What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2020-12-22 compared with 2019-12-26 · 625 added, 225 removed, 452 unchanged (65% of the section changed)

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Backlog conversion represents the percentage of homes delivered in the period from backlog at the beginning of the period (“backlog conversion”).

This discussion and analysis does not address certain items in respect of fiscal 2017 in reliance on amendments to disclosure requirements adopted by the SEC in 2019.

A discussion and analysis of fiscal 2017 may be found in Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended October 31, 2018, filed with the SEC on December 20, 2018.

We design, build, market, sell, and arrange financing for an array of luxury residential single-family detached, attached home, master planned resort-style golf, and urban low-, mid-, and high-rise communities, principally on land we develop and improve, as we continue to pursue our strategy of broadening our product lines, price points and geographic footprint.

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In the five years ended October 31, 2020, we delivered 38,117 homes from 779 communities, including 8,496 homes from 457 communities in fiscal 2020.

At October 31, 2019 , we had 715 communities containing approximately 59,200 home sites that we owned or controlled through options.

At October 31, 2020, we had 778 communities in various stages of planning, development or operations containing approximately 63,200 home sites that we owned or controlled through options.

We are developing several land parcels for master planned communities in which we intend to build homes on a portion of the lots and sell the remaining lots to other builders.

Two of these master planned communities are being developed 100% by us, and the remaining communities are being developed through joint ventures with other builders or financial partners.

One of these master planned communities is being developed 100% by us, and the remaining communities are being developed through joint ventures with other builders or financial partners.

In addition to our residential for-sale business, we also develop and operate for-rent apartments through joint ventures.

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We also operate our own security company, TBI Smart Home Solutions, which provides homeowners with home automation and a full range of technology options.

In addition, we operate our own lumber distribution, house component assembly, and manufacturing operations.

We have investments in various unconsolidated entities.

We have investments in joint ventures (i) to develop land for the joint venture participants and for sale to outside builders (“Land Development Joint Ventures”);

(ii) to develop for-sale homes (“Home Building Joint Ventures”);

(iii) to develop luxury for-rent residential apartments, commercial space and a hotel (“Rental Property Joint Ventures”);

and (iv) to invest in distressed loans and real estate and provide financing and land banking for residential builders and developers for the acquisition and development of land and home sites (“Gibraltar Joint Ventures”).

In addition, in certain regions we operate our own lumber distribution, house component assembly, and manufacturing operations.

We have investments in various unconsolidated entities, including our Land Development Joint Ventures, Home Building Joint Ventures, Rental Property Joint Ventures and Gibraltar Joint Ventures.

Financial Highlights

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The value of our backlog at October 31, 2020 was $6.37 billion (7,791 homes), as compared to our backlog at October 31, 2019 of $5.26 billion (6,266 homes).

At October 31, 2019 , we had $1.29 billion of cash and cash equivalents and approximately $1.73 billion available for borrowing under our $1.905 billion revolving credit facility (the “Revolving Credit Facility”) that matures in November 2024.

At October 31, 2020, we had $1.37 billion of cash and cash equivalents and approximately $1.79 billion available for borrowing under our $1.905 billion revolving credit facility (the “Revolving Credit Facility”), substantially all of which matures in November 2025.

At October 31, 2020, we had no outstanding borrowings under the Revolving Credit Facility and had outstanding letters of credit of approximately $119.0 million.

In fiscal 2017, our Board of Directors approved the initiation of quarterly cash dividends to shareholders.

During fiscal 2019 and 2018 , we paid aggregate cash dividends of $0.44 and $0.41 per share, respectively, to our shareholders.

In December 2019, we declared a quarterly cash dividend of $0.11 which will be paid on January 24, 2020 to shareholders of record on the close of business on January 10, 2020.

At October 31, 2020, our total equity and our debt to total capitalization ratio were $4.93 billion and 0.45 to 1.00, respectively.

As part of our strategy to expand our geographic footprint and product offerings, in fiscal 2019, we acquired substantially all of the assets and operations of Sharp Residential, LLC (“Sharp”) and Sabal Homes LLC (“Sabal”), for approximately $92.8 million and $69.6 million , respectively, in cash.

Sharp operates in metropolitan Atlanta, Georgia;

Sabal operates in the Charleston, Greenville, and Myrtle Beach, South Carolina markets.

The assets acquired, based on our preliminary purchase price allocations, was primarily inventory, including approximately 2,550 home sites owned or controlled through land purchase agreements.

In connection with these acquisitions, we assumed contracts to deliver 204 homes with an aggregate value of $96.1 million .

The average price of undelivered homes at the dates of acquisitions was approximately $471,100 .

As a result of these acquisitions, our selling community count increased by 22 communities.

As part of our strategy to expand our geographic footprint and product offerings, in fiscal 2020, we acquired substantially all of the assets and operations of Thrive, an urban infill builder with operations in Atlanta, Georgia and Nashville, Tennessee.

We also acquired substantially all of the assets and operations of Keller, a builder with operations is Colorado Springs, Colorado.

The aggregate purchase price for these acquisitions was approximately $79.2 million in cash.

The assets acquired were primarily inventory, including approximately 1,100 home sites owned or controlled through land purchase agreements.

Our Business Environment and Current Outlook

Over the past several years, sales prices for both new and resale homes have generally increased, which has reduced housing affordability in many markets, including in California, where we have a significant presence.

In addition, late in fiscal 2018 and in the first half of fiscal 2019, interest rates on mortgage loans increased.

These conditions resulted in a moderation in demand for our homes late in fiscal 2018 into fiscal 2019, as well as margin compression on contracts signed during this period.

Late in the spring of 2019, market conditions improved as interest rates on mortgage loans decreased and as home builders increased sales incentives to improve sales pace.

Buyer demand for our homes steadily improved throughout the year, and, in the three months ended October 31, 2019, the number of contracts we signed had increased 18% in units and 12% in dollars compared to the three months ended October 31, 2018.

For full year fiscal 2019 , we signed 8,075 contracts for the sale of Traditional Home Building Product and City Living units with an aggregate value of $ 6.71 billion , compared to 8,519 contracts with an aggregate value of $7.60 billion in fiscal 2018 .

As we enter fiscal 2020, we continue to see solid economic fundamentals underlying the housing market, as consumer confidence has been healthy, household formations have been strong, and there continues to be a limited supply of homes across most of our markets.

As the nation's leading builder of luxury homes, we remain committed to meeting the demands of our discerning customers, who continue to pursue distinctive, high-quality homes in desirable locations.

At the same time, we are strategically focused on broadening our portfolio through targeted expansion in high-potential markets and product-line diversification that includes increasing our presence in more affordable luxury communities.

With a supportive economy as a backdrop, we expect this strategy to improve revenue growth and capital efficiency as we increase community count and seek to deliver more units with more rapid cycle times.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law, which changed many longstanding foreign and domestic corporate and individual tax rules, as well as rules pertaining to the deductibility of employee compensation and benefits.

These changes include:

(i) reducing the corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017;

(ii) eliminating the corporate alternative minimum tax;

(iii) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017;

(iv) repeal of the domestic production activities deduction for tax years beginning after December 31, 2017;

and (v) establishing new limits on the federal tax deductions individual taxpayers may take as a result of mortgage loan interest payments, and state and local tax payments, including real estate taxes.

As required under accounting rules, we remeasured our net deferred tax liability for the tax law change, which resulted in an income tax benefit of $35.5 million in fiscal 2018.

See Note 8, “Income Taxes” in Notes to Condensed Consolidated Financial Statements in Item 15(a)1 of this Form 10-K for additional information regarding the impact of the Tax Act.

We have recently experienced very strong demand for our homes.

This resurgence in demand began for us in mid-May 2020, following the significant drop in sales we experienced in our fiscal second quarter as the initial impact of the COVID-19 pandemic was felt in the United States.

The net signed contract in our fiscal fourth quarter of 3,407 homes and $2.74 billion were the highest totals for any quarter in our history, up 68% in homes and 63% in dollars, compared to the fiscal fourth quarter of 2019.

Our backlog at fiscal year end was 7,791 homes and $6.37 billion, up 24% in units and 21% in dollars as compared to our backlog at fiscal year end 2019.

The build time for our homes is generally 9 to 12 months from contract signing and, as a result, we expect to deliver significantly more homes in fiscal 2021 compared to fiscal 2020 as we deliver homes on contracts signed during this strong period of demand describe above.

In response to the strong demand and in an effort to drive profitability and manage growth, we raised prices in a substantially all of our communities during our fiscal third and fourth quarters.

We have also limited lot releases in some communities.

We expect to continue these pricing and lot-release measures during fiscal 2021 assuming the strong demand environment continues.

We attribute the strong demand to a number of factors, including low interest rates, a continued undersupply of homes, and consumers’ increased focus on the importance of home.

We believe these factors will continue to support demand in fiscal 2021.

Although housing market demand has recently been very strong, we remain cautious as to the impact of the COVID-19 pandemic on the economy, among other things.

Future economic conditions in the United States remain uncertain, in particular due to the disruptions caused by the pandemic and how related government directives, actions and economic relief efforts will impact the U.S.

economy, employment levels, financial markets, secondary mortgage markets, consumer confidence, demand for our homes and availability of mortgage loans to homebuyers.

The extent of such impact on our operational and financial performance will depend on future developments, including the duration of the pandemic, the acceptance and effectiveness of vaccines, and the related impact on the economy, financial markets, and our customers, trade partners and employees, all of which are highly uncertain, unpredictable and outside our control.

Competitive Landscape

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We compete with numerous home builders of varying sizes, ranging from local to national in scope, some of which have greater sales and financial resources than we do.

Sales of existing homes, whether by a homeowner or by a financial institution that has acquired a home through a foreclosure, also provide competition.

Sales of existing homes, whether by a homeowner or by a financial institution that may have acquired a home through a foreclosure, also provide competition.

We compete primarily based on price, location, design, quality, service, and reputation.

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Our business is subject to many risks because of the extended length of time that it takes to obtain the necessary approvals on a property, complete the land improvements on it, and deliver a home after a home buyer signs an agreement of sale.

In certain cases, we attempt to reduce some of these risks and improve our capital efficiency by utilizing one or more of the following methods:

We attempt to reduce some of these risks and improve our capital efficiency by utilizing one or more of the following methods:

controlling land for future development through options, which enable us to obtain necessary governmental approvals before acquiring title to the land;

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Customer Mortgage Financing

We maintain relationships with a widely-diversified group of mortgage financial institutions, many of which are among the largest in the industry.

We maintain relationships with a diversified group of mortgage financial institutions, many of which are among the largest in the industry.

We believe that regional and community banks continue to recognize the long-term value in creating relationships with high-quality, affluent customers such as our home buyers, and these banks continue to provide these customers with financing.

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In addition to our residential for-sale business, we also develop and operate for-rent apartments through joint ventures.

At October 31, 2019 , we or joint ventures in which we have an interest controlled 56 land parcels as for-rent apartment projects containing approximately 18,300 units.

At October 31, 2020, we or joint ventures in which we have an interest, controlled 64 land parcels that are planned as for-rent apartment projects containing approximately 20,800 units.

These projects, which are located in multiple metropolitan areas throughout the country, are being operated, are being developed or will be developed with partners under the brand names Toll Brothers Apartment Living and Toll Brothers Campus Living.

In fiscal 2020, we sold all of our ownership interest in one of our Rental Property Joint Ventures to our partner for cash of $16.8 million, net of closing costs.

The joint venture had owned, developed, and operated multifamily residential apartments in northern New Jersey.

We recognized a gain of $10.7 million in fiscal 2020 from this sale.

In fiscal 2019, one of our Rental Property Joint Ventures, located in located in Phoenixville, Pennsylvania, sold its assets to an unrelated party for $77.8 million.

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The gains recognized from these sales are included in “Income from unconsolidated entities” in our Consolidated Statement of Operations and Comprehensive Income included in Item 15(a)1 of this Form 10-K.

At October 31, 2019 , we had approximately 2,000 units in for-rent apartment projects that were occupied or ready for

occupancy, 1,700 units in the lease-up stage, 8,400 units in the design phase or under development, and 6,200 units in the planning stage.

At October 31, 2020, we had approximately 2,000 units in for-rent apartment projects that were occupied or ready for occupancy, 2,200 units in the lease-up stage, 11,100 units in the design phase or under development, and 5,500 units in the planning stage.

Of the 20,800 units at October 31, 2020, 9,400 were owned by joint ventures in which we have an interest;

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CONTRACTS AND BACKLOG

The aggregate value of net sales contracts signed decreased 11.7% in fiscal 2019 , as compared to fiscal 2018 .

The aggregate value of net sales contracts signed increased 19.1% in fiscal 2020, as compared to fiscal 2019.

The value of net sales contracts signed was $8.00 billion (9,932 homes) in fiscal 2020 and $6.71 billion (8,075 homes) in fiscal 2019.

The decrease in the aggregate value of net contracts signed in fiscal 2019 , as compared to fiscal 2018 , was due to decreases in the number of net contracts signed and average value of each contract signed of 5% and 7%, respectively.

The decrease in the number of net contracts signed in fiscal 2019 , as compared to fiscal 2018 , was primarily due to decreased demand and a lack of inventory in certain locations in fiscal 2019 , as compared to fiscal 2018 , offset, in part, by an increase in the average number of selling communities and contracts signed in the metropolitan Atlanta, Georgia market and several markets in South Carolina in fiscal 2019 from the Sharp and Sabal acquisitions.

The decrease in average price of net contracts signed in fiscal 2019 , as compared to fiscal 2018 , was principally due to a shift in the number of contracts signed to less expensive areas and/or products resulting in part from our strategy to broaden of our geographic footprint, product types and price points in fiscal 2019 .

The increase in the aggregate value of net contracts signed in fiscal 2020, as compared to fiscal 2019, was due to a 23% increase in the number of net contracts signed offset, in part, by a 3% decrease in the average value of each contract signed.

The increase in the number of net contracts signed in fiscal 2020, as compared to fiscal 2019, reflects an overall increase in demand in the housing market, as well as a resurgence in demand for our homes that began at the outset of our fiscal third quarter.

We attribute the increase in demand to a number of factors, including low interest rates, a continued undersupply of homes, and consumers’ increased focus on the importance of home.

The decrease in average price of net contracts signed in fiscal 2020, as compared to fiscal 2019, was principally due to our strategic expansion into more affordable luxury homes and our geographic expansion into attractive high-growth markets.

This decrease was partially offset by price increases in many of our markets.

The value of our backlog at October 31, 2020, 2019, and 2018 was $6.37 billion (7,791 homes), $5.26 billion (6,266 homes), and $5.52 billion (6,105 homes), respectively.

Approximately 94% of the homes in backlog at October 31, 2020 are expected to be delivered by October 31, 2021.

The 4.8% decrease in the value of homes in backlog at October 31, 2019 , as compared to October 31, 2018 , was due to home deliveries with an aggregate value of $7.08 billion in fiscal 2019 , offset, in part, by our signing net contracts with a value of $6.71 billion in fiscal 2019 .

The 21.3% increase in the value of homes in backlog at October 31, 2020, as compared to October 31, 2019, was due to an increase in the value of net contracts signed and lower home sales revenues in fiscal 2020, as compared to fiscal 2019.

For more information regarding revenues, net contracts signed, and backlog by geographic segment, see “Segments” in this MD&A.

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We provided for inventory impairment charges and the expensing of costs that we believed not to be recoverable in each of the three fiscal years ended October 31, 2020, 2019, and 2018, as shown in the table below (amounts in thousands):

2020 2019 2018

Land controlled for future communities $ 23,539 $ 11,285 $ 2,820

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Operating communities 675 31,075 30,151

$ 55,883 $ 42,360 $ 35,156

In fiscal 2020, we recognized $31.7 million of impairment charges on land owned for future communities relating to nine communities.

As of the period the impairment charges were recognized, the fair value of these communities in the aggregate, net of impairment charges, was $21.8 million.

There were no impairment charges on land owned for future communities in 2019 and $2.2 million recognized in fiscal 2018.

The table below provides, for the periods indicated, the number of operating communities that we reviewed for potential impairment, the number of operating communities in which we recognized impairment charges, the amount of impairment charges recognized, and, as of the end of the period indicated, the fair value of those communities, net of impairment charges

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Three months ended:

communities tested

Number of communities

Fair value of

impairment charges

Impairment charges recognized

Income Taxes — Valuation Allowance

We assess the need for valuation allowances for deferred tax assets in each period based on whether it is more-likely-than-not that some portion of the deferred tax asset would not be realized.

If, based on the available evidence, it is more-likely-than-not that such asset will not be realized, a valuation allowance is established against a deferred tax asset.

The realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income in either the carryback or carryforward periods under tax law.

This assessment considers, among other matters, the nature, consistency, and magnitude of current and cumulative income and losses;

forecasts of future profitability;

the duration of statutory carryback or carryforward periods;

our experience with operating loss and tax credit carryforwards being used before expiration;

tax planning alternatives;

and outlooks for the U.S.

housing industry and broader economy.

Changes in existing tax laws or rates could also affect our actual tax results.

Due to uncertainties in the estimation process, particularly with respect to changes in facts and circumstances in future reporting periods, actual results could differ from the estimates used in our assessment that could have a material impact on our consolidated results of operations or financial position.

Our deferred tax assets consist principally of the timing of deductibility of accrued expenses, inventory impairments, inventory valuation differences, state tax net operating loss carryforwards, and stock-based compensation expense.

In accordance with

GAAP, we assess whether a valuation allowance should be established based on our determination of whether it was more likely than not that some portion or all of the deferred tax assets would not be realized.

At October 31, 2019 and 2018 , we determined that it was more-likely-than-not that our deferred tax assets would be realized.

Accordingly, at October 31, 2019 and 2018 , we did not have valuation allowances recorded against our federal or state deferred tax assets.

During fiscal 2017, we reversed the remaining $32.2 million of state deferred tax valuation allowances.

We file tax returns in the various states in which we do business.

Each state has its own statutes regarding the use of tax loss carryforwards.

Some of the states in which we do business do not allow for the carryforward of losses, while others allow for carryforwards for five years to 20 years.

communities tested Number of communities Fair value of

impairment charges Impairment charges recognized

January 31 65 — $ — $ —

April 30 80 1 $ 2,754 300

July 31 66 — $ — —

October 31 53 1 $ 1,113 375

January 31 49 5 $ 37,282 $ 5,785

April 30 64 6 $ 36,159 17,495

July 31 69 3 $ 5,436 1,100

October 31 71 7 $ 18,910 6,695

January 31 64 5 $ 13,318 $ 3,736

April 30 65 4 $ 21,811 13,325

July 31 55 5 $ 43,063 9,065

October 31 43 6 $ 24,692 4,025

Revenue and Cost Recognition

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See Note 1, “Significant Accounting Policies” in Notes to Consolidated Financial Statements in Item 15(a)1 of this Form 10-K for additional information regarding the impact of the adoption of ASC 606.

In the fourth quarter of fiscal 2020, we reclassified sales commissions paid to third-party brokers from home sales cost of revenues to selling, general and administrative expense ("SG&A") in the Consolidated Statements of Operations and Comprehensive Income.

The reclassification aligns the treatment of sale commissions paid to third-party brokers with the treatment of sales commissions paid to in-house salespersons, and is consistent with the manner in which the majority of the Company's peers treat such commissions.

The reclassification had the effect of lowering home sales cost of revenues (and increasing homes sales gross margin) and increasing SG&A by the amount of sale commissions paid to third-party brokers.

Warranty and Self-Insurance

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These insurance policies protect us against a portion of our risk of loss from claims related to our home building activities, subject to certain self-insured retentions, deductibles and other coverage limits (“self-insured liability”).

We also provide general liability insurance for our subcontractors in Arizona, California, Colorado, Nevada, Washington, and certain areas of Texas, where eligible subcontractors

are enrolled as insureds under our general liability insurance policies in each community in which they perform work.

We also provide general liability insurance for our subcontractors in Arizona, California, Colorado, Nevada, Washington, and certain areas of Texas, where eligible subcontractors are enrolled as insureds under our general liability insurance policies in each community in which they perform work.

For those enrolled subcontractors, we absorb their general liability associated with the work performed on our homes within the applicable community as part of our overall general liability insurance and our self-insurance through our captive insurance subsidiary.

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The projection of losses related to these liabilities requires actuarial assumptions that are subject to variability due to uncertainties regarding construction defect claims relative to our markets and the types of product we build, insurance industry practices and legal or regulatory actions and/or interpretations, among other factors.

Key assumptions used in these estimates include claim frequencies, severities and settlement patterns, which can occur over an extended period of time.

Key assumptions used in these estimates include claim frequencies, severity and settlement patterns, which can occur over an extended period of time.

In addition, changes in the frequency and severity of reported claims and the estimates to settle claims can impact the trends and assumptions used in the actuarial analysis, which could be material to our consolidated financial statements.

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The unconsolidated entities in which we have investments generally finance their activities with a combination of partner equity and debt financing.

In some instances, we and our partners have guaranteed debt of certain unconsolidated entities.

In some instances, we have guaranteed debt of unconsolidated entities.

These guarantees may include any or all of the following:

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(ii) repayment guarantees, generally covering a percentage of the outstanding loan;

(iii) carry cost guarantees, which cover costs such as interest.

real estate taxes, and insurance;

(iii) carry cost guarantees, which cover costs such as interest, real estate taxes, and insurance;

(iv) an environmental indemnity provided to the lender that holds the lender harmless from and against losses arising from the discharge of hazardous materials from the property and non-compliance with applicable environmental laws;

and (v) indemnification of the lender from “bad boy acts” of the unconsolidated entity.

In some instances, the guarantees provided in connection with loans to an unconsolidated entity are joint and several.

In these situations, we generally have a reimbursement agreement with our partner that provides that neither party is responsible for more than its proportionate share or agreed-upon share of the guarantee;

however, if the joint venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, we may be liable for more than our proportionate share.

In some instances, we and our joint venture partner have provided joint and several guarantees in connection with loans to unconsolidated entities.

In these situations, we generally seek to implement a reimbursement agreement with our partner that provides that neither party is responsible for more than its proportionate share or agreed-upon share of the guarantee;

however, we are not always successful.

In addition, if the joint venture partner does not have adequate financial resources to meet its obligations under such a reimbursement agreement, we may be liable for more than our proportionate share.

We believe that as of October 31, 2020, in the event we become legally obligated to perform under a guarantee of the obligation of an unconsolidated entity due to a triggering event, the collateral should be sufficient to repay all or a significant portion of the obligation.

If it is not, we and our partners would need to contribute additional capital to the entity.

At October 31, 2019 , we had guaranteed the debt of certain unconsolidated entities with loan commitments aggregating $1.53 billion , of which, if the

full amount of the debt obligations were borrowed, we estimate $299.1 million to be our maximum exposure related to repayment and carry cost guarantees.

At October 31, 2020, we had guaranteed the debt of certain unconsolidated entities with loan commitments aggregating $1.51 billion, of which, if the full amount of the debt obligations were borrowed, we estimate $229.3 million to be our maximum exposure related to repayment and carry cost guarantees.

At October 31, 2020, the unconsolidated entities had borrowed an aggregate of $1.02 billion, of which we estimate $179.1 million to be our maximum exposure related to repayment and carry cost guarantees.

These maximum exposure estimates do not take into account any recoveries from the underlying collateral or any reimbursement from our partners.

maximum exposure estimates do not take into account any recoveries from the underlying collateral or any reimbursement from our partners.

For more information regarding these joint ventures, see Note 4, “Investments in Unconsolidated Entities” in the Notes to Consolidated Financial Statements in Item 15(a)1 of this Form 10-K.

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A series of operating losses of an investee, the inability to recover our invested capital, or other factors may indicate that a loss in value of our investment in the unconsolidated entity has occurred.

If a loss exists, we further review to determine if the loss is other than temporary, in which case we write down the investment to its fair value.

If a loss exists, we further review to determine if the loss is other than temporary, in which case we write down the investment to its estimated fair value.

The evaluation of our investment in unconsolidated entities entails a detailed cash flow analysis using many estimates including but not limited to, expected sales pace, expected sales prices, expected incentives, costs incurred and anticipated, sufficiency of financing and capital, competition, market conditions and anticipated cash receipts, in order to determine projected future distributions.

Each of the unconsolidated entities evaluates its inventory in a similar manner.

In addition, for our unconsolidated entities that own, develop, and manage for-rent residential apartments, we review rental trends, expected future expenses, and expected future cash flows to determine estimated fair values of the properties.

See “Critical Accounting Policies - Inventory” contained in this MD&A for more detailed disclosure on our evaluation of inventory.

If a valuation adjustment is recorded by an unconsolidated entity related to its assets, our proportionate share is reflected in income from unconsolidated entities with a corresponding decrease to our investment in unconsolidated entities.

Based upon our evaluation of the fair value of our investments in unconsolidated entities, we recognized charges in connection with one Land Development Joint Venture of $1.0 million in fiscal 2019;

two Land Development Joint Ventures of $6.0 million in fiscal 2018;

and $2.0 million in fiscal 2017 at one Land Development Joint Venture.

Based upon our evaluation of the fair value of our investments in unconsolidated entities, we recognized charges in connection with one Home Building Joint Venture of $6.0 million in fiscal 2020;

one Land Development Joint Venture of $1.0 million in fiscal 2019;

and two Land Development Joint Ventures of $6.0 million in fiscal 2018.

RESULTS OF OPERATIONS

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Years ended October 31,

2020 2019 % Change 2020 vs.

2019 2018 % Change

Home sales $ 6,937.4 $ 7,080.4 (2) % 7,143.3 (1) %

Land sales and other 140.3 143.6 —

7,077.7 7,224.0 (2) % 7,143.3 1 %

Cost of revenues:

Home sales (2) 5,534.1 5,534.2 — % 5,536.8 — %

Land sales and other 125.9 129.7 —

5,660.0 5,663.9 — % 5,536.8 2 %

Selling, general and administrative (2) 867.4 879.2 (1) % 820.2 7 %

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Income tax provision 140.3 197.2 (29) % 185.8 6 %

Net income $ 446.6 $ 590.0 (24) % 748.2 (21) %

Supplemental information:

Home sales cost of revenues as a percentage of home sales revenues (2) 79.8 % 78.2 % 77.5 %

Land sales cost of revenues as a percentage of land sales revenues (1)

Land sales and other cost of revenues as a percentage of land sales and other revenues (1) 89.7 % 90.3 %

SG&A as a percentage of home sales revenues (2) 12.5 % 12.4 % 11.5 %

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Deliveries – units 8,496 8,107 5 % 8,265 (2) %

Deliveries – average selling price (2)

Deliveries – average selling price (in ‘000s) $ 816.5 $ 873.4 (7) % $ 864.3 1 %

Net contracts signed – value $ 7,995.1 $ 6,710.9 19 % $ 7,604.3 (12) %

Net contracts signed – units 9,932 8,075 23 % 8,519 (5) %

Net contracts signed – average selling price (2)

Net contracts signed – average selling price (in ‘000s) $ 805.0 $ 831.1 (3) % $ 892.6 (7) %

At October 31,

2020 2019 % Change 2020 vs.

2019 2018 % Change

Backlog – value $ 6,374.6 $ 5,257.1 21 % $ 5,522.5 (5) %

Backlog – units 7,791 6,266 24 % 6,105 3 %

Backlog – average selling price (2)

Backlog – average selling price (in ‘000s) $ 818.2 $ 839.0 (2) % $ 904.6 (7) %

Amounts may not add due to rounding.

(1) On November 1, 2018, we adopted ASC 606.

Upon adoption, land sale activity is presented as part of income from operations where previously it was included in "Other income - net." In fiscal 2018, we recognized land sales revenues and land sales cost of revenues of $134.3 million and $128.0 million, respectively.

Further, retained customer deposits, which totaled $13.2 million in fiscal 2019, are included in “Home sales revenue” where previously they were included in “Other income – net.” In fiscal 2018, retained customer deposits were $8.9 million .

Further, retained customer deposits, which totaled $11.8 million and $13.2 million, in fiscal 2020 and 2019, respectively, are included in “Home sales revenue” where previously they were included in “Other income – net.” In fiscal 2018, retained customer deposits were $8.9 million.

Prior periods are not restated.

$ amounts in thousands.

Amounts may not add due to rounding.

(2) Effective October 31, 2020, we reclassified sales commissions paid to third-party brokers from home sales cost of revenues to selling, general and administrative expense in our Consolidated Statements of Operations and Comprehensive Income.

The reclassification aligns the treatment of sales commissions paid to third-party brokers with the treatment of sales commissions paid to in-house salespersons, and is consistent with the manner in which the majority of the Company’s peers treat such commissions.

The reclassification had the effect of lowering home sales cost of revenues (and increasing home sales gross margin) and increasing selling, general and administrative expense by the amount of third-party broker commissions, which totaled $138.6 million, $144.7 million and $136.2 million, or 2.0%, 2.0% and 1.9% of home sales revenues, for the years ended October 31, 2020, 2019 and 2018, respectively.

All prior period amounts have been reclassified to conform to the 2020 presentation.

FISCAL 2020 COMPARED TO FISCAL 2019

HOME SALES REVENUES AND HOME SALES COST OF REVENUES

The decrease in home sales revenues in fiscal 2020, as compared to fiscal 2019, was attributable to a 7% decrease in the average price of the homes delivered, offset, in part, by a 5% increase in the number of homes delivered.

Consistent with our strategy to expand geographically and by product type, the decrease in the average delivered home price was primarily due to a shift in the number of homes delivered to less expensive areas and/or products.

The shift in the number of homes delivered to less expensive areas and/or products in the fiscal 2020, as compared to the fiscal 2019, was primarily related to a decrease in the number of homes closed under our City Living brand and in Southern California, where average prices are higher than the Company average;

our strategic expansion into more affordable luxury home and attractive high-growth markets, which includes homes delivered in metropolitan Atlanta, Georgia and several markets in South Carolina from the Sharp and Sabal acquisitions;

and an increase in the number of quick delivery homes delivered, where average prices are lower than the Company average.

The increase in the number of homes delivered in fiscal 2020, as compared to fiscal 2019, was primarily due to home deliveries resulting from the Sharp and Sabal acquisitions;

an increase in homes delivered in Northern California mainly attributable to closings at a large high-density condominium community;

and an increase in the number of quick delivery homes delivered in fiscal 2020.

These increases were partially offset by decreases in homes delivered in Southern California and under our City Living brand, primarily due to lower backlog at October 31, 2019, as compared to October 31, 2018.

Home sales cost of revenues, as a percentage of homes sales revenues, in fiscal 2020 was 79.8%, as compared to 78.2% in fiscal 2019.

The increase in fiscal 2020 was principally due to a shift in the mix of revenues to lower margin products/areas;

higher land, land development, material and labor costs;

and higher inventory impairment charges.

These increases were offset, in part, by lower interest expense in the fiscal 2020 period, as compared to the fiscal 2019 period.

Interest cost in fiscal 2020 was $174.4 million or 2.5% of home sales revenues, as compared to $185.0 million or 2.6% of home sales revenues in fiscal 2019.

We recognized inventory impairments and write-offs of $55.9 million or 0.8% of home sales revenues and $42.4 million or 0.6% of home sales revenues in fiscal 2020 and fiscal 2019, respectively.

LAND SALES AND OTHER REVENUES AND LAND SALES AND OTHER COST OF REVENUES

Our revenues from land sales and other generally consist of the following:

(1) land sales to joint ventures in which we retain an interest;

(2) lot sales to third-party builders within our master planned communities;

and (3) bulk land sales to third parties of land we have decided no longer meets our development criteria.

Prior to the adoption of ASC 606, land sales activity was reported within “Other income – net” in our Consolidated Statements of Operations and Comprehensive Income.

In fiscal 2018, we recognized land sales revenues and land sales cost of revenues of $134.3 million and $128.0 million, respectively.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (“SG&A”)

SG&A spending decreased by $11.8 million in fiscal 2020, as compared to fiscal 2019.

As a percentage of home sales revenues, SG&A was 12.5% and 12.4% in fiscal 2020 and 2019, respectively.

The dollar decrease in SG&A was due primarily to lower sales and marketing expenses as we reduced spend following the onset of the COVID-19 pandemic and we implemented a number of cost reduction initiatives to improve efficiencies and rationalize overhead expenses, including workforce reductions.

Such initiatives included cancellation of discretionary benefit plan contributions related to fiscal 2019, which resulted in the reversal of an $8.0 million accrual.

The decrease in spending in fiscal 2020 was offset, in part, by a $7.5 million charge for severance costs incurred in the second quarter of fiscal 2020, other compensation increases, and costs related to the implementation of new enterprise information technology systems.

The increase in SG&A as a percentage of revenues was due to a 2% decrease in revenues partially offset by a 1% decrease in SG&A spending in fiscal 2020, as compared to fiscal 2019.

INCOME FROM UNCONSOLIDATED ENTITIES

We recognize our proportionate share of the earnings and losses from the various unconsolidated entities in which we have an investment.

Many of our unconsolidated entities are land development projects, high-rise/mid-rise condominium construction projects, or for-rent apartments projects, which do not generate revenues and earnings for a number of years during the development of the property.

Once development is complete for land development projects and high-rise/mid-rise condominium construction projects, these unconsolidated entities will generally, over a relatively short period of time, generate revenues and earnings until all of the assets of the entity are sold.

Further, once for-rent apartments projects are complete and stabilized, we may monetize a portion of these projects through a recapitalization or a sale of all or a portion of our ownership interest in the joint venture, resulting in an income producing event.

Because of the long development periods associated with these entities, the earnings recognized from these entities may vary significantly from quarter to quarter and year to year.

The decrease in income from unconsolidated entities from $24.9 million in fiscal 2019 to $0.9 million in fiscal 2020, was due mainly to a decrease in earnings from two Home Building Joint Ventures which delivered their last homes in fiscal 2019;

$6.0 million of other-than-temporary impairment charges that we recognized on one of our Home Building Joint Ventures in fiscal 2020;

a $3.8 million gain recognized in fiscal 2019 from an asset sale by one of our Rental Property Joint Ventures;

losses recognized by a joint venture that owns a hotel that was adversely impacted by COVID-19;

and an increase in losses in several Rental Property Joint Ventures related to the commencement of operations and lease up activities in fiscal 2020, as compared to fiscal 2019.

The decrease was offset, in part, by a $10.7 million gain recognized in the fiscal 2020 period from the sale of our investment in one of our Rental Property Joint Ventures to our joint venture partner.

OTHER INCOME - NET

The table below provides the components of “Other Income – net” for the years ended October 31, 2020 and 2019 (amounts in thousands):

Income from ancillary businesses $ 25,540 $ 53,568

Management fee income from home building unconsolidated entities, net 3,636 9,948

Other 6,517 17,986

Total other income – net $ 35,693 $ 81,502

The decrease in income from ancillary businesses in fiscal 2020, as compared to fiscal 2019, was mainly due to gains recognized of $35.1 million from the sale of seven golf clubs in fiscal 2019;

higher losses incurred in our apartment living operations;

lower income from golf club operations;

and $0.3 million of severance costs in fiscal 2020, as compared to fiscal 2019.

This decrease was partially offset by gains of $13.0 million recognized in fiscal 2020 from the sale of golf club properties and higher earnings from our mortgage company operations primarily due to an increase in volume in fiscal 2020, as compared to fiscal 2019.

Management fee income from home building unconsolidated entities presented above includes fees earned by our City Living and Traditional Home Building operations.

The decrease in fiscal 2020, as compared to fiscal 2019, was primarily related to the decrease in the number of communities.

In addition to the fees earned by our City Living and Traditional Home Building operations, in fiscal 2020 and 2019, our apartment living operations earned fees from unconsolidated entities of $14.0 million and $11.9 million, respectively.

Fees earned by our apartment living operations are included in income from ancillary businesses.

The decrease in “other” in fiscal 2020, as compared to fiscal 2019, was principally due to lower interest income earned and $2.4 million of directly expensed interest in fiscal 2019.

INCOME BEFORE INCOME TAXES

In fiscal 2020, we reported income before income taxes of $586.9 million or 8.3% of revenues, as compared to $787.2 million, or 10.9% of revenues in fiscal 2019.

INCOME TAX PROVISION

We recognized a $140.3 million income tax provision in fiscal 2020.

Based upon the federal statutory rate of 21.0% for fiscal 2020, our federal tax provision would have been $123.2 million.

The difference between the tax provision recognized and the tax provision based on the federal statutory rate was mainly due to the provision for state income taxes of $25.8 million and $4.8 million of other permanent differences, offset, in part, by a $11.5 million benefit of federal energy efficient home credits;

a benefit of $3.3 million from excess tax benefits related to stock-based compensation;

and the reversal of $1.7 million of

previously accrued tax provisions on uncertain tax positions that were no longer necessary due to the expiration of the statute of limitations.

We recognized a $197.2 million income tax provision in fiscal 2019.

Based upon the federal statutory rate of 21.0% for fiscal 2019, our federal tax provision would have been $165.3 million.

The difference between the tax provision recognized and the tax provision based on the federal statutory rate was mainly due to the provision for state income taxes of $37.9 million, $4.9 million of other permanent differences, and an increase in unrecognized tax benefits of $2.2 million, offset, in part, by the reversal of $5.3 million of previously accrued tax provisions on uncertain tax positions that were no longer necessary due to the expiration of the statute of limitations, a $3.1 million benefit of federal energy efficient home credits, and a benefit of $2.1 million from excess tax benefits related to stock-based compensation.

FISCAL 2019 COMPARED TO FISCAL 2018

HOME SALES REVENUES AND HOME SALES COST OF REVENUES

The decrease in home sales revenues in fiscal 2019, as compared to fiscal 2018, was attributable to a 2% decrease in the number of homes delivered, offset, in part, by a 1% increase in the average price of the homes delivered.

The decrease in the number of homes delivered was primarily due to a moderation in demand, particularly in California, which we experienced beginning in the fourth quarter of fiscal 2018 through the third quarter of fiscal 2019.

This decrease was partially offset by contracts we signed in the metropolitan Atlanta, Georgia market and several markets in South Carolina in fiscal 2019 from the Sharp and Sabal acquisitions and an increase in the number of selling communities, primarily in our South and West regions, in fiscal 2019, as compared to fiscal 2018.

The increase in the average delivered home price was mainly due to price increases in homes delivered in California and the West region and a shift in the number of homes delivered to more expensive areas and/or products in California, New Jersey, Virginia, and the West region in fiscal 2019, as compared to fiscal 2018.

This decrease was partially offset by contracts we signed in the metropolitan Atlanta, Georgia market and several markets in South Carolina in fiscal 2019 from the Sharp and Sabal acquisitions and an increase in the number of selling communities, primarily in our South and Mountain regions, in fiscal 2019, as compared to fiscal 2018.

The increase in the average delivered home price was mainly due to price increases in homes delivered in the Pacific a nd Mountain regions and a shift in the number of homes delivered to more expensive areas and/or products in California, New Jersey, Virginia, Washington, and the Mountain region in fiscal 2019, as compared to fiscal 2018.

These increases were partially offset by a shift in the number of homes delivered to less expensive areas in City Living in fiscal 2019, as compared to fiscal 2018 and a decrease in the number of homes delivered in California where home prices were higher, in fiscal 2019, as compared to fiscal 2018.

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a benefit in fiscal 2019 from the reversal of accruals for certain Home Owners Associations (“HOA”) turnovers that were no longer required;

price increases in homes delivered in California and the West region;

price increases in homes delivered in California and the Mountain region;

and lower interest expense in fiscal 2019 compared to fiscal 2018.

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We recognized inventory impairments and write-offs of $42.4 million or 0.6% of home sales revenues and $35.2 million or 0.5% of home sales revenues in fiscal 2019 and fiscal 2018, respectively.

LAND SALES REVENUES AND LAND SALES COST OF REVENUES

Our revenues from land sales generally consist of the following:

(1) land sales to joint ventures in which we retain an interest;

(2) lot sales to third-party builders within our master planned communities;

and (3) bulk land sales to third parties of land we have decided no longer meets our development criteria.

In fiscal 2019 , we recognized a gain of $9.3 million from the sale of land to two newly formed Rental Property Joint Ventures in which we have interests of 25%.

Prior to the adoption of ASC 606, land sales activity was reported within “Other income – net” in our Condensed Consolidated Statements of Operations and Comprehensive Income.

LAND SALES AND OTHER REVENUES AND LAND SALES AND OTHER COST OF REVENUES

In fiscal 2019, we recognized a gain of $9.3 million from the sale of land to two newly formed Rental Property Joint Ventures in which we had interests of 25%.

Prior to the adoption of ASC 606, land sales activity was reported within “Other income – net” in our Consolidated Statements of Operations and Comprehensive Income.

In fiscal 2018, we recognized land sales revenues and land sales cost of revenues of $134.3 million and $128.0 million, respectively.

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The dollar increase in SG&A was due primarily to increased compensation costs due to a higher number of employees and normal compensation increases, increased sales and marketing costs, and costs related to the implementation of new enterprise information technology systems.

The higher sales and marketing costs were the result of the increased number of selling communities, increased spending on advertising, and higher design studio operating costs.

The higher sales and marketing costs were the result of the increased number of selling communities, increased spending on advertising, increased third-party broker commissions, and higher design studio operating costs.

The increased number of employees was due primarily to the increase in the number of current and future selling communities.

INCOME FROM UNCONSOLIDATED ENTITIES

We recognize our proportionate share of the earnings and losses from the various unconsolidated entities in which we have an investment.

Further, once for-rent apartments projects are complete and stabilized, we may monetize a portion of these projects through a recapitalization or a sale of all or a portion of our ownership

interest in the joint venture, resulting in an income producing event.

Because of the long development periods associated with these entities, the earnings recognized from these entities may vary significantly from quarter to quarter and year to year.

The decrease in income from unconsolidated entities from $85.2 million in fiscal 2018 to $24.9 million in fiscal 2019, was due mainly to $67.2 million of gains recognized in fiscal 2018 from asset sales by three of our Rental Property Joint Ventures located in College Park, Maryland, Herndon, Virginia, and Westborough, Massachusetts, and an increase in losses in several Rental Property Join Ventures related to the commencement of operations and lease up activities in fiscal 2019, as compared to fiscal 2018.

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Retained customer deposits — 8,937

Other 17,986 9,760

Total other income – net $ 81,502 $ 62,460

As a result of our adoption of ASC 606 on November 1, 2018, land sale activity is presented as part of income from operations where previously it was included in “Other income – net.” In addition, retained customer deposits are included in “Home sales revenue” where previously they were included in “Other income – net.” Prior periods are not restated.

See Note 1, “Significant Accounting Policies – Recent Accounting Pronouncements” in Notes to Consolidated Financial Statements in this Form 10-K for additional information regarding the adoption of ASC 606.

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Based upon the federal statutory rate of 21.0% for fiscal 2019, our federal tax provision would have been $165.3 million.

The difference between the tax provision recognized and the tax provision based on the federal statutory rate was mainly due to the provision for state income taxes of $37.9 million and an increase in unrecognized tax benefits of $2.2 million , offset, in part, by the reversal of $5.3 million of previously accrued tax provisions on uncertain tax positions that were no longer necessary due to the expiration of the statute of limitations and a benefit of $2.1 million from excess tax benefits related to stock-based compensation.

We recognized a $185.8 million income tax provision in fiscal 2018.

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a benefit of $4.2 million from excess tax benefits related to stock-based compensation;

and $15.2 million of permanent and other differences, which primarily relates to the recognition of Section 45L energy credits and tax planning transactions that benefited the Company’s state net operating loss carryforwards, offset, in part, by the provision for state income taxes of $47.1 million.

a $3.2 million benefit of federal energy efficient home credits;

and $12.0 million of permanent and other differences, which primarily relates to tax planning transactions that benefited the Company’s state net operating loss carryforwards, offset, in part, by the provision for state income taxes of $47.1 million.

See Note 8, “Income Taxes” in Item 15(a)1 of this Form 10-K for additional information regarding the impact of the Tax Act.

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Funding for our business has been, and continues to be, provided principally by cash flow from operating activities before inventory additions, unsecured bank borrowings, and the public debt markets.

At October 31, 2019 , we had $1.29 billion of cash and cash equivalents and approximately $1.73 billion available for borrowing under our Revolving Credit Facility.

At October 31, 2020, we had $1.37 billion of cash and cash equivalents on hand and approximately $1.79 billion available for borrowing under our Revolving Credit Facility.

Cash provided by operating activities during fiscal 2020 was $1.01 billion.

Cash provided by operating activities was generated primarily from $446.6 million of net income plus $24.3 million of stock-based compensation, $68.9 million of depreciation and amortization, $55.9 million of inventory impairments and write-offs, and a net deferred tax benefit of $97.8 million;

a $352.9 million decrease in inventory;

an increase of $71.8 million in accounts payable and accrued expenses;

and an increase of $70.4 million in net customer deposits.

This activity was offset, in part, by an increase of $176.3 million in receivables, prepaid assets, and other assets and an increase of $9.5 million in mortgage loans held for sale.

Cash used in investing activities during fiscal 2020 was $177.8 million, primarily related to $109.6 million for the purchase of property and equipment;

$71.7 million used to fund investments in unconsolidated entities;

and $60.3 million used to acquire Thrive.

This activity was offset, in part, by $49.2 million of cash received as returns on our investments in unconsolidated entities, foreclosed real estate, and distressed loans and proceeds of $15.6 million of cash received from sales of a golf club property.

We used $753.3 million of cash from financing activities in fiscal 2020, primarily for the repurchase of $634.1 million of our common stock;

repayments of $85.8 million of other loans payable, net of new borrowings;

and payment of $56.6 million of dividends on our common stock, offset, in part, by the proceeds of $24.9 million from our stock-based benefit plans.

At October 31, 2019, we had $1.29 billion of cash and cash equivalents on hand and approximately $1.73 billion available for borrowing under our Revolving Credit Facility.

Cash provided by operating activities during fiscal 2019 was $437.7 million.

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and a decrease of $64.5 million in accounts payable and accrued expenses.

Cash used in investing activities during fiscal 2019 was $75.9 million , primarily related to $162.4 million used to acquired Sharp and Sabal;

Cash used in investing activities during fiscal 2019 was $75.9 million, primarily related to $162.4 million used to acquire Sharp and Sabal;

$87.0 million for the purchase of property and equipment;

and $556.6 million used to fund investments in unconsolidated entities.

This activity was offset, in part, by $151.1 million of cash received as returns on our investments in unconsolidated entities, foreclosed real estate, and distressed loans and proceeds of $79.6 million of cash received from sales of golf club properties and an office buildings in several separate transactions with unrelated third parties.

This activity was offset, in part, by $151.1 million of cash received as returns on our investments in unconsolidated entities, foreclosed real estate, and distressed loans and proceeds of $79.6 million of cash received from sales of golf club properties and an office building in several separate transactions with unrelated third parties.

We used $258.5 million of cash from financing activities in fiscal 2019, primarily for the repayment of $600.0 million of senior notes;

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and the proceeds of $17.4 million from our stock-based benefit plans.

At October 31, 2018, we had $1.18 billion of cash and cash equivalents on hand and approximately $1.13 billion available for borrowing under our Revolving Credit Facility.

Cash provided by operating activities during fiscal 2018 was $588.2 million.

It was generated primarily from $748.2 million of net income plus $28.3 million of stock-based compensation, $25.3 million of depreciation and amortization, $35.2 million of inventory impairments and write-offs;

and an increase of $57.9 million in accounts payable and accrued expenses;

offset, in part, by a $143.6 million increase in inventory;

an increase of $99.6 million in receivables, prepaid assets, and other assets;

an increase of $38.9 million in mortgage loans held for sale;

and a net deferred tax benefit of $21.9 million.

Cash provided by investing activities during fiscal 2018 was $81.3 million.

The cash generated by investing activities was primarily related to $138.0 million of cash received as returns on our investments in unconsolidated entities, foreclosed real estate, and distressed loans, offset, in part, by $28.2 million for the purchase of property and equipment and $27.5 million used to fund investments in unconsolidated entities.

We used $214.3 million of cash from financing activities in fiscal 2018, primarily for repurchase of $503.2 million of our common stock;

the repayment of $89.2 million of other loans payable, net of new borrowings;

and payment of $61.7 million of dividends on our common stock, offset, in part, by the net proceeds of $396.5 million from the issuance of $400.0 million aggregate principal amount of 4.35% Senior Notes due 2028, the borrowings of $29.9 million on our mortgage company loan facility, net of new borrowings;

and the proceeds of $13.4 million from our stock-based benefit plans.

In general, our cash flow from operating activities assumes that, as each home is delivered, we will purchase a home site to replace it.

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Should our business decline, we believe that our inventory levels would decrease as we complete and

deliver the homes under construction but do not commence construction of as many new homes, as we complete the improvements on the land we already own, and as we sell and deliver the speculative homes that are currently in inventory, resulting in additional cash flow from operations.

In addition, we might delay, decrease, or curtail our acquisition of additional land, which would further reduce our inventory levels and cash needs.

deliver the homes under construction but do not commence construction of as many new homes, as we complete the improvements on the land we already own, and as we sell and deliver quick delivery homes that are then in inventory, resulting in additional cash flow from operations.

In addition, we might delay, decrease, or curtail our acquisition of additional land, which would further reduce our inventory levels and cash need s.

During fiscal 2020, in response to the economic disruption and uncertainty caused by the COVID-19 pandemic, we significantly reduced spending on new land acquisitions and land development in our second fiscal quarter.

We have since resumed a more normal level of land acquisition and development spending.

At October 31, 2020, we owned or controlled through options approximately 63,200 home sites, as compared to approximately 59,200 at October 31, 2019;

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At October 31, 2020, we had purchase commitments to acquire land for apartment developments of approximately $111.3 million, of which we had outstanding deposits in the amount of $6.5 million.

We intend to develop these apartment projects in joint ventures with unrelated parties in the future.

On October 31, 2019, we amended and restated our existing $1.295 billion Revolving Credit Agreement, dated as of May 19, 2016, to, among other things:

(i) increase the aggregate revolving credit commitments under the Revolving Credit Facility from $1.295 billion to $1.905 billion ;

(ii) extend the Revolving Credit Facility termination date from May 19, 2021 to November 1, 2024;

(iii) modify the pricing for outstanding commitments, borrowings and letters of credit under the facility, as set forth in the pricing schedule that is attached to the Revolving Credit Facility;

(iv) modify the accordion feature to permit the aggregate revolving credit commitments under the Revolving Credit Facility to be increased to up to $2.5 billion, subject to certain conditions and availability of bank commitments;

and (iv) modify certain provisions relating to financial maintenance and negative covenants.

Under the terms of the amended and restated Revolving Credit Facility, our maximum leverage ratio (as defined in the credit agreement) may not exceed 1.75 to 1.00 and we are required to maintain a minimum tangible net worth (as defined in the credit agreement) of no less than approximately $2.70 billion .

We generally intend to develop these apartment projects in joint ventures with unrelated parties in the future.

We have a $1.905 billion, unsecured, five-year revolving credit facility that was scheduled to expire on November 1, 2024.

On October 31, 2020, we entered into extension letter agreements (the “Revolver Extension Agreements”) with respect to the Revolving Credit Facility.

In connection with the Revolver Extension Agreements, the Company extended the maturity date of $1.85 billion of the revolving loans and commitments under the Revolving Credit Agreement from November 1, 2024 to November 1, 2025, with the remainder of the revolving loans and commitments continuing to terminate on November 1, 2024.

Under the terms of the Revolving Credit Facility, our maximum leverage ratio (as defined in the credit agreement) may not exceed 1.75 to 1.00 and we are required to maintain a minimum tangible net worth (as defined in the credit agreement) of no less than approximately $2.25 billion.

Under the terms of the Revolving Credit Facility, at October 31, 2020, our leverage ratio was approximately 0.49 to 1.00 and our tangible net worth was approximately $4.81 billion.

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At October 31, 2020, we had no outstanding borrowings under the Revolving Credit Facility and had outstanding letters of credit of approximately $119.0 million.

On October 31, 2018, we had a $800.0 million , five -year senior unsecured term loan facility (the “Term Loan Facility”) with a syndicate of banks.

On October 31, 2019, we entered into an amendment to the Term Loan Facility to, among other things, extend the maturity date from November 1, 2023 to November 1, 2024, with no principal payments being required before the maturity date.

At October 31, 2020, we had an $800.0 million, five-year senior unsecured term loan facility (the “Term Loan Facility”) with a syndicate of banks.

On October 31, 2020, we entered into term loan extension agreements with the banks which extended the maturity date of all $800 million of outstanding term loans under the Term Loan Facility from November 1, 2024 to November 1, 2025, with no principal payments being required before the maturity date.

In November 2020, we entered into five interest rate swap transactions to hedge $400.0 million of the Term Loan Facility through October 2025.

The interest rate swaps effectively fix the interest cost on the $400.0 million at 0.369% plus the spread set forth in the pricing schedule in the Term Loan Facility, which was 1.3% as of October 31, 2020.

These interest rate swaps were designated as cash flow hedges.

We believe that we will have adequate resources and sufficient access to the capital markets and external financing sources to continue to fund our current operations and meet our contractual obligations.

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Because the sales price of each of our homes is fixed at the time a buyer enters into a contract to purchase a home and because we generally contract to sell our homes before we begin construction, any inflation of costs in excess of those anticipated may result in lower gross margins.

We generally attempt to minimize that effect by entering into

fixed-price contracts with our subcontractors and material suppliers for specified periods of time, which generally do not exceed one year.

We generally attempt to minimize that effect by entering into fixed-price contracts with our subcontractors and material suppliers for specified periods of time, which generally do not exceed one year.

In general, housing demand is adversely affected by increases in interest rates and housing costs.

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The following table summarizes our estimated contractual payment obligations at October 31, 2020 (amounts in millions):

2021 2022 – 2023 2024 – 2025 Thereafter Total

Senior notes (a) $ 127.8 $ 1,023.9 $ 396.1 $ 1,733.4 $ 3,281.2

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Retirement plans (d) 13.3 16.9 16.9 61.9 109.0

Amounts include estimated annual interest payments until maturity of the debt.

$ 1,935.0 $ 2,138.4 $ 839.4 $ 3,108.4 $ 8,021.2

(a) Amounts include estimated annual interest payments until maturity of the debt.

Of the amounts indicated, $2.66 billion of the senior notes, $1.15 billion of loans payable, $148.6 million of the mortgage company loan facility, and $38.4 million of accrued interest were recorded on our October 31, 2020 Consolidated Balance Sheet.

In December 2019, we amended the mortgage company warehousing agreement to, among other things, extend the maturity date to December 4, 2020 .

Amounts represent our expected acquisition of land under purchase agreements and the estimated remaining amount of the contractual obligation for land development agreements secured by letters of credit and surety bonds.

(b) In December 2020, we amended the mortgage company warehousing agreement to, among other things, extend the maturity date to January 18, 2021.

(c) Amounts represent our expected acquisition of land under purchase agreements and the estimated remaining amount of the contractual obligation for land development agreements secured by letters of credit and surety bonds.

Of the total amount indicated, $19.6 million was recorded on our October 31, 2020 Consolidated Balance Sheet.

Amounts represent our obligations under our deferred compensation plan, supplemental executive retirement plans and our 401(k) salary deferral savings plans.

(d) Amounts represent our obligations under our deferred compensation plan, supplemental executive retirement plans and our 401(k) salary deferral savings plans.

Of the total amount indicated, $89.9 million was recorded on our October 31, 2020 Consolidated Balance Sheet.

SUPPLEMENTAL GUARANTOR INFORMATION

At October 31, 2020, our 100%-owned subsidiary, Toll Brothers Finance Corp.

(the “Subsidiary Issuer”), had issued and outstanding $2.66 billion aggregate principal amount of senior notes maturing on various dates between February 15, 2022 and November 1, 2029 (the “Senior Notes”).

For further information regarding the Senior Notes, see Note 6 to our Consolidated Financial Statements under the caption “Senior Notes.”

The obligations of the Subsidiary Issuer to pay principal, premiums, if any, and interest are guaranteed jointly and severally on a senior basis by us and substantially all of our 100%-owned home building subsidiaries (the “Guarantor Subsidiaries” and, together with us, the “Guarantors”).

The guarantees are full and unconditional, and the Subsidiary Issuer and each of the Guarantor Subsidiaries are consolidated subsidiaries of Toll Brothers, Inc.

Our non-home building subsidiaries and several of our home building subsidiaries (together, the “Non-Guarantor Subsidiaries”) do not guarantee the Senior Notes.

The Subsidiary Issuer generates no operating revenues and does not have any independent operations other than the financing of our other subsidiaries by lending the proceeds of its public debt offerings, including the Senior Notes.

Our home building operations are conducted almost entirely through the Guarantor Subsidiaries.

Accordingly, the Subsidiary Issuer’s cash flow and ability to service the Senior Notes is dependent upon the earnings of the Company’s subsidiaries and the distribution of those earnings to the Subsidiary Issuer, whether by dividends, loans or otherwise.

Holders of the Senior Notes have a direct claim only against

the Subsidiary Issuer and the Guarantors.

The obligations of the Guarantors under their guarantees will be limited as necessary to recognize certain defenses generally available to guarantors (including those that relate to fraudulent conveyance or transfer, voidable preference or similar laws affecting the rights of creditors generally) under applicable law.

The indentures under which the Senior Notes were issued provide that any of our subsidiaries that provide a guarantee of our obligations under the Revolving Credit Facility will guarantee the Senior Notes.

The indentures further provide that any Guarantor Subsidiary may be released from its guarantee so long as (i) no default or event of default exists or would result from release of such guarantee;

(ii) the Guarantor Subsidiary being released has consolidated net worth of less than 5% of the Company’s consolidated net worth as of the end of our most recent fiscal quarter;

(iii) the Guarantor Subsidiaries released from their guarantees in any fiscal year comprise in the aggregate less than 10% (or 15% if and to the extent necessary to permit the cure of a default) of our consolidated net worth as of the end of our most recent fiscal quarter;

(iv) such release would not have a material adverse effect on ours and our subsidiaries’ home building business;

and (v) the Guarantor Subsidiary is released from its guaranty under the Revolving Credit Facility.

If there are no guarantors under the Revolving Credit Facility, all Guarantor Subsidiaries under the indentures will be released from their guarantees.

In March 2020, the SEC adopted amendments to Rule 3-10 of Regulation S-X, under Rule Release No.

33-10762, Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities (“Rule 33-10762”), that reduce and simplify the financial disclosure requirements applicable to SEC-registered debt offerings for guarantors and issuers of guaranteed debt securities (which we previously included within the notes to our consolidated financial statements in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q).

While amendments under Rule 33-10762 are effective January 4, 2021, voluntary compliance is permitted in advance of the effective date, and we have adopted the new disclosure requirements for the period ending October 31, 2020.

The following summarized financial information is presented for Toll Brothers, Inc., the Subsidiary Issuer, and the Guarantor Subsidiaries on a combined basis after intercompany transactions and balances have been eliminated among Toll Brothers, Inc., the Subsidiary Issuer and the Guarantor Subsidiaries, as well as their investment in, and equity in earnings from the Non-Guarantor Subsidiaries.

Summarized Balance Sheet Data (amounts in millions)

October 31, 2020

Cash $ 1,235.3

Inventory $ 7,596.9

Amount due from Nonguarantor Subsidiaries $ 671.1

Total assets $ 10,193.6

Liabilities & Stockholders' Equity

Loans payable $ 1,110.3

Senior notes $ 2,661.7

Total liabilities $ 5,575.0

Stockholders' equity $ 4,618.6

Summarized Statement of Operations Data (amounts in millions)

year ended October 31, 2020

Revenues $ 6,962.1

Cost of revenues $ 5,554.2

Selling, general and administrative $ 863.8

Income before income taxes $ 571.9

Net income $ 435.2

We operate in two segments:

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Within Traditional Home Building, we operate in five geographic segments around the United States.

(1) the North, consisting of Connecticut, Illinois, Massachusetts, Michigan, New Jersey, and New York;

(2) the Mid-Atlantic, consisting of Delaware, Maryland, Pennsylvania, and Virginia;

(3) the South, consisting of Florida, Georgia, North Carolina, South Carolina, and Texas;

(4) the West, consisting of Arizona, Colorado, Idaho, Nevada, Oregon, Utah, and Washington, and (5) California.

In the first quarter of fiscal 2020, we made certain changes to our Traditional Home Building regional management structure and realigned certain of the states falling among our five geographic segments, as follows:

Eastern Region:

• The North region:

Connecticut, Delaware, Illinois, Massachusetts, Michigan, Pennsylvania, New Jersey and New York;

• The Mid-Atlantic region:

Georgia, Maryland, North Carolina, Tennessee and Virginia;

• The South region:

Florida, South Carolina and Texas;

Western Region:

• The Mountain region:

Arizona, Colorado, Idaho, Nevada and Utah;

• The Pacific region:

California, Oregon and Washington.

Previously, our geographic segments were:

Connecticut, Illinois, Massachusetts, Michigan, New Jersey and New York;

• Mid-Atlantic :

Delaware, Maryland, Pennsylvania and Virginia;

Florida, Georgia, North Carolina, South Carolina and Texas;

Arizona, Colorado, Idaho, Nevada, Oregon, Utah and Washington;

• California :

Our new geographic reporting segments are consistent with how our chief operating decision makers are assessing operating performance and allocating capital following the realignment of the regional management structure.

The realignment did not have any impact on our consolidated financial position, results of operations, earnings per share or cash flows.

Prior period segment information was restated to conform to the new reporting structure.

The following tables summarize information related to revenues, net contracts signed, and income (loss) before income taxes by segment for fiscal years 2020, 2019, and 2018.

2 unchanged sentences

Fiscal 2020 Compared to Fiscal 2019

($ in millions)

Units Delivered

Average Delivered Price

($ in millions) Units Delivered Average Delivered Price

($ in thousands)

2020 2019 % Change 2020 2019 % Change 2020 2019 % Change

Restated Restated Restated

Traditional Home Building:

North $ 1,364.8 $ 1,484.4 (8) % 2,010 2,223 (10) % $ 679.0 $ 667.7 2 %

Mid-Atlantic 845.6 804.4 5 % 1,271 1,237 3 % 665.3 650.3 2 %

South 1,041.2 991.9 5 % 1,566 1,298 21 % 664.9 764.2 (13) %

Mountain 1,535.8 1,130.9 36 % 2,219 1,711 30 % 692.1 661.0 5 %

Pacific 2,029.9 2,416.6 (16) % 1,334 1,434 (7) % 1,521.7 1,685.2 (10) %

Traditional Home Building 6,817.3 6,828.2 — % 8,400 7,903 6 % 811.6 864.0 (6) %

Total homes sales revenue

Land sales revenue

City Living 120.9 253.2 (52) % 96 204 (53) % 1,259.4 1,241.1 1 %

Other (0.8) (1.0)

Total home sales revenue 6,937.4 $ 7,080.4 (2) % 8,496 8,107 5 % $ 816.5 $ 873.4 (7) %

Land sales and other revenue 140.3 143.6

Total revenue $ 7,077.7 $ 7,224.0

Fiscal 2019 Compared to Fiscal 2018

($ in millions) Units Delivered Average Delivered Price

($ in thousands)

2019 2018 % Change 2019 2018 % Change 2019 2018 % Change

Restated Restated Restated Restated Restated Restated

Traditional Home Building:

North $ 1,484.4 $ 1,517.9 (2) % 2,223 2,259 (2) % $ 667.7 $ 671.9 (1) %

Mid-Atlantic 804.4 775.7 4 % 1,237 1,271 (3) % 650.3 610.3 7 %

South 991.9 868.6 14 % 1,298 1,114 17 % 764.2 779.7 (2) %

Mountain 1,130.9 1,126.6 — % 1,711 1,797 (5) % 661.0 626.9 5 %

Pacific 2,416.6 2,533.5 (5) % 1,434 1,655 (13) % 1,685.2 1,530.8 10 %

Traditional Home Building 6,828.2 6,822.3 — % 7,903 8,096 (2) % 864.0 842.7 3 %

City Living 253.2 321.0 (21) % 204 169 21 % 1,241.1 1,899.4 (35) %

Total home sales revenue 7,080.4 7,143.3 (1) % 8,107 8,265 (2) % $ 873.4 $ 864.3 1 %

Land sales and other revenue 143.6

Total revenue $ 7,224.0 $ 7,143.3

Net Contracts Signed:

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Net Contract Value

($ in millions)

Net Contracted Units

Average Contracted Price

($ in millions) Net Contracted Units Average Contracted Price

($ in thousands)

2020 2019 % Change 2020 2019 % Change 2020 2019 % Change

Restated Restated Restated

Traditional Home Building:

North $ 1,552.4 $ 1,511.7 3 % 2,174 2,267 (4) % $ 714.1 $ 666.8 7 %

Mid-Atlantic 1,075.3 772.5 39 % 1,473 1,159 27 % 730.0 666.5 10 %

South 1,320.1 941.0 40 % 2,006 1,307 53 % 658.1 720.0 (9) %

Mountain 2,008.2 1,456.2 38 % 2,802 2,097 34 % 716.7 694.4 3 %

Pacific 1,929.6 1,804.8 7 % 1,404 1,095 28 % 1,374.4 1,648.2 (17) %

Traditional Home Building 7,885.6 6,486.2 22 % 9,859 7,925 24 % 799.8 818.4 (2) %

City Living 109.5 224.7 (51) % 73 150 (51) % 1,500.0 1,498.0 — %

Total $ 7,995.1 $ 6,710.9 19 % 9,932 8,075 23 % $ 805.0 $ 831.1 (3) %

Fiscal 2019 Compared to Fiscal 2018

Net Contract Value

($ in millions) Net Contracted Units Average Contracted Price

($ in thousands)

2019 2018 % Change 2019 2018 % Change 2019 2018 % Change

Restated Restated Restated Restated Restated Restated

Traditional Home Building:

North $ 1,511.7 $ 1,511.3 — % 2,267 2,247 1 % $ 666.8 $ 672.6 (1) %

Mid-Atlantic 772.5 $ 759.5 2 % 1,159 1,176 (1) % 666.5 645.8 3 %

South 941.0 $ 948.3 (1) % 1,307 1,212 8 % 720.0 782.4 (8) %

Mountain 1,456.2 $ 1,229.6 18 % 2,097 1,871 12 % 694.4 657.2 6 %

Pacific 1,804.8 $ 2,877.8 (37) % 1,095 1,830 (40) % 1,648.2 1,572.6 5 %

Traditional Home Building 6,486.2 7,326.5 (11) % 7,925 8,336 (5) % 818.4 878.9 (7) %

City Living 224.7 277.8 (19) % 150 183 (18) % 1,498.0 1,518.0 (1) %

Total $ 6,710.9 $ 7,604.3 (12) % 8,075 8,519 (5) % $ 831.1 $ 892.6 (7) %

Backlog at October 31:

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Backlog Value

($ in millions)

Backlog Units

Average Backlog Price

($ in millions) Backlog Units Average Backlog Price

($ in thousands)

2020 2019 % Change 2020 2019 % Change 2020 2019 % Change

Restated Restated Restated

Traditional Home Building:

North $ 1,369.1 $ 1,179.6 16 % 1,906 1,742 9 % $ 718.3 $ 677.2 6 %

Mid-Atlantic 770.4 535.3 44 % 990 784 26 % 778.2 682.7 14 %

South 1,038.4 757.3 37 % 1,488 1,048 42 % 697.9 722.6 (3) %

Mountain 1,670.7 1,150.9 45 % 2,274 1,606 42 % 734.7 716.6 3 %

Pacific 1,387.1 1,484.4 (7) % 1,044 974 7 % 1,328.6 1,524.0 (13) %

Traditional Home Building 6,235.7 5,107.5 22 % 7,702 6,154 25 % 809.6 829.9 (2) %

City Living 138.9 149.6 (7) % 89 112 (21) % 1,560.3 1,335.6 17 %

Total $ 6,374.6 $ 5,257.1 21 % 7,791 6,266 24 % $ 818.2 $ 839.0 (2) %

October 31, 2019 Compared to October 31, 2018

Backlog Value

($ in millions) Backlog Units Average Backlog Price

($ in thousands)

2019 2018 % Change 2019 2018 % Change 2019 2018 % Change

Restated Restated Restated Restated Restated Restated

Traditional Home Building:

North $ 1,179.6 $ 1,150.1 3 % 1,742 1,698 3 % $ 677.2 $ 677.3 — %

Mid-Atlantic 535.3 500.1 7 % 784 737 6 % 682.7 678.6 1 %

South 757.3 780.3 (3) % 1,048 971 8 % 722.6 803.6 (10) %

Mountain 1,150.9 823.8 40 % 1,606 1,220 32 % 716.6 675.3 6 %

Pacific 1,484.4 2,090.6 (29) % 974 1,313 (26) % 1,524.0 1,592.2 (4) %

Traditional Home Building 5,107.5 5,344.9 (4) % 6,154 5,939 4 % 829.9 900.0 (8) %

City Living 149.6 177.6 (16) % 112 166 (33) % 1,335.6 1,069.7 25 %

Total $ 5,257.1 $ 5,522.5 (5) % 6,266 6,105 3 % $ 839.0 $ 904.6 (7) %

Income (Loss) Before Income Taxes ($ amounts in millions):

2020 2019 % Change 2020 vs.

2019 2018 % Change

Restated Restated

Traditional Home Building:

North $ 57.8 $ 81.4 (29) % $ 98.2 (17) %

Mid-Atlantic 50.6 50.7 — % 59.3 (15) %

South 108.4 106.1 2 % 99.9 6 %

Mountain 167.7 113.0 48 % 136.2 (17) %

Pacific 352.8 509.8 (31) % 571.4 (11) %

Traditional Home Building 737.3 861.0 (14) % 965.0 (11) %

City Living 29.7 70.1 (58) % 78.1 (10) %

Corporate and other (180.1) (143.9) (25) % (109.2) (32) %

Total $ 586.9 $ 787.2 (25) % $ 933.9 (16) %

“Corporate and other” is comprised principally of general corporate expenses such as our executive officers;

6 unchanged sentences

Traditional Home Building:

North $ 1,427.5 $ 1,487.0

Mid-Atlantic 918.6 854.5

South 1,177.0 1,166.0

Mountain 1,961.3 1,769.6

Pacific 2,226.7 2,627.4

Traditional Home Building 7,711.1 7,904.5

City Living 539.8 529.5

Corporate and other 2,814.8 2,394.1

Total $ 11,065.7 $ 10,828.1

“Corporate and other” is comprised principally of cash and cash equivalents, restricted cash, income taxes receivable, investments in properties held for rental apartments, expected recoveries from insurance carriers and suppliers, our Gibraltar investments and operations, manufacturing facilities, and our mortgage and title subsidiaries.

FISCAL 2020 COMPARED TO FISCAL 2019 (Restated)

Traditional Home Building

Year ended October 31,

2020 2019 % Change

Units Delivered and Home Sales Revenues:

2 unchanged sentences

Average delivered price ($ in thousands)

$ 679.0 $ 667.7 2 %

Net Contracts Signed:

2 unchanged sentences

Average contracted price ($ in thousands)

$ 714.1 $ 666.8 7 %

Home sales cost of revenues as a percentage of home sales revenues

86.3 % 84.9 %

Income before income taxes ($ in millions)

$ 57.8 $ 81.4 (29) %

Number of selling communities at October 31, 70 86 (19) %

The decrease in the number of homes delivered in fiscal 2019 was mainly due to a decrease in the number of homes in backlog at October 31, 2018, as compared to the number of homes in backlog at October 31, 2017.

The increase in the average price of homes delivered in fiscal 2019 was due primarily to a shift in the number of homes delivered to more expensive areas and/or products in fiscal 2019 , as compared to fiscal 2018 , particularly in Michigan and New Jersey.

The decrease in the number of net contracts signed in fiscal 2019 , as compared to fiscal 2018 , was principally due to a decrease in demand in fiscal 2019 , as compared to fiscal 2018 .

The decrease in income before income taxes in fiscal 2019 was principally attributable to lower home sales cost of revenues, as a percentage of home sale revenues, offset, in part, by lower earnings from decreased home sales revenues and higher SG&A costs in fiscal 2019, as compared to fiscal 2018.

The decrease in home sales cost of revenues, as a percentage of home sales revenues, in fiscal 2019 was primarily due to a shift in product mix/areas to higher-margin areas and lower inventory impairment charges in fiscal 2019, as compared to fiscal 2018.

The decrease in the number of homes delivered in fiscal 2020 was mainly due to lower backlog conversion, which reflected difficulties in delivering homes following the institution of COVID-19 related government restrictions in many markets in the North region, and a decrease in the number of homes sold and settled in fiscal 2020, as compared to fiscal 2019.

The increase in the average price of homes delivered in fiscal 2020 was due primarily to a shift in the number of homes delivered to more expensive areas and/or products in fiscal 2020, as compared to fiscal 2019.

The decrease in the number of net contracts signed in fiscal 2020, as compared to fiscal 2019, was principally due to a decrease in the average number of selling communities, offset, in part, by an increase in demand in fiscal 2020, as compared to fiscal 2019.

The increase in the average value of each contract signed in fiscal 2020, as compared to fiscal 2019, was mainly due to shifts in the number of contracts signed to more expensive areas and/or products and price increases.

The decrease in income before income taxes in fiscal 2020 was principally attributable to higher home sales cost of revenues, as a percentage of home sale revenues and lower earnings from decreased home sales revenues.

The increase in home sales cost of revenues, as a percentage of home sales revenues, in fiscal 2020, as compared to fiscal 2019, was primarily due to higher land,

land development, and material and labor costs;

higher impairment charges;

and a shift in product mix/areas to lower-margin areas.

Inventory impairment charges were $28.4 million in fiscal 2020, as compared to $25.5 million in fiscal 2019.

During fiscal 2019, we determined that the pricing assumptions used in prior impairment reviews for one operating community located in Illinois needed to be reduced primarily because weaker-than-expected market conditions drove a lack of improvement and/or a decrease in customer demand for homes in the community.

As a result of the reduction in expected sales prices, we determined that this community was impaired.

Accordingly, the carrying value was written down in the fiscal 2019 period to its estimated fair value, which resulted in a charge to income before income taxes of $6.6 million.

In the fourth quarter of fiscal 2020, we changed our strategy with respect to our land in the Delaware beach markets and the Chicago market.

As a result, the carrying values of our land and communities were written down to their estimated fair values, which resulted in a charge to income before income taxes of $18.0 million in fiscal 2020.

In addition, in the fourth quarter of fiscal 2020, due to a loss in lot density at one community located in New Jersey, the carrying value was written down to its estimated fair value, which resulted in a charge to income of $6.4 million.

Year ended October 31,

2020 2019 % Change

Units Delivered and Home Sales Revenues:

Home sales revenues ($ in millions) $ 845.6 $ 804.4 5 %

Units delivered 1,271 1,237 3 %

Average delivered price ($ in thousands)

$ 665.3 $ 650.3 2 %

Net Contracts Signed:

Net contract value ($ in millions) $ 1,075.3 $ 772.5 39 %

Net contracted units 1,473 1,159 27 %

Average contracted price ($ in thousands)

$ 730.0 $ 666.5 10 %

Home sales cost of revenues as a percentage of home sales revenues 83.6 % 83.4 %

Income (loss) before income taxes ($ in millions)

$ 50.6 $ 50.7 — %

Number of selling communities at October 31,

The increase in the number of homes delivered in fiscal 2020, as compared to fiscal 2019, was mainly due to the delivery of homes in metropolitan Atlanta, Georgia from the Sharp acquisition, offset, in part, by fewer homes in backlog at October 31, 2019 (excluding Sharp homes), as well as production delays stemming from COVID-19 and related government restrictions.

The increase in the average price of homes delivered in fiscal 2020, as compared to fiscal 2019, was primarily due a shift in the number of homes delivered to more expensive areas and/or products in Virginia partially offset by an increase in the number of homes delivered in Georgia, where average prices were significantly lower than the average in the Mid-Atlantic region.

The increase in the number of net contracts signed in fiscal 2020, as compared to fiscal 2019, was principally due to an increase in contracts resulting from the Sharp and Thrive acquisitions, and an increase in demand offset, in part, by a decrease in the average number of selling communities in Maryland.

The increase in the average value of each contract signed in fiscal 2020, as compared to fiscal 2019, were mainly due to shifts in the number of contracts signed to more expensive areas and/or products primarily in North Carolina, Maryland and Virginia, and price increases in fiscal 2020, offset, in part by an increase in contracts signed in Georgia.

The decrease in income before income taxes in fiscal 2020, as compared to fiscal 2019, was mainly due to higher impairment charges partially offset by other lower home sales costs of revenues, as a percentage of home sale revenues, and higher earnings on increased home sales revenues, in fiscal 2020.

The decrease in home sales costs of revenues (other than inventory impairments), as a percentage of home sale revenues, in fiscal 2020 was primarily due to a shift in product mix/areas to higher-margin areas.

Inventory impairment charges were $17.9 million and $1.5 million in fiscal 2020 and 2019, respectively.

In our second quarter of fiscal 2020, following the onset of the COVID-19 pandemic, we terminated a land purchase agreement in Virginia and wrote-off the deposits and soft costs incurred.

In addition, in the three months ended July 31, 2020, we decided to sell the remaining lots in one community located in Maryland in a bulk sale rather than sell and construct homes.

As a result, we wrote down the carrying value of inventory in this community to its estimated fair value.

These actions resulted in impairment charges of $13.5 million in fiscal 2020.

Year ended October 31,

2020 2019 % Change

Units Delivered and Home Sale Revenues:

Home sales revenues ($ in millions) $ 1,041.2 $ 991.9 5 %

Units delivered 1,566 1,298 21 %

Average delivered price ($ in thousands)

$ 664.9 $ 764.2 (13) %

Net Contracts Signed:

Net contract value ($ in millions) $ 1,320.1 $ 941.0 40 %

Net contracted units 2,006 1,307 53 %

Average contracted price ($ in thousands)

$ 658.1 $ 720.0 (9) %

Home sales cost of revenues as a percentage of home sales revenues 79.9 % 81.1 %

Income before income taxes ($ in millions)

$ 108.4 $ 106.1 2 %

Number of selling communities at October 31,

The increase in the number of homes delivered in fiscal 2020, as compared to fiscal 2019, was mainly due to the delivery of homes in several markets in South Carolina from the Sabal acquisition and an increase in homes sold and settled in fiscal 2020, as compared to fiscal 2019.

The decrease in the average price of homes delivered in fiscal 2020, as compared to fiscal 2019, was primarily due to a shift in the number of homes delivered to less expensive areas and/or products mainly due to homes delivered in South Carolina, where average prices were significantly lower than the average of the South region .

The increase in the number of net contracts signed in fiscal 2020, as compared to fiscal 2019, was mainly due to net contracts we signed in several markets in South Carolina due to the Sabal acquisition and an increase in demand.

The decrease in the average value of each contract signed was mainly due to contracts signed in South Carolina resulting from the Sabal acquisition, where average prices are significantly lower than the regional average, and to shifts in the number of contracts signed to less expensive areas and/or products primarily in Florida and Texas, offset, in part, by price increases.

The increase in income before income taxes in fiscal 2020, as compared to fiscal 2019, was principally due to higher earnings from increased home sales revenues and lower home sales costs of revenues, as a percentage of home sales revenues, offset, in part, by lower joint venture and management fee income from one Home Building Joint Venture that delivered its last home in the third quarter of fiscal 2019.

The decrease in home sales cost of revenues, as a percentage of home sales revenues, was mainly due to a shift in product mix/areas to higher-margin areas and lower inventory impairment changes in fiscal 2020, as compared to fiscal 2019.

Inventory impairment charges were $2.9 million and $8.5 million in fiscal 2020 and 2019, respectively.

Year ended October 31,

2020 2019 % Change

Units Delivered and Home Sales Revenues:

Home sales revenues ($ in millions) $ 1,535.8 $ 1,130.9 36 %

Units delivered 2,219 1,711 30 %

Average delivered price ($ in thousands)

$ 692.1 $ 661.0 5 %

Net Contracts Signed:

Net contract value ($ in millions) $ 2,008.2 $ 1,456.2 38 %

Net contracted units 2,802 2,097 34 %

Average contracted price ($ in thousands)

$ 716.7 $ 694.4 3 %

Home sales cost of revenues as a percentage of home sales revenues 79.2 % 78.9 %

Income before income taxes ($ in millions)

$ 167.7 $ 113.0 48 %

Number of selling communities at October 31,

The increase in the number of homes delivered in fiscal 2020, as compared to fiscal 2019, was mainly due to an increase in the number of homes in backlog at October 31, 2019, as compared to the number of homes in backlog at October 31, 2018, and an increase in the number of homes sold and settled in fiscal 2020.

The increase in the average price of homes delivered in fiscal 2020, as compared to fiscal 2019, was primarily due to an increase in the number of homes settled in Arizona, Nevada and Utah, w here average prices were higher than the regional average.

This increase was partially offset by an increase in the number of home delivered in Idaho, w here average prices were significantly lower than the regional average .

The increase in the number of net contracts signed in fiscal 2020, as compared to fiscal 2019, was principally due to increased demand and an increase in the average number of selling communities.

The increases in the average value of each contract signed in fiscal 2020, as compared to fiscal 2019, was mainly due to shifts in the number of contracts signed to more expensive areas and/or products and price increases.

The increase in income before income taxes in fiscal 2020, as compared to fiscal 2019, was mainly due to higher earnings from increased revenues offset, in part, by higher home sales cost of revenues, as a percentage of home sales revenues.

The increase in home sales cost of revenues, as a percentage of home sales revenues, was primarily due to a shift in product mix/areas to lower-margin areas.

Year ended October 31,

2020 2019 % Change

Units Delivered and Home Sales Revenues:

Home sales revenues ($ in millions) $ 2,029.9 $ 2,416.6 (16) %

Units delivered 1,334 1,434 (7) %

Average delivered price ($ in thousands)

$ 1,521.7 $ 1,685.2 (10) %

Net Contracts Signed:

Net contract value ($ in millions) $ 1,929.6 $ 1,804.8 7 %

Net contracted units 1,404 1,095 28 %

Average contracted price ($ in thousands)

$ 1,374.4 $ 1,648.2 (17) %

Home sales cost of revenues as a percentage of home sales revenues 75.2 % 71.7 %

Income before income taxes ($ in millions)

352.8 509.8 (31) %

Number of selling communities at October 31,

The decrease in the number of homes delivered in fiscal 2020, as compared to fiscal 2019, was mainly due to the decreased number of homes in backlog at October 31, 2019, as compared to the number of homes in backlog at October 31, 2018, offset, in part, by higher backlog conversion.

The decrease in the average price of homes delivered in fiscal 2020 was primarily due to a shift in the number of homes delivered to less expensive areas.

The increase in the number of net contracts signed in fiscal 2020, as compared to fiscal 2019, was principally due to an increase in demand, offset, in part, by a decrease in the number of selling communities.

The decrease in the average value of each contract signed in fiscal 2020 was mainly due to a shift in the number of contracts signed to less expensive areas and/or products partially offset by price increases.

The decrease in income before income taxes in fiscal 2020, as compared to fiscal 2019, was primarily due to lower earnings from decreased revenues and higher home sales cost of revenues, as a percentage of home sales revenues.

The increase in home sales cost of revenues, as a percentage of home sales revenues, was primarily due to cost overruns at a large high-density condominium community in Northern California, higher incentives associated with the prior year selling environment, higher impairment charges, and a shift in product mix/areas to lower-margin areas.

Inventory impairment charges were $6.0 million and $1.1 million in fiscal 2020 and 2019, respectively.

The fiscal 2020 impairment charge relates primarily to a land purchase agreement where we no longer expect to purchase the land and, accordingly, wrote-off soft costs incurred.

Year ended October 31,

2020 2019 % Change

Units Delivered and Home Sales Revenues:

Home sales revenues ($ in millions) $ 120.9 $ 253.2 (52) %

Units delivered 96 204 (53) %

Average delivered price ($ in thousands)

$ 1,259.4 $ 1,241.1 1 %

Net Contracts Signed:

Net contract value ($ in millions) $ 109.5 $ 224.7 (51) %

Net contracted units 73 150 (51) %

Average contracted price ($ in thousands)

$ 1,500.0 $ 1,498.0 — %

Home sales cost of revenues as a percentage of home sales revenues 61.7 % 67.8 %

Income before income taxes ($ in millions)

$ 29.7 $ 70.1 (58) %

Number of selling communities at October 31,

The decrease in the number of homes delivered in fiscal 2020, as compared to fiscal 2019, was mainly attributable to the decreased number of homes in backlog at October 31, 2019, as compared to the number of homes in backlog at October 31, 2018, and the impacts of the COVID-19 pandemic, in particular in New York City and northern New Jersey.

The increase in the average price of homes delivered in fiscal 2020, as compared to fiscal 2019, was primarily due to a shift in the number of homes delivered to more expensive areas and/or products.

The decrease in the number of net contracts signed in fiscal 2020, as compared to fiscal 2019, was primarily due to a significant decrease in demand following the onset of the COVID-19 pandemic, offset, in part, by increased demand prior to its onset.

The decrease in income before income taxes in fiscal 2020, as compared to fiscal 2019, was mainly due to lower earnings from decreased revenues and decreases in earnings from our investments in unconsolidated entities.

This decrease was partially offset by lower home sales cost of revenues, as a percentage of home sale revenues.

The lower home sales cost of revenues, as a percentage of home sale revenues, in fiscal 2020 was principally due to a shift in the number of homes delivered to buildings with higher margins, an impairment charge of $4.8 million in fiscal 2019, and the reversal of an accrual related to a litigation matter that was no longer needed.

This decrease was offset, in part, by a state reimbursement of $6.5 million of previously expensed environmental cleanup costs received in fiscal 2019.

In fiscal 2020, earnings from our investments in unconsolidated entities in City Living decreased $11.8 million as compared to fiscal 2019.

This decrease was primarily due to $6.0 million of other than temporary impairment charges that we recognized on one of our Home Building Joint Ventures in fiscal 2020.

In addition, fiscal 2019 benefited from earnings from one joint venture that delivered its last home in the third quarter of fiscal 2019.

The tables below provide information related to deliveries, revenues, and net contracts signed by our City Living Home Building Joint Ventures, for the periods indicated, and the related backlog for the dates indicated ($ amounts in millions):

Year ended October 31,

Deliveries and home sales revenues 44 147 $ 139.6 $ 330.8

Net contracts signed 22 39 $ 73.3 $ 128.1

At October 31,

4 26 $ 10.0 $ 76.3

Corporate and other

In fiscal 2020 and 2019, loss before income taxes was $180.1 million and $143.9 million, respectively.

The increase in the loss before income taxes in fiscal 2020 was principally attributable to lower interest income;

higher losses incurred in our apartment living operations;

lower income from golf club operations;

losses recognized by a joint venture that owns a hotel that was adversely impacted by COVID-19;

an increase in losses in several Rental Property Joint Ventures related to the commencement of operations and lease up activities;

and directly expensed interest of $2.4 million in the fiscal 2020 period.

In addition, during the fiscal 2019 period, we recognized gains of $35.1 million from the sale of seven golf clubs;

$9.3 million from the sale of land to a newly formed Rental Property Joint Venture;

and $3.8 million from an asset sale by one of our Rental Property Joint Ventures.

These increases were partially offset by gains recognized in fiscal 2020 of $13.0 million from the sale of golf club properties and $10.7 million from the sale of our investment in one of our Rental Property Joint Ventures to our joint venture partner;

higher earnings by our mortgage company operations primarily due to an increase in volumes in fiscal 2020;

and lower SG&A costs.

The lower SG&A costs were due primarily to the implementation of a number of cost reduction initiatives to improve efficiencies and rationalize overhead expenses, including workforce reductions, that we implemented following the onset of the COVID-19 pandemic, including the reversal of an $8.0 million accrual in fiscal 2020 for discretionary benefit plan contributions with respect to fiscal 2019.

The decrease in SG&A spending in fiscal 2020 was offset, in part, by a $7.5 million charge for severance costs incurred in the second quarter of fiscal 2020, other compensation increases, and costs related to the implementation of new enterprise information technology systems.

FISCAL 2019 (Restated) COMPARED TO FISCAL 2018 (Restated)

Traditional Home Building

Year ended October 31,

2019 2018 % Change

Units Delivered and Home Sales Revenues:

Home sales revenues ($ in millions) $ 1,484.4 $ 1,517.9 (2) %

Units delivered 2,223 2,259 (2) %

Average delivered price ($ in thousands)

$ 667.7 $ 671.9 (1) %

Net Contracts Signed:

Net contract value ($ in millions) $ 1,511.7 $ 1,511.3 — %

Net contracted units 2,267 2,247 1 %

Average contracted price ($ in thousands)

$ 666.8 $ 672.6 (1) %

Home sales cost of revenues as a percentage of home sales revenues

84.9 % 85.0 %

Income before income taxes ($ in millions)

$ 81.4 $ 98.2 (17) %

Number of selling communities at October 31, 86 92 (7) %

The decrease in the average price of homes delivered in fiscal 2019 was due primarily to a shift in the number of homes delivered to less expensive areas and/or products in fiscal 2019.

The increase in the number of net contracts signed in fiscal 2019, as compared to fiscal 2018, was principally due to an increase in demand in fiscal 2019.

The decrease in income before income taxes in fiscal 2019 was principally attributable to lower earnings from decreased home sales revenues, higher SG&A costs, and higher inventory impairment charges.

Inventory impairment charges were $25.5 million in fiscal 2019, as compared to $20.7 million in fiscal 2018.

During fiscal 2019, we determined that the pricing assumptions used in prior impairment reviews for one operating community located in Illinois and two operating communities located in Pennsylvania needed to be reduced primarily because weaker-than-expected market conditions drove a lack of improvement and/or a decrease in customer demand for homes in these communities.

As a result of the reduction in expected sales prices, we determined that these communities were impaired.

Accordingly, the carrying values were written down to their estimated fair values, which resulted in a charge to income before income taxes of $14.6

In addition, with respect to two communities located in Illinois, we decided to sell their remaining lots in bulk sales rather than sell and construct homes.

2 unchanged sentences

As a result of the reduction in expected sales prices, we determined that this community was impaired.

Accordingly, its carrying value was written down to its estimated fair value, which resulted in a charge to income before income taxes of $12.0 million in fiscal 2018.

Accordingly, its carrying value was written down to its estimated fair value, which resulted in a charge to income before income taxes of $12.0 million.

In addition, with respect to two communities located in Illinois and Minnesota, we decided to sell their remaining lots in bulk sales rather than sell and construct homes.

1 unchanged sentence

Year ended October 31,

2019 2018 % Change

Units Delivered and Home Sales Revenues:

2 unchanged sentences

Average delivered price ($ in thousands)

$ 650.3 $ 610.3 7 %

Net Contracts Signed:

2 unchanged sentences

Average contracted price ($ in thousands)

$ 666.5 $ 645.8 3 %

Home sales cost of revenues as a percentage of home sales revenues 83.4 % 82.2 %

Income (loss) before income taxes ($ in millions)

$ 50.7 $ 59.3 (15) %

Number of selling communities at October 31,

The decrease in the number of homes delivered in fiscal 2019 was mainly due to lower backlog conversion in fiscal 2019 , as compared to fiscal 2018 .

The increase in the average price of homes delivered in fiscal 2019 was primarily due to a shift in the number of homes delivered to more expensive areas and/or products in fiscal 2019 , as compared to fiscal 2018 .

The decrease in the number of net contracts signed in fiscal 2019 was principally due to a decrease in the average number of selling communities in fiscal 2019 , as compared to fiscal 2018 .

The increase in the average value of each contract signed in fiscal 2019 was mainly due to shifts in the number of contracts signed to more expensive areas and/or products in fiscal 2019 , as compared to fiscal 2018 .

The decrease in income before income taxes in fiscal 2019 was mainly due to increases in home sales costs of revenues, as a percentage of home sale revenues;

lower earnings on decreased home sales revenues;

and increases in SG&A costs in fiscal 2019, as compared to fiscal 2018.

This decrease was partially offset by a $4.0 million impairment charge recognized in fiscal 2018 related to one Land Development Joint Venture located in Maryland.

The increase in home sales costs of revenues, as a percentage of home sale revenues, in fiscal 2019 was primarily due to higher material and labor costs in fiscal 2019, as compared to fiscal 2018.

This decrease was partially offset by the delivery of 114 homes in metropolitan Atlanta, Georgia from the Sharp acquisition.

The increase in the average price of homes delivered in fiscal 2019 was primarily due to a shift in the number of homes delivered to more expensive areas and/or products in fiscal 2019.

The decrease in the number of net contracts signed in fiscal 2019 was principally due to a decrease in the average number of selling communities in fiscal 2019 offset, in part, by contracts we signed in the metropolitan Atlanta, Georgia market in fiscal 2019.

The increase in the average value of each contract signed in fiscal 2019 was mainly due to shifts in the number of contracts signed to more expensive areas and/or products in fiscal 2019.

The decrease in income before income taxes in fiscal 2019 was mainly due to increases in home sales costs of revenues, as a percentage of home sale revenues and increases in SG&A costs in fiscal 2019.

This decrease was partially offset by higher earnings on increased home sales revenues in fiscal 2019 and a $4.0 million impairment charge recognized in fiscal 2018 related to one Land Development Joint Venture located in Maryland.

The increase in home sales costs of revenues, as a percentage of home sale revenues, in fiscal 2019 was primarily due to higher material and labor costs in fiscal 2019.

Inventory impairment charges were $1.5 million and $11.8 million in fiscal 2019 and 2018, respectively.

During our review of operating communities for impairment in fiscal 2019, we determined that the pricing assumptions used in prior impairment reviews for two operating communities located in Pennsylvania needed to be reduced primarily because weaker-than-expected market conditions drove a lack of improvement and/or a decrease in customer demand for homes in the community.

As a result of the reduction in expected sales prices, we determined that these communities were impaired.

Accordingly, the carrying value of these communities were written down to their estimated fair values, which resulted in a charge to income before income taxes of $8.0 million in fiscal 2019.

In fiscal 2018, we decided to sell a portion of the lots in a bulk sale in one community located in Maryland, primarily due to increases in site costs and a lack of improvement in customer demand as a result of weaker than expected market conditions.

1 unchanged sentence

Year ended October 31,

2019 2018 % Change

Units Delivered and Home Sale Revenues:

2 unchanged sentences

Average delivered price ($ in thousands)

$ 764.2 $ 779.7 (2) %

Net Contracts Signed:

2 unchanged sentences

Average contracted price ($ in thousands)

$ 720.0 $ 782.4 (8) %

Home sales cost of revenues as a percentage of home sales revenues 81.1 % 80.5 %

Income before income taxes ($ in millions)

$ 106.1 $ 99.9 6 %

Number of selling communities at October 31,

The increase in the number of homes delivered in fiscal 2019 was mainly due to the delivery of 137 homes in metropolitan Atlanta, Georgia and several markets in South Carolina from the Sharp and Sabal acquisitions;

an increase in the number of homes in backlog at October 31, 2018, as compared to the number of homes in backlog at October 31, 2017;

and higher backlog conversion in fiscal 2019, as compared to fiscal 2018.

The decrease in the average price of homes delivered in fiscal 2019 was primarily due to a shift in the number of homes delivered to less expensive areas and/or products in fiscal 2019, as compared to fiscal 2018.

The increase in the number of net contracts signed in fiscal 2019 was mainly due to contracts we signed in the metropolitan Atlanta, Georgia market and several markets in South Carolina in fiscal 2019 and an increase in the number of selling communities, primarily in Florida, in fiscal 2019, as compared to fiscal 2018, offset, in part, by decreased demand.

The decrease in the average value of each contract signed in fiscal 2019 was mainly due to shifts in the number of contracts signed to less expensive areas and/or products in fiscal 2019, as compared to fiscal 2018.

The increase in income before income taxes in fiscal 2019 was principally due to higher earnings from increased home sales revenues, offset, in part, by higher cost of home sales revenues, as a percentage of home sales revenues.

The increase in home sales cost of revenues, as a percentage of home sales revenues, in fiscal 2019 was primarily due to higher material and labor costs and a shift in product mix/areas to lower-margin areas in fiscal 2019 , as compared to fiscal 2018 .

The increase in the number of homes delivered in fiscal 2019 was mainly due to an increase in the number of homes in backlog at October 31, 2018, as compared to the number of homes in backlog at October 31, 2017;

higher backlog conversion in fiscal 2019, as compared to fiscal 2018;

and the delivery of 23 homes in several markets in South Carolina from the Sabal acquisition.

The decrease in the average price of homes delivered in fiscal 2019 was primarily due to a shift in the number of homes delivered to less expensive areas and/or products in fiscal 2019.

The increase in the number of net contracts signed in fiscal 2019 was mainly due to contracts we signed in several markets in South Carolina in fiscal 2019 and an increase in the number of selling communities, primarily in Florida, in fiscal 2019 offset, in part, by decreased demand.

The decrease in the average value of each contract signed in fiscal 2019 was mainly due to shifts in the number of contracts signed to less expensive areas and/or products in fiscal 2019.

The increase in income before income taxes in fiscal 2019 was principally due to higher earnings from increased home sales revenues, offset, in part, by higher inventory impairment charges.

Inventory impairment charges were $8.5 million and $0.7 million in fiscal 2019 and 2018, respectively.

2 unchanged sentences

In addition, we terminated three purchase agreements to acquire land parcels in Texas and forfeited the deposit balances outstanding.

We wrote off the deposits resulting in a charges to income before income taxes of $4.2 million in fiscal 2019.

We wrote off the related deposits resulting in a charges to income before income taxes of $4.2 million in fiscal 2019.

Year ended October 31,

2019 2018 % Change

Units Delivered and Home Sales Revenues:

2 unchanged sentences

Average delivered price ($ in thousands)

$ 661.0 $ 626.9 5 %

Net Contracts Signed:

2 unchanged sentences

Average contracted price ($ in thousands)

$ 694.4 $ 657.2 6 %

Home sales cost of revenues as a percentage of home sales revenues 78.9 % 78.6 %

Income before income taxes ($ in millions)

$ 113.0 $ 136.2 (17) %

Number of selling communities at October 31,

The decrease in the number of homes delivered in fiscal 2019 was mainly due to lower backlog conversion in fiscal 2019, as compared to fiscal 2018.

The increase in the average price of homes delivered in fiscal 2019 was primarily due to a shift in the number of homes delivered to more expensive areas and/or products and price increases in fiscal 2019, as compared to fiscal 2018.

The increase in the number of net contracts signed in fiscal 2019 was principally due to an increase in the average number of selling communities in fiscal 2019 , as compared to fiscal 2018 , and an increase in demand, primarily in the fourth quarter of fiscal 2019.

The increase in the average value of each contract signed in fiscal 2019 was mainly due to a shift in the number of contracts signed to more expensive areas and/or products in fiscal 2019, as compared to fiscal 2018.

The decrease in income before income taxes in fiscal 2019 was due mainly to higher SG&A costs;

higher home sales cost of revenues, as a percentage of home sales revenues;

and lower earnings from decreased revenues, in fiscal 2019, as compared to fiscal 2018.

The increase in the number of net contracts signed in fiscal 2019 was principally due to an increase in the average number of selling communities in fiscal 2019.

The increase in the average value of each contract signed in fiscal 2019 was mainly due to a shift in the number of contracts signed to more expensive areas and/or products in fiscal 2019.

The decrease in income before income taxes in fiscal 2019 was due mainly to higher SG&A costs and higher home sales cost of revenues, as a percentage of home sales revenues, in fiscal 2019.

The increase in home sales cost of revenues, as a percentage of home sales revenues, was primarily due to a shift in product mix/areas to lower-margin areas in fiscal 2019.

Year ended October 31,

2019 2018 % Change

Units Delivered and Home Sales Revenues:

2 unchanged sentences

Average delivered price ($ in thousands)

$ 1,685.2 $ 1,530.8 10 %

Net Contracts Signed:

2 unchanged sentences

Average contracted price ($ in thousands)

$ 1,648.2 $ 1,572.6 5 %

Home sales cost of revenues as a percentage of home sales revenues 71.7 % 70.5 %

Income before income taxes ($ in millions)

509.8 571.4 (11) %

Number of selling communities at October 31,

The decrease in the number of homes delivered in fiscal 2019 was mainly due to lower backlog conversion in fiscal 2019, as compared to fiscal 2018, offset, in part, by the increased number of homes in backlog at October 31, 2018, as compared to the

number of homes in backlog at October 31, 2017.

The increase in the average price of homes delivered in 2019 was primarily due to a shift in the number of homes delivered to more expensive areas and/or products and increased selling prices of homes delivered in fiscal 2019, as compared to fiscal 2018.

The decrease in the number of net contracts signed in fiscal 2019 was principally due to a decrease in demand and reduced availability of lots in fiscal 2019, as compared to fiscal 2018.

The decrease in the number of net contracts signed in fiscal 2019 was principally due to a decrease in demand and reduced availability of lots in fiscal 2019.

The increase in the average value of each contract signed in fiscal 2019 was mainly due to a shift in the number of contracts signed to more expensive areas and/or products in fiscal 2019.

The decrease in income before income taxes in fiscal 2019 was primarily due to lower earnings from the decreased home sales revenues and higher home sales cost of revenues, as a percentage of home sales revenues, in fiscal 2019, as compared to fiscal 2018, partially offset by lower SG&A costs in fiscal 2019.

The increase in home sales cost of revenues, as a percentage of home sales revenues, was primarily due to a shift in product mix/areas to lower-margin areas in fiscal 2019, as compared to fiscal 2018, and a $7.0 million benefit in fiscal 2018 from the reversal of an accrual related to the Shapell acquisition that has expired.

The increase in home sales cost of revenues, as a percentage of home sales revenues, was primarily due to a shift in product mix/areas to lower-margin areas in fiscal 2019, and a $7.0 million benefit in fiscal 2018 from the reversal of an accrual related to the Shapell acquisition that had expired.

Year ended October 31,

2019 2018 % Change

Units Delivered and Home Sales Revenues:

2 unchanged sentences

Average delivered price ($ in thousands)

$ 1,241.1 $ 1,899.4 (35) %

Net Contracts Signed:

2 unchanged sentences

Average contracted price ($ in thousands)

$ 1,498.0 $ 1,518.0 (1) %

Home sales cost of revenues as a percentage of home sales revenues 67.8 % 72.7 %

Income before income taxes ($ in millions)

$ 70.1 $ 78.1 (10) %

Number of selling communities at October 31,

The increase in the number of homes delivered in fiscal 2019 was mainly attributable to homes delivered at a building located in Jersey City, New Jersey, which commenced deliveries in the fourth quarter of fiscal 2018.

The decrease in the average price of homes delivered in fiscal 2019 was primarily due to a shift in the number of homes delivered to less expensive buildings in fiscal 2019 , as compared to fiscal 2018 , offset, in part, by the delivery of two homes in fiscal 2019 in a building located in New York City, New York, where the average price was $13.6 million.

The decrease in the average price of homes delivered in fiscal 2019 was primarily due to a shift in the number of homes delivered to less expensive buildings in fiscal 2019 offset, in part, by the delivery of two homes in fiscal 2019 in a building located in New York City, New York, where the average price was $13.6 million.

In fiscal 2019 and 2018, 7% and 37%, respectively, of the units delivered were located in New York City, where average home prices were higher.

The decrease in the number of net contracts signed in fiscal 2019 was primarily due to a decrease in demand.

The decrease in the average sales price of net contracts signed in fiscal 2019 , as compared to fiscal 2018 , was principally due to a shift to less expensive units in fiscal 2019 , as compared to fiscal 2018 , offset, in part, by the sale of two home in fiscal 2019 period in a building located in New York City, New York, where the average price was $13.6 million.

The decrease in income before income taxes in fiscal 2019 was mainly due to lower earnings from decreased home sales revenues and a decrease in earnings from our investments in unconsolidated entities, in fiscal 2019, as compared to fiscal 2018.

The decrease in the average sales price of net contracts signed in fiscal 2019 was principally due to a shift to less expensive units in fiscal 2019, offset, in part, by the sale of two homes in fiscal 2019 in a building located in New York City, New York, where the average price was $13.6 million.

This decrease was partially offset by lower home sales cost of revenues, as a percentage of home sale revenues, in fiscal 2019.

2 unchanged sentences

a benefit in fiscal 2019 from the reversal of accruals for certain HOA turnovers that were no longer required;

and lower interest costs in fiscal 2019, as compared to fiscal 2018.

and lower interest costs in fiscal 2019.

These decreases were offset, in part, by impairment charges of $4.8 million in fiscal 2019.

As a result of decreased demand, we wrote down the carrying value of units in two buildings, located in Maryland and New York, New York, to their estimated fair value, which resulted in impairment charges of $4.8 million in fiscal 2019.

As a result of decreased demand, we wrote down the carrying value of units in two buildings, located in Maryland and New York, New York, to their estimated fair values, which resulted in impairment charges of $4.8 million in fiscal 2019.

In fiscal 2019, earnings from our investments in unconsolidated entities decreased $2.8 million as compared to fiscal 2018.

5 unchanged sentences

At October 31,

26 134 $ 76.3 $ 279.0

Corporate and other

3 unchanged sentences

an increase in losses in several Rental Property Joint Ventures due to the commencement of operations and lease up activities in fiscal 2019;

and higher SG&A costs in fiscal 2019 compared to fiscal 2018.

These increases were partially offset by gains recognized of $35.1 million from the sale of seven golf clubs in fiscal 2019;

a $9.3 million gain recognized from the sales of land to newly formed Rental Property Joint Ventures in fiscal 2019;

a $3.8 million gain recognized in fiscal 2019 from an asset sale by a Rental Property Joint Venture in Phoenixville, Pennsylvania;

and higher SG&A costs in fiscal 2019.

These increases were partially offset by gains recognized in fiscal 2019 of $35.1 million from the sale of seven golf clubs;

$9.3 million from the sales of land to newly formed Rental Property Joint Ventures;

$3.8 million from an asset sale by a Rental Property Joint Venture in Phoenixville, Pennsylvania;

and higher interest income in fiscal 2019.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis