxes for each of the three years ended October 31,
1997 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Federal $35,812 $29,013 $27,586
State 3,987 3,036 1,921
$39,799 $32,049 $29,507
Current $36,467 $31,172 $29,983
Deferred 3,332 877 (476)
$39,799 $32,049 $29,507
</TABLE>
The components of income taxes payable consisted of the following (amounts in
thousands):
<TABLE>
<CAPTION>
October 31
1997 1996
<S> <C> <C>
Current $27,538 $21,999
Deferred 17,221 13,889
$44,759 $35,888
</TABLE>
The components of net deferred taxes payable consisted of the following (amounts
in thousands):
<TABLE>
<CAPTION>
October 31
1997 1996
Deferred tax liabilities
<S> <C> <C>
Capitalized interest $17,702 $16,203
Deferred expenses 6,387 4,434
Other 314
Total 24,089 20,951
Deferred tax assets
Net realizable value
reserves 2,871 3,640
Inventory valuation
differences 1,526 1,556
Accrued expenses
deductible when paid 231 522
Other 2,240 1,344
Total 6,868 7,062
Net deferred tax liability $17,221 $13,889
</TABLE>
<PAGE>
5. Shareholders' Equity
The Company's authorized capital stock consists of 40,000,000 shares of Common
Stock, $.01 par value per share, and 1,000,000 shares of Preferred Stock,
$.01 par value per share. The Company's Certificate of Incorporation, as
amended, authorizes the Board of Directors to increase the number of authorized
shares of Common Stock to 60,000,000 shares and the number of shares of
authorized Preferred Stock to 15,000,000 shares.
Changes in shareholders' equity for the three years ended October 31, 1997 were
as follows (amounts in thousands):
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, November 1, 1994 33,423 $ 334 $ 36,198 $167,644 $204,176
Net income 49,932 49,932
Exercise of stock options 213 2 2,525 2,527
Employee stock plan
purchases 2 24 24
Balance, October 31, 1995 33,638 336 38,747 217,576 256,659
Net income 53,744 53,744
Exercise of stock options 276 3 4,196 4,199
Employee stock plan
purchases 5 75 75
Balance, October 31, 1996 33,919 339 43,018 271,320 314,677
Net Income 65,075 65,075
Exercise of stock options 218 2 3,121 3,123
Executive bonus award 134 2 2,293 2,295
Employee stock plan
purchases 4 82 82
Balance, October 31, 1997 34,275 $ 343 $ 48,514 $336,395 $385,282
</TABLE>
Shareholder Rights Plan
On June 12, 1997, the Board of Directors adopted a shareholder rights plan
whereby the Board authorized and declared a dividend of one right for each
share of Common Stock of the Company to all shareholders of record at the
close of business on July 11, 1997. The rights are not currently exercisable
but would become exercisable if certain events occurred relating to a person
or group acquiring or attempting to acquire beneficial ownership of 15% or
more of the Common Stock of the Company. If any person acquires 15% or more
of the Common Stock of the Company, each right, should it become exercisable,
will entitle the holder to acquire, upon payment of the exercise price of the
right (presently $100), Common Stock of the Company having a market value
equal to twice the rights exercise price. If, after a person or group, has
acquired 15% or more of the outstanding Common Stock of the Company, the Company
is acquired in a merger or other business combination, or 50% or more of its
assets or earning power is sold or transferred in one transaction or a series
of related transactions, each right becomes a right to acquire common shares of
the other party to the transaction having a value equal to twice the exercise
price of the right. Rights are redeemable at $.001 per right by action of the
Board of Directors at any time prior to the tenth day following the public
announcement that a person or group, has acquired beneficial ownership of 15%
or more of the Common Stock of the Company. Unless earlier redeemed, the
rights will expire on July 11, 2007.
<PAGE>
Redemption of Common Stock
In order to help provide for an orderly market in the Company's Common Stock
in the event of the death of either Robert I. Toll or Bruce E. Toll (the
"Tolls"), or both of them, the Company and the Tolls have entered into
agreements in which the Company has agreed to purchase from the estate of
each of the Tolls $10,000,000 of the Company's Common Stock (or a lesser
amount under certain circumstances) at a price equal to the greater of fair
market value (as defined) or book value (as defined). Further, the Tolls have
agreed to allow the Company to purchase $10,000,000 of life insurance on each
of their lives. In addition, the Tolls granted the Company an option
to purchase up to an additional $30,000,000 (or a lesser amount under certain
circumstances) of the Company's Common Stock from each of their estates. The
agreements expire in October 2005.
In April 1997, the Company announced that its Board of Directors authorized the
repurchase of up to 3,000,000 shares of its Common Stock, par value $.01, from
time to time, in open market transactions or otherwise, for the purpose of
providing shares for its various employee benefit plans. As of October 31,
1997, the Company had not repurchased any shares.
6. Stock-Based Benefit Plans
Stock-based compensation plans
FAS 123 requires the disclosure of the estimated value of employee option
grants and their impact on net income using option pricing models which are
designed to estimate the value of options which, unlike employee stock options,
can be traded at any time and are transferable. In addition to restrictions
on trading, employee stock options 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. Therefore, in
management's opinion, the existing models do not provide a reliable single
measure of the value of employee stock options.
At October 31, 1997, the Company's stock-based compensation plans consisted
of its three stock option plans. Net income and net income per share as
reported in these consolidated financial statements and on a pro forma basis,
as if the fair value based method described in FAS 123 had been adopted,
were as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended Otober 31,
1997 1996
<S> <C> <C>
Net income As reported $65,075 $53,744
Pro forma $60,068 $51,480
Primary net income per share As reported $ 1.86 $ 1.56
Pro forma $ 1.72 $ 1.49
Fully diluted net income per share As reported $ 1.78 $ 1.50
Pro forma $ 1.65 $ 1.44
Weighted-average fair value per share of $ 9.37 $ 9.82
options granted
</TABLE>
For the purposes of providing the pro/forma disclosures, the fair value of
options granted were estimated using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants in each of
the two fiscal years ended October 31,1997 and 1996, respectively: a risk
free interest rate of 5.87% and 6.27%,an expected life of 7 years and 7 years,
volatility of 37.5% and 39.9% and no dividends.
The effects of applying FAS 123 for the purpose of providing pro forma
disclosures may not be indicative of the effects on reported net income and
net income per share for future years, as the pro forma disclosures include
the effects of only those awards granted on or after November 1, 1995.
Stock option plans
The Company's three stock option plans for employees, officers and non-employee
directors provide for the granting of incentive stock options and nonstatutory
options with a term of up to ten years at a price not less than the market price
of the stock at the date of grant. The Company's Stock Option and Incentive
Stock Plan (1995) provides for automatic increases each January 1 in the number
of shares available for grant by 2% of the number of shares outstanding
(including treasury shares). The 1995 Plan restricts the number of options
that may be granted in a calendar year to the lesser of the number of shares
available for grant or 2,500,000 shares. No compensation costs were recognized
under the Company's stock option plans in 1997, 1996 and 1995.
The following summarizes stock option activity for the three plans during the
three years ended October 31, 1997:
<TABLE>
<CAPTIONS>
Number Weighted Average
of Options Exercise Price
<S> <C> <C>
Outstanding,
November 1, 1994 1,613,125 $ 13.36
Granted 1,022,200 10.29
Exercised (212,775) 9.63
Cancelled (80,350) 13.10
Outstanding,
October 31, 1995 2,342,200 $ 12.37
Granted 843,450 19.74
Exercised (276,000) 12.10
Cancelled (37,825) 16.00
Outstanding,
October 31, 1996 2,871,825 $ 14.52
Granted 1,090,400 19.30
Exercised (218,601) 11.54
Cancelled ( 59,449) 19.64
Outstanding,
October 31, 1997 3,684,175 $ 16.03
</TABLE>
Options exercisable and their weighted average exercise price as of October 31,
1997,1996 and 1995 were 2,336,186 shares and $13.99, 1,751,800 shares and
$12.84, and 1,086,375 shares and $13.38, respectively.
Options available for grant at October 31, 1997, 1996 and 1995 under all the
plans were 2,412,372, 2,899,000 and 3,260,000, respectively.
<PAGE>
<TABLE>
<CAPTION>
The following table summarizes information about stock options outstanding at
October 31, 1997:
Options Outstanding Options Exercisable
Weighted
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
(in years)
<S> <C> <C> <C> <C> <C>
$ 3.38 3,000 .3 $ 3.38 3,000 $ 3.38
7.75 - 11.00 944,950 6.2 10.19 944,950 10.19
12.19 - 15.88 737,650 3.5 14.47 737,650 14.47
17.13 - 20.25 1,998,575 8.5 19.39 650,586 19.01
$ 3.38 -$20.25 3,684,175 6.9 $16.03 2,336,186 $ 13.99
</TABLE>
Bonus Award Shares
Under the terms of the Company's Cash Bonus Plan covering the Chairman of the
Board and Chief Operating Officer (the "Executives"), each Executive is
entitled to receive cash bonus awards based upon the pretax earnings and
shareholders' equity of the Company. In May 1996, the Board of Directors and
the Executives agreed, that any bonus payable under the plan for each of the
three fiscal years ended October 31, 1998 shall be made (except for specified
conditions) in shares of the Company's Common Stock using the value of the
stock as of the date of the agreement ($17.125 per share). The shareholders
approved the plan at the Company's 1997 Annual Meeting. The shares are
issued from the Company's Stock Option and Incentive Stock Plan (1995). The
Executives received 66,975 shares each for their 1996 bonus award and will
receive 80,547 shares each for their 1997 bonus award. The Company recognized,
as compensation expense, the fair market value of the shares issued under the
plan ($3,564,000 in 1997 and $2,295,000 in 1996).
Employee stock purchase plan
The Company's Employee Stock Purchase Plan enables substantially all employees
to purchase the Company's Common Stock for 95% of the market price of the
stock on specified offering dates. The plan, which terminates in December
2001, provides that 100,000 shares be reserved for purchase. As of October
31, 1997, a total of 61,649 shares were available for issuance.
The number of shares and the average prices per share issued under this plan
during each of the fiscal years ended October 31, 1997, 1996 and 1995 were
4,131 shares and $19.98, 4,580 shares and $16.29, and 1,942 shares and $12.63,
respectively. No compensation expense was recognized by the Company under
this plan.
<PAGE>
7. Employee retirement plan
The Company maintains a salary deferral savings plan covering substantially all
employees. The plan provides for Company contributions totaling 2% of all
eligible compensation, plus 2% of eligible compensation above the social
security wage base, plus matching contributions of up to 2% of eligible
compensation of employees electing to contribute via salary deferrals. Company
contributions with respect to the plan totaled $1,399,000 $1,061,000 and
$851,000, for the years ended October 31, 1997, 1996 and 1995, respectively.
8. Commitments and contingencies
As of October 31, 1997, the Company had agreements to purchase land and
improved home sites for future development with purchase prices aggregating
approximately $362,017,000 of which $17,095,000 had been paid or deposited.
Purchase of the properties is contingent upon satisfaction of certain
requirements by the Company and the sellers.
As of October 31, 1997, the Company had agreements of sale outstanding to
deliver 1,551 homes with an aggregate sales value of approximately
$627,220,000. As of that date, the Company had arranged through a number of
outside mortgage lenders to provide approximately $168,507,000 of mortgages
related to those sales agreements.
In October 1997, the Company entered into an agreement to acquire certain
assets of the Las Vegas division of Coleman Homes, Inc. The acquisition was
completed in November 1997. The Company acquired ownership or control of
approximately 400 lots in four communities in Las Vegas, Nevada. The
acquisition price was not material to the financial position of the Company.
The Company is involved in various claims and litigation arising in the ordinary
course of business. The Company believes that the disposition of these matters
will not have a material effect on the business or on the financial condition
of the Company.
9. Supplemental disclosures to statements of cash flows
The following are supplemental disclosures to the statements of cash flows for
each of the three years ended October 31, 1997 (amounts in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid, net of amount capitalized $ 9,385 $ 8,612 $ 7,587
Income taxes paid $28,485 $32,116 $24,547
Supplemental disclosures of noncash activities:
Cost of residential inventories acquired
through seller financing $28,844 $11,582 $ 2,563
Income tax benefit relating to exercise
of employee stock options $ 601 $ 861 $ 478
Stock bonus award $ 2,295
</TABLE>
<PAGE>
Summary Consolidated Quarterly Financial Data (Unaudited)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
Oct. 31 July 31 April 30 Jan. 31
<S> <C> <C> <C> <C>
Fiscal 1997:
Revenues $318,108 $241,826 $209,206 $202,520
Income before income taxes
and extraordinary loss $ 39,111 $ 26,424 $ 19,929 $ 22,182
Income before extraordinary
loss $ 24,597 $ 16,550 $ 12,603 $ 14,097
Net Income $ 24,597 $ 16,550 $ 12,603 $ 11,325
Earning per share*
Primary
Income before extraordinary
loss $ .70 $ .47 $ .36 $ .41
Net income $ .70 $ .47 $ .36 $ .33
Fully-diluted
Income before extraordinary
loss* $ .66 $ .45 $ .35 $ .39
Net income $ .66 $ .45 $ .35 $ .32
Weighted Average number of
shares outstanding
Primary 35,340 34,856 34,793 34,682
Fully-diluted 37,686 37,422 37,138 37,027
FISCAL 1996:
Revenues $260,351 $212,778 $145,508 $142,070
Income before income taxes $ 35,216 $ 24,609 $ 12,753 $ 13,215
Net income $ 22,085 $ 15,413 $ 7,978 $ 8,268
Earnings per share
Primary $ .64 $ .45 $ .23 $ .24
Fully-diluted $ .61 $ .43 $ .23 $ .23
Weighted average number of
shares outstanding
Primary 34,479 34,435 34,506 34,547
Fully-diluted 36,833 36,780 36,929 37,023
</TABLE>
* Due to rounding, the sum of the quarterly
earnings per share does not equal to total.
PAGE
<PAGE>
TOLL BROTHERS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
(B) (A)
Net realizable value
reserves for inventory
of land and land
development costs:
Year ended
October 31, 1995:
<S> <C> <C> <C> <C>
Delaware $ 1,000 $ 320 $ 680
Massachusetts 1,666 $1,000 270 2,396
New Jersey 5,689 2,800 1,131 7,358
Total $ 8,355 $3,800 $1,721 $10,434
Year ended
October 31, 1996:
Delaware $ 680 $ 183 $ 497
Massachusetts 2,396 1,698 698
New Jersey 7,358 $1,000 150 8,208
Total $10,434 $1,000 $2,031 $ 9,403
Year ended
October 31, 1997:
Delaware $ 497 $ 142 $ 355
Massachusetts 698 70 628
New Jersey 8,208 3,835 665 $ 3,708
Total $ 9,403 $4,047 $1,648 $ 3,708
</TABLE>
(A) Represents amount of reserves utilized, which is recorded at the
time that affected homes are closed.
(B) Applied to asset carrying value
<PAGE>
TOLL BROTHERS, INC. & SUBSIDIARIES EXHIBIT 11
STATEMENT: COMPUTATION OF EARNINGS PER SHARE
(In thousands except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995
<S> <C> <C> <C>
Net income per income statement $65,075 $53,744 $49,932
Addback: Interest on
convertible debentures, net
of income taxes 1,512 1,543 1,585
Net income (Fully diluted) $66,587 $55,287 $51,517
Earnings per share:
Primary $ 1.86 $ 1.56 $ 1.47
Fully Diluted $ 1.78 $ 1.50 $ 1.41
PRIMARY SHARES:
Weighted average shares
outstanding 34,127 33,868 33,510
Common stock equivalents -
stock options 791 624 399
TOTAL 34,918 34,492 33,909
FULLY DILUTED SHARES:
Weighted average share
outstanding 34,127 33,868 33,510
Common stock equivalents -
stock options 882 634 690
Shares issuable on conversion
of subordinated debentures 2,345 2,389 2,451
TOTAL 37,354 36,891 36,651
</TABLE>
<PAGE>
EXHIBIT 22
Subsidiaries of the Registrant
as of
October 31, 1997
A. Wholly-owned subsidiaries.
Amwell Chase, Inc., a Delaware corporation.
Bennington Hunt, Inc., a Delaware corporation.
Broad Run Sewer Co., Inc., a Delaware corporation.
Bunker Hill Estates, Inc., a Delaware corporation.
Chesterbrooke, Inc., a Delaware corporation.
Connecticut Land Corp., a Delaware corporation.
Daylesford Development Corp., a Delaware corporation.
Eastern States Engineering, Inc., a Delaware corporation.
Edmunds-Toll Construction Company, an Arizona corporation.
Fairway Valley, Inc., a Delaware corporation.
First Brandywine Investment Corp., a Delaware corporation.
First Brandywine Investment Corp. II, a Delaware corporation.
First Brandywine Investment Corp. III, a Delaware corporation.
First Brandywine Management Del. Corp., a Delaware corporation.
First Huntingdon Finance Corp., a Delaware corporation.
Franklin Farms G.P., Inc., a Delaware corporation.
MA Limited Land Corporation, a Delaware corporation.
Mansfield Development Corp., a Delaware corporation.
Maple Point, Inc., a Delaware corporation.
Maryland Limited Land Corporation, a Delaware corporation.
Montgomery Development, Inc., a Delaware corporation.
Mountain View Real Estate, Inc., a Pennsylvania corporation.
Polekoff Farm, Inc., a Pennsylvania corporation.
Springfield Chase, Inc., a Delaware corporation.
Stewarts Crossing, Inc., a Delaware corporation.
Suncoast Properties, Inc., a California corporation.
TB Proprietary Corp., a Delaware corporation.
TBGP Corp., a Pennsylvania corporation.
Tenby Hunt, Inc., a Delaware corporation.
Toll AZ GP Corp., a Delaware corporation.
Toll Bros., Inc., a Delaware corporation.
Toll Bros., Inc., a Pennsylvania corporation.
Toll Bros. of Arizona, Inc., an Arizona corporation.
Toll Bros. of North Carolina, Inc., a North Carolina corporation.
Toll Bros. of Texas, Inc., a Texas corporation.
Toll CA GP Corp., a California corporation.
Toll Corp., a Delaware corporation.
Toll FL GP Corp., a Florida corporation.
Toll Holdings, Inc., a Delaware corporation.
Toll Land Corp. No. 6, a Pennsylvania corporation.
Toll Land Corp. No. 10, a Delaware corporation.
Toll Land Corp. No. 20, a Delaware corporation.
Toll Land Corp. No. 25, a Delaware corporation.
Toll Land Corp. No. 43, a Delaware corporation.
Toll Land Corp. No. 45, a Delaware corporation.
Toll Land Corp. No. 46, a Delaware corporation.
Toll Land Corp. No. 47, a Delaware corporation.
Toll Land Corp. No. 48, a Delaware corporation.
Toll Land Corp. No. 49, a Delaware corporation.
Toll Land Corp. No. 50, a Delaware corporation.
Toll Land Corp. No. 51, a Delaware corporation.
Toll Land Corp. No. 52, a Delaware corporation.
Toll MI GP Corp., a Michigan corporation.
Toll NV GP Corp., a Nevada corporation.
Toll NC GP Corp., a North Carolina corporation.
Toll OH GP Corp., an Ohio corporation.
Toll PA GP Corp., a Pennsylvania corporation.
Toll Peppertree, Inc., a New York corporation.
Toll Philmont Corporation, a Delaware corporation.
Toll TN GP Corp., a Tennessee corporation.
Toll TX GP Corp., a Delaware corporation.
Toll VA GP Corp., a Delaware corporation.
Toll Wood Corporation, a Delaware corporation.
Toll YL, Inc., a California corporation.
Warren Chase, Inc., a Delaware corporation.
Westminster Abstract Company, a Pennsylvania corporation.
Westminster Mortgage Corporation, a Delaware corporation.
Westminster Security Company, a New Jersey corporation.
Windsor Development Corp., a Pennsylvania corporation.
<PAGE>
B. Wholly-owned partnerships
Afton Chase, L.P., a Pennsylvania limited partnership.
Alexandria Hunt, L.P., a New Jersey limited partnership
Audubon Ridge, L.P., a Pennsylvania limited partnership.
BBCC Golf, L.P., a Pennsylvania limited partnership.
Beaumont Chase, L.P., a Pennsylvania limited partnership.
Belmont Country Club, L.P., a Virginia limited partnership.
Belmont Land, L.P., a Virginia limited partnership.
Bennington Hunt, L.P., a New Jersey limited partnership.
Bernards Chase, L.P., a New Jersey limited partnership.
Binks Estates Limited Partnership, a Florida limited partnership.
The Bird Estate Limited Partnership, a Massachusetts limited partnership.
Blue Bell Country Club, L.P., a Pennsylvania limited partnership.
Branchburg Ridge, L.P., a New Jersey limited partnership.
Brandywine River Estates, L.P., a Pennsylvania limited partnership.
Brass Castle Estates, L.P., a New Jersey limited partnership.
Bridle Estates, L.P., a Pennsylvania limited partnership.
Buckingham Woods, L.P., a Pennsylvania limited partnership.
Bucks County Country Club, L.P., a Pennsylvania limited partnership.
CC Estates Limited Partnership, a Massachusetts limited partnership.
Calabasas View, L.P., a California limited partnership.
Camden Forest Limited Partnership, a North Carolina limited partnership.
Charlestown Hills, L.P., a New Jersey limited partnership.
Chesterbrooke Limited Partnership, a New Jersey limited partnership.
Chesterfield Hunt, L.P., a New Jersey limited partnership.
Cobblestones at Thornbury, L.P., a Pennsylvania limited partnership.
Cold Spring Hunt, L.P., a Pennsylvania limited partnership.
Coleman-Toll Limited Partnership, a Nevada limited partnership.
Conant Valley Estates, L.P., a New York limited partnership.
Concord Chase, L.P., a Pennsylvania limited partnership.
Cortlandt Chase, L.P., a New York limited partnership.
Creek Road Facility, L.P., a Pennsylvania limited partnership.
Crosswicks Chase, L.P., a New Jersey limited partnership.
Delray Limited Partnership, a Florida limited partnership.
Dolington Estates, L.P., a Pennsylvania limited partnership.
Eagle Farm Limited Partnership, a Massachusetts limited partnership.
Edmunds-Toll Limited Partnership, an Arizona limited partnership.
Eldorado Country Estates, L.P., a Texas limited partnership.
Estates at Autumnwood, L.P., a Delaware limited partnership.
The Estates at Brooke Manor Limited Partnership, a Maryland limited
partnership.
The Estates at Century Oak, L.P., a Virginia limited partnership.
Estates at Coronado Pointe, L.P., a California limited partnership.
The Estates at Potomac Glen Limited Partnership, a Maryland limited
partnership.
Estates at Princeton Junction, L.P., a New Jersey limited partnership.
Estates at Rivers Edge, L.P., a Pennsylvania limited partnership.
Estates at San Juan Capistrano, L.P., a California limited partnership.
Estates at Shore Oaks, L.P., a New Jersey limited partnership.
The Estates at Summit Chase, L.P., a California limited partnership.
Fair Oaks Hunt, L.P., a Virginia limited partnership.
Fairfax Station Hunt, L.P., a Virginia limited partnership.
Fairfield Chase Limited Partnership, a Connecticut limited partnership.
Fairway Mews Limited Partnership, a New Jersey limited partnership.
Farmwell Hunt, L.P., a Virginia limited partnership.
Franklin Chase Limited Partnership, a Massachusetts limited partnership.
Franklin Farms Limited Partnership, a Massachusetts limited partnership.
Franklin Oaks Limited Partnership, a Massachusetts limited partnership.
Freehold Chase, L.P., a New Jersey limited partnership.
Great Falls Hunt, L.P., a Virginia limited partnership.
Greens at Waynesborough, L.P., a Pennsylvania limited partnership.
Greenwich Chase, L.P., a New Jersey limited partnership.
Greenwich Station, L.P., a New Jersey limited partnership.
Holland Ridge, L.P., a New Jersey limited partnership.
Holliston Hunt Limited Partnership, a Massachusetts limited partnership.
Hopewell Hunt, L.P., a New Jersey limited partnership.
Huckins Farm Limited Partnership, a Massachusetts limited partnership
Hunter Mill, L.P., a Virginia limited partnership.
Hunterdon Chase, L.P., a New Jersey limited partnership.
Huntington Estates Limited Partnership, a Connecticut limited partnership.
Hurley Ridge Limited Partnership, a Maryland limited partnership.
Independence Hill, L.P., a New Jersey limited partnership.
Kensington Woods Limited Partnership, a Massachusetts limited partnership.
Knolls of Birmingham, L.P., a Pennsylvania corporation.
Lakeridge, L.P., a Pennsylvania limited partnership.
Lakeway Hills Properties, L.P., a Texas limited partnership.
Laurel Creek, L.P., a New Jersey limited partnership.
Mallard Lakes, L.P., a Texas limited partnership.
Manalapan Hunt, L.P., a New Jersey limited partnership.
Marshallton Chase, L.P.. a Pennsylvania limited partnership.
Mercer Land, L.P., a Virginia limited partnership.
Mill Road Estates, L.P., a Pennsylvania limited partnership.
Montgomery Chase, L.P., a New Jersey limited partnership.
Montgomery Crossing, L.P., a New Jersey limited partnership.
Mongomery Oaks, L.P., a New Jersey limited partnership.
Moorestown Hunt, L.P., a New Jersey limited partnership.
Mount Kisco Chase, L.P., a New York limited partnership.
NC Country Club Estates Limited Partnership, a North Carolina limited
partnership.
Newtown Chase Limited Partnership, a Connecticut limited partnership.
Northampton Crest, L.P., a Pennsylvania limited partnership.
Norwalk Hunt Limited Partnership, a Connecticut limited partnership.
Pickering Hill Farms, L.P., a Pennsylvania limited partnership.
The Preserve Limited Partnership, a North Carolina limited partnership.
The Preserve at Annapolis Limited Partnership, a Maryland limited partnership.
Preserve at Boca Raton Limited Partnership, a Florida limited partnership.
Preston Village Limited Partnership, a North Carolina limited partnership.
Princeton Hunt, L.P., a New Jersey limited partnership.
Providence Limited Partnership, a North Carolina limited partnership.
Providence Hunt, L.P., a Pennsylvania limited partnership.
Providence Plantation Limited Partnership, a North Carolina limited
partnership.
River Crossing, L.P., a Pennsylvania limited partnership.
Rolling Greens, L.P., a New Jersey limited partnership.
Rose Hollow Crossing Associates, a Pennsylvania limited partnership.
Rose Tree Manor, L.P., a Pennsylvania limited partnership.
Salem Chase, L.P., a New York limited partnership.
Seaside Estates Limited Partnership., a Florida limited partnership.
Shell-Toll YL, L.P., a California limited partnership.
Shrewsbury Hills Limited Partnership, a Massachusetts limited partnership.
Shrewsbury Hunt Limited Partnership, a Massachusetts limited partnership.
Somers Chase, L.P., a New York limited partnership.
Somerset Development Limited Partnership, a North Carolina limited
partnership.
Southlake Woods, L.P., a Texas limited partnership.
Southport Landing Limited Partnership, a Connecticut limited partnership.
Springton Pointe, L.P., a Pennsylvania limited partnership.
Stoney Ford Estates, L.P., a Pennsylvania limited partnership.
Suncoast Properties, L.P., a California limited partnership.
TBB, L.P., a Pennsylvania limited partnership.
TBI Belmont, L.P., a Pennsylvania limited partnership.
TBI Laurel Creek, L.P., a Pennsylvania limited partnership.
TBI/Heron Bay Limited Partnership, a Florida limited partnership.
TBI/Naples Limited Partnership, a Florida limited partnersh
TBI/Palm Beach Limited Partnership, a Florida limited partnership.
Tenby Hunt, L.P., a Delaware limited partnership.
Thornbury Knoll, L.P., a Pennsylvania limited partnership.
Thornbury Treatment Plant, L.P., a Pennsylvania limited partnership.
Toll at Daventry Park, L.P., an Ohio limited partnership.
Toll at Payne Ranch, L.P., a California limited partnership.
Toll at Potomac Woods L.P., a Virginia limited partnership.
Toll at Princeton Walk, L.P., a New Jersey limited partnership.
Toll at Whippoorwill, L.P., a New York limited partnership.
Toll Land Limited Partnership, a Connecticut limited partnership.
Toll Land II Limited Partnership, a New Jersey limited partnership.
Toll Land III Limited Partnership, a Delaware limited partnership.
Toll Land IV Limited Partnership, a New Jersey limited partnership.
Toll Land V Limited Partnership, a New York limited partnership.
Toll Land VI Limited Partnership, a New York limited partnership.
Toll Land VII Limited Partnership, a New York limited partnership.
Toll Land VIII Limited Partnership, a New York limited partnership.
Toll Land XI Limited Partnership, a New Jersey limited partnership.
Toll Land XII Limited Partnership, a New York limited partnership.
Toll Land XIII Limited Partnership, a New York limited partnership.
Toll Land XIV Limited Partnership, a New York limited partnership.
Toll Land XV Limited Partnership, a Virginia limited partnership.
Toll Land XVI Limited Partnership, a New Jersey limited partnership.
Toll Land XVII Limited Partnership, a Connecticut limited partnership.
Toll Land XVIII Limited Partnership, a Connecticut limited partnership.
Toll Land XIX Limited Partnership, a California limited partnership.
Toll Land XX Limited Partnership, a California limited partnership.
Toll Land XXI Limited Partnership, a Virginia limited partnership.
Toll Land XXII Limited Partnership, a California limited partnership.
Toll Land XXIII Limited Partnership, a California limited partnership.
Toll Land XXIV Limited Partnership, a Virginia limited partnership.
Toll Land XXV Limited Partnership, a New Jersey limited partnership.
Toll Land XXVI Limited Partership, an Ohio limited partnership.
Toll Naval Associates, a Pennsylvania general partnership.
Toll Northville Limited Partnership, a Michigan limited partnership.
Toll Northville Golf Limited Partnership, a Michigan limited partnership.
Toll Peppertree, L.P., a New York limited partnership.
Trumbull Hunt Limited Partnership, a Connecticut limited partnership.
Uwchlan Woods, L.P., a Pennsylvania limited partnership.
Valley Forge Woods, L.P., a Pennsylvania limited partnership.
Valley View Estates Limited Partnership, a Massachusetts limited partnership.
Warwick Chase, L.P., a Pennsylvania limited partnership.
Washington Greene Development, L.P., a New Jersey limited partnership.
West Amwell Limited Partnership, a New Jersey limited partnership.
Whiteland Woods, L.P., a Pennsylvania limited partnership.
Whitford Ridge, L.P., a Pennsylvania limited partnership.
Wichita Chase, L.P., a Texas limited partnership.
Willowdale Crossing, L.P., a Pennsylvania limited partnership.
Wilson Concord, L.P., a Tennessee limited partnership.
Wilton Hunt Limited Partnership, a Connecticut limited partnership.
Woodbury Estates, L.P., a New Jersey limited partnership.
The Woods at Highland Lakes, L.P., an Ohio limited partnership.
The Woods at Long Valley, L.P., a New Jersey limited partnership.
The Woods at Muddy Branch Limited Partnership, a Maryland limited partnership.
Wrightstown Hunt, L.P., a Pennsylvania limited partnership.
Yardley Estates, L.P., a Pennsylvania limited partnership.
C. Finance partnerships.
Toll Brothers Finance Co., a New Jersey general partnership.
TBI Finance Co. II, a New Jersey general partnership.
D. Business trust.
First Brandywine Business Trust, a Delaware business trust.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000794170
<NAME> TOLL BROTHERS, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 147,575
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 921,595
<CURRENT-ASSETS> 0
<PP&E> 34,059
<DEPRECIATION> 18,985
<TOTAL-ASSETS> 1,118,626
<CURRENT-LIABILITIES> 0
<BONDS> 319,924
<COMMON> 343
0
0
<OTHER-SE> 384,909
<TOTAL-LIABILITY-AND-EQUITY> 1,118,626
<SALES> 968,253
<TOTAL-REVENUES> 971,660
<CGS> 748,323
<TOTAL-COSTS> 834,624
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,390
<INCOME-PRETAX> 107,646
<INCOME-TAX> 39,799
<INCOME-CONTINUING> 67,847
<DISCONTINUED> 0
<EXTRAORDINARY> (2,772)
<CHANGES> 0
<NET-INCOME> 65,075
<EPS-PRIMARY> 1.86
<EPS-DILUTED> 1.78
</TABLE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No.33-60180) pertaining to the Amended and Restated Stock Option
Plan (1986), the Registration Statement (Form S-8 No. 33-16250) pertaining to
the Amended and Restated Stock Purchase Plan, The Registration Statement
(Form S-8 No. 33-60285) pertaining to the Key Executives and Non-Employees
Directors Stock Option Plan (1993), as amended, the Registration Statement
(Form S-8 No. 33-60289) pertaining to the Stock Option and Incentive Stock
Plan (1995), the Registration Statements (Form S-3 No. 33-51775 and No.
33-51775-01) and the Registration Statements (Form S-3 No.333-38347
and No. 333-38347-01) and related Prospectus of Toll Brothers, Inc. of our
report dated December 9, 1997, with respect to the consolidated financial
statements and schedule of Toll Brothers, Inc.included in the Annual Report
(Form 10-K) for the year ended October 31, 1997, filed with the Securities
and Exchange Commission.
Philadelphia, Pennsylvania
January 9, 1998
/s/ Ernst & Young LLP
Joint Resolutions Adopted by
the Board of Directors
of
Toll Corp.
and by
the Shelf Terms Committee
of
Toll Brothers, Inc.
As of September 16, 1997
Relating to $100,000,000 Principal Amount of
7 3/4% Senior Subordinated Notes
of Toll Corp. due 2007 and
Guaranteed on a Senior Subordinated Basis by Toll Brothers, Inc.
WHEREAS, Toll Brothers, Inc. (the "Guarantor") and Toll
Corp. (the "Company") previously filed a Registration Statement
on Form S-3 (File Nos. 33-51775 and 33-51775-01) with the
Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"), relating to the
"shelf registration" of the Guarantor's Common Shares, Preferred
Shares, and Guarantees and the Company's Debt Securities for a
proposed public offering or offerings in the aggregate amount up to
$250,000,000 (the "Shelf Registration Statement"); and
WHEREAS, in January 1994, the Company sold $57,500,000
principal amount of 4 3/4% Convertible Senior Subordinated Notes
of the Company, guaranteed on a senior subordinated basis by the
Guarantor pursuant to the Shelf Registration Statement.
WHEREAS, in November 1996, the Company sold
$100,000,000 principal amount of 8 3/4% Senior Subordinated
Notes of the Company, guaranteed on a senior subordinated basis
by the Guarantor pursuant to the Shelf Registration Statement.
WHEREAS, Rule 462(b) under the Act permits registration of
additional securities in an amount and at a price that together
represent no more than 20% of the maximum aggregate offering
price set forth for each class of securities in the cover page table
contained in the Shelf Registration Statement, by means of the filing
of a short form new registration statement on Form S-3 ("Rule
462(b) Registration Statement").
<PAGE>
WHEREAS, in September 1997, the Guarantor and the
Company filed a Rule 462(b) Registration Statement registering
additional securities in an aggregate amount up to $18,500,000,
representing 20% of the maximum aggregate amount of securities
remaining on the Shelf Registration Statement.
WHEREAS, the Company and the Guarantor desire to sell
$100,000,000 principal amount of a new series of Senior
Subordinated Notes of the Company, guaranteed on a senior
subordinated basis by the Guarantor (the "Securities"), pursuant to
the Shelf Registration Statement and the Rule 462(b) Registration
Statement.
NOW, THEREFORE, BE IT RESOLVED, that the Board of
Directors of the Company (the "Toll Board") and the Shelf Terms
Committee of the Board of Directors of the Guarantor (the "Shelf
Committee") hereby approve the establishment and the issuance of
the Securities to be issued as a series pursuant to an Indenture,
dated as of November 12, 1996, among the Company, as the issuer,
the Guarantor, as the Guarantor, and NBD Bank, a Michigan
banking corporation, as Trustee (the "Trustee"), (the "Base
Indenture"), in the form included as Exhibit 4.1 to the Current
Report on Form 8-K of the Guarantor, filed with the Commission
on November 15, 1996, as the same is supplemented by these
resolutions.
RESOLVED, FURTHER, that the Toll Board and the Shelf
Committee hereby approve the following terms and provisions
which shall supplement the terms and provisions of the Base
Indenture (said supplemented terms and provisions and the Base
Indenture are hereinafter collectively referred to as the "Indenture"
and each reference herein to the "Indenture" is a reference to the
Base Indenture as the same is supplemented by the terms and
provisions of these joint resolutions):
Paragraph 1. The title of the Securities shall be "7 3/4%
Senior Subordinated Notes due 2007".
Paragraph 2. The aggregate principal amount at maturity
of the Securities which may be authenticated and delivered under
the Indenture shall be $100,000,000 (except for any Securities
authenticated and delivered upon registration of the transfer of, or
in exchange for, or in lieu of other Securities pursuant to the terms
of the Indenture). The Securities will be issued only in registered
form in denominations of $1,000 and integral multiples thereof.
Paragraph 3. The principal amount of the Securities is due
and payable in full on September 15, 2007, subject to earlier
redemption as referred to in the Indenture.
Paragraph 4. The Securities shall bear interest at the rate
of 7 3/4% per annum (computed on the basis of a 360-day year of
twelve 30-day months), from September 22, 1997 to maturity or
early redemption; and interest will be payable semi-annually on
March 15 and September 15 in each year, commencing March 15,
1998, to the persons in whose name such Securities are registered
at the close of business on the March 1 or September 1, as the case
may be, preceding such interest payment date.
<PAGE>
Paragraph 5. The Securities are redeemable, in whole or in
part from time to time on or after September 15, 2002 and prior to
maturity, at the option of the Company upon not less than 30 nor
more than 60 days' notice mailed by first-class mail to each Holder
of record at such Holder's last address as it appears on the
registration books of the Registrar. Redemption of the Securities
made at the election of the Company shall be made at the following
respective redemption prices (expressed as a percentage of principal
amount), plus accrued and unpaid interest to the redemption date, if
redeemed during the 12-month period beginning September 15 of
the years indicated:
Year Percentage
2002 103.875%
2003 102.583%
2004 101.292%
2005 and thereafter 100.000%
Paragraph 6. Principal of and interest on the
Securities shall be payable in accordance with Section 4.01 of the
Indenture.
Paragraph 7. The Securities shall not be
convertible into the Company's or the Guarantor's Common Stock.
Paragraph 8. The payment of the principal of,
premium, if any, and interest on the Securities is subordinated in
right of payment, in the manner and to the extent set forth in the
Indenture, to the prior payment in full of all senior indebtedness of
the Company (referred to in the Indenture as "Senior Indebtedness
of the Company" and as further defined herein) whether
outstanding on the date of the Indenture or thereafter created,
incurred, assumed or guaranteed. The term "Senior Indebtedness
of the Company" as used in the Indenture shall mean: (i) the
principal of, premium, if any, and interest on any indebtedness,
whether outstanding on the date of the Indenture or thereafter
created, incurred, assumed or guaranteed by the Company, (a)
under the Revolving Credit Agreement (as defined in the
Indenture), (b) for money borrowed from others (including, for this
purpose, all obligations incurred under capitalized leases or
purchase money mortgages or under letters of credit or similar
commitments), or (c) in connection with the acquisition by it of any
other business, property or entity and, in each case, all renewals,
extensions and refundings thereof, unless the terms of the
instrument creating or evidencing such indebtedness expressly
provide that such indebtedness is not superior in right of payment
to the payment of the principal of, premium, if any, and interest on
the Securities. Senior Indebtedness of the Company, as such term
is used in the Indenture, shall not include (a) indebtedness or
amounts owed for compensation to employees, for goods or
materials purchased in the ordinary course of business, or for
services, (b) indebtedness of the Company to the Guarantor or any
Subsidiary for money borrowed or advances from such entities, (c)
the Company's 8 3/4% Senior Subordinated Notes due 2006
(which shall rank pari passu in right of payment with the
Securities), (d) the Company's 9 1/2% Senior Subordinated Notes
due 2003 (which shall rank pari passu in right of payment with the
Securities), (e) the Company's 4 3/4% Convertible Senior
Subordinated Notes due 2004 (which shall rank pari passu in right
<PAGE>
of payment with the Securities), and (f) the Securities. For
purposes hereof, a "capitalized lease" shall be deemed to mean a
lease of real or personal property which, in accordance with
generally accepted accounting principles, has been capitalized.
Paragraph 9. The payment of the principal of,
premium, if any, and interest on the Securities pursuant to the
Guarantee (as such term is defined in the Indenture) will be
subordinated in right of payment, in the manner and to the extent
set forth in the Indenture, to the prior payment in full of all senior
indebtedness of the Guarantor (referred to in the Indenture as
"Senior Indebtedness of the Guarantor" and as further defined
herein), whether outstanding on the date of the Indenture or
thereafter created, incurred, assumed or guaranteed. The term
"Senior Indebtedness of the Guarantor" as used in the Indenture
shall mean: (i) the principal of, premium, if any, and interest on
any indebtedness, whether outstanding on the date of the Indenture or
thereafter created, incurred, assumed or guaranteed by the
Guarantor, (a) under the Revolving Credit Agreement, or (b) for
money borrowed from others (including, for this purpose, all
obligations incurred under capitalized leases or purchase money
mortgages or under letters of credit or similar commitments), or (c)
in connection with the acquisition by it of any other business,
property or entity, and, in each case, all renewals, extensions and
refundings thereof, unless the terms of the instrument creating or
evidencing such indebtedness expressly provide that such
indebtedness is not superior in right of payment to the payment of
the Securities pursuant to the Guarantee. Senior Indebtedness of
the Guarantor, as such term is used in the Indenture, shall not
include (a) the Guarantee, (b) indebtedness of the Guarantor to any
Subsidiary for money borrowed or advances from such Subsidiary,
(c) the Guarantor's guarantee of the Company's 8 3/4% Senior
Subordinated Notes due 2006 (which shall rank pari passu in right
of payment with the Guarantee), (d) the Guarantor's guarantee of
the Company's 9 1/2% Senior Subordinated Notes due 2003 (which
shall rank pari passu in right of payment with the Guarantee) and
(e) the Guarantor's guarantee of the Company's 4 3/4%
Convertible Senior Subordinated Notes due 2004 (which shall rank
pari passu in right of payment with the Guarantee). For purposes
hereof, a "capitalized lease" shall be deemed to mean a lease of real
or personal property which, in accordance with generally accepted
accounting principles, has been capitalized.
Paragraph 10. As used in the Indenture, the
following terms shall have the respective meanings set forth below:
"Consolidated Adjusted Net Worth" of the
Guarantor means the Consolidated Net Worth of the Guarantor less
the stockholders' equity of each of the Unrestricted Subsidiaries, as
determined in accordance with generally accepted accounting
principles.
"Consolidated Fixed Charge Ratio" of the Guarantor
means the ratio of (i) the aggregate amount of Consolidated Net
Income Available for Fixed Charges of such Person for the four
fiscal quarters for which financial information in respect thereof is
available immediately prior to the date of the transaction giving rise
to the need to calculate the Consolidated Fixed Charge Ratio (the
"Transaction Date") to (ii) the aggregate Consolidated Interest
Expense of such Person for the four fiscal quarters for which
financial information in respect thereof is available immediately
prior to the Transaction Date.
<PAGE>
"Consolidated Income Tax Expense" of the
Guarantor means, for any period for which the determination
thereof is to be made, the aggregate of the income tax expense of
the Guarantor and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with generally
accepted accounting principles.
"Consolidated Interest Expense" of the Guarantor
means, for any period for which the determination thereof is to be
made, the Interest Expense of the Guarantor and its Restricted
Subsidiaries for such period, determined on a consolidated basis in
accordance with generally accepted accounting principles.
"Consolidated Net Adjusted Income" of the
Guarantor means, for any period for which the determination
thereof is to be made taken as one accounting period, the aggregate
Consolidated Net Income of the Guarantor and its Subsidiaries
determined on a consolidated basis in accordance with generally
accepted accounting principles, adjusted by excluding (to the extent
not otherwise excluded in calculating Consolidated Net Income)
any net extraordinary gain or any net extraordinary loss, as the case
may be, during such period.
"Consolidated Net Income" for any period means
the aggregate of the Net Income of the Guarantor and its
consolidated subsidiaries for such period, on a consolidated basis,
determined in accordance with generally accepted accounting
principles, provided that (i) the Net Income of any person in which
the Guarantor or any consolidated Subsidiary has a joint interest
with the third party or which is organized outside of the United
States shall be included only to the extent of the lesser of (A) the
amount of dividends or distributions paid to the Guarantor or a
consolidated subsidiary or (B) the Guarantor's direct or indirect
proportionate interest in the Net Income of such Person, provided
that, so long as the Guarantor or a consolidated subsidiary has an
unqualified legal right to require the payment of a dividend or
distribution, Net Income shall be determined solely pursuant to
clause (B); (ii) the Net Income of any Person acquired in a pooling
of interests transaction for any period prior to the date of such
acquisition shall be excluded, and (iii) the Net Income of any
Unrestricted Subsidiary shall be included only to the extent of the
amount of dividends or distributions (the fair value of which, if
other than in cash, to be determined by the Board of Directors, in
good faith) by such Subsidiary to the Guarantor or to any of its
consolidated Restricted Subsidiaries.
"Consolidated Net Income Available for Fixed Charges"
means, for any period for which the determination thereof
is to be made, the sum of the amounts for such period of (i)
Consolidated Net Adjusted Income, (ii) Consolidated Interest
Expense (excluding capitalized interest) and (iii) Consolidated
Income Tax Expense, all as determined on a consolidated basis for
the Guarantor and its Subsidiaries in conformity with generally
accepted accounting principles.
<PAGE>
"Designated Senior Debt of the Guarantor" means
any single issue of Indebtedness of the Guarantor constituting
Senior Indebtedness of the Guarantor which at the time of
determination has an aggregate principal amount outstanding of at
least $25,000,000 and is specifically designated in the instrument or
instruments creating, governing or evidencing such Senior
Indebtedness of the Guarantor as "Designated Senior Debt of Toll
Brothers, Inc." (it being understood that the Guarantor's guarantee
of the Revolving Credit Agreement shall be considered a single
issue of Indebtedness of the Guarantor for purposes of this
definition).
"Designated Senior Debt of the Company" means
any single issue of Indebtedness of the Company constituting
Senior Indebtedness of the Company which at the time of
determination has an aggregate principal amount outstanding of at
least $25,000,000 and is specifically designated in the instrument or
instruments creating, governing or evidencing such Senior
Indebtedness of the Company as "Designated Senior Debt of Toll
Corp." (it being understood that the Company's guarantee of the
Revolving Credit Agreement shall be considered a single issue of
Indebtedness of the Company for purposes of this definition).
"Excluded Debt" means any Indebtedness of the
Guarantor and any Indebtedness or preferred stock of the
Company, whether outstanding on the date of the Indenture or
thereafter created, which is (i) subordinated in right of payment to
the Securities or the Guarantee (upon liquidation or otherwise) and
(ii) matures after, and is not redeemable, mandatorily or at the
option of the holder thereof prior to the date of maturity of the
Securities.
"Indebtedness," for the purpose of the covenants
described in Sections 4.07 and 4.08, and certain definitions, means
without duplication (i) any liability of any Person (a) for borrowed
money or evidenced by a bond, note, debenture or similar
instrument (including a purchase money obligation) given in
connection with the acquisition of any businesses, properties or
assets of any kind (other than a trade payable or current liability
arising in the ordinary course of business) to the extent it would
appear as a liability upon a balance sheet of such Person prepared
on a consolidated basis in accordance with generally accepted
accounting principles, or (b) for the payment of money relating to a
capitalized lease obligation; (ii) any liability of any Person under
any obligation incurred under letters of credit; and (iii) any
liability of others described in clause (i) or (ii) with respect to
which such Person has made a guarantee or similar arrangement,
directly or indirectly (to the extent of such guarantee or
arrangement).
"Interest Expense" of any Person means, for any
period for which the determination thereof is to be made, the sum
of the aggregate amount of (i) interest in respect of indebtedness
(including all commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance
financing), (ii) all but the principal component of rentals in respect
of capitalized lease obligations, paid, accrued or scheduled to be
paid or accrued by such Person during such period and (iii)
capitalized interest, all as determined in accordance with generally
accepted accounting principles, minus (iv) interest expense
attributable to such Person's directly or indirectly majority-owned
mortgage finance Affiliates.
<PAGE>
"Net Income" of any Person means the net income
(loss) of such Person, determined in accordance with generally
accepted accounting principles; excluding, however, from the
determination of Net Income all gain (to the extent that it exceeds
all losses) realized upon the sale or other disposition (including,
without limitation, dispositions pursuant to sale leaseback
transactions) of any real property or equipment of such Person,
which is not sold or otherwise disposed of in the ordinary course of
business, or of any capital stock of such Person or its subsidiaries
owned by such Person.
"Restricted Subsidiary" means any Subsidiary that is
not an Unrestricted Subsidiary.
"Unrestricted Subsidiary" means (a) any Subsidiary
which, in accordance with the provisions of the Indenture, has been
designated in a Board Resolution of the Guarantor as an
Unrestricted Subsidiary, in each case unless and until such
Subsidiary shall, in accordance with the provisions of the Indenture,
be designated by Board Resolution as a Restricted Subsidiary; and
(b) any Subsidiary a majority of the voting stock of which shall at
the time be owned directly or indirectly by one or more
Unrestricted Subsidiaries.
"Unrestricted Subsidiary Investment" means any
loan, advance, capital contribution or transfer (including by way of
guarantee or other similar arrangement) in or to any Unrestricted
Subsidiary. For the purposes of the covenant described in Section
4.04, (i) "Unrestricted Subsidiary Investment" shall include the fair
market value of the net assets of any Subsidiary at the time that
such Subsidiary is designated an Unrestricted Subsidiary and (ii)
any property transferred to an Unrestricted Subsidiary shall be
valued at a fair market value at the time of such transfer, in each
case as determined by the Board of Directors of the Guarantor in
good faith. "Unrestricted Subsidiary Investment" does not include
the fair market value of the net assets of an Unrestricted Subsidiary
that is designated as a Restricted Subsidiary (as determined by the
Board of Directors of the Guarantor in good faith), provided that
such designation is then permitted pursuant to the terms of the
Indenture.
Capitalized terms not otherwise defined herein shall
have the meanings given to them in the Indenture.
Paragraph 11. The Securities shall be entitled to
the benefit of each of the covenants in Article 4 of the Base
Indenture and each of the following additional covenants (each of
which shall be deemed to be a provision of the Indenture and, when
referred to as a provision of the Indenture, shall be identified by
reference to the Section number which is set forth immediately
preceding such covenant):
<PAGE>
Section 4.04. Limitation on Restricted Payments.
The Guarantor may not declare or pay any dividend or make any
distribution or payment on its Capital Stock or to its shareholders,
as shareholders (other than dividends or distributions payable in its
Capital Stock), or purchase, redeem or otherwise acquire or retire
for value, or permit any Restricted Subsidiary to purchase or
otherwise acquire for value, any Capital Stock of the Guarantor
(collectively, "Restricted Payments"), or make or permit any
Restricted Subsidiary to make (I) any loan, advance, capital
contribution or transfer other than for fair market value (as
determined by a majority of the disinterested members of the Board
of Directors of the Guarantor or the relevant Restricted Subsidiary,
which shall be evidenced by a written resolution of such Board of
Directors) in or to any Affiliate (which term does not include joint
ventures (whether in corporate, partnership or other form) with an
unaffiliated party or parties) other than a Restricted Subsidiary or
the Guarantor or (II) any Unrestricted Subsidiary Investment
(collectively, "Restricted Investments"), if, at the time of such
Restricted Payment or Restricted Investment, or after giving effect
thereto, (i) a Default or an Event of Default shall have occurred and
be continuing, or (ii) the sum of (x) the aggregate amount expended
for such Restricted Payments (the amount expended for such
purposes, if other than in cash, to be determined by the Board of
Directors of the Guarantor, whose determination shall be
conclusive and evidenced by a resolution of such Board of
Directors filed with the Trustee) subsequent to October 31, 1991,
and (y) the amount by which the aggregate book value of all
property (net of any previous write-downs or reserves in respect of
such property) subject to Non-Recourse Indebtedness which has
been accelerated or is in default is in excess of such Non-Recourse
Indebtedness and (z) the aggregate amount of Restricted
Investments then outstanding, shall exceed the sum of (a) 50% of
the aggregate Consolidated Net Income (or, in case such aggregate
Consolidated Net Income shall be a deficit, minus 100% of such
deficit) of the Guarantor accrued on a cumulative basis subsequent
to October 31, 1991, and (b) the aggregate net proceeds, including
the fair market value of property other than cash (as determined by
the Board of Directors of the Guarantor, whose determination shall
be conclusive and evidenced by a resolution of such Board of
Directors filed with the Trustee), received by the Guarantor from
the issue or sale after October 31, 1991 of Capital Stock of the
Guarantor, including capital stock of the Guarantor issued upon the
conversion of indebtedness of the Guarantor, other than Capital
Stock that is redeemable at the option of the holder or is
mandatorily redeemable and (c) $20,000,000, or (iii) the Guarantor
would be unable to incur an additional $1.00 of Indebtedness (other
than Excluded Debt) pursuant to Section 4.07; provided, however,
that the foregoing shall not prevent (A) the payment of any
dividend within 60 days after the date of declaration thereof, if at
said date of declaration the making of such payment would have
complied with the provisions hereof, (B) the retirement of any
shares of the Guarantor's Capital Stock by exchange for, or out of
proceeds of the substantially concurrent sale of, other shares of its
Capital Stock (other than Capital Stock that is redeemable at the
option of the holder or is mandatorily redeemable), or (C) the
payment or advance of cash compensation or any compensation
pursuant to or in connection with any employee benefit plan of the
Guarantor and the Subsidiaries paid or payable to any person in his
or her capacity as an employee, officer or director, and neither such
retirement nor the proceeds of any such sale or exchange nor the
payment or advance of any such compensation shall be included in
any computation made under clause (ii) of this Section 4.04.
<PAGE>
Section 4.05. Limitation on Restrictions on
Payment of Dividends by Subsidiaries. The Guarantor will not,
and will not permit any Subsidiary to, enter into any agreement or
amendment of any existing agreement if such agreement or
amendment would restrict the payment of dividends or the making
of other distributions on any Subsidiary's Capital Stock, provided
that a Subsidiary may enter into such an agreement or amendment
if, immediately prior thereto either (i) (A) the Consolidated Net
Worth of the Guarantor (excluding the Consolidated Net Worth of
such Subsidiary and any other Subsidiaries which have such
agreements) is at least $50,000,000 and (B) the Consolidated Net
Worth of such Subsidiary and any other Subsidiaries which have
such agreements does not account for more than 20% of the
Consolidated Net Worth of the Guarantor (including such
Subsidiary and any other Subsidiaries which have such agreements)
or (ii) the Consolidated Net Worth of the Guarantor (excluding the
Consolidated Net Worth of such Subsidiary and any other
Subsidiaries which have such agreements) is at least $70,000,000.
Section 4.06. Maintenance of Consolidated Net
Worth. If the Consolidated Net Worth of the Guarantor and its
Subsidiaries at the end of any two consecutive fiscal quarters is less
than $55,000,000, then the Guarantor shall cause the Company to
offer to acquire (the "Offer") on the last day of the fiscal quarter
next following such second fiscal quarter, or, if such second fiscal
quarter ends on the last day of the Guarantor's fiscal year, 120 days
following the last day of such second fiscal quarter (the "Purchase
Date") $7,500,000 aggregate principal amount of Securities (or
such lesser amount as may be outstanding at the time, such amount
being referred to as the "Offer Amount") at a purchase price equal
to their principal amount plus accrued and unpaid interest to the
Purchase Date. The Company may credit against its obligation to
offer to repurchase Securities on a Purchase Date the principal
amount of (i) Securities acquired by the Company and surrendered
for cancellation otherwise than pursuant to this Section and (ii)
Securities redeemed or called for redemption, in each case at least
60 days before such Purchase Date. In no event shall the failure to
meet the minimum Consolidated Net Worth stated above at the end
of any fiscal quarter be counted toward the making of more than
one Offer.
The Company shall provide the Trustee with notice
of the Offer at least 60 days before any such Purchase Date and at
least 10 days before the notice of any Offer is mailed to Holders.
The Company shall notify the Trustee promptly after the
occurrence of any of the events specified in this Section.
<PAGE>
Notice of an Offer shall be mailed by the Trustee not
less than 30 days nor more than 60 days before the Purchase Date
to the Holders of the Securities at their last registered address.
The Offer shall remain open from the time of mailing until 5 days
before the Purchase Date. The notice shall be accompanied by a
copy of the information regarding the Guarantor required to be
contained in a Quarterly Report on Form 10-Q for the second fiscal
quarter referred to above if such second fiscal quarter is one of the
Guarantor's first three fiscal quarters. If such second fiscal
quarter is the Guarantor's last fiscal quarter, a copy of the
information required to be contained in an Annual Report to
Shareholders pursuant to Rule 14a-3 under the Exchange Act for the
fiscal year ending with such second fiscal quarter shall either
accompany the notice or be mailed to Holders not less than 15 days
before the Purchase Date. The notice shall contain all instructions
and materials necessary to enable such Holders to tender Securities
pursuant to the Offer. The notice, which shall govern the terms of
the Offer, shall state:
(1) that the Offer is being made pursuant to this
Section 4.06;
(2) the Offer Amount, the purchase price and the
Purchase Date;
(3) that any Security not tendered or accepted
for payment will continue to accrue interest;
(4) that any Security accepted for payment
pursuant to the Offer shall cease to accrue
interest after the Purchase Date;
(5) that Holders electing to have a Security
purchased pursuant to an Offer will be required
to surrender the Security, with the form entitled
"Option of Holder to Elect Purchase" on the
reverse of the Security completed, to the Paying
Agent at the address specified in the notice at
least 5 days before the Purchase Date;
(6) that Holders will be entitled to withdraw
their election if the Paying Agent receives, not
later than three days prior to the Purchase Date,
a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the
principal amount of the Security the Holder
delivered for purchase and a statement that such
Holder is withdrawing his election to have the
Security purchased;
(7) that if Securities in a principal amount in
excess of the Offer Amount are tendered
pursuant to the Offer, the Company shall
purchase Securities on a pro rata basis (with
such adjustments as may be deemed appropriate
by the Company so that only Securities in
denominations of $1,000 or integral multiples of
$1,000 shall be acquired); and
(8) that Holders whose Securities were
purchased only in part will be issued new
Securities equal in principal amount to the
unpurchased portion of the Securities
surrendered.
<PAGE>
Before a Purchase Date the Company shall (i) accept
for payment Securities or portions thereof properly tendered
pursuant to the Offer (on a pro rata basis if required pursuant to
paragraph (7) above), (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Securities or portions
thereof so accepted and (iii) deliver to the Trustee Securities so
accepted together with an Officers' Certificate stating the Securities
or portions thereof accepted for payment by the Company. The
Paying Agent shall promptly mail or deliver to Holders of Securities
so accepted payment in an amount equal to the purchase price, and
the Trustee shall promptly authenticate and mail or deliver to such
Holders a new Security equal in principal amount to any
unpurchased portion of the Security surrendered. Any Securities
not so accepted shall be promptly mailed or delivered by the
Company to the Holder thereof. The Company will publicly
announce the results of the Offer on the Purchase Date. For
purposes of this Section 4.06, the Trustee shall act as the Paying
Agent.
Section 4.07. Limitation on Additional Indebtedness.
The Guarantor will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, incur, issue,
assume, guarantee or in any other manner become liable,
contingently or otherwise, with respect to any Indebtedness (or,
with respect to Restricted Subsidiaries only, any preferred stock)
(whether in liquidation or otherwise) other than Excluded Debt,
unless, after giving effect thereto, either (A) the Consolidated
Fixed Charge Ratio of the Guarantor exceeds 1.5:1 or (B) the ratio of
Indebtedness (and, if applicable, Restricted Subsidiary preferred
stock) of such Persons (excluding, for purposes of this calculation,
purchase money mortgages that are Non-Recourse Indebtedness,
obligations incurred under letters of credit, escrow agreements and
surety bonds in the ordinary course of business, Indebtedness of the
Guarantor's directly or indirectly majority-owned mortgage finance
Affiliates and Excluded Debt) to Consolidated Adjusted Net Worth
of the Guarantor is less than 4.5:1. Notwithstanding the foregoing,
the Guarantor and its Restricted Subsidiaries may incur, issue,
assume, guarantee or otherwise become liable with respect to: (i)
purchase money mortgages that are Non-Recourse Indebtedness,
(ii) obligations incurred under letters of credit, escrow agreements
and surety bonds in the ordinary course of business, (iii)
Indebtedness of the Guarantor's directly or indirectly majority-owned
mortgage finance Affiliates and (iv) Indebtedness solely for
the purpose of refinancing or repaying any existing Indebtedness or
Restricted Subsidiary preferred stock so long as after giving effect
to such refinancing or repayment, the sum of total consolidated
Indebtedness of the Guarantor and its Restricted Subsidiaries and
the aggregate liquidation preference of Restricted Subsidiary
preferred stock is not increased (provided that for purposes of this
subsection 4.07(iv), application of the proceeds from the sale of
assets of the Guarantor or its Restricted Subsidiaries in the ordinary
course of business to reduce Indebtedness or Restricted Subsidiary
preferred stock and the subsequent reborrowing to purchase assets
in the ordinary course of business shall be deemed to be a
refinancing).
Section 4.08. Restrictions on Permitting Restricted
Subsidiaries to Become Unrestricted Subsidiaries and Unrestricted
Subsidiaries to Become Restricted Subsidiaries.
<PAGE>
(a) The Guarantor will not permit any Restricted
Subsidiary to be designated as an Unrestricted Subsidiary unless the
Guarantor and its Restricted Subsidiaries would thereafter be
permitted to (i) incur at least $1.00 of Indebtedness (other than
Excluded Debt) pursuant to Section 4.07 and (ii) make a Restricted
Payment or Restricted Investment of at least $1.00 pursuant to
Section 4.04.
(b) The Guarantor will not permit any Unrestricted
Subsidiary to be designated as a Restricted Subsidiary unless such
Subsidiary has outstanding no Indebtedness except such
Indebtedness as the Guarantor could permit it to become liable for
immediately after becoming a Restricted Subsidiary under the
provisions of Section 4.07.
(c) Promptly after the adoption of any Board
Resolution designating a Restricted Subsidiary as an Unrestricted
Subsidiary or an Unrestricted Subsidiary as a Restricted Subsidiary,
a copy thereof shall be filed with the Trustee, together with a
Officers' Certificate stating that the provisions of this Section have
been complied with in connection with such designation.
(d) The Guarantor will not designate the Company
an Unrestricted Subsidiary.
(e) At the date of this Indenture all of the
Subsidiaries are, and shall be permitted to be, Restricted
Subsidiaries.
Section 4.09. When the Company and the
Guarantor May Merge, Etc. Neither the Company nor the
Guarantor shall consolidate with or merge into, or transfer all or
substantially all of its assets to, any other person unless (i) such
other Person is a corporation organized and existing under the laws
of the United States or a State thereof of the District of Columbia
and expressly assumes by supplemental indenture all the obligations
of the Company or the Guarantor under the Indenture and either
the Securities or the Guarantee, as the case may be; (ii) immediately
after giving effect to such transaction no Default or Event of
Default shall have occurred and be continuing; (iii) the
Consolidated Net Worth of the surviving corporation is equal to or
greater than the Consolidated Net Worth of the Company or the
Guarantor, as the case may be, immediately prior to such merger or
transfer of assets and (iv) the surviving corporation would be able
to incur at least an additional $1.00 of Indebtedness (other than
Excluded Debt) under Section 4.07. Thereafter all such obligations
of a predecessor corporation shall terminate.
Paragraph 12. The Securities shall initially be
represented by one or more global Securities (each a "Global
Security") deposited with the Trustee on behalf of The Depositary
Trust Company ("DTC") and registered in the name of Cede & Co.
or in the name of such other nominee of DTC as is requested by an
authorized representative of DTC. Unless and until a Global
Security registered in the name of DTC or a nominee of DTC is
exchanged in whole or in part for certificated Securities in
<PAGE>
definitive form, such Global Security may not be transferred except
as a whole by DTC to a nominee of DTC or by a nominee of DTC to
DTC or another nominee of DTC. If DTC is at any time unwilling,
unable or ineligible to continue as a depositary for the Securities
and a successor depositary is not appointed by the Company within
90 days, the Company shall cause the Trustee to issue individual
Securities in definitive form in exchange for each Global Security
then registered in the name of DTC or a nominee of DTC. The
Company shall be entitled at any time and in its sole discretion to
determine not to have Global Securities and, in such event, shall
cause the Trustee to issue individual Securities in definitive form in
exchange for each Global Security then representing all such
Securities. In either instance, an owner of a beneficial interest
in a Global Security shall be entitled to physical delivery of
Securities in definitive form equal in principal amount to such
beneficial interest and to have such Securities registered in its
name. Individual Securities so issued in definitive form shall be
issued in denominations of $1,000 and any larger amount that is an
integral multiple of $1,000 and shall be issued in registered form
only, without coupons. In the event a beneficial owner of a Security
represented by a Global Security requests to have such beneficially
owned Security (a "DTC Withdrawn Security") issued in definitive
form in exchange for the beneficial interest in the Global Security
representing the DTC Withdrawn Security, such owner shall be
entitled to physical delivery of a Security in definitive form equal
in principal amount to such DTC Withdrawn Security and to have
such Security registered in its name. Payments of principal of and
interest on a Global Security registered in the name of DTC or a
nominee of DTC shall be made by the Company through the
Trustee to DTC or its nominee, as the case may be, as the
registered owner of such Global Security. If a Global Security is
issued in the name of a depositary other than DTC or such other
depositary's nominee, the terms and provisions of this Paragraph 12
which are applicable to DTC and its nominee shall be applicable to,
and each reference to DTC and its nominee shall be deemed to be a
reference to such other depositary and its nominee, respectively,
with respect to the Global Security registered in the name of such
other depositary or its nominee.
Paragraph 13. Except as otherwise indicated, each
reference herein to a "Paragraph" shall refer to a Paragraph hereof,
and each reference herein to a "Section" shall refer to a Section of
the Indenture.
FURTHER RESOLVED, that the Chairman,
President, Chief Financial Officer, Chief Accounting Officer or
Assistant Vice President and Director of Finance of the Company
(each a "Company Designated Officer"), and the Chairman,
President, Chief Financial Officer, Chief Accounting Officer or
Assistant Vice President and Director of Finance of the Guarantor
(each a "Guarantor Designated Officer" and together with each
Company Designated Officer, each a "Designated Officer"), acting
alone or with any other officer, be and they hereby are, authorized
and empowered, for and on behalf of the Company and the Issuer,
respectively, to execute and deliver the Terms Agreement dated
September 17, 1997 among the Company, the Guarantor and Smith
Barney Inc. (the "Terms Agreement") relating to the issuance and
sale of the Securities.
<PAGE>
FURTHER RESOLVED, that any two of the
Company Designated Officers be, and they hereby are, authorized
and empowered, for and on behalf of the Company, to execute and
deliver a Global Security in the form attached hereto as Attachment
A, in the principal amount of $100,000,000 and payable to Cede &
Co., with such changes thereto as such officers shall approve (the
"Authorized Global Security"), their execution of the Authorized
Global Security to be conclusive evidence of such approval;
FURTHER RESOLVED, that any two of the
Company Designated Officers be, and they hereby are, authorized
and empowered, for and on behalf of the Company, to execute and
deliver certificated Securities in definitive form, in substantially
the same form as the Authorized Global Security, provided, however,
that the legends appearing on the face of the Authorized Global
Security shall not be included in such certificated Securities;
FURTHER RESOLVED, that any two of the
Guarantor Designated Officers be, and they hereby are, authorized
and empowered, for and on behalf of the Guarantor, to execute and
deliver the Guarantee of the Authorized Global Security in the form
of the Guarantee included in Attachment A, with such changes
thereto as such officers shall approve (the "Authorized
Guarantee"), their execution of the Authorized Guarantee to be
conclusive evidence of such approval;
FURTHER RESOLVED, that any two of the
Guarantor Designated Officers be, and they hereby are, authorized
and empowered, for and on behalf of the Guarantor, to execute and
deliver certificated Securities in definitive form, in substantially
the same form as the Authorized Global Security, provided, however,
that the legends appearing on the face of the Authorized Global
Security shall not be included in such certificated Securities;
FURTHER RESOLVED, that the Company
Designated Officers be, and each of them hereby is, authorized and
directed in the name and on behalf of the Company and under its
manual or facsimile seal, and the Guarantor Designated Officers be,
and each of them hereby is, authorized and directed in the name and
on behalf of the Guarantor, to execute, acknowledge and deliver
the Base Indenture; and
FURTHER RESOLVED, that a Designated Officer,
acting alone or with any other officer of the Company or the
Guarantor, as the case may be, be and he hereby is authorized,
empowered and directed with the advice of counsel, for and on
behalf of the Company or the Guarantor, as the case may be, to
prepare, execute and file any other documents, instruments, or
certificates, to perform any acts and to do any and all other things
on behalf of the Company or the Guarantor, as the case may be,
that said officer shall deem appropriate in order to effectuate the
foregoing resolutions and complete and consummate the offering of
the Securities pursuant to the terms of the Terms Agreement and
the Indenture, and to qualify the Securities for sale to the public in
accordance with any law, rule or regulation of any federal or state
governmental body.<PAGE>
<PAGE>
AUTHORIZING RESOLUTIONS
Relating to the $100,000,000 Principal Amount of
7 3/4% Senior Subordinated Notes
Due 2007
of
Toll Corp.
Guaranteed on a Senior Subordinated Basis
by
Toll Brothers, Inc.
______________________________
Approved by the Board of Directors
of Toll Corp.
and the Shelf Terms Committee
of Toll Brothers, Inc.
______________________________
As of September 16, 1997<PAGE>
<PAGE>
ATTACHMENT A
Form of Global Security
<PAGE>
CUSIP No. 889478AB9
THIS SECURITY IS A GLOBAL SECURITY
WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN
THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF.
THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE
OR IN PART FOR A SECURITY REGISTERED, AND NO
TRANSFER OF THIS SECURITY IN WHOLE OR IN PART
MAY BE REGISTERED, IN THE NAME OF ANY PERSON
OTHER THAN SUCH DEPOSITARY OR A NOMINEE
THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE.
Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York
corporation ("DTC"), to Toll Corp., or its agent for registration of
transfer, exchange, or payment, and any certificate issued is
registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or to such other entity as is
requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede &
Co., has an interest herein.
No. 1
TOLL CORP.
promises to pay to Cede & Co.
or registered assigns
the principal sum of One Hundred Million Dollars on September
15, 2007
7 % SENIOR SUBORDINATED NOTE DUE 2007
Interest Payment Dates: March 15 and September 15
Record Dates: March 1 and September 1
Authenticated: Dated: September 22, 1997
TOLL CORP.
[Seal]
By:
Joel H.Rassman
Chief Financial Officer
NBD Bank,
as Trustee, certifies that this
is one of the Securities referred
to in the within mentioned Indenture.
By:
Frederick Cooper
Assistant Vice President
Director of Finance
By:
Authorized Signatory<PAGE>
<PAGE>
(REVERSE OF SECURITY)
TOLL CORP.
7 % SENIOR SUBORDINATED NOTES DUE 2007
1. Interest.
Toll Corp. (the "Company"), a Delaware
corporation, promises to pay interest on the principal amount of
this Security at the rate per annum shown above. The Company
will pay interest semi-annually on September 15 and March 15 of
each year (the "Interest Payment Date"), commencing on March
15, 1998. Interest on the Security will accrue from the most recent
date to which interest has been paid or, if no interest has been paid,
from September 22, 1997, provided that, if there is no existing
default in the payment of interest, and if this Security is
authenticated between a record date referred to on the face hereof
(the "Record Date") and the next succeeding Interest Payment
Date, interest shall accrue from such Interest Payment Date.
Interest will be computed on the basis of a 360-day year of twelve
30-day months.
2. Method of Payment.
The Company will pay interest on the Securities
(except defaulted interest) to the persons who are registered
holders of Securities at the close of business on the Record Date
next preceding the Interest Payment Date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The
Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of
public and private debts. However, the Company may pay principal
and interest by wire transfer or by its check payable in such money.
It may mail an interest check to a holder's registered address.
3. Paying Agent and Registrar.
Initially, NBD Bank, a Michigan banking
corporation (the "Trustee"), will act as Paying Agent and Registrar.
The Company may change any Paying Agent, Registrar or co-registrar
without notice. The Company or any of its subsidiaries
may act as Paying Agent, Registrar or co-registrar.
4. Indenture.
The Company issued the Securities under an
Indenture dated as of November 12, 1996, among the Company,
Toll Brothers, Inc. (the "Guarantor") and the Trustee, as
supplemented by the Authorizing Resolutions approved by the
Company and the Guarantor as of September 16, 1997
(collectively, the "Indenture"). The terms of the Securities include
those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939 (15 U.S. Code
SEC77aaa-77bbbb) (the "Trust Indenture Act") as in effect on the
date of the Indenture and as may be amended from time to time.
The Securities are subject to all such terms, and Securityholders are
referred to the Indenture and the Trust Indenture Act for a
statement of them. Payment of the Securities is guaranteed on a
senior subordinated basis by the Guarantor (the "Guarantee").
<PAGE>
5. Optional Redemption.
The Company may redeem the Securities at any
time on or after September 15, 2002 in whole, or in part from time
to time, at the following redemption prices (expressed as a
percentage of principal amount), plus accrued and unpaid interest
to the redemption date:
If redeemed during the 12-month period
beginning September 15,
Year Percentage
2002 . . . . . . . . . . . . . 103.875%
2003 . . . . . . . . . . . . . 102.583%
2004 . . . . . . . . . . . . . 101.292%
2005 and thereafter. . . . . 100.000%
6. Notice of Redemption.
Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each
holder of Securities to be redeemed at its, his or her registered
address. Securities in denominations larger than $1,000 may be
redeemed in part. On and after the redemption date interest ceases
to accrue on Securities or portions of them called for redemption,
provided that if the Company shall default in the payment of such
Security at the redemption price together with accrued interest,
interest shall continue to accrue at the rate borne by the
Securities.
7. Selection for Redemption.
If less than all of the Securities are to be
redeemed, selection of the Securities to be redeemed will be made
by the Trustee, if the Securities are listed on a national securities
exchange, in accordance with the rules of such exchange, or if the
Securities are not so listed, on either a pro rata basis or by lot
or by another method that the Trustee deems fair and appropriate.
8. Subordination.
The Securities will be subordinated in right of
payment to the prior payment in full of all Senior Indebtedness of
the Company (as defined in the Indenture). The Guarantee will be
subordinated in right of payment to the prior payment in full of all
Senior Indebtedness of the Guarantor (as defined in the Indenture).
<PAGE>
9. Denominations, Transfer, Exchange.
The Securities are in registered form without
coupons in denominations of $1,000 and integral multiples thereof.
A holder may transfer or exchange Securities in accordance with
the Indenture. The Registrar may require a holder, among other
things, to furnish appropriate endorsements and transfer documents
and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not transfer or exchange any
Securities selected for redemption. Also, it need not transfer or
exchange any Securities for a period of 15 days before a selection
of Securities to be redeemed is scheduled.
10. Person Deemed Owner.
The registered holder of a Security may be
treated as the owner of it for all purposes.
11. Unclaimed Money.
If money for the payment of principal or interest
remains unclaimed for two years, the Trustee or Paying Agent will
pay the money back to the Company at its request. After that,
holders entitled to the money must look to the Company or, if
applicable, the Guarantor for payment unless an abandoned
property law designates another person.
12. Discharge Prior to Redemption or Maturity.
The Indenture will be discharged and canceled
except for certain Sections thereof, subject to the terms of the
Indenture, upon the payment of all the Securities or upon the
deposit with the Trustee, within not more than one year prior to the
maturity or redemption of the Securities, of funds sufficient for
such payment or redemption. In the case of such a deposit,
Securityholders must look to the deposited money for payment.
13. Amendment, Supplement, Waiver.
Subject to certain exceptions, the Indenture or
the Securities may be amended or supplemented with the consent of
the holders of at least a majority in principal amount of the
Securities, and any past default or compliance with any provision
may be waived with the consent of the holders of a majority in
principal amount of the Securities. Without the consent of any
Securityholder, the Company may amend or supplement the
Indenture or the Securities to cure any ambiguity, defect or
inconsistency; to comply with Article 5 of the Indenture (providing
for the assumption of the obligations of the Company or the
Guarantor under the Indenture by a successor corporation); to
provide for uncertificated Securities in addition to or in place of
certificated Securities; or to make any change that does not
adversely affect the rights of any Securityholder.
<PAGE>
14. Successor Corporation.
When a successor corporation assumes all the
obligations of its predecessor under the Securities and the
Indenture, the predecessor corporation will be released from those
obligations.
15. Defaults and Remedies.
An Event of Default is: (i) failure of the
Company or the Guarantor to pay (whether or not prohibited by
any subordination provision) interest for 30 days or principal or
premium, if any, when due; (ii) failure of the Company or
Guarantor to perform any other covenant under the Indenture for
60 days after receipt of notice; (iii) default in the payment of
indebtedness of the Company, the Guarantor or any Subsidiary
under the terms of the instrument evidencing or securing such
indebtedness permitting the holder thereof to accelerate the
payment of in excess of an aggregate of $2,000,000 in principal
amount of such indebtedness (after the lapse of applicable grace
periods) or, in the case of non-payment defaults, acceleration of any
such indebtedness if such acceleration is not rescinded or annulled
within 10 days after such acceleration, provided that, subject to the
terms of the Indenture, the term "indebtedness" shall not include an
acceleration of or default on certain Non-Recourse Indebtedness
(as defined in the Indenture); (iv) entry of a final judgment for the
payment of money in an amount in excess of $2,000,000 against the
Company, the Guarantor or any Subsidiary which remains
undischarged or unstayed for a period of 60 days after the date on
which the right to appeal has expired, provided the term "final
judgment" at such time as the Company's 10 1/2% Senior
Subordinated Notes due 2002 (and any related guarantee) are no
longer outstanding, shall not include a Non-Recourse Judgment (as
defined in the Indenture) unless the book value of all property (net
of any previous write-downs or reserves in respect of such
property) subject to such Non-Recourse Judgment exceeds the
amount of such Non-Recourse Judgment by more than $5,000,000;
(v) certain events of bankruptcy, insolvency or reorganization with
respect to the Company or the Guarantor; or (vi) the Guarantee
shall for any reason (other than pursuant to its terms) cease to be in
full force and effect.
The Indenture provides that the Trustee will,
within 90 days after the occurrence of a Default known to the
Trustee, give the Holders notice of the Default (the term "Default"
to include the events specified above, without grace or notice),
provided that, except in the case of Default in the payment of
principal of or interest on any of the Securities, the Trustee
shall be protected in withholding such notice if it in good faith
determines that the withholding of such notice is in the interest
of the Securityholders.
In case an Event of Default (other than an Event
of Default resulting from certain events of bankruptcy, insolvency
or reorganization with respect to the Company or the Guarantor)
occurs and is continuing, either the Trustee or the holders of not
less than 25% in aggregate principal amount of the Securities then
outstanding, by notice in writing to the Company (and to the
Trustee if given by the Securityholders), may declare the unpaid
principal of and accrued and unpaid interest on all the Securities
to be due and payable (i) if (a) no
Designated Senior Debt of the Company or the Guarantor (as defined
in the Indenture) is outstanding, or (b) the Securities are not
subordinated to other indebtedness of the Company, immediately, or
(ii) if Designated Senior Debt of the Company or the Guarantor is
outstanding and the Securities are subordinated to other indebtedness
of the Company, upon the earlier of (A) ten days after such
Acceleration Notice is received by the Company and (B) the
acceleration of any Senior Indebtedness of the Company or the
Guarantor. In case an Event of Default arising out of certain events
of bankruptcy, insolvency or reorganization with respect to the
Company or the Guarantor occurs and is continuing, the outstanding
principal of and accrued and unpaid interest on the Securities shall
ipso facto become and be due and payable immediately, without
declaration or any further act on the part of the Trustee or any
Securityholder.
Such declaration or acceleration and its
consequences may be rescinded by holders of a majority in principal
amount of outstanding Securities if all existing Events of Default
have been cured and waived (except non-payment of principal or
interest that has become due solely because of the acceleration) and
if the rescission would not conflict with any judgment or decree.
Defaults (except a default in payment of
principal of, or premium, if any, or interest on the Securities or a
default with respect to a provision which cannot be modified under
the terms of the Indenture without the consent of each
Securityholder affected) may be waived on behalf of all holders by
the holders of a majority in principal amount of outstanding
Securities upon the conditions provided in the Indenture.
The Indenture requires the Guarantor to file
periodic reports with the Trustee as to the absence of defaults.
16. Trustee, Dealings with Company.
NBD Bank, a Michigan banking corporation, the
Trustee under the Indenture, in its individual or any other capacity,
may make loans to, accept deposits from, and perform services for
the Company, the Guarantor or their affiliates, and may otherwise
deal with the Company, the Guarantor or their affiliates, as if it
were not Trustee.
17. No Recourse Against Others.
A director, officer, employee or stockholder, as
such, of the Company or the Guarantor shall not have any liability
for any obligations of the Company or the Guarantor under the
Securities, the Guarantee or the Indenture or for any claim based
on, in respect of or by reason of such obligations or their creation.
Each Securityholder by accepting a Security waives and releases all
such liability. The waiver and release are part of the consideration
for the issue of the Securities.
<PAGE>
18. Authentication.
This Security shall not be valid until the Trustee
signs the certificate of authentication on the other side of this
Security.
19. Abbreviations.
Customary abbreviations may be used in the
name of a Securityholder or an assignee, such as: TEN COM (=
tenants in common), TEN ENT (= tenants by the entireties), JT
TEN (= joint tenants with right of survivorship and not as tenants in
common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Securityholder
upon written request and without charge a copy of the Indenture.
Requests may be made to: Secretary, Toll Brothers, Inc., 3103
Philmont Avenue, Huntingdon Valley, Pennsylvania 19006.
<PAGE>
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to have this Security purchased by the
Company pursuant to Section 4.06 of the Indenture, check the box
If you want to elect to have only part of this
Security purchased by the Company pursuant to Section 4.06 of the
Indenture, state the amount: $
Date: Your Signature:
(sign exactly as your name appears
on the other side of this Security)
Signature Guarantee:
Note: Signature(s) must be guaranteed by a member firm of a major
stock exchange or a commercial bank or trust company.
<PAGE>
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Security, fill in
the form below and have your signature guaranteed:
I or we assign and transfer this Security to
(Insert assignee's social security or tax ID number)
(Print or type assignee's name, address and zip code)
and irrevocably appoint
agent to transfer this Security on the books of the Company. The
agent may substitute another to act for him.
Date: Your Signature:
(sign exactly as your name
appears on the other side of
this Security)
Note: Signature(s) must be guaranteed by a member firm of a major
stock exchange or a commercial bank or trust company.
<PAGE>
GUARANTEE
Toll Brothers, Inc. (hereinafter referred to as the
"Guarantor," which term includes any successor person under the
Indenture (the "Indenture") referred to in the Security upon which
this notation is endorsed), has unconditionally guaranteed on a
senior subordinated basis (i) the due and punctual payment of the
principal of and interest on the Securities, whether at maturity, by
acceleration or otherwise, the due and punctual payment of interest
on the overdue principal of and interest, if any, on the Securities,
to the extent lawful, and the due and punctual performance of all
other obligations of the Company to the Holders or the Trustee under
the Indenture and the Security all in accordance with the terms set
forth in Article 7 of the Indenture and (ii) in case of any extension
of time of payment or renewal of any Securities or any of such other
obligations, that the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise.
The obligations of the Guarantor to the Holders of
the Securities and to the Trustee pursuant to the Guarantee and the
Indenture are expressly set forth and are expressly subordinated and
subject in right of payment to the prior payment in full of all Senior
Indebtedness of the Guarantor, to the extent and in the manner
provided in Article 7 of the Indenture and reference is hereby made
to the Indenture for the precise terms of the Guarantee and the
subordination thereof therein made.
No stockholder, officer, director or incorporator, as
such, past, present or future, of the Guarantor shall have any
personal liability under the Guarantee by reason of his or its status
as such stockholder, officer, director or incorporator.
The Guarantee shall not be valid or obligatory for
any purpose until the certificate of authentication on the Securities
upon which this Guarantee is endorsed shall have been executed by
the Trustee under the Indenture by the manual signature of one of
its authorized officers.
Guarantor
TOLL BROTHERS,INC.
By
Joel H. Rassman
Chief Financial Officer
By
Frederick Cooper
Assistant Vice President
Director of Finance
(Seal)
<PAGE>
