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TOL_2005_AR
$5,793




                                                                                                                                                $806
                                                                                                          *
                                     *
                                                                                                         %
                                 %                                                                     .0
                               .2




                      $3,862
                                                                                                     34
                             25                                                                  –
                         –
                                                                                             R
                     R                                                                   G
                AG                                                                     AA




                $2,758
           CA




                                                                                                                                       $409
                                                                                     C




              $2,315
             $2,208
           $1,802




                                                                                      $260
         $1,456




                                                                                    $220
                                                                                    $214
       $1,206




                                                                                 $146
      $968
    $759




                                                                               $102
    $643
   $502




                                                                              $85
  $393
 $280




                                                                             $65
$198
$176




                                                                            $54
                                                                            $50
                                                                           $36
                                                                           $28
                                                                          $17
                                                                          $10
                                                                          $5
                                                                                                             98 99 00 01 02 03 04 05
                                                                          90 91 92 93 94 95 96 97
90 91 92 93 94 95 96 97 98               99 00 01 02 03 04 05

                                                                                   Net Income (in millions)
       Total Revenues (in millions)
                                                                                             FYE October 31
                      FYE October 31
                                                                                               1990–2005
                        1990–2005




                                                                                                                                                             The West Coast
                                                                                                                                                                                                                                                                                              Connecticut Massachusetts New Jersey
                                                                                                                                                                                  Los Angeles Palm Springs Sacramento




                                                                                                                                                                                                                                                                        The Northeast
                                                                                                                                                                                                                                                                                                      New York Rhode Island
                                                                                                                                                                                         San Diego San Francisco
                                                                                                                                                                                                                                                                                                                             2005           2004
                                                                                                                                                                                                                      2005            2004
                                                                                                                                                                                                                                                                                           Revenues* (in millions)           $722           $573
                                                                                                                                                                              Revenues* (in millions)                $1,082           $846
                                                                                                                                                                                                                                                                                           Contracts (in millions)          $1,078          $653
                                                                                                                                                                              Contracts (in millions)                 $888         $1,213
                                                                                                                                                                                                                                                                                           Home Sites Controlled            12,806        11,585
                                                                                                                                                                              Home Sites Controlled                   7,943          6,797
                                                                                                                                                                                                                                                                                           Year-end Backlog (in millions)    $956           $600
                                                                                                                                                                              Year-end Backlog (in millions)          $670            $865




                                                                                                                                                                                                                                                                        The Mid-Atlantic
                                                                                                                                                $6,015




                                                                                                                                                             The Southwest
                                                                $7,152




                                                                                                                                                                                                                                                                                           Delaware       Maryland     Pennsylvania     Virginia
                                                                                                                                                                                    Arizona        Colorado        Nevada     Texas

                                                                                                                                                                                                                      2005            2004                                                                                   2005           2004
                                                       $5,641




                                                                                                                                       $4,434
                                                                                                         *
                                  *
                                                                                                      %
                                 %                                                                                                                                            Revenues* (in millions)                 $936            $528                                                 Revenues* (in millions)          $2,057        $1,253
                                                                                                    .6
                               .6
                                                                                                  34
                             28                                                                                                                                               Contracts (in millions)                $1,401           $981                                                 Contracts (in millions)          $2,264        $1,788
                                                                                              –
                         –
                                                                                          R
                  R                                                                      G
                AG                                                                                                                                                            Home Sites Controlled                  13,060          8,052                                                 Home Sites Controlled            26,421        23,168
                                                                                       AA
                 $3,476




           CA
                                                                                         $2,632




                                                                                     C                                                                                        Year-end Backlog (in millions)         $1,315           $850                                                 Year-end Backlog (in millions)   $1,579        $1,372
             $2,734




                                                                                    $1,859
           $2,159
          $2,135




                                                                                  $1,426
                                                                                 $1,404
        $1,628
      $1,383




                                                                               $1,054
     $1,069




                                                                                                                                                                                                                                                                        The Southeast
                                                                                                                                                                                                                                                                                               Florida     North Carolina   South Carolina
                                                                                                                                                                                        Illinois        Michigan    Minnesota
                                                                              $815




                                                                                                                                                             The Midwest
    $885




                                                                             $627
                                                                            $526
   $660
  $587




                                                                           $401
  $491




                                                                           $371
                                                                           $285
 $343




                                                                          $187
                                                                          $124
$230
$164




                                                                                                                                                                                                                                                                                                                             2005           2004
                                                                                                                                                                                                                      2005            2004
                                                                          $70




                                                                                                                                                                                                                                                                                           Revenues* (in millions)           $558           $367
                                                                                                                                                                              Revenues* (in millions)                 $405            $274
                                                                                                                          01 02 03 04 05
                                                                          90 91 92 93 94 95 96 97 98 99 00                                                                                                                                                                                 Contracts (in millions)          $1,082          $612
                                                                                                                                                                              Contracts (in millions)                 $439            $395
90 91 92 93 94 95 96 97              98 99 00 01 02 03 04 05

                                                                                      Backlog (in millions)
          Contracts (in millions)                                                                                                                                                                                                                                                          Home Sites Controlled            17,873         5,340
                                                                                                                                                                              Home Sites Controlled                   5,023          5,247
                                                                                                 At October 31
                     FYE October 31                                                                                                                                                                                                                                                        Year-end Backlog (in millions)   $1,175          $464
                                                                                                                                                                              Year-end Backlog (in millions)          $319            $284
                                                                                                  1990–2005
                       1990–2005

                                                                                                                                                                                                                                                                                                                                 *Revenues = Home Sales
                                                                                                             *CAAGR – Compound Average Annual Growth Rate
                                                                                                                                     (FYE) Fiscal Year End

                                                                                                                                                                                                                              T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 1
The Grande Clubhouse at Frenchman's Reserve
                                                                                                                                                                                                                                                                                        Palm Beach Gardens, Florida




                      Corporate Overview
                                              Fiscal Year End (FYE) October 31, 2005



Focus On Luxury Homes & Communities                                                Integrated Land & Building Program                                  Strong Financial Performance                                                          Brand Name
 National presence in the luxury market                                               Own or control over 83,000 home sites                             13 consecutive years of record earnings                                                  Founded in 1967
 Average delivered home price of nearly $660,000                                      Selling from 230 communities; expect to reach approximately       14 consecutive years of record revenues                                                  Publicly traded since 1986
                                                                                      265 communities by FYE 2006
 Executive and estate move-up homes                                                                                                                     15 consecutive years of record sales contracts                                           Traded on the New York Stock Exchange and
                                                                                      Land acquisition, approvals and development skills contribute                                                                                              Pacific Exchange (TOL)
 Upscale empty-nester attached and detached homes                                                                                                       Investment-grade corporate credit ratings from Standard & Poor’s
                                                                                      significant profits                                               (BBB-), Moody’s (Baa3), and Fitch (BBB)                                                  10th largest U.S. home builder (by home sale revenues)
 Active-adult, age-qualified communities
                                                                                      Combine high-volume home production with extensive                Relationships with three dozen U.S. and global financial institutions                    Award-winning communities across the U.S.
 Second-home communities                                                              customization offerings
                                                                                                                                                        Backed by $1.2 billion credit facility with 30 banks                                     Fortune 500 Company
 Urban low-, mid-, and high-rise condominiums                                         Home buyers average $113,000 in upgrades and lot premiums,
                                                                                                                                                        Raised more than $1.5 billion in the public capital markets over                         Forbes Platinum 400 Company
                                                                                      21% above base house price
 Luxury resort-style golf, country club, lake and
                                                                                                                                                        past 5 years
 marina communities                                                                                                                                                                                                                              Apex Award Winner, Big Builder - 2004
                                                                                      Pre-design and pre-budget options through Toll Architecture
                                                                                                                                                        Highest average net profit margin of Fortune 500 home building
                                                                                      and Toll Integrated Systems
 Championship golf courses designed by Arnold Palmer,                                                                                                                                                                                            America’s Best Builder, National Association of Home
                                                                                                                                                        companies over past decade
 Pete Dye, Greg Norman, Peter Jacobsen, and Arthur Hills                                                                                                                                                                                         Builders - 1996
                                                                                      Ancillary businesses: mortgage, title, golf course development
                                                                                                                                                        Stock price has appreciated over 3,500% since IPO in July 1986
                                                                                      and management, security, landscape, land sales, cable TV and
 Operations in 50 affluent markets; researching two dozen                                                                                                                                                                                        National Housing Quality Award, National Association of
                                                                                      broadband Internet
 potential markets with similar levels of affluence                                                                                                     Stockholders’ equity, net income, and revenues have grown at                             Home Builders - 1995
                                                                                                                                                        compound average annual rate of over 20% since 1986 IPO                                  Builder of the Year, Professional Builder - 1988




                                              T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 2                                                                                                   T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 3
The Malvern Chateau at Brandywine Hunt
                                                                                                                                           Wilmington, Delaware



                                                                                                                                                                  mid-2003. That period was an excellent one for our Company. Our
                                                                                                                                                                  revenues rose five-fold and our earnings grew seven-fold. We grew
                                                                                                                                                                  despite the NASDAQ implosion, a terrorist attack, a national recession
                                                                                                                                                                  and several global financial crises. In 1995, 1997 and 2000, the Fed
                                                                                                                                                                  raised interest rates, and mortgage rates rose to 9.2%, 8.2% and 8.6%,
                                                                                                                                                                  respectively; today they are at 6%. Based on our performance in those
                                                                                                                                                                  periods, we don’t believe interest rates at 6% or at 7.5% are deterrents
                                                                                                                                                                  for our affluent buyers.

                                                                                                                                                                  Toll Brothers is on track for growth as we continue to increase our
                                                                                                                                                                  community count. We expect to end FY 2006 with approximately
                                                                                                                                                                  265 selling communities, 35 more than we started the year with. To
                                                                                                                                                                  achieve this, we project completing sales at about 110 communities,
                                                                                                                                                                  and opening about 145. New communities generally are greeted with
                                                                                                                                                                  pent-up demand and have a wide array of home sites to choose from,
                                                                                                                                                                  while those where we are completing sales have a more limited
                                                                                                                                                                  selection. Based on our community growth and assuming a healthy
                                                                                                                                                                  rate of demand, we also anticipate record results in FY 2007.

                                                                                                                                                                  We look to the future with cautious optimism. We believe demand
                                                                                                                                                                  for luxury homes relies, in large measure, on consumer confidence,
                                                                                                                                                                  which suffered following Hurricane Katrina and its impact. In the
                                                                                                                                                                  aftermath speculative buyers fled, contributing to what we believe is
                                                                                                                                                                  temporary excess industry inventory in what had been some of the
                                                                                                                                                                  hottest housing markets.

                                                                                                                                                                  We’ve experienced this before. In late 2004, in Las Vegas, speculative
                                                                                                                                                                  buyers also fled the market, increasing the supply of inventory. This also
                                                                                                                                                                                                                                                                            The Windham at The Enclave at Broadlands
                                                                                                                                                                  occurred around 2000 in the San Francisco area, after that economy
                                                                                                                                                                                                                                                                            Broomfield, Colorado
                                                                                                                                                                  was hurt by the tech implosion. Both markets returned to normalcy
                                                                                                                                                                  in relatively short order.
We begin our twentieth year as a public company having just                          We operate in an increasingly lot-constrained environment, driven by
                                                                                                                                                                                                                                                                      set records each year. Affluent households continue to grow in wealth
completed our best year ever with record results in every category:                  growing regulation and exacerbated by anti-growth NIMBY (not-in-my-
                                                                                                                                                                                                                                                                      and numbers. The Fed appears to be approaching the end of a period
                                                                                                                                                                  This year, unfortunately, holders of our stock endured a roller coaster
                                                                                     backyard) politics. This is particularly true in our affluent market. As
                                                                                                                                                                                                                                                                      of 13 interest rate increases, with mortgage rates still quite attractive by
                                                                                                                                                                  ride: We began our fiscal year at $23.18 and ended at $36.91, up 57%;
   Net income rose 97% over FY 2004 to $806.1 million                                land supply constraints get tighter, we believe that the U.S. may begin
                                                                                                                                                                                                                                                                      historical standards. And household growth is projected to accelerate.
                                                                                                                                                                  but this was 37% below our high of $58.67. We repurchased about
                                                                                                                                                                                                               *
   Earnings per share rose 90% to $4.78                                              to mirror Europe where people spend a much greater portion of their
                                                                                                                                                                                                                                                                      Based on these factors, our luxury focus, proven management team,
                                                                                                                                                                  2% of our stock over the course of the fiscal year with nearly 2 million
   Total revenues rose 50% to $5.79 billion                                          incomes for housing and get much smaller homes.
                                                                                                                                                                                                                                                                      projected community count growth, land position, diversity of product
                                                                                                                                                                  shares purchased in our fourth quarter.
   Contracts rose 27% to $7.15 billion
                                                                                                                                                                                                                                                                      offerings, and our strong brand and financial base, we look forward to
   Backlog at year end rose 36% to $6.01 billion                                     In this environment, we believe we are positioned to prosper. We have
                                                                                                                                                                                                                                                                      future growth.
                                                                                                                                                                  We believe that the fundamentals of supply and demand will prevail.
   Return on beginning-year equity reached 42%                                       over 440 communities in the approval or development process, and
                                                                                                                                                                  The current economy is stronger than during the last recession, which
                                                                                     now control more than 83,000 home sites, compared to about 60,000
                                                                                                                                                                                                                                                                      We thank our shareholders for their support and commitment; our
                                                                                                                                                                  did not shut down demand for our homes, nor impair our ability to
Fiscal 2005’s 97% earnings growth came on top of FY 2004’s                           at FYE 2004. These home sites represent a five-to-six year supply, based
                                                                                                                                                                                                                                                                      contractor- and supplier-partners, whose skill and craftsmanship help
57% earnings growth. And that was preceded by 17 years of                            on our historical 20% annual rate of growth.
                                                                                                                                                                                                                                                                      build our brand; our customers, who place their dreams in our hands;
20% compound average annual net income growth, dating back to
                                                                                                                                                                                                                                                                      and our associates who have made this year so exceptional and our
1986, when we went public. These results have been primarily achieved                Looking forward, we believe FY 2006 should be our fourteenth
                                                                                                                                                                                                                                                                      Company so strong.
through organic expansion, rather than through acquiring other                       consecutive year of record earnings, although we will not be able
builders. Although demographics-driven demand has been a significant                 to match the extraordinary pace of the past two years. To some extent,
factor in our success, we attribute much of our accomplishment to our                the temporary slowdown in our growth arises from our own success.
great team of 5,600 associates.                                                      We delivered more than 600 homes in FY 2005 that we thought we
                                                                                     would deliver in FY 2006. We also have backlogs of 12 months or
Their commitment; our nationwide expansion; our ability to find                      more at about 35 communities; as a result, we have temporarily
and entitle well-located land in highly regulated markets; our brand                 stopped selling homes in these communities.
name; and our skill at delivering the expanding variety of luxury homes                                                                                                                                                                            ROBERT I. TOLL                                 BRUCE E. TOLL                                 ZVI BARZILAY
                                                                                                                                                                                                                                                Chairman of the Board and                          Vice Chairman                                  President and
we offer—suburban move-up, empty-nester, active-adult, resort-style                  In addition, the housing market has softened. The home price increases                                                                                      Chief Executive Officer                            of the Board                              Chief Operating Officer
communities, and urban low-, mid- and high-rise product—all have                     of 2004 and most of 2005 were not sustainable; they were fueled, in
enabled us to significantly broaden our customer base and gain market                part, by speculation. Our sales results indicate that housing demand                                                                                                                                     December 14, 2005
share. This combination has led to our growth in size and profitability.             is returning to the more normalized levels of the decade from 1994 to
                                                                                                                                                                     From left to right: Zvi Barzilay, Robert I. Toll, Bruce E. Toll
                                                                                                                                                                                                                                                                                                          *Stock prices are adjusted to reflect a two-for-one stock split in 2005.
                                                      T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 4                                                                                                                         T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 5
Great Locations


                                                                                                 GREAT LAND BECOMES GREAT COMMUNITIES
                                                                                                                                                                                                                                    Constrained Production
                                                                                              The foundation of our business is land. Hundreds of Toll Brothers
                                                                                              associates devote all or some of their time to finding well-located sites
                                                                                                                                                                                                                                   For A Growing Population
                                                                                              and taking them through the entitlement process in affluent markets
                                                                                              around the U.S. As gaining approvals for new communities becomes                                              Since 1970, U.S. households have increased by 75%, from
                                                                                              more and more challenging in virtually every market where we build,                                           under 65 million to more than 113 million. In addition, during
                                                                                              we believe our land expertise is a competitive advantage.                                                     that time, the average U.S. household’s net income (in
                                                                                                                                                                                                            constant 2004 dollars) has grown by over 50%. Logically,
                                                                                              Our Company started nearly 40 years ago in the Northeast and Mid-                                             one would expect that new home production would keep
                                                                                              Atlantic regions of the U.S., where land approvals are overseen by local                                      pace with this growth, but it has not. In fact, on an annual
                                                                                                                                                                                                            average, in the United States more homes were built in the
                                                                                              zoning boards whose members live and work near the communities
                                                                                                                                                                                                            1970s than were built in either the 1980s, the 1990s or in
                                                                                              we want to build. Therefore, we were schooled in gaining entitlements
                                                                                                                                                                                                            the current decade so far. In the 1970s, production of
                                                                                              in some of the most difficult markets in the nation. Because the land
                                                                                                                                                                                                            new single- and multi-family homes averaged 1.77 million
                                                                                              approval process in these areas is so tough, traditional land developers
                                                                                                                                                                                                            annually, while in the 2000s so far the average has been
                                                                                                                                                                                                            1.74 million per year.
                                                                                                     In sum, the evidence points toward                                                                     The primary reason that home production has not kept
                                                                                                     a man-made scarcity of housing in                                                                      pace with this growth is the constricted land approval
                                                                                                                                                                                                            process, which has restricted the supply of building home
                                                                                                     the sense that the housing supply has
                                                                                                                                                                                                            sites coming to market to meet the housing needs of
                                                                                                     been constrained by governmental
The Cellini Tuscan at Barrington
                                                                                                                                                                                                            American families. One consequence of this has been
Las Vegas, Nevada
                                                                                                     regulation, as opposed to fundamental                                                                  the steady rise in new home prices over the past 35 years.
                                                                                                     geographic limitations.                                                                                The constraints on supply may have broader consequences
                                                                                                                                                                                                            in the next 10 years as demand continues to outpace
                                                                                                     Source: Harvard Institute of Economic Research – 2005
                                                                                                                                                                                                            supply. Harvard University’s Joint Center for Housing Studies,
                                                                                                                                                                                                            in its report, State of the Nation’s Housing – 2005, predicts
                                                                                                                                                                                                            that household formations between 2005 and 2015 will
                                                                                              (firms based mainly in the West, Southwest and Southeast, who focus
                                                                                                                                                                                                            exceed those of the 1990s and, combined with higher rates
                                                                                              solely on entitling and improving land, then selling it to builders) stayed
                                                                                                                                                                                                            of immigration, will spur demand on par with or at a higher
                                                                                              clear of these Northeast areas. Thus, in eastern Pennsylvania, New
                                                                                                                                                                                                            rate than in the past decade.
                                                                                              Jersey and other similar markets, local builders typically had to develop
                                                                                              the skill to gain their own approvals and complete their own site                                             With accelerating household growth, it appears that
                                                                                              improvements. We learned this part of the business at an early stage                                          demand for housing could exceed our industry’s ability to
                                                                                              in our history.                                                                                               supply it. We believe this should result in continued steady
                                                                                                                                                                                                            demand for new homes and benefit builders like Toll Brothers
                                                                                                                                                                                                            with the entitled home sites on which to build.
                                                                                              Our ability to secure approvals and develop our own land provides extra
                                                                                              value to our shareholders, because we generally don’t pay the higher
                                                                                              prices land developers charge home builders for sites with approvals.
                                                                                              It also increases our profits, because we can gain control of land at an                                                               Housing Starts vs. Household Growth
                                                                                              earlier stage than builders who only buy home sites once roads and
                                                                                              improvements have been installed by third-party land developers.                                                                              Average Annual Housing Starts (in millions)




                                                                                                                                                                                                        U.S. Households (in 000)
                                                                                                                                                                                                                                                1.767        1.492                1.371       1.735




                                                                                                                                                                                                                                                                                                                 Housing Starts (in 000)
                                                                                              Each market in which we build has its own unique approval process.                                                                                                                                          2500
                                                                                                                                                                                                                                   120000
                                                                                              In some areas, such as many Northeast and Mid-Atlantic states,                                                                                                                                              2000
                                                                                                                                                                                                                                   100000
                                                                                              approvals are overseen by town planning boards, whose volunteer                                                                       80000
                                                                                                                                                                                                                                                                                                          1500
                                                                                              members are local residents. County, state and federal guidelines are
                                                                                                                                                                                                                                    60000
                                                                                              overlaid on the local zoning regulations so, in many cases, dozens of                                                                                                                                       1000
                                                                                                                                                                                                                                    40000
                                                                                              permits and approvals are required before a community can open for                                                                                     Number of Households Have Grown 75%
                                                                                                                                                                                                                                                                                                          500
                                                                                                                                                                                                                                    20000
                                                                                              sale. In other markets, approvals are overseen by county or even state
                                                                                                                                                                                                                                        0                                                                 0
                                                                                              authorities, again with the addition of federal guidelines. In all cases,                                                                        1970-1979    1980-1989             1990-1999   2000-2004
                                                                                              the level of oversight and the volume of permitting required continues                                                                               Total Single- and Multi-Family Housing Starts
                                                                                              to increase. This elongates the approval process, increasing the expense,
                                                                                                                                                                                                                                                   Total U.S. Households
                                                                                              resources and skill needed to complete it.
                                                                                                                                                                                                                                                           Source: U.S. Census Bureau
                                                                                                                                                                                                                                                                                                                                           The Malvern Heritage at Island Lake of Novi
                                                                                                                                                                                                                                                                                                                                                                       Novi, Michigan
Mountain View Country Club®
La Quinta, California


                                   T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 6                                                                  T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 7
Great Locations


   FOCUS ON DETAILS IN RESEARCH AND PLANNING
                                                                                                              Strong Land Holdings In A
When acquiring land for a Toll Brothers community, we carefully
consider numerous factors. We evaluate a site’s access to major roads,
                                                                                                              Supply-Restricted Market
mass transit and employment centers, and the quality of its school
system. We estimate the cost of improving the land based on its                                            Our large, well-located land portfolio positions us to benefit
topography and soil conditions.                                                                            from the changing dynamics of our industry. The growing
                                                                                                           imbalance between the constrained supply of approved
We review zoning restrictions and then engineer each site to determine                                     buildable home sites and the increasing demographics-
what product types, and how many homes we can build once we                                                driven demand that has fueled the strong housing market
account for streets, utilities, water, sewers and other infrastructure.                                    of the past 15 years has favored those builders with the
                                                                                                           resources and expertise to control and gain approvals for
Most importantly, we look for evidence of proven, existing demand
                                                                                                           home building sites and communities.
for luxury homes. We conduct detailed analyses of our potential
competitors and the tastes of buyers in a local market to gauge their                                      The shortage of buildable home sites, which we believe
appetite for our products and to identify a competitive advantage to                                       results from anti-growth sentiment and increased
help us sell our homes.                                                                                    governmental approval regulation, is magnified in the
                                                                                                           established, affluent markets where we operate. Due to our
These guidelines apply to all our potential sites, whether for a                                           financial strength, our land approval and development skills,
community of 50 homes in a single product line or a community of                                           and our legal and planning expertise, we have been able
                                                                                                           to grow and gain market share even in years when new
several thousand homes with numerous product lines and large-scale
                                                                                                           home sales nationally have slowed.
amenities such as golf courses, lakes and country clubs.
                                                                                                           Our land strategy differs from that of many other major
Generally, we do not take ownership of a land parcel until we have                                         builders. We allocate capital to the most profitable land
secured approvals and are confident we can build on it. Before then,                                       deals, rather than by geographic region or product type.
we maintain control of the property through an option agreement, during                                    When evaluating the worth of a property for acquisition,
which time we typically manage and bear the cost of the approval process.                                  we won’t justify paying a higher price based on assumptions
This policy enables us to control our risk so we do not become owners of                                   that home prices will continue to rise: We believe this leads
                                                                                                           to overpaying for land, which we generally have had the
sites on which we cannot build. It also enables our shareholders to benefit
                                                                                                           discipline to avoid in our nearly 40 years in business.
from the increase in land value that we create by taking properties from
unapproved to approved, “ready-to-build” status.                                                           We use our strong capital base and approvals skills to secure
                                                                                                           control of land at an earlier stage than many other builders,
                                                                                                           which has enabled us to build our land portfolio into a multi-
       New construction has plummeted and                                                                  year supply. This year we boosted our land position to over
                                                                                                           83,000 home sites under control at FYE 2005, up 38% versus
       housing prices have soared in a small
                                                                                                           the roughly 60,000 at FYE 2004.
       but increasing number of places. These
                                                                                                           These home sites are located in 21 states in six regions across
       changes do not appear to be the result of
                                                                                                           the U.S. The geographic diversity of our locations protects us
       a declining availability of land, but rather                                                        from the vagaries of individual housing markets and offers
       are the result of a changing regulatory                                                             greater opportunities for profit.
       regime that has made large-scale
       development increasingly difficult in                                                                               Optioned & Owned Home Sites
                                                                                                                                                                                                                                               83,126



       expensive regions of the country.
                                                                                                                                                                                                                                      60,189




       Source: Harvard Institute of Economic Research – 2005
                                                                                                                                            Optioned
                                                                                                                                                                                                                             48,058
                                                                                                                                                                                                                    40,844




                                                                                                                                            Owned
                                                                                                                                                                                                           39,146
                                                                                                                                                                                         34,431




To increase the appeal of our communities, we plan our sites with an
                                                                                                                                                                                                  33,118
                                                                                                                                                                                30,381




eye to enhancing the land from a lifestyle perspective with walking
                                                                                                                                                                       21,965




trails, preserved open spaces, playgrounds, recreational facilities,
                                                                                                                                                              17,302
                                                                                                                                                     14,584




attractive street layouts, winding roads and cul-de-sacs. We emphasize
                                                                                                                                            11,225
                                                                                                                                   10,015
                                                                                                                           9,255




unique geographic features and strive to position our homes to
                                                                                                                   7,255
                                                                                                           6,665




accentuate natural views and exciting land features that residents can
enjoy both from inside and outside their homes. Our goal is for buyers
to be as pleased with the appearance of our communities as they are                                        90              92                                                                                                                   05
                                                                                                                                   93        94      95       96       97       98       99       00       01       02       03       04
                                                                                                                   91
                                                                                                                                                                                                                                                        The Venado Spanish Colonial at Treviso
                                                                                                                                                                           FYE
with our homes.                                                                                                                                                                                                                                                           Scottsdale, Arizona



                                                               T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 9
Luxury Homes for All Lifestyles

                                                                                                                                                                                                                                                                             The Hampton – 4,800 Sq. Ft. of Living Space in 2005
                                                                                                            DIVERSE PRODUCTS EXPAND OUR CUSTOMER BASE
                                                                                                                                                                                                             More House & More Luxury
                                                                                                         We are the only major public home building company focused primarily
                                                                                                         on the luxury market. As the number of affluent households has
                                                                                                                                                                                                            Responding quickly to the changing tastes of our upscale
                                                                                                         increased, as the baby boom generation has entered its peak earning and
                                                                                                                                                                                                            buyers is one of the characteristics that makes us unique.
                                                                                                         wealth-creating years, and as the diversity of our buyers’ lifestyles has
                                                                                                                                                                                                            We are a Fortune 500 Company that, through architecture,
                                                                                                         broadened, we have introduced new product lines and improved upon
                                                                                                                                                                                                            design and management systems, has the flexibility and
                                                                                                         existing ones to expand our customer base. From a traditional single-
                                                                                                                                                                                                            capability to rapidly adapt to the shifting preferences of
                                                                                                         family home builder 20 years ago, we have grown to meet the changing                               our customers.
                                                                                                         expectations of our customers as they mature, and as they look to their
                                                                                                                                                                                                            The past decade has seen a tremendous evolution in our
                                                                                                         homes to fulfill more of their personal, professional and recreational
                                                                                                                                                                                                            homes. First-floor ceiling heights were eight feet, then nine
                                                                                                         needs. We believe we now offer the widest range of products in
                                                                                                                                                                                                            feet, and are now often ten feet. The number and variety
                                                                                                         our industry.
                                                                                                                                                                                                            of bathrooms, the size of kitchens and the components of
                                                                                                                                                                                                            our amenity packages have grown. Increasing numbers
                                                                                                         Move-Up Communities – Targeted to growing families, our
                                                                                                                                                                                                            and size of closets, more garage bays and lifestyle features,
                                                                                                         move-up homes have been transformed over the past two decades as
                                                                                                                                                                                                            such as solariums, broadband Internet service, and
                                                                                                         affluent lifestyles have evolved. Upgraded kitchens and family rooms                               recreation-oriented community centers have all become
                                                                                                         have moved front-and-center in buyers’ lives, replacing formal living                              part of our product lines.
                                                                                                         rooms and dining rooms in size and stature. Structural options we offer
                                                                                                                                                                                                            This evolution was highlighted by The Wall Street Journal
                                                                                                         such as vast master suites, media and exercise rooms, and guest wings
                                                                                                                                                                                                            in August 2005, which featured Toll Brothers and the changes
                                                                                                         enhance the lifestyles of today’s families. Large play areas for children
The Waterford New England at Hampton Hall
                                                                                                                                                                                                            occurring in new luxury homes. The article compared our
                                                                                                         and teens have become oases for indoor activities and magnets for
Bluffton, South Carolina
                                                                                                                                                                                                            best-selling home model in 2000 – the Columbia – with our
                                                                                                         family gatherings.
                                                                                                                                                                                                            best seller in 2005 – the Hampton, and noted how new
                                                                                                                                                                                                            homes reflect shifting customer tastes.
                                                                                                         Empty-Nester Communities – Serving smaller-sized families,
                                                                                                         most often those without children at home, this type of community                                  The Columbia is a 3,200-square-foot home (before
                                                                                                                                                                                                            additions), whereas the Hampton starts at 4,800 square feet.
                                                                                                         is a growing part of our business. Our empty-nester homes are
                                                                                                                                                                                                                                                                                  HOMES FOR EVOLVING LIFESTYLES– Our best-selling homes: 2005 vs. 2000
                                                                                                                                                                                                            The Columbia’s 2.5 bathrooms compare to the Hampton’s
                                                                                                         characterized by first-floor master suites, sun rooms, home offices,
                                                                                                                                                                                                            4.5; its two-car garage contrasts with the Hampton’s three-
                                                                                                         hobby rooms and wide-open floor plans for active entertaining.
                                                                                                                                                                                                            car garage; its kitchen is 150 square feet versus 260 square
                                                                                                                                                                                                            feet for the Hampton; and its master suite closet is 90 square
                                                                                                         Active-Adult Communities – Designed especially for the 55+ age
                                                                                                                                                                                                            feet compared to 320 square feet for the Hampton.
                                                                                                         buyer, these communities often include on-location lifestyle amenities
                                                                                                                                                                                                            Second-floor ceiling heights in the Columbia are eight
                                                                                                         such as fine dining in country clubs, indoor and outdoor pools,                                    feet versus nine feet for the Hampton.
                                                                                                         gardening areas, tennis courts, fitness centers and game rooms.
                                                                                                                                                                                                            The increase in size, value and amenities in new homes is
                                                                                                         Our home designs offer comfortable single-story living with room
                                                                                                                                                                                                            often overlooked as a factor in why home prices have risen.
                                                                                                         for socializing with guests and upstairs loft areas to accommodate
                                                                                                                                                                                                            New homes today have many more features, ranging from
                                                                                                         visiting family members.
                                                                                                                                                                                                            greater volume space to home offices and technology and
                                                                                                                                                                                                            lifestyle features than in previous decades.
                                                                                                         Resort-Style Communities – A growing addition to our offerings,
                                                                                                         our large master planned communities offer a variety of our product                                Many often-quoted studies of home price increases do not
                                                                                                         lines and lifestyles centered around major recreational amenities such                             consider these factors. However, one does: The Bureau of
                                                                                                         as golf courses, country clubs, lakes, and marinas. We offer these                                 the Census’ Constant Quality U.S. New Home Index (CQI)
                                                                                                                                                                                                            adjusts for the improved quality, size and amenities in homes
                                                                                                         communities not only in Sunbelt markets, but also in the Northeast,
                                                                                                                                                                                                            today. This study reveals that, on a value-adjusted basis,
                                                                                                         Midwest and Mid-Atlantic regions, where buyers also want to enjoy
                                                                                                                                                                                                            home prices have actually increased much less than is
                                                                                                         year-round resort-style living.
                                                                                                                                                                                                            suggested by more often quoted studies which do not
                                                                                                                                                                                                            adjust for this increase in quality, size and amenities. For
                                                                                                         Urban and Suburban High-Density Communities – With
                                                                                                                                                                                                            example, between 2000 and 2004, according to the CQI,
                                                                                                         land scarcer and approvals more difficult, we now sell multi-story,
                                                                                                                                                                                                            home prices grew at an average annual rate of 5.4%,
                                                                                                         high-density living in many locations. We build three- to five-story                               compared to an annual rate of 8.2%, according to the more
                                                                                                         buildings with 60 or more units, underground parking and community                                 often-quoted Office of Federal Housing Enterprise Oversight
                                                                                                         recreational amenities in cities and suburbs, as well as high-rise towers                          study, which does not adjust for changes in quality. The
                                                                                                         overlooking the Atlantic Ocean and the Manhattan skyline.                                          implication is that buyers, though paying more for their
                                                                                                                                                                                                            homes, are getting more in return.

                                                                                                                                                                                                                                                                             The Columbia – 3,200 Sq. Ft. of Living Space in 2000
The Aragon by Toll Custom Homes
South Fort Myers, Florida


                                            T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 1 2                                                         T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 1 3                                                                                            T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 1 4
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TOL_2005_AR

  • 2. $5,793 $806 * * % % .0 .2 $3,862 34 25 – – R R G AG AA $2,758 CA $409 C $2,315 $2,208 $1,802 $260 $1,456 $220 $214 $1,206 $146 $968 $759 $102 $643 $502 $85 $393 $280 $65 $198 $176 $54 $50 $36 $28 $17 $10 $5 98 99 00 01 02 03 04 05 90 91 92 93 94 95 96 97 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Net Income (in millions) Total Revenues (in millions) FYE October 31 FYE October 31 1990–2005 1990–2005 The West Coast Connecticut Massachusetts New Jersey Los Angeles Palm Springs Sacramento The Northeast New York Rhode Island San Diego San Francisco 2005 2004 2005 2004 Revenues* (in millions) $722 $573 Revenues* (in millions) $1,082 $846 Contracts (in millions) $1,078 $653 Contracts (in millions) $888 $1,213 Home Sites Controlled 12,806 11,585 Home Sites Controlled 7,943 6,797 Year-end Backlog (in millions) $956 $600 Year-end Backlog (in millions) $670 $865 The Mid-Atlantic $6,015 The Southwest $7,152 Delaware Maryland Pennsylvania Virginia Arizona Colorado Nevada Texas 2005 2004 2005 2004 $5,641 $4,434 * * % % Revenues* (in millions) $936 $528 Revenues* (in millions) $2,057 $1,253 .6 .6 34 28 Contracts (in millions) $1,401 $981 Contracts (in millions) $2,264 $1,788 – – R R G AG Home Sites Controlled 13,060 8,052 Home Sites Controlled 26,421 23,168 AA $3,476 CA $2,632 C Year-end Backlog (in millions) $1,315 $850 Year-end Backlog (in millions) $1,579 $1,372 $2,734 $1,859 $2,159 $2,135 $1,426 $1,404 $1,628 $1,383 $1,054 $1,069 The Southeast Florida North Carolina South Carolina Illinois Michigan Minnesota $815 The Midwest $885 $627 $526 $660 $587 $401 $491 $371 $285 $343 $187 $124 $230 $164 2005 2004 2005 2004 $70 Revenues* (in millions) $558 $367 Revenues* (in millions) $405 $274 01 02 03 04 05 90 91 92 93 94 95 96 97 98 99 00 Contracts (in millions) $1,082 $612 Contracts (in millions) $439 $395 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Backlog (in millions) Contracts (in millions) Home Sites Controlled 17,873 5,340 Home Sites Controlled 5,023 5,247 At October 31 FYE October 31 Year-end Backlog (in millions) $1,175 $464 Year-end Backlog (in millions) $319 $284 1990–2005 1990–2005 *Revenues = Home Sales *CAAGR – Compound Average Annual Growth Rate (FYE) Fiscal Year End T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 1
  • 3. The Grande Clubhouse at Frenchman's Reserve Palm Beach Gardens, Florida Corporate Overview Fiscal Year End (FYE) October 31, 2005 Focus On Luxury Homes & Communities Integrated Land & Building Program Strong Financial Performance Brand Name National presence in the luxury market Own or control over 83,000 home sites 13 consecutive years of record earnings Founded in 1967 Average delivered home price of nearly $660,000 Selling from 230 communities; expect to reach approximately 14 consecutive years of record revenues Publicly traded since 1986 265 communities by FYE 2006 Executive and estate move-up homes 15 consecutive years of record sales contracts Traded on the New York Stock Exchange and Land acquisition, approvals and development skills contribute Pacific Exchange (TOL) Upscale empty-nester attached and detached homes Investment-grade corporate credit ratings from Standard & Poor’s significant profits (BBB-), Moody’s (Baa3), and Fitch (BBB) 10th largest U.S. home builder (by home sale revenues) Active-adult, age-qualified communities Combine high-volume home production with extensive Relationships with three dozen U.S. and global financial institutions Award-winning communities across the U.S. Second-home communities customization offerings Backed by $1.2 billion credit facility with 30 banks Fortune 500 Company Urban low-, mid-, and high-rise condominiums Home buyers average $113,000 in upgrades and lot premiums, Raised more than $1.5 billion in the public capital markets over Forbes Platinum 400 Company 21% above base house price Luxury resort-style golf, country club, lake and past 5 years marina communities Apex Award Winner, Big Builder - 2004 Pre-design and pre-budget options through Toll Architecture Highest average net profit margin of Fortune 500 home building and Toll Integrated Systems Championship golf courses designed by Arnold Palmer, America’s Best Builder, National Association of Home companies over past decade Pete Dye, Greg Norman, Peter Jacobsen, and Arthur Hills Builders - 1996 Ancillary businesses: mortgage, title, golf course development Stock price has appreciated over 3,500% since IPO in July 1986 and management, security, landscape, land sales, cable TV and Operations in 50 affluent markets; researching two dozen National Housing Quality Award, National Association of broadband Internet potential markets with similar levels of affluence Stockholders’ equity, net income, and revenues have grown at Home Builders - 1995 compound average annual rate of over 20% since 1986 IPO Builder of the Year, Professional Builder - 1988 T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 2 T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 3
  • 4. The Malvern Chateau at Brandywine Hunt Wilmington, Delaware mid-2003. That period was an excellent one for our Company. Our revenues rose five-fold and our earnings grew seven-fold. We grew despite the NASDAQ implosion, a terrorist attack, a national recession and several global financial crises. In 1995, 1997 and 2000, the Fed raised interest rates, and mortgage rates rose to 9.2%, 8.2% and 8.6%, respectively; today they are at 6%. Based on our performance in those periods, we don’t believe interest rates at 6% or at 7.5% are deterrents for our affluent buyers. Toll Brothers is on track for growth as we continue to increase our community count. We expect to end FY 2006 with approximately 265 selling communities, 35 more than we started the year with. To achieve this, we project completing sales at about 110 communities, and opening about 145. New communities generally are greeted with pent-up demand and have a wide array of home sites to choose from, while those where we are completing sales have a more limited selection. Based on our community growth and assuming a healthy rate of demand, we also anticipate record results in FY 2007. We look to the future with cautious optimism. We believe demand for luxury homes relies, in large measure, on consumer confidence, which suffered following Hurricane Katrina and its impact. In the aftermath speculative buyers fled, contributing to what we believe is temporary excess industry inventory in what had been some of the hottest housing markets. We’ve experienced this before. In late 2004, in Las Vegas, speculative buyers also fled the market, increasing the supply of inventory. This also The Windham at The Enclave at Broadlands occurred around 2000 in the San Francisco area, after that economy Broomfield, Colorado was hurt by the tech implosion. Both markets returned to normalcy in relatively short order. We begin our twentieth year as a public company having just We operate in an increasingly lot-constrained environment, driven by set records each year. Affluent households continue to grow in wealth completed our best year ever with record results in every category: growing regulation and exacerbated by anti-growth NIMBY (not-in-my- and numbers. The Fed appears to be approaching the end of a period This year, unfortunately, holders of our stock endured a roller coaster backyard) politics. This is particularly true in our affluent market. As of 13 interest rate increases, with mortgage rates still quite attractive by ride: We began our fiscal year at $23.18 and ended at $36.91, up 57%; Net income rose 97% over FY 2004 to $806.1 million land supply constraints get tighter, we believe that the U.S. may begin historical standards. And household growth is projected to accelerate. but this was 37% below our high of $58.67. We repurchased about * Earnings per share rose 90% to $4.78 to mirror Europe where people spend a much greater portion of their Based on these factors, our luxury focus, proven management team, 2% of our stock over the course of the fiscal year with nearly 2 million Total revenues rose 50% to $5.79 billion incomes for housing and get much smaller homes. projected community count growth, land position, diversity of product shares purchased in our fourth quarter. Contracts rose 27% to $7.15 billion offerings, and our strong brand and financial base, we look forward to Backlog at year end rose 36% to $6.01 billion In this environment, we believe we are positioned to prosper. We have future growth. We believe that the fundamentals of supply and demand will prevail. Return on beginning-year equity reached 42% over 440 communities in the approval or development process, and The current economy is stronger than during the last recession, which now control more than 83,000 home sites, compared to about 60,000 We thank our shareholders for their support and commitment; our did not shut down demand for our homes, nor impair our ability to Fiscal 2005’s 97% earnings growth came on top of FY 2004’s at FYE 2004. These home sites represent a five-to-six year supply, based contractor- and supplier-partners, whose skill and craftsmanship help 57% earnings growth. And that was preceded by 17 years of on our historical 20% annual rate of growth. build our brand; our customers, who place their dreams in our hands; 20% compound average annual net income growth, dating back to and our associates who have made this year so exceptional and our 1986, when we went public. These results have been primarily achieved Looking forward, we believe FY 2006 should be our fourteenth Company so strong. through organic expansion, rather than through acquiring other consecutive year of record earnings, although we will not be able builders. Although demographics-driven demand has been a significant to match the extraordinary pace of the past two years. To some extent, factor in our success, we attribute much of our accomplishment to our the temporary slowdown in our growth arises from our own success. great team of 5,600 associates. We delivered more than 600 homes in FY 2005 that we thought we would deliver in FY 2006. We also have backlogs of 12 months or Their commitment; our nationwide expansion; our ability to find more at about 35 communities; as a result, we have temporarily and entitle well-located land in highly regulated markets; our brand stopped selling homes in these communities. name; and our skill at delivering the expanding variety of luxury homes ROBERT I. TOLL BRUCE E. TOLL ZVI BARZILAY Chairman of the Board and Vice Chairman President and we offer—suburban move-up, empty-nester, active-adult, resort-style In addition, the housing market has softened. The home price increases Chief Executive Officer of the Board Chief Operating Officer communities, and urban low-, mid- and high-rise product—all have of 2004 and most of 2005 were not sustainable; they were fueled, in enabled us to significantly broaden our customer base and gain market part, by speculation. Our sales results indicate that housing demand December 14, 2005 share. This combination has led to our growth in size and profitability. is returning to the more normalized levels of the decade from 1994 to From left to right: Zvi Barzilay, Robert I. Toll, Bruce E. Toll *Stock prices are adjusted to reflect a two-for-one stock split in 2005. T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 4 T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 5
  • 5. Great Locations GREAT LAND BECOMES GREAT COMMUNITIES Constrained Production The foundation of our business is land. Hundreds of Toll Brothers associates devote all or some of their time to finding well-located sites For A Growing Population and taking them through the entitlement process in affluent markets around the U.S. As gaining approvals for new communities becomes Since 1970, U.S. households have increased by 75%, from more and more challenging in virtually every market where we build, under 65 million to more than 113 million. In addition, during we believe our land expertise is a competitive advantage. that time, the average U.S. household’s net income (in constant 2004 dollars) has grown by over 50%. Logically, Our Company started nearly 40 years ago in the Northeast and Mid- one would expect that new home production would keep Atlantic regions of the U.S., where land approvals are overseen by local pace with this growth, but it has not. In fact, on an annual average, in the United States more homes were built in the zoning boards whose members live and work near the communities 1970s than were built in either the 1980s, the 1990s or in we want to build. Therefore, we were schooled in gaining entitlements the current decade so far. In the 1970s, production of in some of the most difficult markets in the nation. Because the land new single- and multi-family homes averaged 1.77 million approval process in these areas is so tough, traditional land developers annually, while in the 2000s so far the average has been 1.74 million per year. In sum, the evidence points toward The primary reason that home production has not kept a man-made scarcity of housing in pace with this growth is the constricted land approval process, which has restricted the supply of building home the sense that the housing supply has sites coming to market to meet the housing needs of been constrained by governmental The Cellini Tuscan at Barrington American families. One consequence of this has been Las Vegas, Nevada regulation, as opposed to fundamental the steady rise in new home prices over the past 35 years. geographic limitations. The constraints on supply may have broader consequences in the next 10 years as demand continues to outpace Source: Harvard Institute of Economic Research – 2005 supply. Harvard University’s Joint Center for Housing Studies, in its report, State of the Nation’s Housing – 2005, predicts that household formations between 2005 and 2015 will (firms based mainly in the West, Southwest and Southeast, who focus exceed those of the 1990s and, combined with higher rates solely on entitling and improving land, then selling it to builders) stayed of immigration, will spur demand on par with or at a higher clear of these Northeast areas. Thus, in eastern Pennsylvania, New rate than in the past decade. Jersey and other similar markets, local builders typically had to develop the skill to gain their own approvals and complete their own site With accelerating household growth, it appears that improvements. We learned this part of the business at an early stage demand for housing could exceed our industry’s ability to in our history. supply it. We believe this should result in continued steady demand for new homes and benefit builders like Toll Brothers with the entitled home sites on which to build. Our ability to secure approvals and develop our own land provides extra value to our shareholders, because we generally don’t pay the higher prices land developers charge home builders for sites with approvals. It also increases our profits, because we can gain control of land at an Housing Starts vs. Household Growth earlier stage than builders who only buy home sites once roads and improvements have been installed by third-party land developers. Average Annual Housing Starts (in millions) U.S. Households (in 000) 1.767 1.492 1.371 1.735 Housing Starts (in 000) Each market in which we build has its own unique approval process. 2500 120000 In some areas, such as many Northeast and Mid-Atlantic states, 2000 100000 approvals are overseen by town planning boards, whose volunteer 80000 1500 members are local residents. County, state and federal guidelines are 60000 overlaid on the local zoning regulations so, in many cases, dozens of 1000 40000 permits and approvals are required before a community can open for Number of Households Have Grown 75% 500 20000 sale. In other markets, approvals are overseen by county or even state 0 0 authorities, again with the addition of federal guidelines. In all cases, 1970-1979 1980-1989 1990-1999 2000-2004 the level of oversight and the volume of permitting required continues Total Single- and Multi-Family Housing Starts to increase. This elongates the approval process, increasing the expense, Total U.S. Households resources and skill needed to complete it. Source: U.S. Census Bureau The Malvern Heritage at Island Lake of Novi Novi, Michigan Mountain View Country Club® La Quinta, California T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 6 T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 7
  • 6. Great Locations FOCUS ON DETAILS IN RESEARCH AND PLANNING Strong Land Holdings In A When acquiring land for a Toll Brothers community, we carefully consider numerous factors. We evaluate a site’s access to major roads, Supply-Restricted Market mass transit and employment centers, and the quality of its school system. We estimate the cost of improving the land based on its Our large, well-located land portfolio positions us to benefit topography and soil conditions. from the changing dynamics of our industry. The growing imbalance between the constrained supply of approved We review zoning restrictions and then engineer each site to determine buildable home sites and the increasing demographics- what product types, and how many homes we can build once we driven demand that has fueled the strong housing market account for streets, utilities, water, sewers and other infrastructure. of the past 15 years has favored those builders with the resources and expertise to control and gain approvals for Most importantly, we look for evidence of proven, existing demand home building sites and communities. for luxury homes. We conduct detailed analyses of our potential competitors and the tastes of buyers in a local market to gauge their The shortage of buildable home sites, which we believe appetite for our products and to identify a competitive advantage to results from anti-growth sentiment and increased help us sell our homes. governmental approval regulation, is magnified in the established, affluent markets where we operate. Due to our These guidelines apply to all our potential sites, whether for a financial strength, our land approval and development skills, community of 50 homes in a single product line or a community of and our legal and planning expertise, we have been able to grow and gain market share even in years when new several thousand homes with numerous product lines and large-scale home sales nationally have slowed. amenities such as golf courses, lakes and country clubs. Our land strategy differs from that of many other major Generally, we do not take ownership of a land parcel until we have builders. We allocate capital to the most profitable land secured approvals and are confident we can build on it. Before then, deals, rather than by geographic region or product type. we maintain control of the property through an option agreement, during When evaluating the worth of a property for acquisition, which time we typically manage and bear the cost of the approval process. we won’t justify paying a higher price based on assumptions This policy enables us to control our risk so we do not become owners of that home prices will continue to rise: We believe this leads to overpaying for land, which we generally have had the sites on which we cannot build. It also enables our shareholders to benefit discipline to avoid in our nearly 40 years in business. from the increase in land value that we create by taking properties from unapproved to approved, “ready-to-build” status. We use our strong capital base and approvals skills to secure control of land at an earlier stage than many other builders, which has enabled us to build our land portfolio into a multi- New construction has plummeted and year supply. This year we boosted our land position to over 83,000 home sites under control at FYE 2005, up 38% versus housing prices have soared in a small the roughly 60,000 at FYE 2004. but increasing number of places. These These home sites are located in 21 states in six regions across changes do not appear to be the result of the U.S. The geographic diversity of our locations protects us a declining availability of land, but rather from the vagaries of individual housing markets and offers are the result of a changing regulatory greater opportunities for profit. regime that has made large-scale development increasingly difficult in Optioned & Owned Home Sites 83,126 expensive regions of the country. 60,189 Source: Harvard Institute of Economic Research – 2005 Optioned 48,058 40,844 Owned 39,146 34,431 To increase the appeal of our communities, we plan our sites with an 33,118 30,381 eye to enhancing the land from a lifestyle perspective with walking 21,965 trails, preserved open spaces, playgrounds, recreational facilities, 17,302 14,584 attractive street layouts, winding roads and cul-de-sacs. We emphasize 11,225 10,015 9,255 unique geographic features and strive to position our homes to 7,255 6,665 accentuate natural views and exciting land features that residents can enjoy both from inside and outside their homes. Our goal is for buyers to be as pleased with the appearance of our communities as they are 90 92 05 93 94 95 96 97 98 99 00 01 02 03 04 91 The Venado Spanish Colonial at Treviso FYE with our homes. Scottsdale, Arizona T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 9
  • 7. Luxury Homes for All Lifestyles The Hampton – 4,800 Sq. Ft. of Living Space in 2005 DIVERSE PRODUCTS EXPAND OUR CUSTOMER BASE More House & More Luxury We are the only major public home building company focused primarily on the luxury market. As the number of affluent households has Responding quickly to the changing tastes of our upscale increased, as the baby boom generation has entered its peak earning and buyers is one of the characteristics that makes us unique. wealth-creating years, and as the diversity of our buyers’ lifestyles has We are a Fortune 500 Company that, through architecture, broadened, we have introduced new product lines and improved upon design and management systems, has the flexibility and existing ones to expand our customer base. From a traditional single- capability to rapidly adapt to the shifting preferences of family home builder 20 years ago, we have grown to meet the changing our customers. expectations of our customers as they mature, and as they look to their The past decade has seen a tremendous evolution in our homes to fulfill more of their personal, professional and recreational homes. First-floor ceiling heights were eight feet, then nine needs. We believe we now offer the widest range of products in feet, and are now often ten feet. The number and variety our industry. of bathrooms, the size of kitchens and the components of our amenity packages have grown. Increasing numbers Move-Up Communities – Targeted to growing families, our and size of closets, more garage bays and lifestyle features, move-up homes have been transformed over the past two decades as such as solariums, broadband Internet service, and affluent lifestyles have evolved. Upgraded kitchens and family rooms recreation-oriented community centers have all become have moved front-and-center in buyers’ lives, replacing formal living part of our product lines. rooms and dining rooms in size and stature. Structural options we offer This evolution was highlighted by The Wall Street Journal such as vast master suites, media and exercise rooms, and guest wings in August 2005, which featured Toll Brothers and the changes enhance the lifestyles of today’s families. Large play areas for children The Waterford New England at Hampton Hall occurring in new luxury homes. The article compared our and teens have become oases for indoor activities and magnets for Bluffton, South Carolina best-selling home model in 2000 – the Columbia – with our family gatherings. best seller in 2005 – the Hampton, and noted how new homes reflect shifting customer tastes. Empty-Nester Communities – Serving smaller-sized families, most often those without children at home, this type of community The Columbia is a 3,200-square-foot home (before additions), whereas the Hampton starts at 4,800 square feet. is a growing part of our business. Our empty-nester homes are HOMES FOR EVOLVING LIFESTYLES– Our best-selling homes: 2005 vs. 2000 The Columbia’s 2.5 bathrooms compare to the Hampton’s characterized by first-floor master suites, sun rooms, home offices, 4.5; its two-car garage contrasts with the Hampton’s three- hobby rooms and wide-open floor plans for active entertaining. car garage; its kitchen is 150 square feet versus 260 square feet for the Hampton; and its master suite closet is 90 square Active-Adult Communities – Designed especially for the 55+ age feet compared to 320 square feet for the Hampton. buyer, these communities often include on-location lifestyle amenities Second-floor ceiling heights in the Columbia are eight such as fine dining in country clubs, indoor and outdoor pools, feet versus nine feet for the Hampton. gardening areas, tennis courts, fitness centers and game rooms. The increase in size, value and amenities in new homes is Our home designs offer comfortable single-story living with room often overlooked as a factor in why home prices have risen. for socializing with guests and upstairs loft areas to accommodate New homes today have many more features, ranging from visiting family members. greater volume space to home offices and technology and lifestyle features than in previous decades. Resort-Style Communities – A growing addition to our offerings, our large master planned communities offer a variety of our product Many often-quoted studies of home price increases do not lines and lifestyles centered around major recreational amenities such consider these factors. However, one does: The Bureau of as golf courses, country clubs, lakes, and marinas. We offer these the Census’ Constant Quality U.S. New Home Index (CQI) adjusts for the improved quality, size and amenities in homes communities not only in Sunbelt markets, but also in the Northeast, today. This study reveals that, on a value-adjusted basis, Midwest and Mid-Atlantic regions, where buyers also want to enjoy home prices have actually increased much less than is year-round resort-style living. suggested by more often quoted studies which do not adjust for this increase in quality, size and amenities. For Urban and Suburban High-Density Communities – With example, between 2000 and 2004, according to the CQI, land scarcer and approvals more difficult, we now sell multi-story, home prices grew at an average annual rate of 5.4%, high-density living in many locations. We build three- to five-story compared to an annual rate of 8.2%, according to the more buildings with 60 or more units, underground parking and community often-quoted Office of Federal Housing Enterprise Oversight recreational amenities in cities and suburbs, as well as high-rise towers study, which does not adjust for changes in quality. The overlooking the Atlantic Ocean and the Manhattan skyline. implication is that buyers, though paying more for their homes, are getting more in return. The Columbia – 3,200 Sq. Ft. of Living Space in 2000 The Aragon by Toll Custom Homes South Fort Myers, Florida T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 1 2 T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 1 3 T O L L B R O T H E R S 2 0 0 5 A N N U A L R E P O RT 1 4