UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2015
or
o
 
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 001-09186
TOLL BROTHERS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
 
23-2416878
(I.R.S. Employer
Identification No.)
 
 
 
250 Gibraltar Road, Horsham, Pennsylvania
(Address of principal executive offices)
 
19044
(Zip Code)
(215) 938-8000
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
 
 
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
 
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
At March 2, 2015 , there were approximately 175,626,000 shares of Common Stock, $0.01 par value, outstanding.







TOLL BROTHERS, INC.
TABLE OF CONTENTS
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 







STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included in this report or in other materials we have filed or will file with the Securities and Exchange Commission (“SEC”) (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can identify these statements by the fact that they do not relate to matters of strictly historical or factual nature and generally discuss or relate to future events. These statements contain words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “may,” “can,” “could,” “might,” “should,” and other words or phrases of similar meaning. Such statements may include, but are not limited to, information related to: anticipated operating results; home deliveries; financial resources and condition; changes in revenues; changes in profitability; changes in margins; changes in accounting treatment; cost of revenues; selling, general and administrative expenses; interest expense; inventory write-downs; unrecognized tax benefits; anticipated tax refunds; sales paces and prices; effects of home buyer cancellations; growth and expansion; joint ventures in which we are involved; anticipated results from our investments in unconsolidated entities; the ability to acquire land and pursue real estate opportunities; the ability to gain approvals and open new communities; the ability to sell homes and properties; the ability to deliver homes from backlog; the ability to secure materials and subcontractors; the ability to produce the liquidity and capital necessary to expand and take advantage of opportunities; legal proceedings and claims; and the anticipated benefits to be realized from the consummation of the Shapell acquisition and the related post-closing asset sales.
From time to time, forward-looking statements also are included in other reports on Forms 10-K, 10-Q, and 8-K, in press releases, in presentations, on our website, and in other materials released to the public. Any or all of the forward-looking statements included in this report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. This can occur as a result of incorrect assumptions or as a consequence of known or unknown risks and uncertainties. Many factors mentioned in this report or in other reports or public statements made by us, such as market conditions, government regulation and the competitive environment, will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from our forward-looking statements.
Forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
For a more detailed discussion of these factors, see the information under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K filed with the SEC and in this report.
When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to Toll Brothers, Inc. and its subsidiaries, unless the context otherwise requires. References herein to “fiscal 2014,” “fiscal 2013,” “fiscal 2012,” and “fiscal 2011” refer to our fiscal years ending October 31, 2014, October 31, 2013, October 31, 2012, and October 31, 2011, respectively. References herein to “fiscal 2015” refer to our fiscal year ending October 31, 2015.



1



PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
TOLL BROTHERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
 
January 31,
2015
 
October 31,
2014
 
(unaudited)
 
 
ASSETS
 
 
 
Cash and cash equivalents
$
500,900

 
$
586,315

Marketable securities
10,022

 
12,026

Restricted cash
17,462

 
18,342

Inventory
6,627,481

 
6,490,321

Property, construction, and office equipment, net
142,096

 
143,010

Receivables, prepaid expenses, and other assets
250,349

 
251,572

Mortgage loans held for sale
55,945

 
101,944

Customer deposits held in escrow
30,679

 
42,073

Investments in and advances to unconsolidated entities
463,578

 
447,078

Investments in distressed loans and foreclosed real estate
70,935

 
73,800

Deferred tax assets, net of valuation allowances
252,172

 
250,421

 
$
8,421,619

 
$
8,416,902

LIABILITIES AND EQUITY
 
 
 
Liabilities
 
 
 
Loans payable
$
665,652

 
$
654,261

Senior notes
2,655,421

 
2,655,044

Mortgage company loan facility
46,559

 
90,281

Customer deposits
226,444

 
223,799

Accounts payable
222,061

 
225,347

Accrued expenses
577,070

 
581,477

Income taxes payable
65,768

 
125,996

Total liabilities
4,458,975

 
4,556,205

Equity
 
 
 
Stockholders’ equity
 
 
 
Preferred stock, none issued

 

Common stock, 177,930 shares issued at both January 31, 2015 and October 31, 2014
1,779

 
1,779

Additional paid-in capital
718,195

 
712,162

Retained earnings
3,313,360

 
3,232,035

Treasury stock, at cost — 2,408 and 2,884 shares at January 31, 2015 and October 31, 2014, respectively
(74,058
)
 
(88,762
)
Accumulated other comprehensive loss
(3,021
)
 
(2,838
)
Total stockholders’ equity
3,956,255

 
3,854,376

Noncontrolling interest
6,389

 
6,321

Total equity
3,962,644

 
3,860,697

 
$
8,421,619

 
$
8,416,902

See accompanying notes.

2



TOLL BROTHERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in thousands, except per share data)
(Unaudited)
 
Three months ended January 31,
 
2015
 
2014
Revenues
$
853,452

 
$
643,681

 
 
 
 
Cost of revenues
650,032

 
514,032

Selling, general and administrative
106,314

 
97,870

 
756,346

 
611,902

Income from operations
97,106

 
31,779

Other:
 
 
 
Income from unconsolidated entities
4,901

 
22,915

Other income - net
22,016

 
16,541

Income before income taxes
124,023

 
71,235

Income tax provision
42,698

 
25,655

Net income
$
81,325

 
$
45,580

 
 
 
 
Other comprehensive (loss) income, net of tax:
 
 
 
Change in pension liability
(178
)
 
53

Change in fair value of available-for-sale securities
2

 
(31
)
Unrealized (loss) income on derivative held by equity investee
(7
)
 
241

Other comprehensive (loss) income
(183
)
 
263

Total comprehensive income
$
81,142

 
$
45,843

 
 
 
 
Income per share:
 
 
 
Basic
$
0.46

 
$
0.26

Diluted
$
0.44

 
$
0.25

Weighted-average number of shares:
 
 
 
Basic
176,076

 
176,474

Diluted
184,107

 
184,888

See accompanying notes.


3



TOLL BROTHERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
 
Three months ended January 31,
 
2015
 
2014
Cash flow used in operating activities:
 
 
 
Net income
$
81,325

 
$
45,580

Adjustments to reconcile net income to net cash used in operating activities:

 

Depreciation and amortization
5,809

 
5,289

Stock-based compensation
7,446

 
7,669

Excess tax benefits from stock-based compensation
(1,866
)
 
(789
)
Income from unconsolidated entities
(4,901
)
 
(22,915
)
Distributions of earnings from unconsolidated entities
4,393

 
22,143

Income from distressed loans and foreclosed real estate
(2,345
)
 
(6,619
)
Deferred tax (benefit) provision
(1,433
)
 
1,711

Change in deferred tax valuation allowances
(207
)
 
(448
)
Inventory impairments and write-offs
1,144

 
1,982

Change in fair value of mortgage loans held for sale and derivative instruments
555

 
605

Gain on sale of marketable securities

 
(21
)
Changes in operating assets and liabilities
 
 
 
Increase in inventory
(114,416
)
 
(363,914
)
Origination of mortgage loans
(167,063
)
 
(146,354
)
Sale of mortgage loans
212,356

 
200,830

Decrease (increase) in restricted cash
880

 
(139
)
Increase in receivables, prepaid expenses, and other assets
(255
)
 
(7,274
)
Increase in customer deposits
14,039

 
7,132

Decrease in accounts payable and accrued expenses
(10,147
)
 
(14,282
)
(Decrease) increase in income taxes payable
(58,362
)
 
19,426

Net cash used in operating activities
(33,048
)
 
(250,388
)
Cash flow used in investing activities:
 
 
 
Purchase of property and equipment — net
(2,884
)
 
(2,853
)
Sale and redemption of marketable securities
2,000

 
39,243

Investment in and advances to unconsolidated entities
(18,684
)
 
(60,408
)
Return of investments in unconsolidated entities
6,340

 
32,429

Investment in distressed loans and foreclosed real estate
(1,468
)
 
(191
)
Return of investments in distressed loans and foreclosed real estate
6,592

 
17,574

Deposit - acquisition of a business


 
(161,000
)
Net cash used in investing activities
(8,104
)
 
(135,206
)
Cash flow (used in) provided by financing activities:
 
 
 
Proceeds from issuance of senior notes


 
600,000

Debt issuance costs for senior notes


 
(4,700
)
Proceeds from loans payable
214,624

 
275,334

Principal payments of loans payable
(272,334
)
 
(307,195
)
Net proceeds from issuance of common stock


 
220,357

Proceeds from stock-based benefit plans
17,773

 
18,529

Excess tax benefits from stock-based compensation
1,866

 
789

Purchase of treasury stock
(6,242
)
 
(84
)
Receipts related to noncontrolling interest
50

 
81

Net cash (used in) provided by financing activities
(44,263
)
 
803,111

Net (decrease) increase in cash and cash equivalents
(85,415
)
 
417,517

Cash and cash equivalents, beginning of period
586,315

 
772,972

Cash and cash equivalents, end of period
$
500,900

 
$
1,190,489

See accompanying notes.

4



TOLL BROTHERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Toll Brothers, Inc. (the “Company,” “we,” “us,” or “our”), a Delaware corporation, and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Investments in 50% or less owned partnerships and affiliates are accounted for using the equity method unless it is determined that we have effective control of the entity, in which case we would consolidate the entity.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. The October 31, 2014 balance sheet amounts and disclosures included herein have been derived from our October 31, 2014 audited financial statements. Since the accompanying condensed consolidated financial statements do not include all the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements, we suggest that they be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2014 . In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, necessary to present fairly our financial position as of January 31, 2015 , the results of our operations for the three -month periods ended January 31, 2015 and 2014 , and our cash flows for the three -month periods ended January 31, 2015 and 2014 . The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year.
Recent Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). ASU 2013-11 is intended to eliminate inconsistent practices regarding the presentation of unrecognized tax benefits when a net operating loss, a similar tax loss, or a tax credit carryforward is available to reduce the taxable income or tax payable that would result from the disallowance of a tax position. We adopted ASU 2013-11 on November 1, 2014 and the adoption did not have a material effect on our condensed consolidated financial statements or disclosures.
In April 2013, the FASB issued ASU No. 2013-04, “Liabilities” (“ASU 2013-04”), which provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. We adopted ASU 2013-04 on November 1, 2014 and the adoption did not have a material effect on our condensed consolidated financial statements or disclosures.
In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810) - Amendments to the Consolidation Analysis” (“ASU 2015-02”), which eliminates the deferral granted to investment companies from applying the variable interest entities (“VIEs”) guidance and makes targeted amendments to the current consolidation guidance. The new guidance applies to all entities involved with limited partnerships or similar entities and will require re-evaluation of these entities under the revised guidance which may change previous consolidation conclusions. ASU 2015-02 is effective for us beginning November 1, 2016, and, at that time, we may adopt the new standard retrospectively or use a modified retrospective approach. Early adoption is permitted. We are currently evaluating the impact the adoption of ASU 2015-02 will have on our condensed consolidated financial statements and disclosures.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, “Revenue Recognition-Construction-Type and Production-Type Contracts.” The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under the current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for us beginning November 1, 2017, and, at that time, we may adopt the new standard under the full retrospective approach or the modified retrospective approach. Early adoption is not permitted. We are currently evaluating the impact the adoption of ASU 2014-09 will have on our condensed consolidated financial statements and disclosures.

5



In January 2014, the FASB issued ASU No. 2014-04, “Receivables - Troubled Debt Restructurings by Creditors” (“ASU 2014-04”), which clarifies when an in substance repossession or foreclosure of residential real estate property collateralizing a consumer mortgage loan has occurred. By doing so, this guidance helps determine when the creditor should derecognize the loan receivable and recognize the real estate property. ASU 2014-04 is effective prospectively for us beginning November 1, 2015. The adoption of ASU 2014-04 is not expected to have a material effect on our condensed consolidated financial statements or disclosures.
2. Acquisition
On February 4, 2014 , we completed our acquisition of Shapell Industries, Inc. (“Shapell”) pursuant to the Purchase and Sale Agreement (the “Purchase Agreement”) dated November 6, 2013 with Shapell Investment Properties, Inc. (“SIPI”). We acquired all of the equity interests in Shapell from SIPI for $1.49 billion , net of cash acquired (the “Acquisition”). We acquired the single-family residential real property development business of Shapell, including a portfolio of approximately 4,950 home sites in California, some of which we have sold and may continue to sell to other builders. As part of the Acquisition, we assumed contracts to deliver 126 homes with an aggregate value of approximately $105.3 million . At January 31, 2014, we had deposited with an escrow agent $161.0 million of the purchase price.
We did not acquire the apartment and commercial rental properties owned and operated by Shapell (the “Shapell Commercial Properties”) or Shapell’s mortgage lending activities relating to its home building operations. Accordingly, the Purchase Agreement provides that SIPI will indemnify us for any loss arising out of or resulting from, among other things, (i) any liability (other than environmental losses, subject to certain exceptions) related to the Shapell Commercial Properties, and (ii) any liability (other than environmental losses, subject to certain exceptions) to the extent related to Shapell Mortgage, Inc. See Note 2, “Acquisitions” in our Annual Report on Form 10-K for the year ended October 31, 2014 for additional information regarding the Acquisition.
In the three -month period ended January 31, 2014 , we recorded acquisition-related costs of $0.8 million , which are included in the Condensed Consolidated Statements of Operations and Comprehensive Income within “Selling, general and administrative.” Such costs were expensed as incurred in accordance with FASB Accounting Standards Codification (“ASC”) 805, “Business Combinations.” There were no acquisition-related costs incurred in the three -month period ended January 31, 2015 .
3. Inventory
Inventory at January 31, 2015 and October 31, 2014 consisted of the following (amounts in thousands):
 
January 31,
2015
 
October 31,
2014
Land controlled for future communities
$
75,014

 
$
122,533

Land owned for future communities
2,419,952

 
2,355,874

Operating communities
4,132,515

 
4,011,914

 
$
6,627,481

 
$
6,490,321

Operating communities include communities offering homes for sale; communities that have sold all available home sites but have not completed delivery of the homes; communities that were previously offering homes for sale but are temporarily closed due to business conditions or non-availability of improved home sites and that are expected to reopen within twelve months of the end of the fiscal period being reported on; and communities preparing to open for sale. The carrying value attributable to operating communities includes the cost of homes under construction, land and land development costs, the carrying cost of home sites in current and future phases of these communities, and the carrying cost of model homes.
Communities that were previously offering homes for sale but are temporarily closed due to business conditions that do not have any remaining backlog and are not expected to reopen within twelve months of the end of the fiscal period being reported on have been classified as land owned for future communities. Backlog consists of homes under contract but not yet delivered to our home buyers (“backlog”).

6



Information regarding the classification, number, and carrying value of these temporarily closed communities, as of the dates indicated, is provided in the table below.
 
January 31,
2015
 
October 31,
2014
Land owned for future communities:
 
 
 
Number of communities
18

 
16

Carrying value (in thousands)
$
144,403

 
$
122,015

Operating communities:
 
 
 
Number of communities
9

 
9

Carrying value (in thousands)
$
27,451

 
$
42,092


The amounts we have provided for inventory impairment charges and the expensing of costs that we believed not to be recoverable, for the periods indicated, are shown in the table below (amounts in thousands):
 
Three months ended January 31,
 
2015
 
2014
Land controlled for future communities
$
244

 
$
682

Operating communities
900

 
1,300

 
$
1,144

 
$
1,982

See Note 13, “Fair Value Disclosures,” for information regarding the number of operating communities that we tested for potential impairment, the number of operating communities in which we recognized impairment charges, the amount of impairment charges recognized, and the fair values of those communities, net of impairment charges.
See Note 15, “Commitments and Contingencies,” for information regarding land purchase commitments.
At January 31, 2015 , we evaluated our land purchase contracts to determine if any of the selling entities were VIEs and, if they were, whether we were the primary beneficiary of any of them. Under these land purchase contracts, we do not possess legal title to the land; our risk is generally limited to deposits paid to the sellers; and the creditors of the sellers generally have no recourse against us. At January 31, 2015 , we determined that 61 land purchase contracts, with an aggregate purchase price of $597.5 million , on which we had made aggregate deposits totaling $34.6 million , were VIEs and that we were not the primary beneficiary of any VIE related to our land purchase contracts. At October 31, 2014 , we determined that 63 land purchase contracts, with an aggregate purchase price of $578.2 million , on which we had made aggregate deposits totaling $30.7 million , were VIEs, and that we were not the primary beneficiary of any VIE related to our land purchase contracts.
Interest incurred, capitalized, and expensed, for the periods indicated, was as follows (amounts in thousands):  
 
Three months ended January 31,
 
2015
 
2014
Interest capitalized, beginning of period
$
356,180

 
$
343,077

Interest incurred
40,504

 
39,944

Interest expensed to cost of revenues
(28,377
)
 
(25,440
)
Write-off against other income
(1,328
)
 
(317
)
Interest capitalized on investments in unconsolidated entities
(2,751
)
 
(2,457
)
Previously capitalized interest on investments in unconsolidated entities transferred to inventory

 
1,811

Interest capitalized, end of period
$
364,228

 
$
356,618

Inventory impairment charges are recognized against all inventory costs of a community, such as land, land improvements, cost of home construction, and capitalized interest. The amounts included in the table directly above reflect the gross amount of capitalized interest without allocation of any impairment charges recognized. We estimate that, had inventory impairment charges been allocated on a pro rata basis to the individual components of inventory, capitalized interest at January 31, 2015 and 2014 would have been reduced by approximately $32.1 million and $37.1 million , respectively.

7




4. Investments in and Advances to Unconsolidated Entities
We have investments in and advances to various unconsolidated entities. These entities include land development joint ventures, home building joint ventures, rental property joint ventures, Toll Brothers Realty Trust (“Trust”) and Toll Brothers Realty Trust II (“Trust II”), and a structured asset joint venture. At January 31, 2015 , we had investments in and advances to these unconsolidated entities of $463.6 million and were committed to invest or advance up to an additional $83.9 million to these entities if they require additional funding.
More specific information regarding our investments in, advances to, and future commitments to these entities is provided below.
Land Development Joint Ventures
We have investments in and advances to a number of joint ventures with unrelated parties to develop land (“Land Development Joint Ventures”). Some of these Land Development Joint Ventures develop land for the sole use of the venture participants, including us, and others develop land for sale to the joint venture participants and to unrelated builders. We recognize our share of earnings from the sale of home sites and other land by the Land Development Joint Ventures to other builders. With regard to home sites we purchase from the Land Development Joint Ventures, we adjust our cost basis in those home sites by our share of the earnings/losses of the joint venture on the home sites we purchase. At January 31, 2015 , we had approximately $140.1 million invested in or advanced to the Land Development Joint Ventures and a funding commitment of $32.8 million to four of the Land Development Joint Ventures which would be funded if additional investment in the ventures is required. At January 31, 2015 , three of these joint ventures had aggregate loan commitments of $175.0 million and outstanding borrowings against these commitments of $108.8 million .
At January 31, 2015 , we had a purchase commitment or understandings to acquire 557 home sites from two of these Land Development Joint Ventures for an aggregate purchase price of $180.6 million . In addition, we expect to purchase approximately 3,300 additional lots from several Land Development Joint Ventures in which we have interests. The purchase price of the lots will be determined at a future date.
Set forth below is additional information regarding activity in certain Land Development Joint Ventures; such activity is included in the summary information provided above.
In the third quarter of fiscal 2014, we received approximately 515 home sites from a Land Development Joint Venture in consideration of our previous investment in the joint venture. We received an additional 48 home sites in the first quarter of fiscal 2015. We have a commitment to this joint venture to fund approximately $17.1 million which represents our share of the major infrastructure improvements related to this community. Contributions to this joint venture related to the improvements will be included in “Inventory” in our Condensed Consolidated Balance Sheets when made.
In the first quarter of fiscal 2014, we entered into a joint venture with an unrelated party to develop a parcel of land in Texas. The joint venture expects to develop a master planned community consisting of up to 7,000 home sites and retail and commercial property. We have a 50% interest in this joint venture. Prior to the formation of the joint venture, we entered into a land purchase agreement to acquire the land for approximately $79.3 million . We contributed our rights under the purchase agreement to the joint venture and were reimbursed by our joint venture partner for 50% of the costs we incurred prior to the formation of the joint venture. At January 31, 2015 , we had an investment of $40.1 million in this joint venture. In May 2014, the joint venture obtained outside financing of $40.0 million to help fund the future development of the property. At January 31, 2015 , this joint venture had $13.4 million of borrowings under the loan facility.
Home Building Joint Ventures
At January 31, 2015 , we had an aggregate of $207.2 million of investments in and advances to various joint ventures with unrelated parties to develop approximately 640 luxury for-sale homes (“Home Building Joint Ventures”). At January 31, 2015 , we had $34.0 million of funding commitments to two of these joint ventures.
Set forth below is additional information regarding activity in certain Home Building Joint Ventures; such activity is included in the summary information provided above.
In the first quarter of fiscal 2015, we entered into a joint venture with an unrelated party to complete the development of a high-rise luxury condominium project in the urban New York market on property that we owned. We contributed $15.9 million as our initial contribution for a 25% interest in this joint venture. We sold the property to the joint venture for $78.5 million and we were reimbursed for development and construction costs incurred by us prior to the sale. The gain of $9.3 million that we achieved on the sale was deferred and will be recognized as units are sold to the ultimate home buyer. At January 31, 2015 , we

8



had an investment of $16.7 million in this joint venture. The joint venture obtained construction loan financing of $124.0 million to fund the land purchase and a portion of the cost of the development of the property. At January 31, 2015 , the joint venture had $37.4 million borrowed under the construction loan.
We invested in a joint venture in which we have a 50% interest to develop a high-rise luxury condominium project in conjunction with a luxury hotel in the urban New York market. At January 31, 2015 , we had invested $24.5 million in this joint venture and expect to make additional investments of approximately $25.7 million for the development of this project. In November 2014, this joint venture, along with the hotel joint venture discussed in Rental Property Joint Ventures below, entered into a $160.0 million construction loan agreement to complete the construction of the condominiums and hotel. At January 31, 2015 , this joint venture had $14.8 million of outstanding borrowings under the loan agreement.
We invested in a joint venture in which we have a 50% interest to develop a high-rise luxury for-sale/rental project in the metro New York market. At January 31, 2015 , we had an investment of $132.0 million in this joint venture. Under the terms of the agreement, upon completion of the construction of the building, we will acquire ownership of the top 18 floors of the building to sell, for our own account, luxury condominium units. Our partner will receive ownership of the lower floors containing residential rental units and retail space. We expect to receive title to our floors during the second quarter of fiscal 2015. At the time of transfer, our investment in this joint venture will be transferred to inventory.
Rental Property Joint Ventures
At January 31, 2015 , we had an aggregate of $94.3 million of investments in and advances to several joint ventures with unrelated parties to develop luxury for-rent residential apartments, commercial space, and a hotel (“Rental Property Joint Ventures”). At January 31, 2015 , we had $17.1 million of funding commitments to these joint ventures. At January 31, 2015 , six of these joint ventures had aggregate loan commitments of $486.2 million and outstanding borrowings against these commitments of $172.1 million .
Set forth below is additional information regarding activity in certain Rental Property Joint Ventures; such activity is included in the summary information provided above.
We invested in a joint venture in which we have a 50% interest to develop a luxury hotel in conjunction with a high-rise luxury condominium project in the urban New York market. At January 31, 2015 , we had invested $15.0 million in this joint venture and expect to make additional investments of approximately $15.6 million for the development of the hotel. In November 2014, this joint venture, along with the joint venture discussed in Home Building Joint Ventures above, entered into a $160.0 million construction loan agreement to complete the construction of the condominiums and hotel. At January 31, 2015 , this joint venture had $7.5 million of outstanding borrowings under the loan agreement.
In the fourth quarter of fiscal 2014, we entered into a joint venture with an unrelated party to develop a 418 -unit student housing project and retail space in College Park, Maryland, on land that we were under contract to purchase. We have a 25% interest in this joint venture. We made an initial investment of $11.9 million to the joint venture, which included $3.5 million of land deposits previously funded by us, and our partner made an initial capital contribution of $35.7 million . In addition, we received a reimbursement of $3.1 million for certain costs incurred by us prior to the closing of the joint venture. The joint venture obtained construction loan financing of $104.5 million to fund a portion of the cost of the development of the property. At January 31, 2015 , we had an investment of $12.5 million in this joint venture.
In the first quarter of 2014, two of our Rental Property Joint Ventures entered into $126.0 million of construction loan agreements to finance construction of multi-family residential apartments in suburban Philadelphia and northern New Jersey. At January 31, 2015 , these joint ventures had $47.6 million borrowings under these facilities.
Structured Asset Joint Venture
Through our wholly-owned subsidiary, Gibraltar Capital and Asset Management LLC (“Gibraltar”), we are a 20% participant with two unrelated parties that purchased a 40% interest in an entity that owns and controls a portfolio of loans and real estate (“Structured Asset Joint Venture”). At January 31, 2015 , we had an investment of $18.4 million in this Structured Asset Joint Venture.

9



Toll Brothers Realty Trust and Trust II
In fiscal 2005, we, together with an unrelated party, formed Trust II to invest in commercial real estate opportunities. Trust II is owned 50% by us and 50% by our partner. In December 2013, Trust II sold substantially all of its assets to an unrelated party. As a result of this sale, we realized income of approximately $23.5 million in the first quarter of fiscal 2014, representing our share of the gain on the sale. The gain on sale of assets is included in “Income from unconsolidated entities” for the three months ended January 31, 2014 in our Condensed Consolidated Statement of Operations and Comprehensive Income. In December 2013, we received a $20.0 million cash distribution from Trust II. In addition, in the first quarter of fiscal 2014, we recognized $2.9 million in previously deferred gains on our initial sales of the properties to Trust II. This gain is included in “Other income - net,” for the three months ended January 31, 2014, in our Condensed Consolidated Statements of Operations and Comprehensive Income. At January 31, 2015 , we had an investment of $1.1 million in Trust II.
In 1998, prior to the formation of Trust II, we formed the Trust to invest in commercial real estate opportunities. The Trust is effectively owned one-third by us; one-third by Robert I. Toll, Bruce E. Toll (and members of his family), Douglas C. Yearley, Jr. and former members of our senior management; and one-third by an unrelated party. As of January 31, 2015 , we had an investment in the Trust of $2.6 million . We provide development, finance, and management services to the Trust and recognized fees under the terms of various agreements in the amounts of $0.6 million in each of the three -month periods ended January 31, 2015 and 2014 . In three months ended January 31, 2015, we received a $2.0 million distribution which is included in “Income from unconsolidated entities” in our Consolidated Statements of Operations and Comprehensive Income. In the second quarter of fiscal 2014, the Trust refinanced the mortgage on one of its properties and distributed $36.0 million of the net proceeds from the refinancing to its partners. We received $12.0 million as our share of the proceeds and recognized this distribution as income in the second quarter of fiscal 2014.
Guarantees
The unconsolidated entities in which we have investments generally finance their activities with a combination of partner equity and debt financing. In some instances, we and our partners have guaranteed debt of certain unconsolidated entities which may include any, or all, of the following: (i) project completion including any cost overruns, in whole or in part; (ii) repayment guarantees, generally covering a percentage of the outstanding loan; (iii) indemnification of the lender as to environmental matters affecting the unconsolidated entity; (iv) a hazardous material indemnity that holds the lender harmless against any obligations for which the lender may incur liability resulting from the threat or presence of any hazardous or toxic substances at or near the property covered by a loan; and (v) indemnification of the lender from “bad boy acts” of the unconsolidated entity.
In some instances, the guarantees provided in connection with loans to an unconsolidated entity are joint and several. In these situations, we generally have a reimbursement agreement with our partner that provides that neither party is responsible for more than its proportionate share or agreed-upon share of the guarantee; however, if a joint venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, we may be liable for more than our proportionate share.
We believe that, as of January 31, 2015 , in the event we become legally obligated to perform under a guarantee of the obligation of an unconsolidated entity due to a triggering event, the collateral should be sufficient to repay a significant portion of the obligation. If it is not, we and our partners would need to contribute additional capital to the venture. At January 31, 2015 , the unconsolidated entities that have guarantees related to debt had loan commitments aggregating $883.2 million and had borrowed an aggregate of $333.1 million . The terms of these guarantees generally range from 10 months to 44 months . We estimate that the maximum potential exposure under these guarantees, if the full amount of the loan commitments were borrowed, would be $883.2 million before any reimbursement from our partners. Based on the amounts borrowed at January 31, 2015 , our maximum potential exposure under these guarantees is estimated to be approximately $333.1 million before any reimbursement from our partners.
In addition, we have guaranteed approximately $11.0 million of ground lease payments and insurance deductibles for three joint ventures.
As of January 31, 2015 , the estimated aggregate fair value of the guarantees was approximately $4.4 million . We have not made payments under any of the guarantees, nor have we been called upon to do so.

10



Variable Interest Entities
At January 31, 2015 , we determined that one of our joint ventures was a VIE under the guidance within ASC 810, “Consolidation.” At October 31, 2014, we had determined that three of our joint ventures were VIEs under this guidance. We have, however, concluded that we were not the primary beneficiary of the VIEs because the power to direct the activities of these VIEs that most significantly impact their performance was shared by us and the VIEs’ other members. Business plans, budgets, and other major decisions are required to be unanimously approved by all members. Management and other fees earned by us are nominal and believed to be at market rates, and there is no significant economic disproportionality between us and the other members. The information presented below regarding the investments, commitments, and guarantees in unconsolidated entities deemed to be VIEs is also included in the information provided above.
At January 31, 2015 and October 31, 2014 , our investments in unconsolidated joint ventures deemed to be VIEs, which are included in “Investments in and advances to unconsolidated entities” in the accompanying Condensed Consolidated Balance Sheets, totaled $8.0 million and $46.4 million , respectively. At January 31, 2015 , the maximum exposure of loss to our investment in the unconsolidated joint venture that is a VIE is limited to our investment in the unconsolidated VIE, except with regard to $1.5 million of additional commitments to the VIE. At October 31, 2014 , the maximum exposure of loss to our investment in unconsolidated joint ventures that are VIEs is limited to our investment in the unconsolidated VIEs, except with regard to $43.4 million of additional commitments to fund the joint ventures and a $9.1 million guaranty of ground lease payments.

11



Joint Venture Condensed Financial Information
The Condensed Balance Sheets, as of the dates indicated, and the Condensed Statements of Operations and Comprehensive Income for the periods indicated, for the unconsolidated entities in which we have an investment, aggregated by type of business, are included below (in thousands). The column titled “Rental Property Joint Ventures” includes the Rental Property Joint Ventures, the Trust, and Trust II, described above.
Condensed Balance Sheets:
 
January 31, 2015
 
Land
Development
Joint Ventures
 
Home Building
Joint Ventures
 
Rental Property
Joint Ventures
 
Structured
Asset
Joint Venture
 
Total
Cash and cash equivalents
$
32,545

 
$
16,618

 
$
30,610

 
$
15,994

 
$
95,767

Inventory
254,188

 
593,709

 


 


 
847,897

Non-performing loan portfolio

 

 

 
48,130

 
48,130

Rental properties

 

 
189,475

 


 
189,475

Rental properties under development

 

 
327,663

 

 
327,663

Real estate owned (“REO”)

 

 

 
174,046

 
174,046

Other assets (1)
42,153

 
71,609

 
12,090

 
77,988

 
203,840

Total assets
$
328,886

 
$
681,936

 
$
559,838

 
$
316,158

 
$
1,886,818

Debt (1)
$
109,886

 
$
60,024

 
$
384,590

 
$
77,950

 
$
632,450

Other liabilities
28,028

 
55,633

 
35,445

 
455

 
119,561

Members’ equity
190,972

 
566,279

 
139,803

 
95,113

 
992,167

Noncontrolling interest

 

 


 
142,640

 
142,640

Total liabilities and equity
$
328,886

 
$
681,936

 
$
559,838

 
$
316,158

 
$
1,886,818

Company’s net investment in unconsolidated entities (2)
$
140,083

 
$
207,189

 
$
97,954

 
$
18,352

 
$
463,578

 
 
October 31, 2014
 
Land
Development
Joint Ventures
 
Home Building
Joint Ventures
 
Rental Property
Joint Ventures
 
Structured
Asset
Joint Venture
 
Total
Cash and cash equivalents
$
31,968

 
$
21,821

 
$
33,040

 
$
23,462

 
$
110,291

Inventory
258,092

 
465,144

 


 


 
723,236

Non-performing loan portfolio

 

 


 
57,641

 
57,641

Rental properties

 

 
140,238

 


 
140,238

Rental properties under development

 

 
327,315

 

 
327,315

Real estate owned (“REO”)

 

 

 
184,753

 
184,753

Other assets (1)
30,166

 
75,164

 
14,333

 
77,986

 
197,649

Total assets
$
320,226

 
$
562,129

 
$
514,926

 
$
343,842

 
$
1,741,123

Debt (1)
$
102,042

 
$
8,713

 
$
333,128

 
$
77,950

 
$
521,833

Other liabilities
23,854

 
56,665

 
43,088

 
177

 
123,784

Members’ equity
194,330

 
496,751

 
138,710

 
106,298

 
936,089

Noncontrolling interest

 

 


 
159,417

 
159,417

Total liabilities and equity
$
320,226

 
$
562,129

 
$
514,926

 
$
343,842

 
$
1,741,123

Company’s net investment in unconsolidated entities (2)
$
140,221

 
$
189,509

 
$
97,353

 
$
19,995

 
$
447,078

 
(1)
Included in other assets of the Structured Asset Joint Venture at January 31, 2015 and October 31, 2014 is $78.0 million of restricted cash held in a defeasance account which will be used to repay debt of the Structured Asset Joint Venture.
(2)
Differences between our net investment in unconsolidated entities and our underlying equity in the net assets of the entities are primarily a result of the acquisition price of an investment in a land development joint venture in fiscal 2012 that was in excess of our pro-rata share of the underlying equity; impairments related to our investment in unconsolidated entities; a loan made to one of the entities by us; interest capitalized on our investment; the estimated fair value of the guarantees provided to the joint ventures; and distributions from entities in excess of the carrying amount of our net investment.

12



Condensed Statements of Operations and Comprehensive Income:
 
For the three months ended January 31, 2015
 
Land
Development
Joint Ventures
 
Home Building
Joint Ventures
 
Rental Property
Joint Ventures
 
Structured
Asset
Joint Venture
 
Total
Revenues
$
18,276

 
$
19,294

 
$
7,611

 
$
889

 
$
46,070

Cost of revenues
9,630

 
16,913

 
3,269

 
6,074

 
35,886

Other expenses
135

 
1,575

 
4,388

 
326

 
6,424

Total expenses
9,765

 
18,488

 
7,657

 
6,400

 
42,310

Gain on disposition of loans and REO


 


 


 
7,631

 
7,631

Income (loss) from operations
8,511

 
806

 
(46
)
 
2,120

 
11,391

Other income


 
72

 


 
586

 
658

Net income (loss)
8,511

 
878

 
(46
)
 
2,706

 
12,049

Less: income attributable to noncontrolling interest

 


 


 
(1,623
)
 
(1,623
)
Net income (loss) attributable to controlling interest
8,511


878

 
(46
)
 
1,083

 
10,426

Other comprehensive loss

 

 
(22
)
 

 
(22
)
Total comprehensive income (loss)
$
8,511

 
$
878

 
$
(68
)
 
$
1,083

 
$
10,404

Company’s equity in earnings of unconsolidated entities (3)
$
2,442

 
$
542

 
$
1,700

 
$
217

 
$
4,901


 
For the three months ended January 31, 2014
 
Land
Development
Joint Ventures
 
Home Building
Joint Ventures
 
Rental Property
Joint Ventures
 
Structured
Asset
Joint Venture
 
Total
Revenues
$
1,544

 
$
11,581

 
$
9,449

 
$
283

 
$
22,857

Cost of revenues
681

 
10,374

 
3,971

 
2,350

 
17,376

Other expenses
255

 
999

 
12,055

 
459

 
13,768

Total expenses
936

 
11,373

 
16,026

 
2,809

 
31,144

Gain on disposition of loans and REO


 


 


 
3,908

 
3,908

Income (loss) from operations
608

 
208

 
(6,577
)
 
1,382

 
(4,379
)
Other income
1

 
39

 
42,858

 
123

 
43,021

Net income
609

 
247

 
36,281

 
1,505

 
38,642

Less: income attributable to noncontrolling interest

 

 

 
(903
)
 
(903
)
Net income attributable to controlling interest
609

 
247

 
36,281

 
602

 
37,739

Other comprehensive income

 

 
786

 

 
786

Total comprehensive income
$
609

 
$
247

 
$
37,067

 
$
602

 
$
38,525

Company’s equity in earnings (losses) of unconsolidated entities (3)
$
(32
)
 
$
182

 
$
23,750

 
$
(985
)
 
$
22,915


(3)
Differences between our equity in earnings (losses) of unconsolidated entities and the underlying net income (loss) of the entities is primarily a result of a basis difference of an acquired joint venture interest, distributions from entities in excess of the carrying amount of our net investment, and our share of the entities’ profits related to home sites purchased by us which reduces our cost basis of the home sites acquired.

13



5. Investments in Distressed Loans and Foreclosed Real Estate
Investments in distressed loans and foreclosed real estate (“REO”) consisted of the following as of the dates indicated (amounts in thousands):
 
January 31,
2015
 
October 31,
2014
Investment in distressed loans
$
4,001

 
$
4,001

Investment in REO
66,934

 
69,799

 
$
70,935

 
$
73,800

In prior periods, we presented our investments in distressed loans and REO in two separate line items on our Condensed Consolidated Balance Sheets. Our Condensed Consolidated Balance Sheet at October 31, 2014 has been reclassified to conform to the fiscal 2015 presentation.
Investments in Distressed Loans
Our investments in distressed loans represent non-performing loans classified as nonaccrual in accordance with ASC 310-10, “Receivable.” Interest income is not recognized on nonaccrual loans. When a loan is classified as nonaccrual, any subsequent cash receipt is accounted for using the cost recovery method.
Investments in REO
The table below provides, for the periods indicated, the activity in REO (amounts in thousands):
 
Three months ended January 31,
 
2015
 
2014
Balance, beginning of period
$
69,799

 
$
72,972

Additions
1,676

 
7,165

Sales
(4,286
)
 
(808
)
Impairments
(169
)
 


Depreciation
(86
)
 
(62
)
Balance, end of period
$
66,934

 
$
79,267

As of January 31, 2015 , approximately $10.0 million and $56.9 million of REO was classified as held-for-sale and held-and-used, respectively. As of January 31, 2014 , approximately $18.9 million and $60.4 million of REO was classified as held-for-sale and held-and-used, respectively. For the three -month periods ended January 31, 2015 and 2014 , we recorded gains of $0.2 million and $1.5 million , respectively, from acquisitions of REO through foreclosure.
General
Our earnings from Gibraltar’s operations, excluding our investment in the Structured Asset Joint Venture, are included in “Other income - net” in the Condensed Consolidated Statements of Operations and Comprehensive Income. In the three -month periods ended January 31, 2015 and 2014 , we recognized $0.8 million and $4.3 million of earnings (excluding earnings from our investment in the Structured Asset Joint Venture), respectively, from Gibraltar’s operations.
6. Loans Payable, Senior Notes and Mortgage Company Loan Facility
Loans Payable
At January 31, 2015 and October 31, 2014 , loans payable consisted of the following (amounts in thousands):
 
 
January 31,
2015
 
October 31,
2014
Senior unsecured term loan
 
$
500,000

 
$
500,000

Loans payable - other
 
165,652

 
154,261

 
 
$
665,652

 
$
654,261



14



Senior Unsecured Term Loan
On February 3, 2014, we entered into a five -year senior, $485.0 million , unsecured term loan facility (the “Term Loan Facility”) with a syndicate of banks. We borrowed the full amount of the Term Loan Facility on February 3, 2014. In October 2014, we increased the Term Loan Facility by $15.0 million and borrowed the full amount of the increase.
Borrowings under the Term Loan Facility accrue interest at a rate per annum equal to, at our option, (i) the London Interbank Offering Rate (“LIBOR”) plus an applicable margin, (ii) the base rate (which is defined as the greatest of (a) SunTrust Bank’s prime rate, (b) the federal funds effective rate plus 0.5% and (c) one-month LIBOR plus 1% ) plus an applicable margin or (iii) the federal funds / Euro rate (which is defined as the greater of (a) the sum of the federal funds effective rate plus an applicable margin plus 0.25% and (b) one-month LIBOR), with the applicable margin, in each case, determined based on our leverage ratio. At January 31, 2015 , the interest rate on borrowings under the Term Loan Facility was 1.57% per annum.
We and substantially all of our 100% -owned home building subsidiaries are guarantors under the Term Loan Facility. The Term Loan Facility contains substantially the same financial covenants as our Credit Facility, as described below. The Term Loan Facility will mature and amounts owing thereunder will become due and payable on February 3, 2019.
Loans Payable - Other
Our “loans payable - other” represent purchase money mortgages on properties we acquired that the seller had financed and various revenue bonds that were issued by government entities on behalf of us to finance community infrastructure and our manufacturing facilities. At January 31, 2015 , the weighted-average interest rate on “loans payable - other” was 4.21% per annum.
Credit Facility
On August 1, 2013, we entered into a $1.035 billion unsecured, five -year revolving credit facility (“Credit Facility”) with a syndicate of banks (“Aggregate Credit Commitment”). The commitments under the Credit Facility are scheduled to expire on August 1, 2018 . Up to 75% of the Aggregate Credit Commitment is available for the issuance of letters of credit. The Credit Facility has an accordion feature under which we may, subject to certain conditions set forth in the agreement, increase the commitments under the Credit Facility up to a maximum aggregate amount of $2.0 billion . We may select interest rates for the Credit Facility equal to (i) LIBOR plus an applicable margin or (ii) the lenders’ base rate plus an applicable margin, which in each case is determined based on our credit rating and leverage ratio. At January 31, 2015 , the interest rate on outstanding borrowings determined under the Credit Facility would have been 1.86% per annum. We are obligated to pay an undrawn commitment fee to the lenders under the Credit Facility which is based on the average daily unused amount of the Aggregate Credit Commitment and our credit ratings and leverage ratio. Any proceeds from borrowings under the Credit Facility may be used for general corporate purposes. We and substantially all of our 100% -owned home building subsidiaries are guarantors under the Credit Facility.
Under the terms of the Credit Facility, our maximum leverage ratio (as defined in the credit agreement) may not exceed 1.75 to 1.00 and we are required to maintain a minimum tangible net worth (as defined in the credit agreement) of no less than approximately $2.52 billion . Under the terms of the Credit Facility, at January 31, 2015 , our leverage ratio was approximately 0.72 to 1.00 and our tangible net worth was approximately $3.91 billion . Based upon the minimum tangible net worth requirement in the Credit Facility, our ability to repurchase our common stock was limited to approximately $1.85 billion as of January 31, 2015 .
At January 31, 2015 , we had no outstanding borrowings under the Credit Facility and had outstanding letters of credit of approximately $102.1 million .
Senior Notes
At January 31, 2015 , we, through Toll Brothers Finance Corp, had eight issues of Senior Notes outstanding with an aggregate principal amount of $2.66 billion .
In March 2014, we repaid the $268.0 million of the then outstanding principal amount of 4.95% Senior Notes due March 15, 2014.
In November 2013, we issued $350.0 million aggregate principal amount of 4.0% Senior Notes due 2018 (the “ 4.0% Senior Notes”) and $250.0 million aggregate principal amount of 5.625% Senior Notes due 2024 (the “ 5.625% Senior Notes”). We received $596.2 million of net proceeds from the issuance of the 4.0% Senior Notes and the 5.625% Senior Notes.

15



Mortgage Company Loan Facility
In July 2014, TBI Mortgage ® Company (“TBI Mortgage”), our wholly-owned mortgage subsidiary, amended its Master Repurchase Agreement (the “Repurchase Agreement”) with Comerica Bank. The purpose of the Repurchase Agreement is to finance the origination of mortgage loans by TBI Mortgage, and the Repurchase Agreement is accounted for as a secured borrowing under ASC 860, “Transfers and Servicing.” The Repurchase Agreement, as amended, provides for loan purchases up to $50.0 million , subject to certain sublimits. In addition, the Repurchase Agreement provides for an accordion feature under which TBI Mortgage may request that the aggregate commitments under the Repurchase Agreement be increased to an amount up to $100.0 million for a short period of time. The Repurchase Agreement, as amended, expires on July 21, 2015 and borrowings thereunder bear interest at LIBOR plus 2.00% per annum, with a minimum rate of 2.00% . At January 31, 2015 , the interest rate on the Repurchase Agreement was 2.17% per annum. At January 31, 2015 , we had $46.6 million of outstanding borrowings under the Repurchase Agreement.
7. Accrued Expenses
Accrued expenses at January 31, 2015 and October 31, 2014 consisted of the following (amounts in thousands):
 
January 31,
2015
 
October 31,
2014
Land, land development and construction
$
106,178

 
$
124,816

Compensation and employee benefits
118,237

 
118,607

Self-insurance
105,166

 
100,407

Warranty
84,695

 
86,282

Interest
38,187

 
33,993

Commitments to unconsolidated entities
4,749

 
3,293

Other
119,858

 
114,079

 
$
577,070

 
$
581,477

Prior to the third quarter of fiscal 2014, we received stucco-related claims in certain completed communities located in Pennsylvania and Delaware, which are in our Mid-Atlantic region. During the third quarter of fiscal 2014, the rate of claims increased. Through the third quarter of fiscal 2014, we believed that our warranty accruals, self-insurance accruals, and our liability insurance were adequate to cover our cost of repairs for those claims. The rate of claims continued to increase during the fourth quarter of fiscal 2014. In response, we undertook a comprehensive review of homes in completed communities built during fiscal 2003 through fiscal 2009 in Pennsylvania and Delaware. Our review revealed that additional stucco-related repairs will likely be needed in these communities. As of October 31, 2014, we estimated our potential liability for known and unknown claims to be approximately $54.0 million , of which we expect to recover approximately 40% from our outside insurance carriers. In addition to previously recognized warranty and self-insurance accruals, we recognized a $25.0 million additional charge in the fourth quarter of fiscal 2014 for estimated repair costs. Our review included an analysis of the number of claims received, our inspection to-date of homes, an estimate of the number of homes we expect to repair and the extent of such repairs, and the amount of warranty and self-insurance reserves already recorded. We reviewed our potential liability again at January 31, 2015 and we believe that our existing reserves and insurance were sufficient. We will continue to review and analyze these claims as they are submitted, and, due to the degree of judgment required and the potential for variability in our underlying assumptions, our actual future costs could differ from those estimated. The above charge was included in “Cost of revenues” in our Consolidated Statements of Operations and Comprehensive Income included in our Annual Report on Form 10-K for the year ended October 31, 2014.
We have received construction claims brought by three related multifamily community associations in the West region alleging issues with design and construction and damage to exterior common area elements. Our investigations of these matters are in the very early stages. We believe we have coverage under multiple owner controlled insurance policies with deductibles or self-insured retention requirements that vary from policy year to policy year. Our review of these matters is ongoing, and, due to the degree of judgment required, the potential for variability in our underlying assumptions, and the availability of insurance coverage, our actual future costs could differ from our estimates.

We do not believe that any resolution of the above matters in excess of the amounts currently accrued would be material to our financial condition.

16



We accrue for expected warranty costs at the time each home is closed and title and possession are transferred to the home buyer. Warranty costs are accrued based upon historical experience. The table below provides, for the periods indicated, a reconciliation of the changes in our warranty accrual (amounts in thousands):
 
Three months ended January 31,
 
2015
 
2014
Balance, beginning of period
$
86,282

 
$
43,819

Additions - homes closed during the period
3,918

 
3,097

Increase in accruals for homes closed in prior years
868

 
344

Charges incurred
(6,373
)
 
(4,572
)
Balance, end of period
$
84,695

 
$
42,688

8. Income Taxes
We recorded an income tax provision of $42.7 million and $25.7 million for the three months ended January 31, 2015 and 2014 , respectively. The effective tax rate for the three months ended January 31, 2015 was 34.4% , compared to 36.0% for the three months ended January 31, 2014 . The income tax provisions for both periods included tax benefits related to the utilization of domestic production activities deductions and other permanent differences, offset by the provision for state income taxes and interest accrued on anticipated tax assessments.    
We currently operate in 19 states and are subject to various state tax jurisdictions. We estimate our state tax liability based upon the individual taxing authorities’ regulations, estimates of income by taxing jurisdiction, and our ability to utilize certain tax-saving strategies. Based on our estimate of the allocation of income or loss among the various taxing jurisdictions and changes in tax regulations and their impact on our tax strategies, we estimate our rate for the full fiscal year for state income taxes at 6.8% and 7.2% for fiscal 2015 and 2014 , respectively.
For state tax purposes, due to past and projected losses in certain jurisdictions where we do not have carryback potential and/or cannot sufficiently forecast future taxable income, we recognized net cumulative valuation allowances against our state deferred tax assets of $43.6 million and $43.8 million as of January 31, 2015 and October 31, 2014 , respectively.
At January 31, 2015 , we had $59.8 million of gross unrecognized tax benefits, including interest and penalties. If these unrecognized tax benefits reverse in the future, they would have a beneficial impact on our effective tax rate at that time. During the next 12 months, it is reasonably possible that our unrecognized tax benefits may decrease by up to $31.1 million , primarily due to the expiration of certain statutes of limitations and potential settlements with taxing jurisdictions.
9. Stock-Based Benefit Plans
We grant stock options and various types of restricted stock units to our employees and our non-employee directors. Additionally, we have an employee stock purchase plan that allows employees to purchase our stock at a discount.
Information regarding the amount of total stock-based compensation expense and tax benefit recognized by us, for the periods indicated, is as follows (amounts in thousands):
 
Three months ended January 31,
 
2015
 
2014
Total stock-based compensation expense recognized
$
7,446

 
$
7,669

Income tax benefit recognized
$
2,809

 
$
2,972

At January 31, 2015 and October 31, 2014 , the aggregate unamortized value of outstanding stock-based compensation awards was approximately $39.7 million and $24.0 million , respectively.

17




10. Accumulated Other Comprehensive Loss
The tables below provide, for the periods indicated, the components of accumulated other comprehensive loss (amounts in thousands):
 
 
Three months ended January 31, 2015
 
 
Employee retirement plans
 
Available-for-sale securities
 
Derivative instruments
 
Total
Balance, beginning of period
 
$
(2,789
)
 
$
(2
)
 
$
(47
)
 
$
(2,838
)
Other comprehensive (loss) income before reclassifications
 
(501
)
 
3

 
(11
)
 
(509
)
Gross amounts reclassified from accumulated other comprehensive income
 
216

 

 


 
216

Income tax benefit (expense)
 
107

 
(1
)
 
4

 
110

Other comprehensive (loss) income, net of tax
 
(178
)
 
2

 
(7
)
 
(183
)
Balance, end of period
 
$
(2,967
)
 
$

 
$
(54
)
 
$
(3,021
)
 
 
Three months ended January 31, 2014
 
 
Employee retirement plans
 
Available-for-sale securities
 
Derivative instruments
 
Total
Balance, beginning of period
 
$
(2,112
)
 
$
(5
)
 
$
(270
)
 
$
(2,387
)
Other comprehensive (loss) income before reclassifications
 
(77
)
 
(29
)
 
393

 
287

Gross amounts reclassified from accumulated other comprehensive income (loss)
 
164

 
(21
)
 

 
143

Income tax (expense) benefit
 
(34
)
 
19

 
(152
)
 
(167
)
Other comprehensive income (loss), net of tax
 
53

 
(31
)
 
241

 
263

Balance, end of period
 
$
(2,059
)
 
$
(36
)
 
$
(29
)
 
$
(2,124
)
 
 
Reclassifications for the amortization of the employee retirement plans are included in “Selling, general and administrative” expense in the Condensed Consolidated Statements of Operations and Comprehensive Income. Reclassifications for the realized gains on available-for-sale securities are included in “Other income - net” in the Condensed Consolidated Statements of Operations and Comprehensive Income.
11. Stock Issuance and Stock Repurchase Program

Stock Issuance
    
In November 2013, in anticipation of the Acquisition, we issued 7.2 million shares of our common stock, par value $0.01 per share, at a price to the public of $32.00 per share. We received $220.4 million of net proceeds from the issuance.
Stock Repurchase Program
In March 2003, our Board of Directors authorized the repurchase of up to 20 million shares of our common stock in open market transactions or otherwise for the purpose of providing shares for our various employee benefit plans.
On December 16, 2014, our Board of Directors authorized the repurchase of 20 million shares of our common stock in open market transactions or otherwise for the purpose of providing shares for the Company’s equity award and other employee benefit plans and for any other additional purpose or purposes as may be determined from time to time by the Board of Directors. Additionally, our Board of Directors terminated, effective December 31, 2014, our March 2003 share repurchase program.

18



The table below provides, for the periods indicated, information about our share repurchase programs:
 
Three months ended January 31,
 
2015
 
2014
Number of shares purchased (in thousands)
201

 
3

Average price per share
$
31.08

 
$
33.23

Remaining authorization at January 31 (in thousands)
19,999

 
8,266

12. Income per Share Information
The table below provides, for the periods indicated, information pertaining to the calculation of income per share, common stock equivalents, weighted-average number of antidilutive options, and shares issued (amounts in thousands):
 
Three months ended January 31,
 
2015
 
2014
Numerator:
 
 
 
Net income as reported
$
81,325

 
$
45,580

Plus interest and costs attributable to 0.5% Exchangeable Senior Notes, net of income tax benefit
394

 
397

Numerator for diluted earnings per share
$
81,719

 
$
45,977

 
 
 
 
Denominator:
 
 
 
Basic weighted-average shares
176,076

 
176,474

Common stock equivalents (a)
2,173

 
2,556

Shares attributable to 0.5% Exchangeable Senior Notes
5,858

 
5,858

Diluted weighted-average shares
184,107

 
184,888

 
 
 
 
Other information:
 
 
 
Weighted-average number of antidilutive options and restricted stock units (b)
2,367

 
1,602

Shares issued under stock incentive and employee stock purchase plans
677

 
1,013

(a)
Common stock equivalents represent the dilutive effect of outstanding in-the-money stock options using the treasury stock method and shares expected to be issued under Performance-Based Restricted Stock Units and Nonperformance-Based Restricted Stock Units.
(b)
Based upon the average closing price of our common stock on the NYSE for the period.
13. Fair Value Disclosures
Financial Instruments
The table below provides, as of the dates indicated, a summary of assets (liabilities) related to our financial instruments, measured at fair value on a recurring basis (amounts in thousands):
 
 
 
Fair value
Financial Instrument
Fair value
hierarchy
 
January 31,
2015
 
October 31, 2014
Marketable Securities
Level 2
 
$
10,022

 
$
12,026

Residential Mortgage Loans Held for Sale
Level 2
 
$
55,945

 
$
101,944

Forward Loan Commitments—Residential Mortgage Loans Held for Sale
Level 2
 
$
(189
)
 
$
(341
)
Interest Rate Lock Commitments (“IRLCs”)
Level 2
 
$
156

 
$
(108
)
Forward Loan Commitments—IRLCs
Level 2
 
$
(156
)
 
$
108

At January 31, 2015 and October 31, 2014 , the carrying value of cash and cash equivalents and restricted cash approximated fair value.

19



Marketable Securities
The fair value of our marketable securities approximates the amortized cost basis as of January 31, 2015 and October 31, 2014 . The estimated fair values of marketable securities are based on quoted prices provided by brokers. The remaining contractual maturity of marketable securities as of January 31, 2015 was ten months .
Mortgage Loans Held for Sale
The table below provides, as of the dates indicated, the aggregate unpaid principal and fair value of mortgage loans held for sale (amounts in thousands):
 
Aggregate unpaid
principal balance
 
Fair value
 
Excess
At January 31, 2015
$
55,170

 
$
55,945

 
$
775

At October 31, 2014
$
100,463

 
$
101,944

 
$
1,481

At the end of the reporting period, we determine the fair value of our mortgage loans held for sale and the forward loan commitments we have entered into as a hedge against the interest rate risk of our mortgage loans using the market approach to determine fair value. The evaluation is based on the current market pricing of mortgage loans with similar terms and values as of the reporting date and by applying such pricing to the mortgage loan portfolio. We recognize the difference between the fair value and the unpaid principal balance of mortgage loans held for sale as a gain or loss. In addition, we recognize the fair value of our forward loan commitments as a gain or loss. These gains and losses are included in “Other income - net.” Interest income on mortgage loans held for sale is calculated based upon the stated interest rate of each loan and is included in “Other income - net.”
IRLCs represent individual borrower agreements that commit us to lend at a specified price for a specified period as long as there is no violation of any condition established in the commitment contract. These commitments have varying degrees of interest rate risk. We utilize best efforts forward loan commitments (“Forward Commitments”) to hedge the interest rate risk of the IRLCs and residential mortgage loans held for sale. Forward Commitments represent contracts with third-party investors for the future delivery of loans whereby we agree to make delivery at a specified future date at a specified price. The IRLCs and Forward Commitments are considered derivative financial instruments under ASC 815, “Derivatives and Hedging,” which requires derivative financial instruments to be recorded at fair value. We estimate the fair value of such commitments based on the estimated fair value of the underlying mortgage loan and, in the case of IRLCs, the probability that the mortgage loan will fund within the terms of the IRLC. The fair values of IRLCs and forward loan commitments are included in either “Receivables, prepaid expenses and other assets” or “Accrued expenses” as appropriate. To manage the risk of non-performance of investors regarding the Forward Commitments, we assess the credit worthiness of the investors on a periodic basis.

20



Inventory
We recognize inventory impairment charges based on the difference in the carrying value of the inventory and its fair value at the time of the evaluation. The fair value of the aforementioned inventory was determined using Level 3 criteria. Estimated fair value is primarily determined by discounting the estimated future cash flow of each community. See Note 1, “Significant Accounting Policies – Inventory” in our Annual Report on Form 10-K for the year ended October 31, 2014 for additional information regarding our methodology on determining fair value. As further discussed in Note 1 in our Annual Report on Form 10-K for the year ended October 31, 2014 , determining the fair value of a community’s inventory involves a number of variables, many of which are interrelated. If we used a different input for any of the various unobservable inputs used in our impairment analysis, the results of the analysis may have been different, absent any other changes. The table below summarizes, for the periods indicated, the ranges of certain quantitative unobservable inputs utilized in determining the fair value of impaired communities:
Three months ended:
Selling price per unit
(in thousands)
 
Sales pace per year
(in units)
 
Discount rate
Fiscal 2015:
 
 
 
 
 
January 31
$289 - $680
 
1 - 7
 
13.5% - 16.0%
 
 
 
 
 
 
Fiscal 2014:
 
 
 
 
 
January 31
$388 - $405
 
21 - 23
 
16.6%
April 30
$634 - $760
 
4 - 7
 
12.0% - 15.3%
July 31
$698 - $1,233
 
10 - 22
 
15.9%
October 31
$337 - $902
 
7 - 23
 
12.5% - 16.5%
The table below provides, for the periods indicated, the fair value of operating communities whose carrying value was adjusted and the amount of impairment charges recognized ($ amounts in thousands):
 
 
 
Impaired operating communities
Three months ended:
Number of
communities tested
 
Number of
communities
 
Fair value of
communities,
net of
impairment charges
 
Impairment charges
Fiscal 2015:
 
 
 
 
 
 
 
January 31
58
 
4
 
$
24,968

 
$
900

 
 
 
 
 
 
 
$
900

Fiscal 2014:
 
 
 
 
 
 
 
January 31
67
 
1
 
$
7,131

 
$
1,300

April 30
65
 
2
 
$
6,211

 
1,600

July 31
63
 
1
 
$
14,122

 
4,800

October 31
55
 
7
 
$
38,473

 
9,855

 
 
 
 
 
 
 
$
17,555

Investments in REO
Gibraltar’s REO was recorded at estimated fair value at the time it was acquired through foreclosure or deed in lieu actions using Level 3 inputs. The valuation techniques used to estimate fair value are third-party appraisals, broker opinions of value, or internal valuation methodologies (which may include discounted cash flows, capitalization rate analysis, or comparable transactional analysis). Unobservable inputs used in estimating the fair value of REO assets are based upon the best information available under the circumstances and take into consideration the financial condition and operating results of the asset, local market conditions, the availability of capital, interest and inflation rates, and other factors deemed appropriate by management.

21



Debt
The table below provides, as of the dates indicated, the book value and estimated fair value of our debt (amounts in thousands):
 
 
 
January 31, 2015
 
October 31, 2014
 
Fair value
hierarchy
 
Book value
 
Estimated
fair value
 
Book value
 
Estimated
fair value
Loans payable (a)
Level 2
 
$
665,652

 
$
661,233

 
$
654,261

 
$
652,944

Senior notes (b)
Level 1
 
2,657,376

 
2,822,338

 
2,657,376

 
2,821,559

Mortgage company loan facility (c)
Level 2
 
46,559

 
46,559

 
90,281

 
90,281

 
 
 
$
3,369,587

 
$
3,530,130

 
$
3,401,918

 
$
3,564,784

(a)
The estimated fair value of loans payable was based upon contractual cash flows discounted at interest rates that we believed were available to us for loans with similar terms and remaining maturities as of the applicable valuation date.
(b)
The estimated fair value of our senior notes is based upon their indicated market prices.
(c)
We believe that the carrying value of our mortgage company loan borrowings approximates their fair value.
14. Other Income - Net
The table below provides, for the periods indicated, the components of other income - net (amounts in thousands):
 
Three months ended January 31,
 
2015
 
2014
Interest income
$
488

 
$
1,064

Income from ancillary businesses
10,839

 
1,613

Gibraltar
822

 
4,332

Management fee income from unconsolidated entities
2,979

 
1,227

Retained customer deposits
1,340

 
888

Income from land sales
4,817

 
6,258

Other
731

 
1,159

Total other income - net
$
22,016

 
$
16,541

In the three months ended January 31, 2015, our security monitoring business recognized an $8.1 million gain from a bulk sale of security monitoring accounts, which is included in income from ancillary businesses above. In the three month period ended January 31, 2014, income from land sales includes $2.9 million of previously deferred gains on our initial sales of the properties to Trust II as further described in Note 4, “Investments in and Advances to Unconsolidated Entities.”
Income from ancillary businesses includes the activity of our non-core businesses which include our mortgage, title, landscaping, security monitoring, and golf course and country club operations. The table below provides, for the periods indicated, revenues and expenses for our non-core ancillary businesses (amounts in thousands):
 
Three months ended January 31,
 
2015
 
2014
Revenue
$
31,280

 
$
20,940

Expense
$
20,441

 
$
19,327

The table below provides, for the periods indicated, revenues and expenses recognized from land sales (amounts in thousands):
 
Three months ended January 31,
 
2015
 
2014
Revenue
$
104,021

 
$
11,028

Deferred gain on land sale to joint venture
(9,260
)
 


Expense
(89,944
)
 
(4,770
)
Income from land sales
$
4,817

 
$
6,258

Land sale revenues, for the three months ended January 31, 2015, include $78.5 million related to property sold to a Home Building Joint Venture in which we have a 25% interest. Due to our continued involvement in the joint venture through our

22



ownership interest and guarantees provided on the joint venture’s debt, we deferred the $9.3 million gain realized on the sale. We will recognize the gain as units are sold to the ultimate home buyer. See Note 4, “Investments in and Advances to Unconsolidated Entities” for more information on this transaction.
15. Commitments and Contingencies
Legal Proceedings
We are involved in various claims and litigation arising principally in the ordinary course of business. We believe that adequate provision for resolution of all current claims and pending litigation has been made for probable losses. We believe that the disposition of these matters will not have a material adverse effect on our results of operations and liquidity or on our financial condition.
Investments in and Advances to Unconsolidated Entities
At January 31, 2015 , we had investments in and advances to a number of unconsolidated entities, were committed to invest or advance additional funds, and had guaranteed a portion of the indebtedness and/or loan commitments of these entities. See Note 4, “Investments in and Advances to Unconsolidated Entities,” for more information regarding our commitments to these entities.
Land Purchase Commitments
Generally, our purchase agreements to acquire land parcels do not require us to purchase those land parcels, although we, in some cases, forfeit any deposit balance outstanding if and when we terminate a purchase agreement. If market conditions are weak, approvals needed to develop the land are uncertain, or other factors exist that make the purchase undesirable, we may choose not to acquire the land. Whether a purchase agreement is legally terminated or not, we review the amount recorded for the land parcel subject to the purchase agreement to determine if the amount is recoverable. While we may not formally terminate the purchase agreements for those land parcels that we do not expect to acquire, we write off any non-refundable deposits and costs previously capitalized to such land parcels in the periods that we determine such costs are not recoverable.
Information regarding our land purchase commitments, as of the dates indicated, is provided in the table below (amounts in thousands):
 
January 31, 2015
 
October 31, 2014
Aggregate purchase commitments:
 
 
 
Unrelated parties
$
901,081

 
$
1,043,654

Unconsolidated entities that the Company has investments in
180,602

 
184,260

Total
$
1,081,683

 
$
1,227,914

Deposits against aggregate purchase commitments
$
70,499

 
$
103,422

Additional cash required to acquire land
1,011,184

 
1,124,492

Total
$
1,081,683

 
$
1,227,914

Amount of additional cash required to acquire land in accrued expenses
$
838

 
$
764

In addition, we expect to purchase approximately 3,300 additional home sites from several joint ventures in which we have interests; the purchase prices of these home sites will be determined at a future date.
At January 31, 2015 , we also had purchase commitments to acquire land for apartment developments of approximately $29.9 million , of which we had outstanding deposits in the amount of $0.9 million .
In November 2014, we closed on a 99 -year ground lease on land located within the metro New York market where we intend to develop a high-rise luxury cooperative-owned residential building. In August 2014, we paid $4.7 million representing two years of prepaid rent under the ground lease, which is included in “Deposits against aggregate purchase commitments” above. Under the terms of the ground lease, once final approvals are received, we will be required to make an additional payment of $17.5 million . This additional required payment is included in “Aggregate purchase commitments - Unrelated parties” above. As we deliver homes to our home buyers, the obligation under this lease will transfer to the building’s cooperative. We expect to deliver all homes by fiscal 2018; therefore, we have included two years of additional rent payments totaling $4.7 million that we expect to pay which is also included in “Aggregate purchase commitments - Unrelated parties” above.
We have additional land parcels under option that have been excluded from the aforementioned aggregate purchase amounts since we do not believe that we will complete the purchase of these land parcels and no additional funds will be required from us to terminate these contracts.

23



Surety Bonds and Letters of Credit
At January 31, 2015 , we had outstanding surety bonds amounting to $603.6 million , primarily related to our obligations to governmental entities to construct improvements in our communities. We estimate that $370.4 million of work remains on these improvements. We have an additional $97.6 million of surety bonds outstanding that guarantee other obligations. We do not believe that it is probable that any outstanding bonds will be drawn upon.
At January 31, 2015 , we had outstanding letters of credit of $102.1 million under our Credit Facility. These letters of credit were issued to secure our various financial obligations including insurance policy deductibles and other claims, land deposits, and security to complete improvements in communities which we are operating. We do not believe that it is probable that any outstanding letters of credit will be drawn upon.
Warranty and Self-Insurance
See Note 7, “Accrued Expenses,” for additional information regarding our obligations related to warranty and self-insurance matters.
Backlog
At January 31, 2015 , we had agreements of sale outstanding to deliver 3,651 homes with an aggregate sales value of $2.74 billion .
Mortgage Commitments
Our mortgage subsidiary provides mortgage financing for a portion of our home closings. For those home buyers to whom our mortgage subsidiary provides mortgages, we determine whether the home buyer qualifies for the mortgage based upon information provided by the home buyer and other sources. For those home buyers who qualify, our mortgage subsidiary provides the home buyer with a mortgage commitment that specifies the terms and conditions of a proposed mortgage loan based upon then-current market conditions. Prior to the actual closing of the home and funding of the mortgage, the home buyer will lock in an interest rate based upon the terms of the commitment. At the time of rate lock, our mortgage subsidiary agrees to sell the proposed mortgage loan to one of several outside recognized mortgage financing institutions (“investors”) that is willing to honor the terms and conditions, including interest rate, committed to the home buyer. We believe that these investors have adequate financial resources to honor their commitments to our mortgage subsidiary.
Information regarding our mortgage commitments, as of the dates indicated, is provided in the table below (amounts in thousands):
 
January 31,
2015
 
October 31, 2014
Aggregate mortgage loan commitments:
 
 
 
IRLCs
$
234,576

 
$
191,604

Non-IRLCs
720,270

 
709,401

Total
$
954,846

 
$
901,005

Investor commitments to purchase:
 
 
 
IRLCs
$
234,576

 
$
191,604

Mortgage loans receivable
48,094

 
93,261

Total
$
282,670

 
$
284,865


24




16. Information on Operating Segments
We operate in two segments: traditional home building and urban infill. We build and sell homes in traditional home building markets consisting of detached and attached homes in luxury residential communities located in affluent suburban markets which cater to move-up, empty-nester, active-adult, age-qualified, and second-home buyers in the United States (“Traditional Home Building”). We also build and sell homes in urban infill markets through Toll Brothers City Living ® (“City Living”).
We have determined that our Traditional Home Building operations operate in four geographic segments: North, Mid-Atlantic, South, and West. The states comprising each geographic segment are as follows:
North:    Connecticut, Illinois, Massachusetts, Michigan, Minnesota, New Jersey, and New York
Mid-Atlantic:    Delaware, Maryland, Pennsylvania, and Virginia
South:    Florida, North Carolina, and Texas
West:    Arizona, California, Colorado, Nevada, and Washington
Revenue and income (loss) before income taxes for each of our reportable and geographic segments, for the periods indicated, were as follows (amounts in thousands):  
 
Three months ended January 31,
 
2015
 
2014
Revenues:
 
 
 
Traditional Home Building:
 
 
 
North
$
132,436

 
$
127,644

Mid-Atlantic
163,388

 
169,096

South
161,867

 
150,559

West
287,942

 
186,226

Traditional Home Building
745,633

 
633,525

City Living
107,819

 
10,156

Total
$
853,452

 
$
643,681

 
 
 
 
Income (loss) before income taxes:
 
 
 
Traditional Home Building:
 
 
 
North
$
10,567

 
$
8,346

Mid-Atlantic
18,724

 
21,551

South
23,324

 
17,368

West
45,359

 
34,668

Traditional Home Building
97,974

 
81,933

City Living
51,345

 
(1,058
)
Corporate and other
(25,296
)
 
(9,640
)
Total
$
124,023

 
$
71,235

“Corporate and other” is comprised principally of general corporate expenses such as the offices of our executive officers and the corporate finance, accounting, audit, tax, human resources, risk management, information technology, marketing, and legal groups; interest income and income from certain of our ancillary businesses, including Gibraltar; and income from a number of our unconsolidated entities.

25



Total assets for each of our reportable and geographic segments, as of the dates indicated, are shown in the table below (amounts in thousands).  
 
January 31,
2015
 
October 31,
2014
Traditional Home Building:
 
 
 
North
$
1,075,858

 
$
1,053,787

Mid-Atlantic
1,281,066

 
1,267,563

South
1,208,771

 
1,165,600

West
2,729,539

 
2,676,164

Traditional Home Building
6,295,234

 
6,163,114

City Living
866,462

 
834,949

Corporate and other
1,259,923

 
1,418,839

Total
$
8,421,619

 
$
8,416,902

“Corporate and other” is comprised principally of cash and cash equivalents, marketable securities, restricted cash, deferred tax assets, the assets of our Gibraltar investments, manufacturing facilities, and our mortgage subsidiary.
Inventory for each of our reportable and geographic segments, as of the dates indicated, is shown in the table below (amounts in thousands):
 
Land controlled for future communities
 
Land owned for future communities
 
Operating communities
 
Total
Balances at January 31, 2015:
 
 
 
 
 
 
 
Traditional Home Building:
 
 
 
 
 
 
 
North
$
10,388

 
$
180,634

 
$
864,404

 
$
1,055,426

Mid-Atlantic
31,206

 
213,218

 
1,004,616

 
1,249,040

South
9,032

 
211,894

 
853,102

 
1,074,028

West
15,521

 
1,400,454

 
1,225,709

 
2,641,684

Traditional Home Building
66,147

 
2,006,200

 
3,947,831

 
6,020,178

City Living
8,867

 
413,752

 
184,684

 
607,303

 
$
75,014

 
$
2,419,952

 
$
4,132,515

 
$
6,627,481

 
 
 
 
 
 
 
 
Balances at October 31, 2014:
 
 
 
 
 
 
 
Traditional Home Building:
 
 
 
 
 
 
 
North
$
12,007

 
$
171,780

 
$
834,266

 
$
1,018,053

Mid-Atlantic
29,169

 
209,506

 
994,859

 
1,233,534

South
10,971

 
219,904

 
793,835

 
1,024,710

West
22,122

 
1,391,028

 
1,177,820

 
2,590,970

Traditional Home Building
74,269

 
1,992,218

 
3,800,780

 
5,867,267

City Living
48,264

 
363,656

 
211,134

 
623,054

 
$
122,533

 
$
2,355,874

 
$
4,011,914

 
$
6,490,321


26



Investments in and advances to unconsolidated entities for each of our reportable and geographic segments, as of the dates indicated, are shown in the table below (amounts in thousands):
 
 
January 31,
2015
 
October 31,
2014
Traditional Home Building:
 
 
 
 
Mid-Atlantic
 
$
11,841

 
$
11,841

South
 
98,828

 
98,362

West
 
58,380

 
59,573

Traditional Home Building
 
169,049

 
169,776

City Living
 
178,223

 
159,953

Corporate and other
 
116,306

 
117,349

Total
 
$
463,578

 
$
447,078

“Corporate and other” is comprised of our investments in the Rental Property Joint Ventures, the Trust and Trust II, and the Structured Asset Joint Venture. In the first quarter of fiscal 2015, a Rental Property Joint Venture that was previously included in the Mid-Atlantic geographic segment was reclassified to “Corporate and other.” Our investment balance in this joint venture at October 31, 2014 of $12.4 million was reclassified in the table above to conform to the fiscal 2015 presentation.

17. Supplemental Disclosure to Condensed Consolidated Statements of Cash Flows
The following are supplemental disclosures to the Condensed Consolidated Statements of Cash Flows, for the periods indicated (amounts in thousands):  
 
Three months ended January 31,
 
2015
 
2014
Cash flow information:
 
 
 
Interest capitalized, net of amount paid
$
1,299

 
$
17,359

Income tax payments
$
102,772

 
$
4,961

Income tax refunds
$
71

 


Noncash activity:
 
 
 
Cost of inventory acquired through seller financing or municipal bonds, net
$
26,211

 
$
60,661

Reduction (increase) in inventory for our share of joint venture earnings in land purchased from unconsolidated entities and allocation of basis difference
$
2,324

 
$
(2,342
)
Defined benefit plan amendment
$
501

 
$
77

Increase in accrued expenses related to Stock Price-Based RSUs paid


 
$
4,968

Transfer of inventory to investment in unconsolidated entities


 
$
700

Unrealized (loss) gain on derivatives held by equity investees
$
(11
)
 
$
393

Increase in investments in unconsolidated entities for change in the fair value of debt guarantees
$
1,431

 
$
430

Miscellaneous decreases to investments in unconsolidated entities
$
(96
)
 
$
(450
)

27



18. Supplemental Guarantor Information
Our 100% -owned subsidiary, Toll Brothers Finance Corp. (the “Subsidiary Issuer”), has issued the following Senior Notes (amounts in thousands):
 
 
Original amount issued and amount outstanding at
 
 
January 31, 2015
5.15% Senior Notes due 2015
 
$
300,000

8.91% Senior Notes due 2017
 
$
400,000

4.0% Senior Notes due 2018
 
$
350,000

6.75% Senior Notes due 2019
 
$
250,000

5.875% Senior Notes due 2022
 
$
419,876

4.375% Senior Notes due 2023
 
$
400,000

5.625% Senior Notes due 2024
 
$
250,000

0.50% Exchangeable Senior Notes due 2032
 
$
287,500

The obligations of the Subsidiary Issuer to pay principal, premiums, if any, and interest are guaranteed jointly and severally on a senior basis by us and substantially all of our 100% -owned home building subsidiaries (the “Guarantor Subsidiaries”). The guarantees are full and unconditional. Our non-home building subsidiaries and several of our home building subsidiaries (together, the “Non-Guarantor Subsidiaries”) do not guarantee the debt. The Subsidiary Issuer generates no operating revenues and does not have any independent operations other than the financing of our other subsidiaries by lending the proceeds from the above-described debt issuances. The indentures under which the Senior Notes were issued provide that any of our subsidiaries that provide a guarantee of the Credit Facility will guarantee the Senior Notes. The indentures further provide that any Guarantor Subsidiary may be released from its guarantee so long as (i) no default or event of default exists or would result from release of such guarantee; (ii) the Guarantor Subsidiary being released has consolidated net worth of less than 5% of the Company’s consolidated net worth as of the end of our most recent fiscal quarter; (iii) the Guarantor Subsidiaries released from their guarantees in any fiscal year comprise in the aggregate less than 10% (or 15% if and to the extent necessary to permit the cure of a default) of our consolidated net worth as of the end of our most recent fiscal quarter; (iv) such release would not have a material adverse effect on our and our subsidiaries’ home building business; and (v) the Guarantor Subsidiary is released from its guaranty under the Credit Facility. If there are no guarantors under the Credit Facility, all Guarantor Subsidiaries under the indentures will be released from their guarantees.
Separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented because management has determined that such disclosures would not be material to investors.
Supplemental consolidating financial information of Toll Brothers, Inc., the Subsidiary Issuer, the Guarantor Subsidiaries, the Nonguarantor Subsidiaries and the eliminations to arrive at Toll Brothers, Inc. on a consolidated basis is presented below ($ amounts in thousands).

28



Condensed Consolidating Balance Sheet at January 31, 2015 :
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

 

 
365,900

 
135,000

 

 
500,900

Marketable securities

 

 


 
10,022

 

 
10,022

Restricted cash
15,211

 

 
1,652

 
599

 

 
17,462

Inventory

 

 
6,330,188

 
297,293

 

 
6,627,481

Property, construction and office equipment, net

 

 
125,316

 
16,780

 

 
142,096

Receivables, prepaid expenses and other assets

 
15,915

 
119,138

 
133,764

 
(18,468
)
 
250,349

Mortgage loans held for sale

 

 

 
55,945

 

 
55,945

Customer deposits held in escrow

 

 
29,424

 
1,255

 

 
30,679

Investments in and advances to unconsolidated entities

 

 
133,528

 
330,050

 

 
463,578

Investments in distressed loans and foreclosed real estate

 

 


 
70,935

 

 
70,935

Investments in and advances to consolidated entities
3,754,694

 
2,684,318

 
4,740

 


 
(6,443,752
)
 

Deferred tax assets, net of valuation allowances
252,172

 


 


 


 


 
252,172

 
4,022,077

 
2,700,233

 
7,109,886

 
1,051,643

 
(6,462,220
)
 
8,421,619

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Loans payable

 

 
665,652

 


 

 
665,652

Senior notes

 
2,628,457

 

 

 
26,964

 
2,655,421

Mortgage company loan facility

 

 

 
46,559

 

 
46,559

Customer deposits

 

 
221,118

 
5,326

 

 
226,444

Accounts payable

 

 
221,904

 
157

 

 
222,061

Accrued expenses

 
36,620

 
362,076

 
198,790

 
(20,416
)
 
577,070

Advances from consolidated entities

 


 
1,929,665

 
759,301

 
(2,688,966
)
 

Income taxes payable
65,768

 

 

 


 

 
65,768

Total liabilities
65,768

 
2,665,077

 
3,400,415

 
1,010,133

 
(2,682,418
)
 
4,458,975

Equity:
 
 
 
 
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
Common stock
1,779

 

 
48

 
3,006

 
(3,054
)
 
1,779

Additional paid-in capital
718,195

 
49,400

 


 
1,734

 
(51,134
)
 
718,195

Retained earnings (deficits)
3,313,360

 
(14,244
)
 
3,709,477

 
30,381

 
(3,725,614
)
 
3,313,360

Treasury stock, at cost
(74,058
)
 

 

 

 

 
(74,058
)
Accumulated other comprehensive loss
(2,967
)
 

 
(54
)
 

 


 
(3,021
)
Total stockholders’ equity
3,956,309

 
35,156

 
3,709,471

 
35,121

 
(3,779,802
)
 
3,956,255

Noncontrolling interest

 

 

 
6,389

 

 
6,389

Total equity
3,956,309

 
35,156

 
3,709,471

 
41,510

 
(3,779,802
)
 
3,962,644

 
4,022,077

 
2,700,233

 
7,109,886

 
1,051,643

 
(6,462,220
)
 
8,421,619


29



Condensed Consolidating Balance Sheet at October 31, 2014 :
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

 

 
455,714

 
130,601

 

 
586,315

Marketable securities

 

 
1,997

 
10,029

 

 
12,026

Restricted cash
15,211

 

 
2,070

 
1,061

 

 
18,342

Inventory

 

 
6,260,303

 
230,018

 

 
6,490,321

Property, construction and office equipment, net

 

 
126,586

 
16,424

 

 
143,010

Receivables, prepaid expenses and other assets


 
16,802

 
114,863

 
137,496

 
(17,589
)
 
251,572

Mortgage loans held for sale

 

 

 
101,944

 

 
101,944

Customer deposits held in escrow

 

 
39,912

 
2,161

 

 
42,073

Investments in and advances to unconsolidated entities

 

 
132,096

 
314,982

 

 
447,078

Investments in distressed loans and foreclosed real estate


 


 


 
73,800

 


 
73,800

Investments in and advances to consolidated entities
3,714,788

 
2,677,448

 
4,740

 


 
(6,396,976
)
 

Deferred tax assets, net of valuation allowances
250,421

 


 


 


 


 
250,421

 
3,980,420

 
2,694,250

 
7,138,281

 
1,018,516

 
(6,414,565
)
 
8,416,902

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Loans payable

 

 
653,269

 
992

 

 
654,261

Senior notes

 
2,625,712

 

 

 
29,332

 
2,655,044

Mortgage company loan facility

 

 

 
90,281

 

 
90,281

Customer deposits

 

 
221,084

 
2,715

 

 
223,799

Accounts payable

 

 
225,106

 
241

 

 
225,347

Accrued expenses

 
31,906

 
386,223

 
181,649

 
(18,301
)
 
581,477

Advances from consolidated entities

 


 
2,018,981

 
708,167

 
(2,727,148
)
 

Income taxes payable
125,996

 

 

 


 

 
125,996

Total liabilities
125,996

 
2,657,618

 
3,504,663

 
984,045

 
(2,716,117
)
 
4,556,205

Equity:
 
 
 
 
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
Common stock
1,779

 

 
48

 
3,006

 
(3,054
)
 
1,779

Additional paid-in capital
712,162

 
49,400

 


 
1,734

 
(51,134
)
 
712,162

Retained earnings (deficits)
3,232,035

 
(12,768
)
 
3,633,618

 
23,410

 
(3,644,260
)
 
3,232,035

Treasury stock, at cost
(88,762
)
 

 

 

 

 
(88,762
)
Accumulated other comprehensive loss
(2,790
)
 

 
(48
)
 

 


 
(2,838
)
Total stockholders’ equity
3,854,424

 
36,632

 
3,633,618

 
28,150

 
(3,698,448
)
 
3,854,376

Noncontrolling interest

 

 

 
6,321

 

 
6,321

Total equity
3,854,424

 
36,632

 
3,633,618

 
34,471

 
(3,698,448
)
 
3,860,697

 
3,980,420

 
2,694,250

 
7,138,281

 
1,018,516

 
(6,414,565
)
 
8,416,902






30



Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) for the three months ended January 31, 2015 :
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues

 

 
862,154

 
15,602

 
(24,304
)
 
853,452

Cost of revenues

 

 
652,212

 
1,666

 
(3,846
)
 
650,032

Selling, general and administrative
14

 
908

 
112,043

 
13,389

 
(20,040
)
 
106,314

 
14

 
908

 
764,255

 
15,055

 
(23,886
)
 
756,346

Income (loss) from operations
(14
)
 
(908
)
 
97,899

 
547

 
(418
)
 
97,106

Other:
 
 
 
 
 
 
 
 
 
 
 
Income from unconsolidated entities

 

 
4,722

 
179

 

 
4,901

Other income - net
2,370

 


 
10,233

 
10,585

 
(1,172
)
 
22,016

Intercompany interest income

 
36,193

 


 


 
(36,193
)
 

Interest expense

 
(37,652
)
 


 
(131
)
 
37,783

 

Income from subsidiaries
121,667

 

 
8,813

 

 
(130,480
)
 

Income (loss) before income taxes
124,023

 
(2,367
)
 
121,667

 
11,180

 
(130,480
)
 
124,023

Income tax provision (benefit)
42,698

 
(891
)
 
45,808

 
4,209

 
(49,126
)
 
42,698

Net income (loss)
81,325

 
(1,476
)
 
75,859

 
6,971

 
(81,354
)
 
81,325

Other comprehensive loss
(178
)
 


 
(5
)
 


 


 
(183
)
Total comprehensive income (loss)
81,147

 
(1,476
)
 
75,854

 
6,971

 
(81,354
)
 
81,142


Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) for the three months ended January 31, 2014 :
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues

 

 
650,772

 
15,602

 
(22,693
)
 
643,681

Cost of revenues

 

 
515,637

 
2,602

 
(4,207
)
 
514,032

Selling, general and administrative
55

 
937

 
102,700

 
13,637

 
(19,459
)
 
97,870

 
55

 
937

 
618,337

 
16,239

 
(23,666
)
 
611,902

Income (loss) from operations
(55
)
 
(937
)
 
32,435

 
(637
)
 
973

 
31,779

Other:
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from unconsolidated entities

 

 
24,207

 
(1,292
)
 

 
22,915

Other income - net
2,365

 


 
10,572

 
6,200

 
(2,596
)
 
16,541

Intercompany interest income

 
38,144

 


 


 
(38,144
)
 

Interest expense

 
(39,574
)
 


 
(193
)
 
39,767

 

Income from subsidiaries
68,925

 

 
1,711

 

 
(70,636
)
 

Income (loss) before income taxes
71,235

 
(2,367
)
 
68,925

 
4,078

 
(70,636
)
 
71,235

Income tax provision (benefit)
25,655

 
(928
)
 
27,012

 
1,598

 
(27,682
)
 
25,655

Net income (loss)
45,580

 
(1,439
)
 
41,913

 
2,480

 
(42,954
)
 
45,580

Other comprehensive income
53

 


 
200

 
10

 


 
263

Total comprehensive income (loss)
45,633

 
(1,439
)
 
42,113

 
2,490

 
(42,954
)
 
45,843


 


 


31



Condensed Consolidating Statement of Cash Flows for the three months ended January 31, 2015 :
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net cash (used in) provided by operating activities
(48,956
)
 
6,870

 
6,618

 
6,418

 
(3,998
)
 
(33,048
)
Cash flow (used in) provided by investing activities:
 
 
 
 
 
 
 
 
 
 
 
Purchase of property and equipment - net

 

 
(2,528
)
 
(356
)
 

 
(2,884
)
Sale and redemption of marketable securities

 

 
2,000

 

 

 
2,000

Investment in and advances to unconsolidated entities

 

 
(595
)
 
(18,089
)
 

 
(18,684
)
Return of investments in unconsolidated entities

 

 
1,500

 
4,840

 

 
6,340

Investment in distressed loans and foreclosed real estate

 

 


 
(1,468
)
 

 
(1,468
)
Return of investments in distressed loans and foreclosed real estate

 

 

 
6,592

 

 
6,592

Intercompany advances
35,559

 
(6,870
)
 

 


 
(28,689
)
 

Net cash (used in) provided by investing activities
35,559

 
(6,870
)
 
377

 
(8,481
)
 
(28,689
)
 
(8,104
)
Cash flow (used in) provided by financing activities:
 
 
 
 
 
 
 
 
 
 
 
Proceeds from loans payable

 

 

 
214,624

 

 
214,624

Principal payments of loans payable

 

 
(12,988
)
 
(259,346
)
 

 
(272,334
)
Proceeds from stock-based benefit plans
17,773

 

 

 

 

 
17,773

Excess tax benefits from stock-based compensation
1,866

 

 

 

 

 
1,866

Purchase of treasury stock
(6,242
)
 

 

 

 

 
(6,242
)
Receipts related to noncontrolling interest


 

 

 
50

 

 
50

Intercompany advances


 

 
(83,821
)
 
51,134

 
32,687

 

Net cash (used in) provided by financing activities
13,397

 

 
(96,809
)
 
6,462

 
32,687

 
(44,263
)
Net (decrease) increase in cash and cash equivalents

 

 
(89,814
)
 
4,399

 

 
(85,415
)
Cash and cash equivalents, beginning of period

 

 
455,714

 
130,601

 

 
586,315

Cash and cash equivalents, end of period

 

 
365,900

 
135,000

 

 
500,900


32



Condensed Consolidating Statement of Cash Flows for the three months ended January 31, 2014 :
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net cash (used in) provided by operating activities
31,235

 
23,383

 
(279,194
)
 
(17,808
)
 
(8,004
)
 
(250,388
)
Cash flow (used in) provided by investing activities:
 
 
 
 
 
 
 
 
 
 
 
Purchase of property and equipment — net

 

 
(2,659
)
 
(194
)
 

 
(2,853
)
Sale and redemption of marketable securities

 

 
39,243

 


 

 
39,243

Investment in and advances to unconsolidated entities

 

 
(4,879
)
 
(55,529
)
 

 
(60,408
)
Return of investments in unconsolidated entities

 

 
29,429

 
3,000

 

 
32,429

Investment in distressed loans and foreclosed real estate

 

 


 
(191
)
 

 
(191
)
Return of investments in distressed loans and foreclosed real estate

 

 


 
17,574

 

 
17,574

Deposit - acquisition of a business

 

 
(161,000
)
 

 

 
(161,000
)
Dividend received - intercompany

 

 
15,000

 

 
(15,000
)
 

Intercompany advances
(270,826
)
 
(618,683
)
 

 

 
889,509

 

Net cash used in investing activities
(270,826
)
 
(618,683
)
 
(84,866
)
 
(35,340
)
 
874,509

 
(135,206
)
Cash flow provided by (used in) financing activities:
 
 
 
 
 
 
 
 
 
 
 
Proceeds from issuance of senior notes

 
600,000

 

 


 

 
600,000

Debt issuance costs for senior notes

 
(4,700
)
 

 


 

 
(4,700
)
Proceeds from loans payable

 

 

 
275,334

 

 
275,334

Principal payments of loans payable

 

 
(8,331
)
 
(298,864
)
 

 
(307,195
)
Net proceeds from issuance of common stock
220,357

 

 

 

 

 
220,357

Proceeds from stock-based benefit plans
18,529

 

 

 

 

 
18,529

Excess tax benefits from stock-based compensation
789

 

 

 

 

 
789

Purchase of treasury stock
(84
)
 

 

 

 

 
(84
)
Receipts related to noncontrolling interest


 

 

 
81

 

 
81

Dividend paid - intercompany

 

 

 
(15,000
)
 
15,000

 

Intercompany advances


 

 
773,035

 
108,470

 
(881,505
)
 

Net cash provided by financing activities
239,591

 
595,300

 
764,704

 
70,021

 
(866,505
)
 
803,111

Net increase in cash and cash equivalents

 

 
400,644

 
16,873

 

 
417,517

Cash and cash equivalents, beginning of period

 

 
670,102

 
102,870

 

 
772,972

Cash and cash equivalents, end of period

 

 
1,070,746

 
119,743

 

 
1,190,489



33



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)
This discussion and analysis is based on, should be read together with, and is qualified in its entirety by, the accompanying unaudited condensed consolidated financial statements and related notes, as well as our consolidated financial statements, notes thereto, and the related MD&A contained in our Annual Report on Form 10-K for the fiscal year ended October 31, 2014 . It also should be read in conjunction with the disclosure under “Statement on Forward-Looking Information” in this report.
Unless otherwise stated, net contracts signed represents a number or value equal to the gross number or value of contracts signed during the relevant period, less the number or value of contracts canceled during the relevant period, which includes contracts that were signed during the relevant period and in prior periods. Contracts acquired in an acquisition of a business are not considered signed contracts and are not included in the amounts reported by us in net contracts signed.
OVERVIEW
Financial Highlights
In the three -month period ended January 31, 2015 , we recognized $853.5 million of revenues and net income of $81.3 million , as compared to $643.7 million of revenues and net income of $45.6 million in the three -month period ended January 31, 2014 .
At January 31, 2015 , we had $510.9 million of cash, cash equivalents and marketable securities on hand and approximately $932.9 million available under our $1.035 billion revolving credit facility that matures in August 2018. At January 31, 2015 , we had no outstanding borrowings and $102.1 million of letters of credit issued under the revolving credit facility. At January 31, 2015 , our total equity and debt to total capitalization ratio was $3.96 billion and 0.46 to 1:00, respectively.
Our Business
We operate in a number of businesses associated with residential real estate; the most significant being designing, building, marketing and arranging the financing for detached and attached homes in luxury residential communities that cater to move-up, empty-nester, active-adult, age-qualified and second-home buyers in the United States (“Traditional Home Building”). We also build and sell homes in urban infill markets through Toll City Living ® (“City Living”). At January 31, 2015 , we were operating in 19 states.
We also control approximately 6,300 units in for-rent apartment projects that are currently operating, in the lease-up stage, under active development, or in the planning stage. Of the 6,300 units at January 31, 2015, 3,350 are owned by joint ventures in which we have an interest; approximately 1,800 are owned by us; 800 are under contract to be purchased by us; and 350 are under letters of intent. These projects, which are located in the metro Boston to metro Washington, D.C. corridor, are being operated, developed, or will be developed with partners under the brand names Toll Brothers Apartment Living, Toll Brothers Campus Living, and Toll Realty Trust.
We operate our own land development, architectural, engineering, mortgage, title, landscaping, security monitoring, lumber distribution, house component assembly, and manufacturing operations. We also develop, own, and operate golf courses and country clubs, which generally are associated with several of our master planned communities.
We also operate through a number of joint ventures. These joint ventures (i) develop land for the joint venture participants and for sale to outside builders (“Land Development Joint Ventures”); (ii) develop for-sale homes and condominiums (“Home Building Joint Ventures”); (iii) develop luxury for-rent residential apartments, commercial space and a hotel (“Rental Property Joint Ventures”); (iv) invest in commercial real estate opportunities; and (v) invest in a portfolio of distressed loans and real estate (“Structured Asset Joint Venture”). We earn construction and management fee income from many of these joint ventures.
In fiscal 2010, we formed Gibraltar Capital Asset and Management LLC (“Gibraltar”) to invest in distressed real estate opportunities. Gibraltar focuses primarily on residential loans and properties from unimproved ground to partially and fully improved developments, as well as commercial opportunities. At January 31, 2015 , Gibraltar had investments in distressed loans and foreclosed real estate of $70.9 million and an investment in a Structured Asset Joint Venture of $18.4 million.
Acquisition
On February 4, 2014 , we completed our acquisition of Shapell Industries, Inc. (“Shapell”) pursuant to the Purchase and Sale Agreement (the “Purchase Agreement”) dated November 6, 2013 with Shapell Investment Properties, Inc. (“SIPI”). We acquired all of the equity interests in Shapell from SIPI for $1.49 billion , net of cash acquired (the “Acquisition”). We acquired the single-family residential real property development business of Shapell, including a portfolio of approximately 4,950 home sites in California, some of which we have sold and may continue to sell to other builders. As part of the Acquisition, we assumed contracts to deliver 126 homes with an aggregate value of approximately $105.3 million .

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We did not acquire the apartment and commercial rental properties owned and operated by Shapell (the “Shapell Commercial Properties”) or Shapell’s mortgage lending activities relating to their home building operations. Accordingly, the Purchase Agreement provides that SIPI will indemnify us for any loss arising out of or resulting from, among other things, (i) any liability (other than environmental losses, subject to certain exceptions) related to the Shapell Commercial Properties, and (ii) any liability (other than environmental losses, subject to certain exceptions) to the extent related to Shapell Mortgage, Inc. See Note 2, “Acquisitions” in our Annual Report on Form 10-K for the year ended October 31, 2014 for additional information regarding the Acquisition.
Our Challenging Business Environment and Current Outlook
We believe that, in fiscal 2012, the housing market began to recover from the significant slowdown that started in the fourth quarter of our fiscal year ended October 31, 2005. During fiscal 2012 and the first nine months of fiscal 2013, we saw a strong recovery in the number and value of new sales contracts signed.
Beginning in the fourth quarter of fiscal 2013, we experienced a leveling in demand that continued through the second quarter of fiscal 2014, and was followed by a decline in demand in the third quarter of fiscal 2014. Since the third quarter of fiscal 2014, we have seen a strengthening in customer demand. In fiscal 2015’s first quarter, net signed contracts of $873.2 million and 1,063 units rose 24% in dollars and 16% in units, compared to fiscal 2014’s first-quarter net signed contracts of $701.7 million and 916 units. Similarly, in fiscal 2014’s fourth quarter, net signed contracts of $970.8 million and 1,282 units rose 16% in dollars and 10% in units, compared to fiscal 2013’s fourth-quarter net signed contracts of $839.0 million and 1,163 units. The strength in demand that we saw in the first quarter of fiscal 2015 and fourth quarter of fiscal 2014 has continued into the second quarter of fiscal 2015. We are optimistic that this strengthening in customer demand will continue for the foreseeable future, with demand ultimately growing to more normalized levels.
We market our high quality homes to upscale luxury home buyers, generally those persons who have previously owned a principal residence and who are seeking to buy a larger or more desirable home — the so-called “move-up” market. We believe our reputation as a developer of homes for this market enhances our competitive position with respect to the sale of our smaller, more moderately priced, detached homes, as well as our attached homes.
We also market to the 50+ year-old “empty-nester” market, which we believe has strong growth potential. We have developed a number of home designs with features such as one-story living and first-floor master bedroom suites, as well as communities with recreational amenities such as golf courses, marinas, pool complexes, country clubs, and recreation centers that we believe appeal to this category of home buyers. We have integrated certain of these designs and features in some of our other home types and communities. We also develop active-adult, age-qualified communities for households in which at least one member is 55 years of age or older. As of January 31, 2015 , we were selling from 36 active-adult/age-qualified communities and expect to open additional age-qualified communities during the next few years. For the three -month periods ended January 31, 2015 and 2014 , the value of net contracts signed in active-adult/age-qualified communities was 8.1% and 10.1% of total net contracts signed in the respective periods. In the three -month periods ended January 31, 2015 and 2014 , the number of net contracts signed in active-adult/age-qualified communities, as a percentage of the total number of net contracts signed, was 11.8% and 13.9%, respectively.
In order to serve a growing market of affluent move-up families, empty-nesters, and young professionals seeking to live in or close to major cities, we have developed and are developing a number of high-density, high-, mid- and low-rise urban luxury communities. These communities are currently marketed under our City Living brand. Sales and deliveries of our City Living products can vary significantly from period to period based on new product openings and deliveries of units in high-rise building, as construction is completed. Our City Living product generally yields a higher margin than our Traditional Home Building product. Our City Living communities, which we are currently developing or planning to develop on our own or through joint ventures, are located in the boroughs of Manhattan and Brooklyn, New York; Hoboken and Jersey City, New Jersey; Philadelphia, Pennsylvania; and Bethesda, Maryland. For the three -month periods ended January 31, 2015 and 2014 , the value of net contracts signed by our City Living group was 5.0% and 9.1% of net contracts signed in the respective periods. In the three -month periods ended January 31, 2015 and 2014 , the number of net contracts signed by our City Living group, as a percentage of the total number of net contracts signed, was 1.8% and 5.6%, respectively. The decline in the value and number of net contracts signed in the three -month period ended January 31, 2015 , as compared to the comparable period of fiscal 2014 , was due primarily to slower demand in the first quarter of fiscal 2015. At January 31, 2015 and 2014 , the value and units of our backlog of City Living homes were $151.1 million ( 115 homes) and $280.7 million ( 232 homes), respectively.
We are also developing several high-rise buildings in joint ventures with third-parties. At January 31, 2015, we had one building open for sale, containing 106 units, which was being developed in a joint venture. In the three-month period ended January 31, 2015 , we signed five net contracts in this building with a total value of $17.3 million. At January 31, 2015 , we had 11 City Living projects, containing approximately 1,500 units under control which will be developed by us or through joint ventures.

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We believe that the demographics of the move-up, empty-nester, active-adult, age-qualified, and second-home upscale markets will provide us with the potential for growth in the coming decade. We believe that, as demand strengthens, builders and developers with approved land in well-located markets will be poised to benefit. During the 2006 – 2011 housing market downturn, the pipeline of approved and improved home sites dwindled in many markets as many builders and developers lacked both the capital and the economic incentive to bring home sites through approvals. We believe that our financial strength through the 2006 – 2011 downturn in the housing market and our resulting portfolio in the Washington, D.C. to Boston corridor and in California, markets in which land is scarce and approvals are more difficult to obtain, gives us a competitive advantage.
We continue to believe that many of our communities are in desirable locations that are difficult to replace and that many of these communities have substantial embedded value that may be realized in the future as the housing recovery strengthens.
Competitive Landscape
The home building business is highly competitive and fragmented. We compete with numerous home builders of varying sizes, ranging from local to national in scope, some of which have greater sales and financial resources than we do. Sales of existing homes, whether by a homeowner or by a financial institution that has acquired a home through a foreclosure, also provide competition. We compete primarily on the basis of price, location, design, quality, service, and reputation. We also believe our financial stability, relative to many others in our industry, is a favorable competitive factor as more home buyers focus on builder solvency.
In addition, there are fewer and more selective lenders serving our industry as compared to prior years and we believe that these lenders gravitate to the home building companies that offer them the greatest security, the strongest balance sheets, and the broadest array of potential business opportunities.
Land Acquisition and Development
Our business is subject to many risks because of the extended length of time that it takes to obtain the necessary approvals on a property, complete the land improvements on it, and deliver a home after a home buyer signs an agreement of sale. In certain cases, we attempt to reduce some of these risks by utilizing one or more of the following methods: controlling land for future development through options (also referred to herein as “land purchase contracts” or “option and purchase agreements”), which enable us to obtain the necessary governmental approvals to be obtained before acquiring title to the land; generally commencing construction of a detached home only after executing an agreement of sale and receiving a substantial down payment from the buyer; and using subcontractors to perform home construction and land development work on a fixed-price basis.
At January 31, 2015, we controlled approximately 45,300 home sites, as compared to approximately 51,235 at January 31, 2014; 47,167 home sites at October 31, 2014; and 48,628 home sites at October 31, 2013. Of the approximately 45,300 total home sites that we owned or controlled through options at January 31, 2015, we owned approximately 36,142 and controlled approximately 9,158 through options. Of the 45,300 home sites owned or controlled through options, approximately 15,598 were substantially improved. In addition, we expect to purchase approximately 3,300 additional home sites from several joint ventures in which we have interests; the purchase prices of these home sites will be determined at a future date.
At January 31, 2015, we were selling from 258 communities, compared to 238 communities at January 31, 2014; 263 communities at October 31, 2014; and 232 communities at October 31, 2013. We expect to be selling from 270 to 310 communities by October 31, 2015.
Availability of Customer Mortgage Financing
We maintain relationships with a widely diversified group of mortgage financial institutions, many of which are among the largest in the industry. We believe that regional and community banks continue to recognize the long-term value in creating relationships with high-quality, affluent customers such as our home buyers, and these banks continue to provide such customers with financing.
We believe that our home buyers generally are, and should continue to be, better able to secure mortgages due to their typically lower loan-to-value ratios and attractive credit profiles as compared to the average home buyer. Nevertheless, in recent years, tightened credit standards have reduced the pool of potential home buyers and hindered accessibility of or eliminated certain loan products previously available to our home buyers. Our home buyers continue to face stricter mortgage underwriting guidelines, higher down payment requirements, and narrower appraisal guidelines than in the past. In addition, some of our home buyers continue to find it more difficult to sell their existing homes as prospective buyers of their homes may face difficulties obtaining a mortgage. In addition, other potential buyers may have little or negative equity in their existing homes and may not be able or willing to purchase a larger or more expensive home.

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CONTRACTS
The aggregate value of net contracts signed increased $171.5 million or 24.4% in the three -month period ended January 31, 2015 , as compared to the three -month period ended January 31, 2014 . The value of net contracts signed was $873.2 million ( 1,063 homes) and $701.7 million ( 916 homes) in the three -month periods ended January 31, 2015 and 2014 , respectively. The increase in the aggregate value of net contracts signed in the fiscal 2015 period, as compared to the fiscal 2014 period, was the result of a 16.0% increase in the number of net contracts signed and a 7.2% increase in the average value of each contract signed.
The aggregate value of net contracts signed in our Traditional Home Building segment increased $191.3 million or 30.0% in the three -month period ended January 31, 2015 , as compared to the three -month period ended January 31, 2014 . The value of net contracts signed was $829.5 million ( 1,044 homes) and $638.2 million ( 865 homes) in the three -month periods ended January 31, 2015 and 2014 , respectively. The increase in the aggregate value of net contracts signed in the fiscal 2015 period, as compared to the fiscal 2014 period, was the result of a 20.7% increase in the number of net contracts signed and a 7.7% increase in the average value of each contract signed. The increase in the number of net contracts signed was primarily due to an increase in the average number of selling communities in the fiscal 2015 period, as compared to the fiscal 2014 period, and strong demand in our West region. The increase in the number of selling communities in the fiscal 2015 period was primarily attributable to the communities we acquired in the Acquisition. The increase in the average value of each contract signed in the fiscal 2015 period, as compared to the fiscal 2014 period, was due primarily to a change in mix of contracts signed to more expensive areas and/or higher priced products.
For the three -month period ended January 31, 2015 , the value of net contracts signed in our City Living segment decreased by $19.8 million , or 31.2% , as compared to the three -month period ended January 31, 2014 . The decrease was attributable to a decrease of 62.7% in the number of net contracts signed, partially offset by an 84.8% increase in the average value of net contracts signed. The decrease in the number of net contracts signed in the three -month period ended January 31, 2015 was primarily due to slowing demand in the first quarter of fiscal 2015. The increase in the average sales price of net contracts signed was primarily due to a shift in the number of contracts signed to more expensive areas and/or products in the fiscal 2015 period.
BACKLOG
Backlog consists of homes under contract but not yet delivered to our home buyers. The value of our backlog at January 31, 2015 was $2.74 billion ( 3,651 homes), a 1.9% increase, as compared to our backlog at January 31, 2014 of $2.69 billion ( 3,667 homes). Our backlog at October 31, 2014 and 2013 was $2.72 billion (3,679 homes) and $2.63 billion (3,679 homes), respectively. The increase in the value of the backlog at January 31, 2015 , as compared to the backlog at January 31, 2014 , was primarily attributable to the higher backlog at October 31, 2014, as compared to the backlog at October 31, 2013, and was also attributable to the 24.4% increase in the value of net contracts signed in the three -month period ended January 31, 2015 , as compared to the value of net contracts signed in the three -month period ended January 31, 2014 , offset, in part, by the increase in the aggregate value of our deliveries in the three -month period ended January 31, 2015 , as compared to the aggregate value of deliveries in the three -month period ended January 31, 2014 .
For more information regarding revenues, net contracts signed and backlog by operating segment, see “Segments” in this MD&A.
CRITICAL ACCOUNTING POLICIES
As disclosed in our Annual Report on Form 10-K for the fiscal year ended October 31, 2014 , our most critical accounting policies relate to inventory, income taxes-valuation allowances, revenue and cost recognition, and warranty and self-insurance. Since October 31, 2014 , there have been no material changes to those critical accounting policies.
OFF-BALANCE SHEET ARRANGEMENTS
We have investments in and advances to various unconsolidated entities. We have investments in joint ventures (i) to develop land for the joint venture participants and for sale to outside builders (“Land Development Joint Ventures”); (ii) to develop for-sale homes (“Home Building Joint Ventures”); (iii) to develop luxury for-rent residential apartments, commercial space and a hotel (“Rental Property Joint Ventures”); (iv) to invest in commercial real estate opportunities (Toll Brothers Realty Trust (“Trust”) and Toll Brothers Realty Trust II (“Trust II”)); and (v) to invest in a portfolio of distressed loans and real estate (“Structured Asset Joint Venture”).

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Our investments in these entities are accounted for using the equity method of accounting. With respect to Land Development Joint Ventures, we recognize our proportionate share of the earnings from the sale of home sites to other builders, including our joint venture partners. We do not recognize earnings realized by the joint venture from the sales of home sites to us at the time of purchase; instead, our cost basis in those home sites is reduced by our share of the joint venture earnings from the sales of those home sites to us.
At January 31, 2015 , we had investments in and advances to these entities of $463.6 million and were committed to invest or advance up to an additional $83.9 million to these entities if they require additional funding. At January 31, 2015 , we had joint venture purchase commitments or understandings to acquire 557 home sites from two Land Development Joint Ventures for an estimated aggregate purchase price $180.6 million . In addition, we expect to purchase approximately 3,300 additional home sites from several joint ventures in which we have interests; the purchase price of these home sites will be determined at a future date.
Under the terms of one of our joint venture agreements to develop a high-rise luxury for-sale/rental project in the urban New York market, upon completion of the construction of the building, we will acquire ownership of the top 18 floors of the building to sell, for our own account, luxury condominium units and our partner will receive ownership of the lower floors containing residential rental units and retail space. We expect to receive title to our floors during the second quarter of fiscal 2015. At the time of transfer, our investment in this joint venture will be transferred to inventory. At January 31, 2015 , our investment in this joint venture was $132.0 million .
The unconsolidated entities in which we have investments generally finance their activities with a combination of partner equity and debt financing. In some instances, we and our partners have guaranteed debt of certain unconsolidated entities which may include any, or all, of the following: (i) project completion including any cost overruns, in whole or in part; (ii) repayment guarantees, generally covering a percentage of the outstanding loan; (iii) indemnification of the lender from environmental matters of the unconsolidated entity; (iv) a hazardous material indemnity that holds the lender harmless against any obligations for which the lender may incur liability resulting from the threat or presence of any hazardous or toxic substances at or near the property covered by a loan; and (v) indemnification of the lender from “bad boy acts” of the unconsolidated entity.
In some instances, the guarantees provided in connection with loans to an unconsolidated entity are joint and several. In these situations, we generally have a reimbursement agreement with our partner that provides that neither party is responsible for more than its proportionate share or agreed-upon share of the guarantee; however, if the joint venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, we may be liable for more than our proportionate share.
We believe that as of January 31, 2015 , in the event we become legally obligated to perform under a guarantee of the obligation of an unconsolidated entity due to a triggering event, the collateral should be sufficient to repay a significant portion of the obligation. If it is not, we and our partners would need to contribute additional capital to the venture. At January 31, 2015 , the unconsolidated entities that have guarantees related to debt had loan commitments aggregating $883.2 million and had borrowed an aggregate of $333.1 million . We estimate that our maximum potential exposure under these guarantees, if the full amount of the loan commitments were borrowed, would be $883.2 million before any reimbursement from our partners. Based on the amounts borrowed at January 31, 2015 , our maximum potential exposure under these guarantees is estimated to be $333.1 million before any reimbursement from our partners.
In addition, we have guaranteed approximately $11.0 million of ground lease payments and insurance deductibles for three joint ventures.
For more information regarding these joint ventures, see Note 4, “Investments in and Advances to Unconsolidated Entities” in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q.
The trends, uncertainties, or other factors that negatively impact our business and the industry in general also impacted the unconsolidated entities in which we have investments. We review each of our investments on a quarterly basis for indicators of impairment. A series of operating losses of an investee, the inability to recover our invested capital, or other factors may indicate that a loss in value of our investment in the unconsolidated entity has occurred. If a loss exists, we further review to determine if the loss is other than temporary, in which case we write down the investment to its fair value. The evaluation of our investment in unconsolidated entities entails a detailed cash flow analysis using many estimates including but not limited to expected sales pace, expected sales prices, expected incentives, costs incurred and anticipated, sufficiency of financing and capital, competition, market conditions and anticipated cash receipts, in order to determine projected future distributions. Each of the unconsolidated entities evaluates its inventory in a similar manner. See “Critical Accounting Policies - Inventory” contained in the MD&A in our Annual Report on Form 10-K for the year ended October 31, 2014 for more detailed disclosure on our evaluation of inventory. If a valuation adjustment is recorded by an unconsolidated entity related to its assets, our proportionate share is reflected in income (loss) from unconsolidated entities with a corresponding decrease to our investment

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in unconsolidated entities. Based upon our evaluation of the fair value of our investments in unconsolidated entities, we determined that no impairments of our investments occurred in the three -month period ended January 31, 2015 and 2014 .
RESULTS OF OPERATIONS
The following table sets forth, for the three months ended January 31, 2015 and 2014 , a comparison of certain items in the Condensed Consolidated Statements of Operations and Comprehensive Income ($ amounts in millions):
 
Three months ended January 31,
 
2015
 
2014
 
$
 
%*
 
$
 
%*
Revenues
853.5

 
 
 
643.7

 
 
Cost of revenues
650.0

 
76.2
 
514.0

 
79.9
Selling, general and administrative
106.3

 
12.5
 
97.9

 
15.2
 
756.3

 
88.6
 
611.9

 
95.1
Income from operations
97.1

 
 
 
31.8

 
 
Other
 
 
 
 
 
 
 
Income from unconsolidated entities
4.9

 
 
 
22.9

 
 
Other income - net
22.0

 
 
 
16.5

 
 
Income before income taxes
124.0

 
 
 
71.2

 
 
Income tax provision
42.7

 
 
 
25.7

 
 
Net income
81.3

 
 
 
45.6

 
 
* Percent of revenues
Note: Due to rounding, amounts may not add.
REVENUES AND COST OF REVENUES
Revenues for the three months ended January 31, 2015 were higher than those for the comparable period of fiscal 2014 by approximately $209.8 million , or 32.6% . This increase was primarily attributable to a 17.6% increase in the number of homes delivered and a 12.8% increase in the average price of the homes delivered. In the fiscal 2015 three -month period, we delivered 1,091 homes with a value of $853.5 million , as compared to 928 homes in the fiscal 2014 three -month period with a value of $643.7 million . The average price of the homes delivered in the fiscal 2015 period was $782,300, as compared to $693,600 in the fiscal 2014 period. The increase in the number of homes delivered in the fiscal 2015 period, as compared to the fiscal 2014 period, was primarily due to homes closed from the home building operations of Shapell which we acquired in February 2014, and the faster delivery of homes in backlog at October 31, 2014, as compared to those in backlog at October 31, 2013. The increase in the average price of homes delivered in the fiscal 2015 period, as compared to the fiscal 2014 period, was primarily attributable to a shift in the number of homes delivered to more expensive areas and/or higher priced products. For the three months ended January 31, 2015 , revenue from the Acquisition was $94.4 million (98 homes).
Cost of revenues as a percentage of revenues was 76.2 % in the three -month period ended January 31, 2015 , as compared to 79.9% in the three -month period ended January 31, 2014 . The decrease in cost of revenues, as a percentage of revenues in the fiscal 2015 period, as compared to the fiscal 2014 period, was due primarily to a change in product mix/areas to higher margin areas, lower interest, lower inventory write-offs, and increased prices of homes delivered in the fiscal 2015 period, as compared to the fiscal 2014 period. In the three -month periods ended January 31, 2015 and 2014 , interest cost as a percentage of revenues was 3.3% and 4.0%, respectively. Inventory write-offs in the three-month periods ended January 31, 2015 and 2014 were $1.1 million and $2.0 million, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (“SG&A”)
SG&A increased by $8.4 million in the three -month period ended January 31, 2015 , as compared to the three -month period ended January 31, 2014 . As a percentage of revenues, SG&A decreased to 12.5% in the fiscal 2015 period, from 15.2% in the fiscal 2014 period. The decline in SG&A, as a percentage of revenues, was due to SG&A spending increasing by 8.6% while revenues increased 32.6%. The dollar increase in SG&A costs was due primarily to increased compensation costs due to our increased number of employees, higher sales commissions, and increased sales and marketing costs. The higher sales commissions and sales and marketing costs were the result of the increase in the number of homes delivered and the increased sales revenues in the fiscal 2015 period over the comparable period of fiscal 2014 .

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INCOME FROM UNCONSOLIDATED ENTITIES
We are a participant in several unconsolidated entities. We recognize our proportionate share of the earnings and losses from these entities. Many of our unconsolidated entities are land development projects or high-rise/mid-rise condominium construction projects, which do not generate revenues and earnings for a number of years during the development of the property. Once development is complete, these unconsolidated entities will generally, over a relatively short period of time, generate revenues and earnings until all of the assets of the entity are sold. Because there is not a steady flow of revenues and earnings from these entities, the earnings recognized from these entities will vary significantly from quarter-to-quarter and year-to-year.
In the three -month period ended January 31, 2015 , we recognized $4.9 million of income from unconsolidated entities, as compared to $22.9 million in the comparable period of fiscal 2014 . The decrease in income from unconsolidated entities was due primarily from our recognition of a $23.5 million gain, representing our share of the gain on the sale by Trust II of substantially all of its assets to an unrelated party in December 2013, offset, in part, by higher income realized from Gibraltar’s Structured Asset Joint Venture, a Home Building Joint Venture, and several of our Land Development Joint Ventures in the fiscal 2015 period, as compared to the income recognized in the fiscal 2014 period. The higher income from the Land Development Joint Ventures was attributable primarily to sales activity from two joint ventures located in Texas in the fiscal 2015 period, as compared to the fiscal 2014 period.
OTHER INCOME - NET
“Other income - net” includes the gains and losses from our ancillary businesses, income from Gibraltar, interest income, management fee income, retained customer deposits, income/losses on land sales, and other miscellaneous items.
For the three months ended January 31, 2015 and 2014 , “other income - net” was $22.0 million and $16.5 million , respectively. The increase in “other income - net” in the three -month period ended January 31, 2015 , as compared to the fiscal 2014 period, was primarily due to a $9.2 million increase in income from our ancillary operations and a $1.8 million increase in management fee income in the fiscal 2015 period, as compared to the fiscal 2014 period. The increase in income from ancillary businesses was primarily due to the recognition of an $8.1 million gain from a bulk sale of security monitoring accounts by our home security monitoring business. These increases were offset, in part, by a $3.5 million decrease in income from our Gibraltar operations, a $1.4 million decrease in income from land sales, and lower interest income of $0.6 million in the fiscal 2015 period, as compared to the fiscal 2014.
INCOME BEFORE INCOME TAXES
For the three -month period ended January 31, 2015 , we reported income before income taxes of $124.0 million , as compared to $71.2 million in the three -month period ended January 31, 2014 .
INCOME TAX PROVISION
We recognized a $42.7 million income tax provision in the three -month period ended January 31, 2015 . Based upon the federal statutory rate of 35%, our federal tax provision would have been $43.4 million . The difference between the tax provision recognized and the tax provision based on the federal statutory rate was due primarily to tax benefits related to the utilization of domestic production activities deductions and other differences, offset, in part, by the provision for state income taxes and interest accrued on anticipated tax assessments.
In the three -month period ended January 31, 2014 , we recognized a $25.7 million income tax provision. Based upon the federal statutory rate of 35%, our federal tax provision would have been $24.9 million . The difference between the tax provision recognized and the tax provision based on the federal statutory rate was due primarily to the provision for state income taxes and interest accrued on anticipated tax assessments, partially offset by tax benefits related to the utilization of domestic production activities deductions and other permanent differences.
CAPITAL RESOURCES AND LIQUIDITY
Funding for our business has been, and continues to be, provided principally by cash flow from operating activities before inventory additions, unsecured bank borrowings, and the public debt and equity markets. At January 31, 2015 , we had $500.9 million of cash and cash equivalents and $10.0 million of marketable securities. At October 31, 2014 , we had $586.3 million of cash and cash equivalents and $12.0 million of marketable securities. Cash used in operating activities during the three -month period ended January 31, 2015 was $33.0 million . Cash used in operating activities during the fiscal 2015 period was primarily related to the purchase of inventory; a decrease in income taxes payable; and a decrease in accounts payable and accrued expenses, offset, in part, by net income before stock-based compensation and depreciation and amortization; an increase in customer deposits; and the sale of mortgage loans to outside investors in excess of mortgage loans originated.

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In the three -month period ended January 31, 2015 , cash used in our investing activities was $8.1 million . The cash used in investing activities was primarily related to the $20.2 million used to fund our investments in unconsolidated entities, distressed loans, and foreclosed real estate and $2.9 million for the purchase of property and equipment, offset, in part, by $12.9 million of cash received as returns on our investments in unconsolidated entities, distressed loans, and foreclosed real estate and $2.0 million for a redemption of marketable securities.
We used $44.3 million of cash from financing activities in the three -month period ended January 31, 2015 , primarily for $43.7 million of repayments under our mortgage company loan facility, net of borrowings under it; $14.0 million of repayments of other loans payable; and the repurchase of $6.2 million of our common stock, offset, in part, by $17.8 million from the proceeds of our stock-based benefit plans.
At January 31, 2014, we had $1.19 billion of cash and cash equivalents and $13.0 million of marketable securities. At October 31, 2013, we had $773.0 million of cash and cash equivalents and $52.5 million of marketable securities. Cash used in operating activities during the three-month period ended January 31, 2014 was $250.4 million. Cash used in operating activities during the fiscal 2014 period was primarily used for the purchase of inventory, offset, in part, by cash generated from net income, stock-based compensation and depreciation and amortization, an increase in customer deposits, and the sale of mortgage loans to outside investors in excess of mortgage loans originated.
In the three-month period ended January 31, 2014, cash used in our investing activities was $135.2 million. The cash used in investing activities was primarily related to the $161.0 million deposited in escrow for the Acquisition; $60.4 million used to fund joint venture investments; and $2.9 million for the purchase of property and equipment; offset, in part, by $39.2 million of net sales of marketable securities and $50.0 million of cash received as returns on our investments in unconsolidated entities, distressed loans and foreclosed real estate.
We generated $803.1 million of cash from financing activities in the three-month period ended January 31, 2014, primarily from the issuance of 7.2 million shares of our common stock in November 2013 that raised $220.4 million; the issuance in November 2013 of $350 million of 4.0% Senior Notes due 2018 and $250 million of 5.625% Senior Notes due 2024; and $18.5 million from the proceeds of our stock-based benefit plans, offset in part, by $23.5 million of repayments of borrowings under our mortgage company loan facility, net of new borrowings under it, and $8.3 million of net repayments of other loans payable.
In general, our cash flow from operating activities assumes that, as each home is delivered, we will purchase a home site to replace it. Because we own a supply of several years of home sites, we do not need to buy home sites immediately to replace those that we deliver. In addition, we generally do not begin construction of our detached homes until we have a signed contract with the home buyer, although in the past several years, due to the increase in the number of attached-home communities from which we were operating (all of the units of which are generally not sold prior to the commencement of construction), the number of speculative homes in our inventory increased significantly. Should our business remain at its current level or decline, we believe that our inventory levels would decrease as we complete and deliver the homes under construction but do not commence construction of as many new homes, as we complete the improvements on the land we already own, and as we sell and deliver the speculative homes that are currently in inventory, resulting in additional cash flow from operations. In addition, we might delay or curtail our acquisition of additional land, as we did during the period April 2006 through January 2010, which would further reduce our inventory levels and cash needs. At January 31, 2015 , we owned or controlled through options 45,300 home sites, as compared to 47,167 at October 31, 2014; 51,235 at January 31, 2014; and 91,200 at April 30, 2006, the high point of our home sites owned and controlled. Of the 45,300 home sites owned or controlled through options at January 31, 2015 , we owned 36,142. Of our owned home sites at January 31, 2015 , significant improvements were completed on approximately 15,598 of them.
At January 31, 2015 , the aggregate purchase price of land parcels under option and purchase agreements was approximately $1.08 billion (including $180.6 million of land to be acquired from joint ventures in which we have invested). Of the $1.08 billion of land purchase commitments, we paid or deposited $70.5 million and, if we acquire all of these land parcels, we will be required to pay an additional $1.01 billion . The purchases of these land parcels are scheduled to occur over the next several years. We have additional land parcels under option that have been excluded from the aforementioned aggregate purchase amounts since we do not believe that we will complete the purchase of these land parcels and no additional funds will be required from us to terminate these contracts.
On August 1, 2013, we entered into a Credit Facility which extends to August 1, 2018 . Up to 75% of the Credit Facility is available for letters of credit. At January 31, 2015 , we had no outstanding borrowings under our Credit Facility and had outstanding letters of credit of approximately $102.1 million . Under the terms of the Credit Facility, we are not permitted to allow our maximum leverage ratio (as defined in the credit agreement) to exceed 1.75 to 1.00, and we are required to maintain a minimum tangible net worth (as defined in the credit agreement) of approximately $2.52 billion at January 31, 2015 . At January 31, 2015 , our leverage ratio was approximately 0.72 to 1.00, and our tangible net worth was approximately $3.91

41



billion . Based upon the minimum tangible net worth requirement at January 31, 2015 , our ability to pay dividends was limited to an aggregate amount of approximately $1.38 billion or the repurchase our common stock of approximately $1.85 billion .
We believe that we will have adequate resources and sufficient access to the capital markets and external financing sources to continue to fund our current operations and meet our contractual obligations. Due to the uncertainties in the economy and for home builders in general, we cannot be certain that we will be able to replace existing financing or find sources of additional financing in the future.
SEGMENTS
We operate in two segments: Traditional Home Building and City Living. We operate our Traditional Home Building operations in four geographic segments around the United States: the North, consisting of Connecticut, Illinois, Massachusetts, Michigan, Minnesota, New Jersey, and New York; the Mid-Atlantic, consisting of Delaware, Maryland, Pennsylvania, and Virginia; the South, consisting of Florida, North Carolina, and Texas; and the West, consisting of Arizona, California, Colorado, Nevada, and Washington.
The tables below summarize information, for each of our reportable and geographic segments, related to units delivered and revenues, net contracts signed, and income (loss) before income taxes, for the periods indicated, and information related to backlog, as of the dates indicated.
Units Delivered and Revenues ($ amounts in millions):
 
Three months ended January 31,
 
2015
Units

2014
Units

2015
$

2014
$
Traditional Home Building:
 
 
 
 
 
 
 
North
210

 
209

 
$
132.4

 
$
127.6

Mid-Atlantic
262

 
273

 
163.4

 
169.1

South
236

 
225

 
161.9

 
150.6

West
335

 
204

 
288.0

 
186.2

     Traditional Home Building
1,043

 
911

 
745.7

 
633.5

City Living
48

 
17

 
107.8

 
10.2

Total
1,091

 
928

 
$
853.5

 
$
643.7

Net Contracts Signed ($ amounts in millions):
 
Three months ended January 31,
 
2015
Units

2014
Units

2015
$

2014
$
Traditional Home Building:
 
 
 
 
 
 
 
North
177

 
181

 
$
110.6

 
$
118.2

Mid-Atlantic
224

 
263

 
147.7

 
163.8

South
199

 
222

 
169.3

 
168.3

West
444

 
199

 
401.9

 
187.9

Traditional Home Building
1,044

 
865

 
829.5

 
638.2

City Living
19

 
51

 
43.7

 
63.5

Total
1,063

 
916

 
$
873.2

 
$
701.7


42



Backlog ($ amounts in millions):
 
At January 31,
 
At October 31,
 
2015
Units
 
2014
Units
 
2015
$
 
2014
$
 
2014
Units
 
2013
Units
 
2014
$
 
2013
$
Traditional Home Building:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North
845

 
920

 
$
542.8

 
$
553.1

 
878

 
948

 
$
564.6

 
$
562.5

Mid-Atlantic
792

 
892

 
503.9

 
567.7

 
830

 
902

 
519.5

 
573.0

South
926

 
953

 
730.6

 
691.2

 
963

 
956

 
723.2

 
673.5

West
973

 
670

 
811.1

 
594.8

 
864

 
675

 
697.2

 
593.2

Traditional Home Building
3,536

 
3,435

 
2,588.4

 
2,406.8

 
3,535

 
3,481

 
2,504.5

 
2,402.2

City Living
115

 
232

 
151.1

 
280.7

 
144

 
198

 
215.2

 
227.3

Total
3,651

 
3,667

 
$
2,739.5

 
$
2,687.5

 
3,679

 
3,679

 
$
2,719.7

 
$
2,629.5


Income (Loss) Before Income Taxes:
 
Three months ended January 31,
 
2015
 
2014
Income (loss) before income taxes:
 
 
 
Traditional Home Building:
 
 
 
North
$
10.6

 
$
8.3

Mid-Atlantic
18.7

 
21.5

South
23.3

 
17.4

West
45.4

 
34.7

Traditional Home Building
98.0

 
81.9

City Living
51.3

 
(1.1
)
Corporate and other
(25.3
)
 
(9.6
)
Total
$
124.0

 
$
71.2

“Corporate and other” is comprised principally of general corporate expenses such as the offices of the Executive Chairman, Chief Executive Officer, and President; the corporate finance, accounting, audit, tax, human resources, risk management, information technology, marketing, and legal groups; interest income, income from our ancillary businesses, including Gibraltar; and income from a number of our unconsolidated entities.
Traditional Home Building
North
Revenues in the three -month period ended January 31, 2015 were higher than those for the comparable period of fiscal 2014 by $4.8 million , or 3.8% . The increase in revenues was primarily attributable to an increase of 3.3% in the average selling price of homes delivered. The increase in the average selling price of the homes delivered in the fiscal 2015 period was primarily due to a shift in the number of homes delivered to more expensive areas and/or products and increases in selling prices of homes delivered in the fiscal 2015 , as compared to those delivered in the fiscal 2014 period.
The value of net contracts signed in the three -month period ended January 31, 2015 was $110.6 million , a 6.4% decrease from the $118.2 million of net contracts signed during the three -month period ended January 31, 2014 . This decrease was primarily due to a 4.3% decrease in the average value of each net contract signed and a decrease of 2.2% (four homes) in the number of net contracts signed. The decrease in the average sales price of net contracts signed was primarily due to a shift in the number of contracts signed to less expensive areas and/or products, in the fiscal 2015 period, as compared to the fiscal 2014 period.
For the three -month period ended January 31, 2015 , we reported income before income taxes of $10.6 million , as compared to $8.3 million for the three -month period ended January 31, 2014 . This increase in income before income taxes was primarily attributable to lower impairment charges, lower interest, and higher earnings from increased revenues, in the fiscal 2015 period as compared to the fiscal 2014 period, offset, in part, by higher SG&A in the fiscal 2015 period, as compared to the fiscal 2014 period. Inventory impairment charges, in the fiscal 2015 and 2014 periods, were $0.4 million and $1.5 million, respectively.

43



Mid-Atlantic
For the three -month period ended January 31, 2015 , revenues were lower than those for the three -month period ended January 31, 2014 , by $5.7 million , or 3.4% . The decrease in revenues was primarily attributable to a 4.0% decrease in the number of homes delivered, offset, in part by a 0.7% increase in the average selling price of the homes delivered. The decrease in the number of homes delivered in the fiscal 2015 period, as compared to the fiscal 2014 period, was primarily due to a lower backlog at October 31, 2014, as compared to October 31, 2013.
The value of net contracts signed during the three -month period ended January 31, 2015 decreased by $16.1 million , or 9.8% , from the three -month period ended January 31, 2014 . The decrease was due to a 14.8% decrease in the number of net contracts signed partially offset by a 5.8% increase in the average value of each net contract signed. The decrease in the number of net contracts signed was primarily due to a decrease in demand in Maryland and Virginia, offset, in part, by an increase in the number of net contracts signed in Pennsylvania. The increase in the average sales price of net contracts signed was primarily due to a shift in the number of contracts signed to more expensive areas and/or products in the fiscal 2015 period, as compared to the fiscal 2014 period.
We reported income before income taxes for the three -month periods ended January 31, 2015 and 2014 , of $18.7 million and $21.5 million , respectively. The decrease in income before income taxes was primarily due to $2.9 million of earnings from land sales in the fiscal 2014 period, lower earnings from the decreased revenues and higher SG&A in the fiscal 2015 period, as compared to the fiscal 2014 period, offset, in part, by lower cost of revenues as a percent of revenues in the fiscal 2015 period, as compared to the fiscal 2014 period. The $2.9 million of earnings from land sales in the three months ended January 31, 2014 represent previously deferred gains on our initial sales of properties to Trust II. The decrease in cost of revenues as a percentage of revenues was due primarily to a change in product mix/areas to higher margin areas and lower interest in the fiscal 2015 period, as compared to the fiscal 2014 period.
South
Revenues in the three -month period ended January 31, 2015 were higher than those for the three -month period ended January 31, 2014 by $11.3 million , or 7.5% . This increase was attributable to a 4.9% increase in the number of homes delivered and a 2.5% increase in the average price of the homes delivered. The increase in the number of homes delivered in the fiscal 2015 period was primarily due to a higher backlog at October 31, 2014, as compared to October 31, 2013, primarily in Texas. The increase in the average price of the homes delivered was primarily attributable to a shift in the number of homes delivered to more expensive areas and/or products in the fiscal 2015 period, as compared to the fiscal 2014 period.
For the three -month period ended January 31, 2015 , the value of net contracts signed increased by $1.0 million , or 0.6% , as compared to the three -month period ended January 31, 2014 . The increase was attributable to a 12.2% increase in the average value of each contract signed, offset, in part, by a decrease of 10.4% in the number of net contracts signed. The increase in the average sales price of net contracts signed was primarily due to a shift in the number of contracts signed to more expensive areas and/or products and increases in base selling prices, primarily in Texas, in the fiscal 2015 period, as compared to the fiscal 2014 period. The decrease in the number of net contracts signed in the three -month period ended January 31, 2015 was primarily due to decreased demand in Florida and North Carolina partially offset by increases in the number of net contracts signed in Texas.
For the three -month periods ended January 31, 2015 and 2014 , we reported income before income taxes of $23.3 million and $17.4 million , respectively. The increase in income before income taxes was primarily due to higher earnings from increased revenues, lower cost of revenues as a percent of revenues, and an increase in earnings of $2.7 million from our investments in unconsolidated entities in the fiscal 2015 period, as compared to the fiscal 2014 period, partially offset by a decrease in earnings from land sales of $2.8 million and higher SG&A costs in the fiscal 2015 period, as compared to the fiscal 2014 period. The decrease in cost of revenues as a percentage of revenues in the fiscal 2015 period, as compared to the fiscal 2014 period, was due primarily to a change in product mix/areas to higher margin areas and lower interest in the fiscal 2015 period, as compared to the fiscal 2014 period.
West
Revenues in the three -month period ended January 31, 2015 were higher than those in the three -month period ended January 31, 2014 by $101.8 million , or 54.7% . The increase in revenues was attributable to a 64.2% increase in the number of homes delivered, partially offset by a 5.8% decrease in the average sales price of the homes delivered. In the three -month period ended January 31, 2015 , we delivered 98 homes with a value of $94.4 million at communities we acquired through the Acquisition. Excluding these Shapell deliveries, revenues in the three -month period ended January 31, 2015 were higher than those in three -month period ended January 31, 2014 by $7.3 million, or 3.9%. The increase in revenues, excluding Shapell, was due to a 16.2% increase in the number of home delivered, offset, in part, by a 10.5% decrease in the average price of homes delivered. The increase in the number of homes delivered, excluding Shapell, was primarily attributable to a higher

44



backlog at October 31, 2014, as compared to October 31, 2013. The decrease in the average price of the homes delivered, excluding Shapell, was primarily due to a shift in the number of homes delivered to less expensive products and/or locations.
The value of net contracts signed during the three -month period ended January 31, 2015 increase d $214.0 million , or 113.9% , as compared to the three -month period ended January 31, 2014 . This increase was due to an increase of 123.1% in the number of net contracts signed, offset, in part, by a 4.1% decrease in the average value of each net contract. During the three -month period ended January 31, 2015 , we signed 134 contracts with a value of $146.5 million at communities we acquired through the Acquisition. Excluding these Shapell net contracts signed, the value of net contracts signed during the three -month period ended January 31, 2015 increased by $67.5 million, or 35.9%, as compared to the three -month period ended January 31, 2014 . The increase in the value of net contracts signed, excluding Shapell, was due to an increase of 55.8% in the number of net contracts signed, offset by a 12.7% decrease in the average value of each net contract signed. The increase in the number of net contracts signed, excluding Shapell, was primarily due to an increase in selling communities in Arizona and Nevada and an increase in demand in the fiscal 2015 period, as compared to the fiscal 2014 period. The decrease in the average sales price of net contracts signed, excluding Shapell, was primarily due to a shift in the number of contracts signed to less expensive areas and/or products.
For the three -month periods ended January 31, 2015 and 2014 , we reported income before income taxes of $45.4 million and $34.7 million , respectively. The increase in income before income taxes was primarily due to higher earnings from increased revenues in the fiscal 2015 period, as compared in the fiscal 2014 period, offset, in part, by an increase in cost of revenues as a percentage of revenues and higher SG&A costs in the fiscal 2015 period, as compared in the fiscal 2014 period. The increase in cost of revenues as a percentage of revenues in the fiscal 2015 period was primarily due to a shift in the number of homes delivered to lower margin products and/or locations.
City Living
For the three months ended January 31, 2015 , revenues were higher than those for the three months ended January 31, 2014 , by $97.6 million , or 956.9% . The increase in revenues was primarily attributable to increases of 182.4% and 276.0% in the number and average selling price of the homes delivered, respectively. The increase in the number of homes delivered was primarily due to closings at one of our high-rise buildings located in the New York urban market, which commenced closings in the fourth quarter of fiscal 2014. The increase in the average selling price of homes delivered was primarily due to increased closings in homes located in our urban New York market.
For the three -month period ended January 31, 2015 , the value of net contracts signed decreased by $19.8 million , or 31.2% , as compared to the three -month period ended January 31, 2014 . The decrease was attributable to a decrease of 62.7% in the number of net contracts signed, partially offset by an 84.8% increase in the average value of net contracts signed. The decrease in the number of net contracts signed in the three -month period ended January 31, 2015 was primarily due to slower demand in the first quarter of fiscal 2015. The increase in the average sales price of net contracts signed was primarily due to a shift in the number of contracts signed to more expensive areas and/or products in the fiscal 2015 period.
We reported income before income taxes of $51.3 million in the three months ended January 31, 2015 , as compared to a loss before income taxes of $1.1 million in the three months ended January 31, 2014 . The increase in income before income taxes was primarily attributable to higher earnings from increased revenues, lower cost of revenues as a percentage of revenues, and higher management fee income in the fiscal 2015 period, as compared in the fiscal 2014 period, and $3.6 million of earnings from the sale of commercial space at one of our high-rise buildings located in the urban New York market in the fiscal 2015 period. These increases were partially offset by higher SG&A costs in the fiscal 2015 period, as compared to the fiscal 2014 period. The decrease in cost of revenues as a percentage of revenues in the fiscal 2015 period was primarily due to a shift in the number of homes delivered to higher margin products and/or locations.
Corporate and Other
For the three -month periods ended January 31, 2015 and 2014 , corporate and other loss before income taxes was $25.3 million and $9.6 million , respectively. The increase in the fiscal 2015 period, as compared to the fiscal 2014 period, was primarily due to a decrease in income from unconsolidated entities from $22.8 million in the fiscal 2014 period to $1.9 million in the fiscal 2015 period, and decreased income from our Gibraltar operations in the fiscal 2015 period, as compared to the fiscal 2014 period, offset, in part, by an increase of $9.2 million in income from ancillary businesses. The decrease in income from unconsolidated entities was due primarily to our recognition of a $23.5 million gain representing our share of the gain on the sale by Trust II of substantially all of its assets to an unrelated party in December 2013. The increase in the fiscal 2015 period in income from ancillary businesses was primarily due to the recognition of an $8.1 million gain from a bulk sale of security monitoring accounts by our home security monitoring business.

45



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk primarily due to fluctuations in interest rates. We utilize both fixed-rate and variable-rate debt. For fixed-rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not our earnings or cash flow. Conversely, for variable-rate debt, changes in interest rates generally do not impact the fair market value of the debt instrument, but do affect our earnings and cash flow. We do not have the obligation to prepay fixed-rate debt prior to maturity, and, as a result, interest rate risk and changes in fair market value should not have a significant impact on our fixed-rate debt until we are required or elect to refinance it.
The table below sets forth, at January 31, 2015 , our debt obligations by scheduled maturity, weighted-average interest rates, and estimated fair value (amounts in thousands):
 
 
 
Fixed-rate debt
 
Variable-rate debt (a)
Fiscal year of maturity
 
 
Amount
 
Weighted-
average
interest rate
 
Amount
 
Weighted-
average
interest rate
2015
 
 
$
352,498

 
5.09%
 
$
46,559

 
2.17%
2016
 
 
47,904

 
3.94%
 
150

 
0.11%
2017
 
 
410,225

 
8.79%
 
150

 
0.11%
2018
 
 
4,757

 
3.59%
 
150

 
0.11%
2019
 
 
358,018

 
4.01%
 
500,150

 
1.57%
Thereafter
 
 
1,635,516

 
4.66%
 
13,510

 
0.13%
Discount
 
 
(1,955
)
 

 
 
 

Total
 
 
$
2,806,963

 
5.22%
 
$
560,669

 
1.58%
Fair value at January 31, 2015
 
 
$
2,969,461

 
 
 
$
560,669

 
 
(a)
Based upon the amount of variable-rate debt outstanding at January 31, 2015 , and holding the variable-rate debt balance constant, each 1% increase in interest rates would increase the interest incurred by us by approximately $5.6 million per year.
ITEM 4. CONTROLS AND PROCEDURES
Any controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect that there are resource constraints and the benefits of controls must be considered relative to costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected; however, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.
Our Chief Executive Officer and Chief Financial Officer, with the assistance of management, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report (the “Evaluation Date”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There has not been any change in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our quarter ended January 31, 2015 , that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

46




PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in various claims and litigation arising principally in the ordinary course of business. We believe that adequate provision for resolution of all current claims and pending litigation has been made for probable losses and the disposition of these matters will not have a material adverse effect on our results of operations and liquidity or on our financial condition.
ITEM 1A. RISK FACTORS
There have been no material changes in our risk factors as previously disclosed in Part I, Item 1A., “Risk Factors,” in our Form 10-K for the fiscal year ended October 31, 2014 .
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES
During the three-month period ended January 31, 2015 , we repurchased the following shares of our common stock:
Period
 
Total number
of shares purchased (a)
 
Average
price
paid per share
 
Total number
of shares
purchased as part of
publicly announced plans or programs (b)
 
Maximum
number of shares
that may yet be
purchased under the plans or programs (b)
 
 
(in thousands)
 
 
 
(in thousands)
 
(in thousands)
November 1, 2014 to November 30, 2014
 
3

 
$
34.22

 
3

 
5,318

December 1, 2014 to December 31, 2014
 
197

 
$
31.02

 
197

 
20,000

January 1, 2015 to January 31, 2015
 
1

 
$
34.24

 
1

 
19,999

Total
 
201

 
$
31.08

 
201

 
 
(a)
Our stock incentive plans permit participants to exercise non-qualified stock options using a “net exercise” method at the discretion of the Executive Compensation Committee of our Board of Directors. In a net exercise, we generally withhold from the total number of shares that otherwise would be issued to the participant upon exercise of the stock option that number of shares having a fair market value at the time of exercise equal to the option exercise price and applicable income tax withholdings, and remit the remaining shares to the participant. During the three-month period ended January 31, 2015 , the net exercise method was employed to exercise stock options to acquire 30,000 shares of our common stock; we withheld 29,917 of the shares subject to stock options to cover $976,000 of option exercise price and income tax withholdings and we issued the remaining 83 shares to the recipient. The shares withheld in connection with the net exercise method are not included in the total number of shares purchased in the table above.
Our stock incentive plans permit us to withhold from the total number of shares that otherwise would be issued to a restricted stock unit recipient upon distribution that number of shares having a fair value at the time of distribution equal to the applicable income tax withholdings due and remit the remaining shares to the restricted stock unit recipient. During the three months ended January 31, 2015 , we withheld 3,142 of the shares subject to restricted stock units to cover $106,700 of income tax withholdings and we issued the remaining 7,528 shares to the recipients. The 3,142 shares withheld are not included in the total number of shares purchased in the table above.
(b)
On March 26, 2003, we announced that our Board of Directors had authorized the repurchase of up to 20 million shares of our common stock in open market transactions or otherwise for the purpose of providing shares for our various employee benefit plans. The Board of Directors did not fix an expiration date for the repurchase program.
On December 16, 2014, our Board of Directors authorized the repurchase of 20 million shares of our common stock in open market transactions or otherwise for the purpose of providing shares for the Company’s equity award and other employee benefit plans and for any other additional purpose or purposes as may be determined from time to time by the Board of Directors. The Board of Directors did not fix any expiration date for this purchase program. Additionally, our Board of Directors terminated, effective December 31, 2014, our March 2003 share repurchase program.

47



Except as set forth above, we have not repurchased any of our equity securities during the three-month period ended January 31, 2015 .
We have not paid any cash dividends on our common stock to date and expect that, for the foreseeable future, we will not do so.
ITEM 6. EXHIBITS
4.1*
Twenty-sixth Supplemental Indenture dated as of January 30, 2015, to the Indenture dated as of November 22, 2002 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee.
 
 
4.2*
Eighth Supplemental Indenture dated as of January 30, 2015, to Indenture dated as of April 20, 2009 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as Trustee.
 
 
4.3*
Sixth Supplemental Indenture dated as of January 30, 2015, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as Trustee.
 
 
4.4*
Fifth Supplemental Indenture dated as of January 30, 2015, to the Indenture dated as of September 11, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as Trustee.
 
 
10.1*
Toll Bros., Inc. Nonqualified Deferred Compensation Plan, amended and restated effective as of
December 31, 2014.
 
 
31.1*
Certification of Douglas C. Yearley, Jr. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2*
Certification of Martin P. Connor pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1*
Certification of Douglas C. Yearley, Jr. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
32.2*
Certification of Martin P. Connor pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101.INS*
XBRL Instance Document
 
 
101.SCH*
XBRL Schema Document
 
 
101.CAL*
XBRL Calculation Linkbase Document
 
 
101.LAB*
XBRL Labels Linkbase Document
 
 
101.PRE*
XBRL Presentation Linkbase Document
 
 
101.DEF*
XBRL Definition Linkbase Document
*
Filed electronically herewith.


48




SIGNATURES
Pursuant to the requirements 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.

 
 
TOLL BROTHERS, INC.
 
 
(Registrant)
 
 
 
 
 
Date:
March 5, 2015
By:
 
/s/ Martin P. Connor

 
 
 
 
Martin P. Connor
 
 
 
 
Senior Vice President and Chief Financial
 
 
 
 
Officer (Principal Financial Officer)
 
 
 
 
 
Date:
March 5, 2015
By:
 
/s/ Joseph R. Sicree
 
 
 
 
Joseph R. Sicree
 
 
 
 
Senior Vice President and Chief Accounting
 
 
 
 
Officer (Principal Accounting Officer)


49

Exhibit 4.1
THIS TWENTY-SIXTH SUPPLEMENTAL INDENTURE , dated as of January 30, 2015, by and among the parties listed on Schedule A hereto (each an “ Additional Guarantor ” and collectively, the “ Additional Guarantors ”) and THE BANK OF NEW YORK MELLON, as successor to J.P. MORGAN TRUST COMPANY, NATIONAL ASSOCIATION and BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as trustee (the “ Trustee ”). Capitalized terms used in this Twenty-sixth Supplemental Indenture and not otherwise defined herein (including terms used on Exhibit A attached hereto) shall have the meanings ascribed to them in the Indenture, dated as of November 22, 2002, by and among Toll Brothers Finance Corp., Toll Brothers, Inc., as Guarantor, the other Guarantors identified therein and the Trustee (as more fully described on Exhibit A attached hereto).
RECITALS
WHEREAS, Section 4.04 of the Indenture provides that if in accordance with the provisions of the Bank Credit Facilities the Company adds, or causes to be added, any Subsidiary that was not a Guarantor at the time of execution of the Indenture as a guarantor under the Bank Credit Facilities, such Subsidiary shall contemporaneously become a Guarantor under the Indenture;
WHEREAS, desiring to become a Guarantor under the Indenture, each of the Additional Guarantors is executing and delivering this Twenty-sixth Supplemental Indenture; and
WHEREAS, the Issuer and the Trustee may modify or amend the Guarantees under the Indenture without notice to or consent of any Holder to add Guarantors, and all other actions required to be taken under the Indenture with respect to this Twenty-sixth Supplemental Indenture have been taken.
NOW, THEREFORE IT IS AGREED:
Section 1. Joinder . Each Additional Guarantor agrees that by its entering into this Twenty-sixth Supplemental Indenture it hereby unconditionally guarantees all of the Issuer’s obligations under the Securities of any Series that has the benefit of Guarantees of other Subsidiaries of the Company, and the Indenture (as it relates to all such Series) on the terms set forth in the Indenture, as if each such Additional Guarantor was a party to the Indenture.
Section 2.      Ratification of Indenture . This Twenty-sixth Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Indenture, and as supplemented and modified hereby, the Indenture is in all respects ratified and confirmed, and the Indenture and this Twenty-sixth Supplemental Indenture shall be read, taken and construed as one and the same instrument.
Section 3.      Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction hereof.
Section 4.      Successors and Assigns . All covenants and agreements in this Twenty-sixth Supplemental Indenture by each Additional Guarantor shall bind each such Additional Guarantor’s successors and assigns, whether so expressed or not.
Section 5.      Separability Clause . In case any one or more of the provisions contained in this Twenty-sixth Supplemental Indenture shall for any reason be held to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.



Section 6.      Governing Law . This Twenty-sixth Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York. This Twenty-sixth Supplemental Indenture is subject to the provisions of the TIA that are required to be part of this Twenty-sixth Supplemental Indenture and shall, to the extent applicable, be governed by such provisions.
Section 7.      Counterparts . This Twenty-sixth Supplemental Indenture may be executed in any number of counterparts, and each of such counterparts shall for all purposes be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.
Section 8.      Role of Trustee . The recitals contained herein shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Twenty-sixth Supplemental Indenture.
IN WITNESS WHEREOF , the parties hereto have caused this Twenty-sixth Supplemental Indenture to be duly executed as of the date first above written.
 
THE ADDITIONAL GUARANTORS NAMED
 
ON SCHEDULE A  HERETO, as Guarantors
 
 
 
 
 
 
 
By:
/s/ Martin P. Connor
 
 
Name: Martin P. Connor
 
 
Title: Designated Officer
 
 
 
THE BANK OF NEW YORK MELLON,
as Trustee
 
 
 
 
 
 
 
By:
/s/ Francine Kincaid
 
 
Name: Francine Kincaid
 
 
Title: Vice President
 
 
 
 





[SIGNATURE PAGE TO TWENTY-SIXTH SUPPLEMENTAL INDENTURE
TO INDENTURE DATED AS OF NOVEMBER 22, 2002]



2


SCHEDULE A

Additional Guarantors as of January 30, 2015


Toll FL XIII Limited Partnership, a Florida limited partnership
Toll MI VI Limited Partnership, a Michigan limited partnership
Toll PA XIX, L.P., a Pennsylvania limited partnership







EXHIBIT A
For purposes of this Twenty-sixth Supplemental Indenture, the term “Indenture” shall mean that certain Indenture dated as of November 22, 2002 (the “ Original Indenture ”) by and among Toll Brothers Finance Corp. (the “ Issuer ”), Toll Brothers, Inc. (the “ Company ”) as Guarantor, the other Guarantors identified therein and the Trustee, as supplemented by: (i) the Authorizing Resolutions, related to the issuance of $300,000,000 aggregate principal amount of 6.875% Senior Notes due 2012 (the “ 6.875% Senior Notes ”) by the Issuer and the issuance of related guarantees by the Company and the other Guarantors, attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of the Issuer, the Company and Each of the Entities listed on Schedule I thereto dated as of November 22, 2002; (ii) the First Supplemental Indenture dated May 1, 2003 (the “ First Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such First Supplemental Indenture, thereby became Guarantors) and the Trustee; (iii) the Authorizing Resolutions related to the issuance of $250,000,000 aggregate principal amount of 5.95% Senior Notes due 2013 (the “ 5.95% Senior Notes ”) by the Issuer and the issuance of related guarantees by the Company and the other Guarantors, attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of the Issuer, the Company and Each of the Entities listed on Schedule I thereto dated as of September 3, 2003; (iv) the Second Supplemental Indenture dated November 3, 2003 (the “ Second Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Second Supplemental Indenture, thereby became Guarantors) and the Trustee; (v) the Third Supplemental Indenture dated January 26, 2004 (the “ Third Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Third Supplemental Indenture, thereby became Guarantors) and the Trustee; (vi) the Fourth Supplemental Indenture dated March 1, 2004 (the “ Fourth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Fourth Supplemental Indenture, thereby became Guarantors) and the Trustee; (vii) the Authorizing Resolutions related to the issuance of $300,000,000 aggregate principal amount of 4.95% Senior Notes due 2014 (the “ 4.95% Senior Notes ”) by the Issuer and the issuance of related guarantees by the Company and the other Guarantors attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of the Issuer, the Company and Each of the Entities listed on. Schedule I thereto dated as of March 9, 2004; (viii) the Fifth Supplemental Indenture dated September 20, 2004 (the “ Fifth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Fifth Supplemental Indenture, thereby became Guarantors) and the Trustee; (ix) the Sixth Supplemental Indenture, dated as of October 28, 2004 (the “ Sixth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Sixth Supplemental Indenture, thereby became Guarantors) and the Trustee; (x) the Seventh Supplemental Indenture, dated as of October 31, 2004 (the “ Seventh Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Seventh Supplemental Indenture, thereby became Guarantors) and the Trustee; (xi) the Eighth Supplemental Indenture, dated as of January 31, 2005 (the “ Eighth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Eighth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xii) the Authorizing Resolutions, related to the issuance of $300,000,000 aggregate principal amount of 5.15% Senior Notes due 2015 (the “ 5.15% Senior Notes ”) by the Issuer and the issuance of related guarantees by the Company and the other Guarantors attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of the Issuer, the Company and Each of the Entities listed on Schedule I thereto dated as of May 26, 2005; (xiii) the Ninth Supplemental Indenture, dated as of June 6, 2005 (the “ Ninth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Ninth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xiv) the Tenth Supplemental Indenture, dated as of August 1, 2005 (the “ Tenth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Tenth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xv) the Eleventh Supplemental Indenture, dated as of January 31, 2006 (the




Eleventh Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Eleventh Supplemental Indenture, thereby became Guarantors) and the Trustee; (xvi) the Twelfth Supplemental Indenture, dated as of April 30, 2006 (the “ Twelfth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Twelfth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xvii) the Thirteenth Supplemental Indenture, dated as of July 31, 2006 (the “ Thirteenth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Thirteenth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xviii) the Fourteenth Supplemental Indenture, dated as of October 31, 2006 (the “ Fourteenth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Fourteenth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xix) the Fifteenth Supplemental Indenture, dated as of June 25, 2007 (the “ Fifteenth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Fifteenth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xx) the Sixteenth Supplemental Indenture, dated as of June 27, 2007 (the “ Sixteenth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Sixteenth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xxi) the Seventeenth Supplemental Indenture, dated as of January 31, 2008 (the “ Seventeenth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Seventeenth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xxii) the Eighteenth Supplemental Indenture, dated as of October 27, 2011 (the “ Eighteenth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Eighteenth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xxiii) the Nineteenth Supplemental Indenture, dated as of November 1, 2011 (the “ Nineteenth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Nineteenth Supplemental Indenture, thereby became Guarantors) and the Trustee, and as may be further supplemented, (xxiv) the Twentieth Supplemental Indenture, dated as of April 27, 2012 (the “ Twentieth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to the Twentieth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xxv) the Twenty-first Supplemental Indenture, dated as of February 1, 2013 (the “ Twenty-first Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to the Twenty-first Supplemental Indenture, thereby became Guarantors) and the Trustee; (xxvi) the Twenty-second Supplemental Indenture, dated as of April 30, 2013 (the “ Twenty-second Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to the Twenty-second Supplemental Indenture, thereby became Guarantors) and the Trustee; (xxvii) the Twenty-third Supplemental Indenture, dated as of April 30, 2014 (the “ Twenty-third Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to the Twenty-third Supplemental Indenture, thereby became Guarantors) and the Trustee; (xxviii) the Twenty-fourth Supplemental Indenture, dated as of July 31, 2014 (the “ Twenty-fourth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to the Twenty-fourth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xxix) the Twenty-fifth Supplemental Indenture, dated as of October 31, 2014 (the “ Twenty-fifth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to the Twenty-fifth Supplemental Indenture, thereby became Guarantors) and the Trustee and as may be further supplemented (including by this Twenty-sixth Supplemental Indenture) and/or amended.




Exhibit 4.2
THIS EIGHTH SUPPLEMENTAL INDENTURE , dated as of January 30, 2015, by and among the parties listed on Schedule A hereto (each an “ Additional Guarantor ” and collectively, the “ Additional Guarantors ”) and THE BANK OF NEW YORK MELLON, as trustee (the “ Trustee ”). Capitalized terms used in this Eighth Supplemental Indenture and not otherwise defined herein (including terms used on Exhibit A attached hereto) shall have the meanings ascribed to them in the Indenture, dated as of April 20, 2009, by and among Toll Brothers Finance Corp., Toll Brothers, Inc., as Guarantor, the other Guarantors identified therein and the Trustee (as more fully described on Exhibit A attached hereto).
RECITALS
WHEREAS, Section 4.04 of the Indenture provides that if in accordance with the provisions of the Bank Credit Facility the Company adds, or causes to be added, any Subsidiary that was not a Guarantor at the time of execution of the Original Indenture as a guarantor under the Bank Credit Facility, such Subsidiary shall contemporaneously become a Guarantor under the Indenture;
WHEREAS, desiring to become a Guarantor under the Indenture, each of the Additional Guarantors is executing and delivering this Eighth Supplemental Indenture; and
WHEREAS, the consent of Holders to the execution and delivery of this Eighth Supplemental Indenture is not required, and all other actions required to be taken under the Indenture with respect to this Eighth Supplemental Indenture have been taken.
NOW, THEREFORE IT IS AGREED:
Section 1. Joinder . Each Additional Guarantor agrees that by its entering into this Eighth Supplemental Indenture it hereby unconditionally guarantees all of the Issuer’s obligations under (i) the 8.910% Senior Notes, (ii) the 6.750% Senior Notes, (iii) any other Securities of any Series that has the benefit of Guarantees of other Subsidiaries of the Company, and (vi) the Indenture (as it relates to all such Series) on the terms set forth in the Indenture, as if each such Additional Guarantor was a party to the Original Indenture.
Section 2.      Ratification of Indenture . This Eighth Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Indenture, and as supplemented and modified hereby, the Indenture is in all respects ratified and confirmed, and the Indenture and this Eighth Supplemental Indenture shall be read, taken and construed as one and the same instrument.
Section 3.      Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction hereof.
Section 4.      Successors and Assigns . All covenants and agreements in this Eighth Supplemental Indenture by each Additional Guarantor shall bind each such Additional Guarantor’s successors and assigns, whether so expressed or not.
Section 5.      Separability Clause . In case any one or more of the provisions contained in this Eighth Supplemental Indenture shall for any reason be held to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.



Section 6.      Governing Law . This Eighth Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York. This Eighth Supplemental Indenture is subject to the provisions of the TIA that are required to be part of this Eighth Supplemental Indenture and shall, to the extent applicable, be governed by such provisions.
Section 7.      Counterparts . This Eighth Supplemental Indenture may be executed in any number of counterparts, and each of such counterparts shall for all purposes be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.
Section 8.      Role of Trustee . The recitals contained herein shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Eighth Supplemental Indenture.
IN WITNESS WHEREOF , the parties hereto have caused this Eighth Supplemental Indenture to be duly executed as of the date first above written.
 
THE ADDITIONAL GUARANTORS NAMED
 
ON SCHEDULE A  HERETO, as Guarantors
 
 
 
 
 
 
 
By:
/s/ Martin P. Connor
 
 
Name: Martin P. Connor
 
 
Title: Designated Officer
 
 
 
THE BANK OF NEW YORK MELLON,
as Trustee
 
 
 
 
 
 
 
By:
/s/ Francine Kincaid
 
 
Name: Francine Kincaid
 
 
Title: Vice President
 
 
 
 





[SIGNATURE PAGE TO EIGHTH SUPPLEMENTAL INDENTURE
TO INDENTURE DATED AS OF APRIL 20, 2009]



2


SCHEDULE A

Additional Guarantors as of January 30, 2015


Toll FL XIII Limited Partnership, a Florida limited partnership
Toll MI VI Limited Partnership, a Michigan limited partnership
Toll PA XIX, L.P., a Pennsylvania limited partnership





EXHIBIT A

For purposes of this Eighth Supplemental Indenture, the term “Indenture” shall mean that certain Indenture, dated as of April 20, 2009 (the “ Original Indenture ”) by and among Toll Brothers Finance Corp., Toll Brothers, Inc. as Guarantor, the other Guarantors identified therein and the Trustee, as supplemented by: (i) the Authorizing Resolutions, related to the issuance of $400,000,000 aggregate principal amount of 8.910% Senior Notes due 2017 (the “ 8.910% Senior Notes ”) by Toll Brothers Finance Corp. (the “ Issuer ”) and the issuance of related guarantees by Toll Brothers, Inc. (the “ Company ”) and the other Guarantors, attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of Toll Brothers Finance Corp., Toll Brothers, Inc. and Each of the Entities listed on Schedule I thereto dated as of April 27, 2009; (ii) the Authorizing Resolutions, related to the issuance of $250,000,000 aggregate principal amount of 6.750% Senior Notes due 2019 (the “ 6.750% Senior Notes ”) by the Issuer and the issuance of related guarantees by the Company and the other Guarantors attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of Toll Brothers Finance Corp., Toll Brothers, Inc. and Each of the Entities listed on Schedule I thereto dated as of September 22, 2009; (iii) the First Supplemental Indenture dated October 27, 2011 (the “ First Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such First Supplemental Indenture, thereby became Guarantors) and the Trustee; (iv) the Second Supplemental Indenture dated as of November 1, 2011 (the “ Second Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Second Supplemental Indenture, thereby became Guarantors) and the Trustee; (v) the Third Supplemental Indenture dated as of April 27, 2012 (the “Third Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Third Supplemental Indenture, affirmed their obligation as Guarantors) and the Trustee; (vi) the Fourth Supplemental Indenture dated as of April 30, 2013 (the “Fourth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Fourth Supplemental Indenture, affirmed their obligation as Guarantors) and the Trustee; (vii) the Fifth Supplemental Indenture dated as of April 30, 2014 (the “ Fifth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Fifth Supplemental Indenture, affirmed their obligation as Guarantors) and the Trustee; (viii) the Sixth Supplemental Indenture dated as of July 31, 2014 (the “ Sixth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Sixth Supplemental Indenture, affirmed their obligation as Guarantors) and the Trustee; (vix) the Seventh Supplemental Indenture dated as of October 31, 2014 (the “ Seventh Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Seventh Supplemental Indenture, affirmed their obligation as Guarantors) and the Trustee; and as may be further supplemented (including by this Eighth Supplemental Indenture) and/or amended.





Exhibit 4.3
THIS SIXTH SUPPLEMENTAL INDENTURE , dated as of January 30, 2015, by and among the parties listed on Schedule A hereto (each an “ Additional Guarantor ” and collectively, the “ Additional Guarantors ”) and THE BANK OF NEW YORK MELLON, as trustee (the “ Trustee ”). Capitalized terms used in this Sixth Supplemental Indenture and not otherwise defined herein (including terms used on Exhibit A attached hereto) shall have the meanings ascribed to them in the Indenture, dated as of February 7, 2012, by and among Toll Brothers Finance Corp., Toll Brothers, Inc., as Guarantor, the other Guarantors identified therein and the Trustee (as more fully described on Exhibit A attached hereto).
RECITALS
WHEREAS, Section 4.04 of the Indenture provides that if in accordance with the provisions of the Revolving Credit Facility the Company adds, or causes to be added, any Subsidiary that was not a Guarantor at the time of execution of the Original Indenture as a guarantor under the Revolving Credit Facility, such Subsidiary shall contemporaneously become a Guarantor under the Indenture;
WHEREAS, desiring to become a Guarantor under the Indenture, each of the Additional Guarantors is executing and delivering this Sixth Supplemental Indenture; and
WHEREAS, the consent of Holders to the execution and delivery of this Sixth Supplemental Indenture is not required, and all other actions required to be taken under the Indenture with respect to this Sixth Supplemental Indenture have been taken.
NOW, THEREFORE IT IS AGREED:
Section 1. Joinder . Each Additional Guarantor agrees that by its entering into this Sixth Supplemental Indenture it hereby unconditionally guarantees all of the Issuer’s obligations under (i) the 5.875% Senior Notes, (ii) the 4.375% Senior Notes, (iii) the 4.0% Senior Notes, (iv) the 5.625% Senior Notes, (v) any other Securities of any Series that has the benefit of Guarantees of other Subsidiaries of the Company, and (vi) the Indenture (as it relates to all such Series) on the terms set forth in the Indenture, as if each such Additional Guarantor was a party to the Original Indenture.
Section 2.      Ratification of Indenture . This Sixth Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Indenture, and as supplemented and modified hereby, the Indenture is in all respects ratified and confirmed, and the Indenture and this Sixth Supplemental Indenture shall be read, taken and construed as one and the same instrument.
Section 3.      Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction hereof.
Section 4.      Successors and Assigns . All covenants and agreements in this Sixth Supplemental Indenture by each Additional Guarantor shall bind each such Additional Guarantor’s successors and assigns, whether so expressed or not.
Section 5.      Separability Clause . In case any one or more of the provisions contained in this Sixth Supplemental Indenture shall for any reason be held to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

2



Section 6.      Governing Law . This Sixth Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York. This Sixth Supplemental Indenture is subject to the provisions of the TIA that are required to be part of this Sixth Supplemental Indenture and shall, to the extent applicable, be governed by such provisions.
Section 7.      Counterparts . This Sixth Supplemental Indenture may be executed in any number of counterparts, and each of such counterparts shall for all purposes be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.
Section 8.      Role of Trustee . The recitals contained herein shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Sixth Supplemental Indenture.
IN WITNESS WHEREOF , the parties hereto have caused this Sixth Supplemental Indenture to be duly executed as of the date first above written.
 
THE ADDITIONAL GUARANTORS NAMED
 
ON SCHEDULE A  HERETO, as Guarantors
 
 
 
 
 
 
 
By:
/s/ Martin P. Connor
 
 
Name: Martin P. Connor
 
 
Title: Designated Officer
 
 
 
THE BANK OF NEW YORK MELLON,
as Trustee
 
 
 
 
 
 
 
By:
/s/ Francine Kincaid
 
 
Name: Francine Kincaid
 
 
Title: Vice President
 
 
 
 




[SIGNATURE PAGE TO SIXTH SUPPLEMENTAL INDENTURE
TO INDENTURE DATED AS OF FEBRUARY 7, 2012]



2



SCHEDULE A

Additional Guarantors as of January 30, 2015


Toll FL XIII Limited Partnership, a Florida limited partnership
Toll MI VI Limited Partnership, a Michigan limited partnership
Toll PA XIX, L.P., a Pennsylvania limited partnership






EXHIBIT A

For purposes of this Sixth Supplemental Indenture, the term “Indenture” shall mean that certain Indenture, dated as of February 7, 2012 (the “ Original Indenture ”) by and among Toll Brothers Finance Corp., Toll Brothers, Inc. as Guarantor, the other Guarantors identified therein and the Trustee, as supplemented by: (i) the Authorizing Resolutions, related to the issuance of $300,000,000 aggregate principal amount of 5.875% Senior Notes due 2022 (the “ 5.875% Senior Notes ”) by Toll Brothers Finance Corp. (the “ Issuer ”) and the issuance of related guarantees by Toll Brothers, Inc. (the “ Company ”) and the other Guarantors, attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of Toll Brothers Finance Corp., Toll Brothers, Inc. and Each of the Entities listed on Schedule I thereto dated as of January 31, 2012; (ii)  the issuance of $119,876,000 aggregate principal amount of 5.875% Senior Notes issued by the Issuer and the issuance of related guarantees by the Company and the other Guarantors in an exchange for a portion of the Issuer’s outstanding 6.875% Senior Notes due 2012 and 5.95% Senior Notes due 2013; (iii) the First Supplemental Indenture dated as of April 27, 2012 (the “ First Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such First Supplemental Indenture, affirmed their obligation as Guarantors) and the Trustee; (iv) the Authorizing Resolutions relating to the $300,000,000 principal amount of 4.375% Senior Notes due 2023 of the Issuer and the issuance of related guarantees by the Company and the other Guarantors, attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of Toll Brothers Finance Corp., Toll Brothers, Inc. and Each of the Entities listed on Schedule I thereto dated as of April 3, 2013; (v) the Second Supplemental Indenture dated as of April 29, 2013 (the “ Second Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Second Supplemental Indenture, affirmed their obligation as Guarantors) and the Trustee; (vi) the Authorizing Resolutions relating to the $100,000,000 principal amount of 4.375% Senior Notes due 2023 of the Issuer and the issuance of related guarantees by the Company and the other Guarantors, attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of Toll Brothers Finance Corp., Toll Brothers, Inc. and Each of the Entities listed on Schedule I thereto dated as of May 8, 2013; (vii) the Authorizing Resolutions relating to the $350,000,000 principal amount of 4.000% Senior Notes due 2018 of the Issuer and the issuance of related guarantees by the Company and the other Guarantors, attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of Toll Brothers Finance Corp., Toll Brothers, Inc. and Each of the Entities listed on Schedule I thereto dated as of November 21, 2013; (viii) the Authorizing Resolutions, dated as of November 21, 2013, relating to the $250,000,000 principal amount of 5.625% Senior Notes due 2024 of the Issuer and the issuance of related guarantees by the Company and the other Guarantors, attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of Toll Brothers Finance Corp., Toll Brothers, Inc. and Each of the Entities listed on Schedule I thereto dated as of November 21, 2013; (ix) the Third Supplemental Indenture dated as of April 30, 2014 (the “ Third Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Third Supplemental Indenture, affirmed their obligation as Guarantors) and the Trustee; (x) the Fourth Supplemental Indenture dated as of July 31, 2014 (the “ Fourth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Fourth Supplemental Indenture, affirmed their obligation as Guarantors) and the Trustee; (xi) the Fifth Supplemental Indenture dated as of October 31, 2014 (the “ Fifth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Fifth Supplemental Indenture, affirmed their obligation as Guarantors) and the Trustee; and as may be further supplemented (including by this Sixth Supplemental Indenture) and/or amended.



Exhibit 4.4
THIS FIFTH SUPPLEMENTAL INDENTURE , dated as of January 30, 2015, by and among the parties listed on Schedule A hereto (each an “ Additional Guarantor ” and collectively, the “ Additional Guarantors ”) and THE BANK OF NEW YORK MELLON, as trustee (the “ Trustee ”). Capitalized terms used in this Fifth Supplemental Indenture and not otherwise defined herein (including terms used on Exhibit A attached hereto) shall have the meanings ascribed to them in the Indenture, dated as of September 11, 2012, by and among Toll Brothers Finance Corp., Toll Brothers, Inc., as Guarantor, the other Guarantors identified therein and the Trustee (as more fully described on Exhibit A attached hereto).
RECITALS
WHEREAS, Section 4.10 of the Indenture provides that if in accordance with the provisions of the Revolving Credit Facility the Company adds, or causes to be added, any Subsidiary that was not a Guarantor at the time of execution of the Original Indenture as a guarantor under the Revolving Credit Facility, such Subsidiary shall contemporaneously become a Guarantor under the Indenture;
WHEREAS, desiring to become a Guarantor under the Indenture, each of the Additional Guarantors is executing and delivering this Fifth Supplemental Indenture; and
WHEREAS, the consent of Holders to the execution and delivery of this Fifth Supplemental Indenture is not required, and all other actions required to be taken under the Indenture with respect to this Fifth Supplemental Indenture have been taken.
NOW, THEREFORE IT IS AGREED:
Section 1. Joinder . Each Additional Guarantor agrees that by its entering into this Fifth Supplemental Indenture it hereby unconditionally guarantees all of the Issuer’s obligations under (i) the 0.5% Exchangeable Senior Notes due September 2032, (ii)  any other Securities of any Series that has the benefit of Guarantees of other Subsidiaries of the Company, and (iii) the Indenture (as it relates to all such Series) on the terms set forth in the Indenture, as if each such Additional Guarantor was a party to the Original Indenture.
Section 2.      Ratification of Indenture . This Fifth Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Indenture, and as supplemented and modified hereby, the Indenture is in all respects ratified and confirmed, and the Indenture and this Fifth Supplemental Indenture shall be read, taken and construed as one and the same instrument.
Section 3.      Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction hereof.
Section 4.      Successors and Assigns . All covenants and agreements in this Fifth Supplemental Indenture by each Additional Guarantor shall bind each such Additional Guarantor’s successors and assigns, whether so expressed or not.
Section 5.      Separability Clause . In case any one or more of the provisions contained in this Fifth Supplemental Indenture shall for any reason be held to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

2


Section 6.      Governing Law . This Fifth Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York. This Fifth Supplemental Indenture is subject to the provisions of the TIA that are required to be part of this Fifth Supplemental Indenture and shall, to the extent applicable, be governed by such provisions.
Section 7.      Counterparts . This Fifth Supplemental Indenture may be executed in any number of counterparts, and each of such counterparts shall for all purposes be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.
Section 8.      Role of Trustee . The recitals contained herein shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Fifth Supplemental Indenture.
IN WITNESS WHEREOF , the parties hereto have caused this Fifth Supplemental Indenture to be duly executed as of the date first above written.
 
THE ADDITIONAL GUARANTORS NAMED
 
ON SCHEDULE A  HERETO, as Guarantors
 
 
 
 
 
 
 
By:
/s/ Martin P. Connor
 
 
Name: Martin P. Connor
 
 
Title: Designated Officer
 
 
 
THE BANK OF NEW YORK MELLON,
as Trustee
 
 
 
 
 
 
 
By:
/s/ Francine Kincaid
 
 
Name: Francine Kincaid
 
 
Title: Vice President
 
 
 
 





[SIGNATURE PAGE TO FIFTH SUPPLEMENTAL INDENTURE
TO INDENTURE DATED AS OF SEPTEMBER 11, 2012]



2


SCHEDULE A

Additional Guarantors as of January 30, 2015


Toll FL XIII Limited Partnership, a Florida limited partnership
Toll MI VI Limited Partnership, a Michigan limited partnership
Toll PA XIX, L.P., a Pennsylvania limited partnership






EXHIBIT A

For purposes of this Fifth Supplemental Indenture, the term “Indenture” shall mean that certain Indenture, dated as of September 11, 2012 (the “ Original Indenture ”) by and among Toll Brothers Finance Corp., Toll Brothers, Inc. as Guarantor, the other Guarantors identified therein and the Trustee; (i) the First Supplemental Indenture dated as of April 30, 2013 (the “ First Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such First Supplemental Indenture, affirmed their obligation as Guarantors) and the Trustee; (ii) the Second Supplemental Indenture dated as of April 30, 2014 (the “ Second Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Second Supplemental Indenture, affirmed their obligation as Guarantors) and the Trustee; (iii) the Third Supplemental Indenture dated as of July 31, 2014 (the “ Third Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Third Supplemental Indenture, affirmed their obligation as Guarantors) and the Trustee; (iv) the Fourth Supplemental Indenture dated as of October 31, 2014 (the “ Fourth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Fourth Supplemental Indenture, affirmed their obligation as Guarantors) and the Trustee; and as may be further supplemented (including by this Fifth Supplemental Indenture) and/or amended.




Exhibit 10.1

TOLL BROS., INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN

Amended and Restated effective as of December 31, 2014

RECITALS

This Toll Bros., Inc. Nonqualified Deferred Compensation Plan (the “Plan” or the “2015 Plan”) is amended and restated by Toll Bros., Inc., a Pennsylvania Corporation (the “Employer”), effective as of December 31, 2014, for certain of its eligible employees. The purpose of the Plan is to offer those employees an opportunity to elect to defer the receipt of compensation in order to provide deferred compensation, post-employment, supplemental retirement and related benefits taxable pursuant to Section 451 of the Internal Revenue Code of 1986, as amended (the “Code”), and to provide a deferred compensation vehicle to which the Employer may credit certain amounts on behalf of participants. The Plan is intended to be a “top-hat” plan (i.e., an unfunded deferred compensation plan maintained for a select group of management or highly- compensated employees) under Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974 (“ERISA”).

Any amounts deferred prior to January 1, 2015, which are not re-deferred under the 2015 Plan, shall continue to be governed by the terms of the Plan document in effect prior to January 1, 2015 (the “Pre-2015 Plan”).

ARTICLE 1
DEFINITIONS

1.1
409A BENEFIT means any portion of a Participant’s Account that is attributable to deferrals that were or are made after December 31, 2004, that first became or becomes vested after December 31, 2004, or otherwise is determined to be subject to Code Section 409A. All benefits deferred as of January 1, 2015 are governed by this Plan and are subject to Code 409A.

1.2
ACCOUNT means the balance credited to a Participant’s or Beneficiary’s Plan account, including amounts credited under the Compensation Deferral Account and the Employer Contribution Credit Account and deemed income, gains and losses (as determined by the Employer, in its discretion) credited thereto. Each Participant shall have an Account with as many sub-Accounts as determined to be necessary by the Committee, within its discretion, to separately account for different deferral sources, such as any “redeferral” amounts. A Participant’s or Beneficiary’s Account shall be determined as of the date of reference.

1.3
BENEFICIARY means any person or persons so designated in accordance with the provisions of Article 7.

1.4
BOARD means the Board of Directors of Toll Bros., Inc., a Pennsylvania corporation, and its successors and assigns, or any other corporation or business organization which, with the consent of Toll Bros., Inc., or its successors or assigns, assumes the obligations of Toll Bros., Inc., hereunder.




1.5
CHANGE IN CONTROL means a transaction or series of transactions occurring after the Effective Date, which results in one of the following events: (i) Toll Bros., Inc. is no longer a subsidiary of Toll Brothers, Inc.; (ii) the consummation of a plan or other arrangement pursuant to which Toll Brothers, Inc. shall be dissolved or liquidated; (iii) the consummation of a sale or other disposition of all or substantially all of the assets of Toll Brothers, Inc.; (iv) the consummation of a merger or consolidation of Toll Brothers, Inc. (either directly or through a wholly-owned subsidiary) with or into another corporation, other than, in either case, a merger or consolidation of Toll Brothers, Inc. in which holders of shares of the Toll Brothers, Inc.’s common stock immediately prior to the merger or consolidation shall hold at least a majority of the ownership of common stock of the surviving corporation (and, if one class of common stock is not the only class of voting securities entitled to vote on the election of directors of the surviving corporation, a majority of the voting power of the surviving corporation’s voting securities) immediately after the merger or consolidation, which common stock (and, if applicable, voting securities) is to be held in the same proportion as such holders’ ownership of Toll Brothers, Inc. common stock immediately before the merger or consolidation; (v) the date any entity, person or group, (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended), (other than (A) Toll Brothers, Inc. or any of its subsidiaries or any employee benefit plan (or related trust) sponsored or maintained by Toll Brothers, Inc. or any of its subsidiaries or (B) any person who, on the date the Plan is effective, shall have been the beneficial owner of at least fifteen percent (15%) of the outstanding Toll Brothers, Inc. common stock), shall have become the beneficial owner of, or shall have obtained voting control over, more than fifty percent (50%) of the outstanding shares of Toll Brothers, Inc. common stock; or (vi) the first day after the date this Plan is effective when directors are elected such that a majority of the Board of Directors of Toll Brothers, Inc. shall have been members of the Board of Directors of Toll Brothers, Inc. for less than twenty-four (24) months, unless the nomination for election of each new director who was not a director at the beginning of such twenty-four (24) month period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period.

Notwithstanding any provisions to the contrary, a Change in Control must also qualify as a “change in the ownership or effective control of the corporation” as that phrase is defined in Code Section 409A, and then only to the extent and in the manner permissible under Code Section 409A(a)(2)(A)(v), and applicable regulations promulgated thereunder.

1.6
CODE means the Internal Revenue Code of 1986 and the regulations thereunder, as amended from time to time.

1.7
COMMON STOCK means Toll Brothers, Inc.’s voting common stock.

1.8
COMPENSATION means the total current cash remuneration, including regular salary, sales commissions and other compensation as defined by the Plan Committee, except bonuses, and paid by the Employer to an Eligible Employee with respect to his or her service for the Employer (as determined by the Employer, in its discretion).

1.9
COMPENSATION DEFERRALS are defined in Section 3.1(a).

1.10
DEFERRAL ELECTION FORM means the form or forms on which a Participant elects to defer Compensation hereunder and on which the Participant makes certain other designations as required thereon.




1.11
EFFECTIVE DATE means the effective date of this amended and restated Plan, which is December 31, 2014. The original effective date of the Pre-2015 Plan was November 15, 2001.

1.12
ELIGIBLE EMPLOYEE means, for any Plan Year (or applicable portion thereof), a person employed by the Employer where compensation is paid on a United States payroll, who is determined by the Plan Committee in its sole discretion to be a member of a select group of management or highly compensated employees eligible to participate in the Plan. Prior to the beginning of each Plan Year, the Plan Committee shall notify those individuals, if any, who shall be Eligible Employees for the next Plan Year. If the Plan Committee determines that an individual first becomes an Eligible Employee during a Plan Year, the Plan Committee shall notify such individual of its determination and of the date during the Plan Year on which the individual shall first become an Eligible Employee.

1.13
EMPLOYER means Toll Bros., Inc., a Pennsylvania corporation, and its successors and assigns unless otherwise herein provided, or any other corporation or business organization which, with the consent of Toll Bros., Inc., or its successors or assigns, assumes the Employer’s obligations hereunder, and any other corporation or business organization which agrees, with the consent of Toll Bros., Inc., to become a party to the Plan.

1.14
EMPLOYER CONTRIBUTION CREDIT ACCOUNT is defined in Section 3.2.

1.15
EMPLOYER CONTRIBUTION CREDITS is defined in Section 3.2.

1.16
ENTRY DATE with respect to an individual means thirty (30) days following the date on which the individual first becomes an Eligible Employee.

1.17
FORM AND TIMING OF PAYMENT ELECTION FORM means the form or forms on which a Participant elects the form and timing of the Participant’s Plan benefit.

1.18
PARTICIPANT means any person so designated in accordance with the provisions of Article 2, including, where appropriate according to the context of the Plan, any former employee who is or may become eligible to receive a benefit under the Plan.

1.19
PERFORMANCE PERIOD means the Employer’s fiscal year beginning on each November 1 and ending on the following October 31.

1.20
PLAN means this Toll Bros., Inc. Nonqualified Deferred Compensation Plan set forth herein, as amended from time to time.

1.21
PLAN COMMITTEE OR THE COMMITTEE refers to the officers and employees of the Employer appointed by the Board to administer the Plan on behalf of the Employer.

1.22
PLAN YEAR means the twelve (12) month period ending on December 31 of each year during which the Plan is in effect.

1.23
RETIREMENT AGE with respect to any Participant means the date on which the Participant attains age sixty-one (61).

1.24
SEPARATION FROM SERVICE means a Participant is no longer employed by the Employer or any “Affiliated Employers” as determined using the “single employer” rules for employee benefit



plans under Code Section 414(b). The term “Separation from Service” generally means a Participant is no longer employed by the Employer or any Affiliated Employer on account of a termination of employment, Retirement, Disability or death. Consistent with the Final Treasury Regulation, or any subsequent guidance under Code Section 409A, no Separation from Service shall occur if a Participant continues to perform services as a consultant or an employee in excess of any amount of time permitted under this Section 1.24 or guidance under Code Section 409A.

(a)
LEAVE OF ABSENCE. For purposes of Section 409A, the employment relationship is treated as continuing in effect while a Participant is on military leave, sick leave, or other bona fide leave of absence, as long as the period of leave does not exceed six (6) months, or if longer, as long as the Participant’s right to reemployment with the Employer provided either by statute or contract. Otherwise, after a six (6) month leave of absence, the employment relationship if deemed terminated.

(b)
PART-TIME STATUS. Whether or not a termination of employment occurs is determined based upon all facts and circumstances. If a Participant provides services to the Employer or any Related Entities at a rate that is less than twenty percent (20%) of the services rendered, on average, during the immediately preceding three (3) full calendar years of employment (or such lesser period if the Participant has less than three (3) calendar years of employment), a Separation from Service shall be deemed to have occurred, since such services are considered to be insignificant under the Final Regulations under Section 409A.

(c)
CONSULTING SERVICES. Where a Participant continues to provide services to the Employer or any Related Entities in a capacity other than as an employee, whether or not a Separation from Service has occurred shall be determined in the same manner as provided in Section 1.24(b) above.

(d)
FOREIGN TRANSFERS. A Separation from Service means a Participant is no longer employed by the Employer or any Affiliated Employer within or outside of the United States. Accordingly, to the extent that an Employee is transferred outside the U.S., no Separation from Service shall be deemed to have occurred for purposes of distributions.

1.25
SPECIFIED EMPLOYEE DETERMINATION DATE means December 31 of each Plan Year, in accordance with Treasury Regulation Section 1.409A-1(i)(3).

1.26
SPOUSE means the person to whom a Participant is legally married at the time of such determination. The Plan recognizes same-sex Spouses as of June 26, 2013, if a same-sex couple was legally married and resided in a state that recognized same-sex marriages; and as of September 16, 2013 and thereafter, if a same-sex couple was legally married in a state or jurisdiction recognizing same-sex marriages, regardless of where they reside, as determined for purposes of Federal income taxes. The term "Surviving Spouse" means the survivor of a deceased former Participant to whom such deceased former Participant was legally married (as determined by the Plan Committee) on the date of the Participant's death.

1.27
TOTAL AND PERMANENT DISABILITY means the classification of a Participant as “disabled” pursuant to the group long term disability plan maintained by the Employer, or a successor to such plan (or, if there is no such plan, as reasonably determined by the Employer). In no event, however, may any distribution be made unless such Participant’s condition also qualifies as “Disabled” as that term is defined in Code Section 409A(a)(2)(C) and Treasury Regulation Section 1.409A-3(i)(4).




1.28
TRUST means the Trust described in Article 11.

1.29
TRUSTEE means the trustee of the Trust described in Article 11.

1.30
VALUATION DATE means the last day of each Plan Year; the date of distribution; or any other date that the Plan Committee, in its sole discretion, designates as a Valuation Date.

ARTICLE 2
ELIGIBILITY AND PARTICIPATION

2.1
REQUIREMENTS. Every Eligible Employee participating in the Pre-2015 Plan shall remain a Participant on the Effective Date. Every other Eligible Employee shall be eligible to become a Participant on the first Entry Date occurring on or after the date on which he or she becomes an Eligible Employee, and is informed of his or her eligibility to participate in the Plan. No individual shall become a Participant, however, if he or she is not an Eligible Employee on the date his or her participation is to begin.

Participation in the Compensation Deferral portion of the Plan is voluntary. In order to participate in that portion of the Plan, an otherwise Eligible Employee must make written application in such manner as may be required by Section 3.1 and by the Employer and must agree to make Compensation Deferrals as provided in Article 3.

Participation in the Employer Contribution Credit Account portion of the Plan is permitted, as provided under Section 3.2 of the Plan.

2.2
RE-EMPLOYMENT. If a Participant whose employment with the Employer is terminated is subsequently re-employed, he or she shall become a Participant in accordance with the provisions of Section 2.1.

2.3
CHANGE OF EMPLOYMENT CATEGORY. During any period in which a Participant remains in the employ of the Employer, but ceases to be an Eligible Employee, he or she shall not be eligible to make Compensation Deferrals or to receive Employer Contribution Credits hereunder.

ARTICLE 3
CONTRIBUTIONS AND CREDITS

3.1    PARTICIPANT CONTRIBUTIONS AND CREDITS.

a)
COMPENSATION DEFERRALS. In accordance with rules established by the Employer, a Participant may elect to defer Compensation which is due to be earned and which would otherwise be paid to the Participant, as a percentage of Compensation or in any fixed periodic dollar amounts designated by the Participant. Separate deferral elections shall be permitted, within the discretion of the Plan Committee, for bonuses, as defined within the discretion of the Plan Committee. Amounts so deferred, including bonus deferrals, shall be considered a Participant’s “Compensation Deferrals.” A Participant shall make such an election with respect to the coming Plan Year by completing and delivering to the Plan Committee a Deferral Election Form in a form prescribed by the Plan Committee, which Form may differentiate between Compensation and bonus deferrals. An Eligible Employee may elect



to defer Compensation within thirty (30) days after the date the Eligible Employee first becomes eligible to participate in the Plan; provided, however, that any such election shall only be effective with respect to Compensation paid for services to be performed after such thirty (30) day period, consistent with the requirements of Treasury Regulation Section 1.409A-2(a)(7). Should a Participant become newly eligible during a Plan Year, their election shall apply from the date of participation to the next December 31.

Compensation Deferrals shall be made through regular payroll deductions or through an election by the Participant to defer the payment of a bonus, sales bonus compensation or profit sharing distribution not yet payable to him or her at the time of the election, which election shall be set forth on such Participant’s Deferral Election Form. Compensation deferrals may be limited to the extent necessary to satisfy applicable tax withholding or benefit plan contribution requirements. The Participant may change his or her regular payroll deduction Compensation Deferral amount as of, and by written notice delivered to the Plan Committee during the periods described in the preceding paragraph, with such change being first effective for Compensation to be earned following the next December 31.

Once made, a Compensation Deferral Election Form with respect to a payroll deduction election shall continue in force indefinitely, until changed as provided above, with regard to any future Plan Year. A Deferral Election Form with respect to deferrals of bonuses, sales bonus compensation, profit sharing distribution proceeds, or other compensation payments shall continue in force only for the Plan Year for which the Deferral Election Form is first effective, except as provided in any Deferral Election Form, within the discretion of the Committee. Compensation Deferrals shall be deducted by the Employer from the pay of a deferring Participant and shall be credited to the Compensation Deferral Account of the deferring Participant.

Notwithstanding any provisions in the Plan to the contrary, deferral elections with regard to “performance-based” compensation, as defined in the Treasury Regulations under Code Section 409A, shall be permitted no later than the six (6) months before the end of the Performance Period, provided that the Participant performs services continuously from the later of the beginning of the Performance Period or the date the performance criteria are established, through the date of the election. All elections with regard to bonus, sales bonus compensation or profit sharing distributions that are not performance-based compensation as herein defined must be made prior to beginning of the service year with respect to which the compensation shall be determined, all as permitted under Code Section 409A, and as provided in any Deferral Election Forms.

b)
PARTICIPANT COMPENSATION DEFERRAL ACCOUNT. There shall be established and maintained by the Employer a separate Compensation Deferral Account in the name of each Participant to which shall be credited or debited, as applicable: (a) amounts equal to the Participant’s Compensation Deferrals; (b) amounts equal to any deemed earnings and/or losses (to the extent realized, based upon deemed fair market value of the Compensation Deferral); and (c) any withdrawals or distributions therefrom. A Participant shall at all times be one hundred percent (100%) vested in his or her Compensation Deferral Account.

c)
COMPLIANCE WITH CODE SECTION 409A. Notwithstanding anything to the contrary in this Section 3.1, any election by a Participant to defer base compensation shall become effective with respect to base compensation that is payable for services performed during a



Plan Year only if such election is filed prior to such deadline as is established by the Plan Committee for such deferral elections, which in all cases shall be no later than December 31 of the prior Plan Year, and any such deferral election shall become irrevocable as of such deadline and may not thereafter be modified until December 31 of the Plan Year following the Plan Year in which such election became irrevocable. Any election by a Participant to defer an annual bonus that is determined by reference to the Performance Period shall be effective only if such election is filed prior to such deadline as is established by the Plan Committee for such deferral elections, which in all cases shall comply with Code Section 409A. The provisions of this Section 3.1(c) are intended to be consistent with the requirements of Treasury Regulation Section 1.409A-2(a).

3.2
EMPLOYER CONTRIBUTION CREDITS. Apart from Compensation Deferral Contributions, the Employer shall retain the right to make discretionary contributions for any Participant under this Plan. If applicable, there shall be established and maintained a separate Employer Contribution Credit Account in the name of each Participant which shall be credited or debited, as applicable with: (a) amounts equal to the Employer’s Contribution Credits; and (b) any deemed earnings and/or losses (as determined by the Employer, in its discretion) allocated to the Employer Contribution Credit Account. The Participant’s Employer Contribution Credits for a Plan Year, if any, shall be determined by the Employer’s Board of Directors in its sole discretion. The Employer shall credit such Contributions on behalf of such individuals, in such amounts and with such frequency, as the Board determines in its sole discretion. A Participant shall become vested in amounts (if any) credited to his or her Employer Contribution Credit Account according to any vesting schedule(s) adopted by the Employer’s Board of Directors, in its sole discretion, provided, however, that a Participant shall become fully vested in amounts (if any) credited to his or her Employer Contribution Credit Account upon the occurrence during the Participant’s employment with the Employer of: (i) the Participant’s death or Total and Permanent Disability or (ii) a Change in Control of the Employer.

3.3
CONTRIBUTIONS TO THE TRUST. An amount may be contributed, if and when applicable, by the Employer to the Trust maintained under Section 11, equal to the amount(s) required to be credited to the Participant’s Account under Section 3.1 and 3.2. The Employer shall make a good faith effort to contribute these amounts to the Trust as soon as practicable following the date on which the contribution credit amount(s) are determined.

ARTICLE 4
ALLOCATION OF FUNDS

4.1
ALLOCATION OF DEEMED EARNINGS OR LOSSES ON ACCOUNTS. Subject to such limitations as may from time to time be required by law, imposed by the Employer or the Trustee or contained elsewhere in the Plan, and subject to such operating rules and procedures as may be imposed from time to time by the Employer, prior to the date on which a direction shall become effective, the Participant shall have the right to direct the Employer as to how amounts in his or her Account shall be deemed to be invested.

The value of the Participant’s Account shall be equal to the value of the account maintained under the Trust on behalf of the Participant. As of each Valuation Date of the Trust, the Participant’s Account shall be credited or debited to reflect the Participant’s deemed investments or earnings of the Trust.




4.2
ACCOUNTING FOR DISTRIBUTIONS. As of the date of any distribution hereunder, the distribution made hereunder to the Participant or his or her Beneficiary or Beneficiaries shall be charged to such Participant’s Account.

4.3
SEPARATE ACCOUNTS. A separate bookkeeping account under the Plan shall be established and maintained by the Employer to reflect the Account for each Participant with bookkeeping sub-Accounts to show separately the Participant’s Compensation Deferral Account and the Participant’s Employer Contribution Credit Account, if any. Each sub-Account shall separately account for the credits and debits described in Article 3 and Section 4.2.

4.4
DEEMED INVESTMENT DIRECTIONS OF PARTICIPANTS. Subject to such limitations as may from time to time be required by law, imposed by the Employer or the Trustee or contained elsewhere in the Plan, and subject to such operating rules and procedures as may be imposed from time to time by the Employer, each Participant may communicate to the Employer a direction (in accordance with (a), below) as to how his or her Plan Accounts should be deemed to be invested among such categories of deemed investments as may be made available by the Employer hereunder.

4.5
EXPENSES AND TAXES. Expenses associated with the administration or operation of the Plan including Trustee fees, shall be paid by the Employer from its general assets.

ARTICLE 5
ENTITLEMENT TO BENEFITS

5.1
FIXED PAYMENT DATES; TERMINATION OF EMPLOYMENT. On his or her Form and Timing of Payment Election Form, a Participant shall select the manner of payment (as described in Section 6.2(b)) and shall select a fixed payment date for the payment or commencement of payment of his or her Account, which shall be valued and payable according to the provisions of Article 6. A payment date may not be accelerated, except in the event of death as provided in Section 6.3.

A Participant who selects payment or commencement of payment of his or her Account on a fixed date shall receive payment of his or her Account at the earlier of such fixed payment date or upon his or her Separation from Service with the Employer, except as otherwise provided in the Participant’s Distribution Election Form for a Separation from Service after attaining Retirement Age.

If a Participant’s employment with the Employer is terminated for any reason (other than by reason of Total and Permanent Disability) prior to attainment of Retirement Age or if a Participant does not make an election as provided above for any particular amounts hereunder, and the Participant terminates employment with the Employer for any reason, the Participant’s Account at the date of such termination shall be valued and payable at or commencing at such termination according to the provisions of Article 6.

Notwithstanding anything herein to the contrary, any election by a Participant regarding the time and manner of payment of any 409A Benefit must be made at the same time as the deferral election to which such 409A Benefit is attributable (or at such later time as may be permitted by the Plan Committee, consistent with applicable IRS guidance regarding compliance with Code Section 409A).

Elections made with respect to a Plan benefit that is not a Section 409A Benefit shall be distributed in accordance with the Pre-2015 Plan.




5.2
HARDSHIP DISTRIBUTIONS. In the event the Participant experiences an “unforeseeable emergency” as that term is defined in Code Section 409A(a)(2)(B)(ii), and Treasury Regulation Section 1.409A-3(i)(3), the Participant may apply to the Employer for the distribution of all or any part of his or her vested Account, without penalty. The Employer shall consider the circumstances of each such case, and the best interests of the Participant and his or her family, and shall have the right, in its sole discretion, if applicable, to allow such distribution, or, if applicable, to direct a distribution of part of the amount requested, or to refuse to allow any distribution. Upon a finding of an unforeseeable emergency, the Employer shall direct the appropriate distribution to the Participant from amounts held by the Trust in respect of the Participant’s vested Account. In no event shall the aggregate amount of the distribution exceed either the full value of the Participant’s vested Account or the amount determined by the Employer to be necessary to alleviate the Participant’s unforeseeable emergency (which unforeseeable emergency may be considered to include any taxes due as a result of the distribution occurring because of this Section), and which is not reasonably available from other resources of the Participant. For purposes of this Section, the value of the Participant’s Account shall be determined as of the date of the distribution. “Financial hardship” means (a) a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (as defined in Code Section 152(a)) of the Participant, (b) loss of the Participant’s property due to casualty, or (c) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, each as determined to exist by the Employer. A distribution may be made under this Section only with the consent of the Employer.
    
5.3
RE-EMPLOYMENT OF RECIPIENT. If a Participant receiving installment distributions pursuant to Section 6.2 is re-employed by the Employer, the remaining distributions due to the Participant shall be suspended until such time as the Participant (or his or her Beneficiary) once again becomes eligible for benefits under Section 5.1, at which time such distribution shall commence, subject to the limitations and conditions contained in the Plan.

5.4
REDEFERRALS. In the event a Participant desires to extend a previously elected payment date to a subsequent date, such election shall be permitted only if the election to make such modification to such elected payment date is filed at least twelve (12) months prior to the date the distribution would have been paid (or the date the first distribution would have been paid out of a series of distributions), and such modification results in a deferral of payment (or distribution commencement) for at least five (5) years. For these purposes, a distribution of benefits in a series of installments shall be treated, consistent with applicable guidance issued pursuant to Code Section 409A, as a single payment distributed as of the date such series of payments is to commence.




ARTICLE 6
DISTRIBUTION OF BENEFITS

6.1
AMOUNT. For benefits deferred or “redeferred” under the 2015 Plan, a Participant (or his or her Beneficiary) shall become entitled to receive, within sixty (60) days following the earlier of the Participant’s Separation from Service with the Employer or the date or dates selected by the Participant on his or her Form and Timing of Payment Election Form, with the Committee’s consent (or, if no such selection is made, within sixty (60) days after the Participant’s Separation from Service with the Employer), a distribution in an aggregate amount equal to the Participant’s vested Account. Any payment due hereunder from the Trust, which is not paid by the Trust for any reason, shall be paid by the Employer from its general assets. Notwithstanding the foregoing, to the extent payment of a Participant’s 409A Benefit cannot be paid upon termination of employment without violating Code Section 409A, payment of such 409A Benefit shall be deferred as required, either by reason of the provisions of Section 6.6, below, or if required in connection with the Participant’s election to elect a new payment date pursuant to Section 5.4, above.

6.2    METHOD OF PAYMENT.

a)
PAYMENTS. Payments under the Plan shall be made in cash as elected by the Participant and as permitted by the Employer and the Trustee in their sole and absolute discretion subject, however, to Section 12.4 and any other applicable restrictions on transfer as may be applicable legally or contractually.

b)
TIMING AND MANNER OF PAYMENT. Except as otherwise provided herein, in the case of distributions to a Participant or his or her Beneficiary by virtue of an entitlement pursuant to Section 5.1, an aggregate amount equal to the Participant’s vested Account shall be paid by the Trust or the Employer, as provided in Section 6.1, in a lump sum annual substantially equal installments as permitted by the Committee, for a period not to exceed ten (10) years (adjusted for gains and losses), as selected by the Participant as provided in Article 5. If a Participant fails to designate properly the manner of payment of the Participant’s benefit under the Plan, such payment shall be in a lump sum cash payment, which

shall be the normal payment under the Plan, within sixty (60) days after a Separation from Service or other distributable event, such as death or Total and Permanent Disability, provided, however, that all payment must be no later than two and a half (2½) months after the end of any Plan Year in which a distribution event occurs.

If the whole or any part of a payment hereunder is to be in installments, the balance of the Participant’s Account not yet distributed shall continue to be deemed to be invested pursuant to Sections 4.1 and 4.4 under such procedures as the Employer may establish, in which case any deemed income, gain, loss or expense or tax allocable thereto (as determined by the Trustee, in its discretion) shall be reflected in the installment payments in such equitable manner as the Trustee shall determine.

c)
COMPLIANCE WITH CODE SECTION 409A. Notwithstanding anything to the contrary in this Section 6.2, no distribution of any Account shall be made at a time or in a manner that is not consistent with a valid election in effect at the time the deferral to which such 409A Benefit is attributable was made (or at such later time as may be permitted by the Plan Committee, consistent with applicable IRS guidance regarding compliance with Code



Section 409A), or pursuant to a valid modification of the time and manner of distribution as permitted under Section 5.4.

6.3
DEATH BENEFITS. For benefits deferred or redeferred under the 2015 Plan, if a Participant dies before terminating his or her employment with the Employer and before the commencement of payments to the Participant hereunder, the entire value of the Participant’s Account shall be paid, within sixty (60) days following the Participant’s death, in a single lump sum cash payment, to the person or persons designated in accordance with Section 7.1. Upon the death of a Participant after payments hereunder have begun but before he or she has received all payments to which he or she is entitled under the Plan, the remaining benefit payments shall be paid to the person or persons designated in accordance with Section 7.1, in the time and manner in which such benefits were otherwise to be payable to the Participant.

Notwithstanding the foregoing provisions of this Section 6.3, no election to modify the manner of payment of any 409A Benefit under this Section 6.3 shall be permitted except to the extent such election is made at the time the deferral to which such 409A Benefit is attributable was made, or at such later time as may be permitted by the Plan Committee, consistent with applicable IRS guidance regarding compliance with Code Section 409A.

6.4
DISABILITY BENEFITS. If a Participant experiences a Total and Permanent Disability before terminating his or her employment with the Employer and before the commencement of payments to the Participant hereunder, the Participant shall become fully vested in his or her Account, and shall become entitled to receive (or to commence receiving) the entire balance of his or her Account, as deferred under or redeferred under the 2015 Plan, in a single lump sum cash payment on the sixtieth (60 th ) day following the Total and Permanent Disability.

6.5
CHANGE IN CONTROL. Notwithstanding anything herein to the contrary, upon a Change in Control of Toll Brothers, Inc., each Participant shall become fully vested in his or her Account, and shall become entitled to receive the entire balance of his or her Account in a single lump sum cash payment on the sixtieth (60 th ) day following the Change in Control.

No Participant shall be permitted at the time of a Change in Control to waive or defer receipt of his or her 409A Benefit distributable by reason of such Change in Control. Waiver of a right to receive the Change in Control distribution of a Participant’s 409A may, however, be permitted if such waiver is made at the time the deferral to which such 409A Benefit is attributable was made, or at such later time as may be permitted by the Plan Committee, consistent with applicable IRS guidance regarding compliance with Code Section 409A.

6.6
SPECIAL DEFERRAL OF DISTRIBUTIONS TO SPECIFIED EMPLOYEES. Distribution of any 409A Benefit made on account of a Participant’s Separation from Service that would be paid prior to the date that is six (6) months after such Participant’s Separation from Service, shall be deferred and paid out as soon as practicable following the six month anniversary of such Participant’s Separation from Service; provided, however, that this Section 6.6 shall only be applicable to a Participant who is a “specified employee,” as that term is defined in Code Section 409A(a)(2)(B)(i) and Treasury Regulation Section 1.409A-1(i)). To the extent any payment of benefits to a Participant is delayed by reason of this Section 6.6, such Participant’s Compensation Deferral Account and Employer Contribution Credit Account shall continue to be credited with deemed investment returns, earning, gains and losses in the same manner as Compensation Deferral Accounts



and Employer Contribution Credit Accounts are credited for Participants who have not terminated employment with the Employer.

Notwithstanding any provisions therein to the contrary, as permitted under Section 409A(a)(2)(B)(i) of the Code and Treasury Regulations Section 1.409A-1(c)(3)(v), the six (6) month delay in payment rule shall not apply in the event of a death of a Specified Employee.

Furthermore, in no event shall any payments to a Specified Employee, that are delayed under the six (6) month delay in payment rule, be paid later than the last day of the Plan Year that includes the first day of the first calendar month that is at least six (6) months after the date of a Participant’s Separation from Service occurs, or, if later, the fifteenth (15 th ) day of the third calendar month following the date specified under the Plan, provided that the Participant may not directly or indirectly designate the year of payment.

ARTICLE 7
BENEFICIARIES; PARTICIPANT DATA

7.1
DESIGNATION OF BENEFICIARIES. Each Participant from time to time may designate any person or persons (who may be named contingently or successively) to receive such benefits as may be payable under the Plan upon or after the Participant’s death, and such designation may be changed from time to time by the Participant by filing a new designation. Each designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Employer, and shall be effective only when filed in writing with the Employer during the Participant’s lifetime.

In the absence of a valid Beneficiary designation, or if, at the time any benefit payment is due to a Beneficiary, there is no living Beneficiary validly named by the Participant, the Employer shall pay any such benefit payment to the Participant’s Spouse, if then living, but otherwise to the Participant’s estate. In determining the existence or identity of anyone entitled to a benefit payment, the Employer may rely conclusively upon information supplied by the Participant’s personal representative, executor or administrator. If a question arises as to the existence or identity of anyone entitled to receive a benefit payment as aforesaid, or if a dispute arises with respect to any such payment, then, notwithstanding the foregoing, the Employer, in its sole discretion, may distribute such payment to the Participant’s estate without liability for any tax or other consequences which might flow therefrom, or may take such other action as the Employer deems to be appropriate.

7.2
INFORMATION TO BE FURNISHED BY PARTICIPANTS AND BENEFICIARIES; INABILITY TO LOCATE PARTICIPANTS OR BENEFICIARIES. Any communication, statement or notice addressed to a Participant or to a Beneficiary at his or her last post office address as shown on the Employer’s records shall be binding on the Participant or Beneficiary for all purposes of the Plan. The Employer shall not be obliged to search for any Participant or Beneficiary beyond the sending of a registered letter to such last known address. If the Employer notifies any Participant or Beneficiary that he or she is entitled to an amount under the Plan and the Participant or Beneficiary fails to claim such amount or make his or her location known to the Employer within three (3) years thereafter, then, except as otherwise required by law, the Employer may direct distribution of such amount to the Participant’s estate. If the location of none of the foregoing persons can be determined, the Employer shall have the right to direct that the amount payable shall be deemed to be a forfeiture, except that the dollar amount of the forfeiture, unadjusted for deemed gains or losses in the interim, shall be paid by the Employer if a claim for the benefit subsequently is made by the Participant or the Beneficiary to whom it was payable. If a benefit payable to an unlocated Participant or Beneficiary



is subject to escheat pursuant to applicable state law, the Employer shall not be liable to any person for any payment made in accordance with such law.

ARTICLE 8
ADMINISTRATION

8.1
PLAN COMMITTEE. Notwithstanding any other provision of the Plan document, any member of the Plan Committee or any other officer or employee of the Employer who exercises discretion or authority on behalf of the Employer shall not be a fiduciary of the Plan merely by virtue of his or her exercise of such discretion or authority. The Board shall identify the Employer’s officers and employees who shall serve as members of the Plan Committee. Because this Plan is a “top hat” arrangement, the Plan Committee shall not be subject to the duties imposed by the provisions of Part 4 of Title I of ERISA.

8.2
ADMINISTRATIVE AUTHORITY. Except as otherwise specifically provided herein, the Plan Committee shall have the sole responsibility for and the sole discretion over the operation and administration of the Plan, and shall have the power and authority to take all action and to make all decisions and interpretations which may be necessary or appropriate in order to administer and operate the Plan, including, without limiting the generality of the foregoing, the power, duty, discretion and responsibility to:

a)
Resolve and determine all disputes or questions arising under the Plan, and to remedy any ambiguities, inconsistencies or omissions in the Plan.

b)
Adopt such rules of procedure and regulations as in its opinion may be necessary for the proper and efficient administration of the Plan and as are consistent with the Plan.

c)
Implement the Plan in accordance with its terms and the rules and regulations adopted as described above.

d)
Make determinations with respect to the eligibility of any Eligible Employee to be or continue as a Participant and make determinations concerning the crediting of Accounts.

e)
Appoint any persons or firms, or otherwise act to secure specialized advice or assistance, as it deems necessary or desirable in connection with the administration and operation of the Plan, and the Employer shall be entitled to rely conclusively upon, and shall be fully protected in any action or omission taken by it in good faith reliance upon, the advice or opinion of such firms or persons. The Employer shall have the power and authority to delegate from time to time by written instrument all or any part of its duties, powers or responsibilities under the Plan, both ministerial and discretionary, as it deems appropriate, to any person or committee, and in the same manner to revoke any such delegation of duties, powers or responsibilities. Any action of such person or committee in the exercise of such delegated duties, powers or responsibilities shall have the same force and effect for all purposes hereunder as if such action had been taken by the Employer. Further, the Employer may authorize one or more persons to execute any certificate or document on behalf of the Employer, in which event any person notified by the Employer of such authorization shall be entitled to accept and conclusively rely upon any such certificate or document executed by such person as representing action by the Employer until such notified person shall have been notified of the revocation of such authority.




8.3
UNIFORMITY OF DISCRETIONARY ACTS.    Whenever in the administration or operation of the Plan discretionary actions by the Employer are required or permitted, such actions shall be consistently and uniformly applied to all persons similarly situated, and no such action shall be taken which shall discriminate in favor of any particular person or group of persons.

8.4
LITIGATION. Except as may be otherwise required by law, in any action or judicial proceeding affecting the Plan, no Participant or Beneficiary shall be entitled to any notice or service of process, and any final judgment entered in such action shall be binding on all persons interested in, or claiming under, the Plan.

8.5
CLAIMS PROCEDURE. Any person claiming a benefit under the Plan (a “Claimant”) shall present the claim, in writing, to the Employer, and the Employer shall respond in writing. If the claim is denied, the written notice of denial shall state, in a manner calculated to be understood by the Claimant:

a)
The specific reason or reasons for the denial, with specific references to the Plan provisions on which the denial is based;

b)
A description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation of why such material or information is necessary; and

c)
An explanation of the Plan’s claims review procedure.

The written notice denying or granting the Claimant’s claim shall be provided to the Claimant within ninety (90) days after the Employer’s receipt of the claim, unless special circumstances require an extension of time for processing the claim. If such an extension is required, written notice of the extension shall be furnished by the Employer to the Claimant within the initial ninety (90) day period and in no event shall such an extension exceed a period of ninety (90) days from the end of the initial ninety (90) day period. Any extension notice shall indicate the special circumstances requiring the extension and the date on which the Employer expects to render a decision on the claim. Any claim not granted or denied within the period noted above shall be deemed to have been denied.

Any Claimant whose claim is denied, or deemed to have been denied under the preceding sentence (or such Claimant’s authorized representative), may, within sixty (60) days after the Claimant’s receipt of notice of the denial, or after the date of the deemed denial, request a review of the denial by notice given, in writing, to the Employer. Upon such a request for review, the claim shall be reviewed by the Employer (or its designated representative) which may, but shall not be required to, grant the Claimant a hearing. In connection with the review, the Claimant may have representation, may examine pertinent documents, and may submit issues and comments in writing.

The decision on review normally shall be made within sixty (60) days of the Employer’s receipt of the request for review. If an extension of time is required due to special circumstances, the Claimant shall be notified, in writing, by the Employer, and the time limit for the decision on review shall be extended to one hundred twenty (120) days. The decision on review shall be in writing and shall state, in a manner calculated to be understood by the Claimant, the specific reasons for the decision and shall include references to the relevant Plan provisions on which the decision is based. The written decision on review shall be given to the Claimant within the sixty (60) day (or, if applicable, the one hundred twenty (120) day) time limit discussed above. If the decision on review is not



communicated to the Claimant within the sixty (60) day (or, if applicable, the one hundred twenty (120) day) period discussed above, the claim shall be deemed to have been denied upon review. All decisions on review shall be final and binding with respect to all concerned parties.

8.6
INDEMNIFICATION OF THE PLAN COMMITTEE. The Employee shall indemnify and hold harmless the Plan Committee, and its individual members, against any and all claims, loss, damage, expense, or liability arising from any action or failure to act with respect to this Plan.

ARTICLE 9
AMENDMENT

9.1
RIGHT TO AMEND. The Employer, by action of its Board of Directors, shall have the right to amend the Plan, at any time and with respect to any provisions hereof, and all parties hereto or claiming any interest hereunder shall be bound by such amendment; provided, however, that no such amendment shall deprive a Participant or a Beneficiary of a right accrued hereunder prior to the date of the amendment.

9.2
AMENDMENTS TO ENSURE PROPER CHARACTERIZATION OF PLAN. Notwithstanding the provisions of Section 9.1, the Plan may be amended by the Employer, by action of its Board of Directors, at any time, retroactively if required, if found necessary, in the opinion of the Employer, in order to ensure that the Plan is characterized as “top-hat” plan of deferred compensation maintained for a select group of management or highly compensated employees as described under ERISA Sections 201(2), 301(a)(3), and 401(a)(1), and to conform the Plan to the provisions and requirements of any applicable law (including ERISA and the Code). No such amendment shall be considered prejudicial to any interest of a Participant or a Beneficiary hereunder.

ARTICLE 10
TERMINATION

10.1
EMPLOYER’S RIGHT TO TERMINATE OR SUSPEND PLAN. The Employer reserves the right to terminate the Plan and/or its obligation to make further credits to Plan Accounts, by action of its Board of Directors. The Employer also reserves the right to suspend the operation of the Plan for a fixed or indeterminate period of time, by action of its Board of Directors.

10.2
AUTOMATIC TERMINATION OF PLAN. The Plan automatically shall terminate upon the dissolution of the Employer, or upon its merger into or consolidation with any other corporation or business organization if there is a failure by the surviving corporation or business organization to specifically adopt and agree to continue the Plan.

10.3
SUSPENSION OF DEFERRALS. In the event of a suspension of the Plan, the Employer shall continue all aspects of the Plan, other than Compensation Deferrals, during the period of the suspension, in which event payments hereunder shall continue to be made during the period of the suspension in accordance with Articles 5 and 6.

10.4
ALLOCATION AND DISTRIBUTION. This Section shall become operative on a complete termination of the Plan. The provisions of this Section also shall become operative in the event of a partial termination of the Plan, as determined by the Employer, but only with respect to that portion of the Plan attributable to the Participants to whom the partial termination is applicable. Upon the effective date of any such event, notwithstanding any other provisions of the Plan, no persons who



were not theretofore Participants shall be eligible to become Participants, the value of the interest of all Participants and Beneficiaries shall be determined and paid to them as soon as is practicable after such termination in a lump sum payment.

10.5
SUCCESSOR TO EMPLOYER. Any corporation or other business organization which is a successor to the Employer by reason of a consolidation, merger or purchase of substantially all of the assets of the Employer shall have the right to become a party to the Plan by adopting the same by resolution of the entity’s board of directors or other appropriate governing body. If, within sixty (60) days from the effective date of such consolidation, merger or sale of assets, such new entity does not become a party hereto, as above provided, the Plan shall be automatically terminated, and the provisions of Section 10.4 shall become operative.

ARTICLE 11
THE TRUST

The Employer may establish the Trust with the Trustee pursuant to such terms and conditions as are set forth in the Trust agreement to be entered into between the Employer and the Trustee, or the Employer shall cause to be maintained one or more separate sub-Accounts in an existing Trust maintained with the Trustee with respect to one or more other plans of the Employer, which sub-Account or sub-Accounts represent Participants’ interests in the Plan. Any such Trust shall be intended to be treated as a “grantor trust” under the Code and the establishment of the Trust or the utilization of any existing Trust for Plan benefits, as applicable, shall not be intended to cause any Participant to realize current income on amounts contributed thereto, and the Trust shall be so interpreted.

ARTICLE 12
MISCELLANEOUS

12.1    STATUS OF PARTICIPANTS.

a)
Employees, Participants and Inactive Participants under this Plan shall have the status of general unsecured creditors of the Employer;

b)
This Plan constitutes a promise by the Employer to make benefit payments in the future;

c)
Any trust to which this Plan refers (i.e. any trust created by the Employer and any assets held by the trust to assist the Employer in meeting its obligations under the Plan) shall be based on the terms of the model trust described in Revenue Procedure 92-64; and

d)
It is the intention of the parties that the arrangements under this Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA.

12.2
LIMITATIONS ON LIABILITY OF EMPLOYER. Neither the establishment of the Plan nor any modification thereof, nor the creation of any account under the Plan, nor the payment of any benefits under the Plan shall be construed as giving to any Participant or other person any legal or equitable right against the Employer, or any officer or employer thereof except as provided by law or by any Plan provision. The Employer does not in any way guarantee any Participant’s Account from loss or depreciation, whether caused by poor investment performance of a deemed investment or the inability to realize upon an investment due to an insolvency affecting an investment vehicle or any other reason. In no event shall the Employer, or any successor, employee, officer, director or



stockholder of the Employer, be liable to any person on account of any claim arising by reason of the provisions of the Plan or of any instrument or instruments implementing its provisions, or for the failure of any Participant, Beneficiary or other person to be entitled to any particular tax consequences with respect to the Plan, or any credit or distribution hereunder.

12.3
CONSTRUCTION. If any provision of the Plan is held to be illegal or void, such illegality or invalidity shall not affect the remaining provisions of the Plan, but shall be fully severable, and the Plan shall be construed and enforced as if said illegal or invalid provision had never been inserted herein. For all purposes of the Plan, where the context admits, the singular shall include the plural, and the plural shall include the singular. Headings of Articles and Sections herein are inserted only for convenience of reference and are not to be considered in the construction of the Plan. The laws of the State of Pennsylvania shall govern, control and determine all questions of law arising with respect to the Plan and the interpretation and validity of its respective provisions, except where those laws are preempted by the laws of the United States. Participation under the Plan shall not alter the Participant’s status as an (at will) employee nor give any Participant the right to be retained in the service of the Employer nor any right or claim to any benefit under the Plan unless such right or claim has specifically accrued hereunder.

The Plan is intended to be and at all times shall be interpreted and administered so as to qualify as an unfunded deferred compensation plan, and no provision of the Plan shall be interpreted so as to give any individual any right in any assets of the Employer which right is greater than the rights of a general unsecured creditor of the Employer.

12.4    SPENDTHRIFT PROVISION/QUALIFIED DOMESTIC RELATIONS ORDER.

a)
Except as set forth in subsection (b), no amount payable to a Participant or a Beneficiary under the Plan shall, except as otherwise specifically provided by law, be subject in any manner to anticipation, alienation, attachment, garnishment, sale, transfer, assignment (either at law or in equity), levy, execution, pledge, encumbrance, charge or any other legal or equitable process, and any attempt to do so shall be void; nor shall any benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled thereto. Further, (i) the withholding of taxes from Plan benefit payments, (ii) the recovery under the Plan of overpayments of benefits previously made to a Participant or Beneficiary, (iii) if applicable, the transfer of benefit rights from the Plan to another plan, or (iv) the direct deposit of benefit payments to an account in a banking institution (if not actually part of an arrangement constituting an assignment or alienation) shall not be construed as an assignment or alienation. In the event that any Participant’s or Beneficiary’s benefits hereunder are garnished or attached by order of any court, the Employer or Trustee may bring an action or a declaratory judgment in a court of competent jurisdiction to determine the proper recipient of the benefits to be paid under the Plan. During the pendency of said action, any benefits that become payable shall be held as credits to the Participant’s or Beneficiary’s Account or, if the Employer or Trustee prefers, paid into the court as they become payable, to be distributed by the court to the recipient as the court deems proper at the close of said action.

b)
Notwithstanding the general inability to assign benefits under the Plan, consistent with IRS Notice 2002-31 and Revenue Ruling 2002-22, to the extent that a valid property settlement or Domestic Relations Order directs that any portion of a Participant’s benefits under the Plan be designated to a former Spouse, benefits shall be paid to the Spouse, at the same time



benefits would otherwise have been payable to the Participant. In no event, shall any former Spouse obtain any additional rights to receive any form of distribution, or benefits payable in any manner not permitted under the Plan, or at any time earlier than when a Participant would otherwise have been entitled to receive such benefits.

12.5
COMPLIANCE WITH THE CODE. The Plan is intended to comply with the provisions of Code Section 409A, and the Treasury Regulations and other guidance issued thereunder. If there is any discrepancy between the provisions of this Plan and the provisions of Code Section 409A, such discrepancy shall be resolved in a manner as to give full effect to the provisions of Code Section 409A. Furthermore, if any benefits are to be paid within sixty (60) days or any other period after any payment event, and such payment period shall span more than one taxable year of a Participant or a beneficiary, then neither the Participant nor any beneficiary may determine in which tax year the payment shall be made.

12.6
FICA TAXES. All Participants shall be informed that when their benefits become vested under the Plan, and not subject to any substantial risk of forfeiture under Code Sections 3121(v) and 3306(r) and other provisions of the Code, the Participants shall be subject to FICA taxes (unless any benefits are undeterminable). The Employer shall have the right to withhold from a Participant’s other wages, any FICA or other related taxes required to be withheld.

12.7
DELAY IN PAYMENT FOR SECTION 162(m) AND SECURITY VIOLATIONS. Notwithstanding the foregoing, any payment of Section 409A Benefits (and earnings thereon) to a Participant under the Plan shall be delayed upon the Committee’s reasonable anticipation of one or more of the following events:

a)    The Company’s deduction with respect to such payment would be eliminated by
application of Code Section 162(m); or

b)
The making of the payment would violate federal securities laws or other applicable law; provided, that any payment delayed pursuant to this Section 12.9 shall be paid at the earliest time the Company reasonably anticipates that such payment may be made without giving rise to the matters described in Sections 12.10 (a) or (b) above, all in accordance with Code Section 409A.


EXECUTED this 31st day of December, 2014:

 
TOLL BROS., INC.
 
 
BY:  
/s/ Martin P. Connor
 
 
 
 
 
December 31, 2014





Exhibit 31.1
CERTIFICATION
I, Douglas C. Yearley Jr., certify that:
1.    I have reviewed this Quarterly Report on Form 10-Q of Toll Brothers, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Signed:
 
/s/ Douglas C. Yearley, Jr.
 
 
 
Name: Douglas C. Yearley, Jr.
 
 
 
Title: Chief Executive Officer
Date: March 5, 2015





Exhibit 31.2
CERTIFICATION
I, Martin P. Connor, certify that:
1.    I have reviewed this Quarterly Report on Form 10-Q of Toll Brothers, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Signed:
 
/s/ Martin P. Connor
 
 
 
Name: Martin P. Connor
 
 
 
Title: Chief Financial Officer
Date: March 5, 2015





Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Toll Brothers, Inc. (the “Company”) for the three months ended January 31, 2015 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Douglas C. Yearley Jr., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:
 
/s/ Douglas C. Yearley Jr.
 
 
Name: Douglas C. Yearley Jr.
 
 
Title: Chief Executive Officer
Date: March 5, 2015





Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Toll Brothers, Inc. (the “Company”) for the three months ended January 31, 2015 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Martin P. Connor, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:
 
/s/ Martin P. Connor
 
 
Name: Martin P. Connor
 
 
Title: Chief Financial Officer
Date: March 5, 2015