Toll Brothers, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures Any controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected; however, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Our Chief Executive Officer and Chief Financial Officer, with the assistance of management, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (“Exchange Act”), as of the end of the period covered by this report (“Evaluation Date”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management’s Annual Report on Internal Control Over Financial Reporting and Attestation Report of the Independent Registered Public Accounting Firm Management’s Annual Report on Internal Control Over Financial Reporting and the attestation report of our independent registered public accounting firm on internal control over financial reporting on pages F-1 and F-2, respectively, are incorporated herein by reference. The Company is in the process of evaluating the existing controls and procedures of each of The Thrive Group, LLC and Keller Homes, Inc. and integrating their controls into the Company’s internal control over financial reporting. In accordance with SEC Staff guidance permitting a company to exclude an acquired business from management’s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition is completed, we have excluded each of The Thrive Group, LLC and Keller Homes, Inc. from the Company’s assessment of the effectiveness of internal control over financial reporting as of October 31, 2020. These companies represented approximately 1% of the Company’s total assets as of October 31, 2020 and less than 1% of the Company’s revenues for the fiscal year ended October 31, 2020. The Company's acquisition of each of these companies is discussed in Note 2 to its Consolidated Financial Statements for fiscal 2020. Changes in Internal Control Over Financial Reporting We are in the process of a complex implementation of a new ERP system that affects many of our financial processes. This project is expected to improve the efficiency and effectiveness of certain financial and business transaction processes, as well as the underlying systems environment. The new ERP system will be a significant component of our internal control over financial reporting. Other than the ERP system implementation noted above, there has not been any change in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our quarter ended October 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. For a discussion of risks related to the implementation of our new ERP system, see “Risk Factors - We are implementing a new enterprise resource planning system, and challenges with the system may impact our business and operations.” ITEM 9B. OTHER INFORMATION Not applicable. 55 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The following table includes information with respect to all persons serving as executive officers as of the date of this Form 10-K. All executive officers serve at the pleasure of our Board of Directors. Name Age Positions Douglas C. Yearley, Jr. 60 Chairman of the Board, President and Chief Executive Officer James W. Boyd 64 Executive Vice President and Co-Chief Operating Officer Robert Parahus 57 Executive Vice President and Co-Chief Operating Officer Martin P. Connor 56 Senior Vice President and Chief Financial Officer Douglas C. Yearley, Jr. joined us in 1990 as assistant to the Chief Executive Officer with responsibility for land acquisitions. He has been an officer since 1994, holding the position of Senior Vice President from January 2002 until November 2005, the position of Regional President from November 2005 until November 2009, and the position of Executive Vice President from November 2009 until June 2010, when he was promoted to Chief Executive Officer. On November 1, 2018, he was appointed to the position of Chairman of the Board and Chief Executive Officer and was appointed President effective November 1, 2019. Mr. Yearley was elected a Director in June 2010. James W. Boyd initially joined us in 1983 and remained until 1985, when he launched his own independent development company, before rejoining the Company in 1993 to serve in various positions, including Regional President from 2005 through October 31, 2019. He was appointed to the position of Executive Vice President and Co-Chief Operating Officer effective November 1, 2019, with responsibility for the Company’s western region. Prior to his appointment to Executive Vice President and Co-Chief Operating Officer, Mr. Boyd oversaw the Company’s home building operations in California, Nevada and Idaho. Robert Parahus joined us in 1986 and served in various positions with us, including Regional President from 2006 through October 31, 2019. He was appointed to the position of Executive Vice President and Co-Chief Operating Officer effective November 1, 2019, with responsibility for the Company’s eastern region. Prior to his appointment to Executive Vice President and Co-Chief Operating Officer, Mr. Parahus oversaw the Company’s home building operations in New Jersey, New York, Connecticut, Massachusetts and Florida, and had oversight responsibility for Toll Integrated Systems, the Company’s building component manufacturing operations. Martin P. Connor joined us as Vice President and Assistant Chief Financial Officer in December 2008 and was appointed a Senior Vice President in December 2009. Mr. Connor was appointed to his current position of Senior Vice President and Chief Financial Officer in September 2010. From June 2008 to December 2008, Mr. Connor was President of Marcon Advisors LLC, a finance and accounting consulting firm that he founded. From October 2006 to June 2008, Mr. Connor was Chief Financial Officer and Director of Operations for O’Neill Properties, a diversified commercial real estate developer in the Mid-Atlantic area. Prior to October 2006, he spent over 20 years at Ernst & Young LLP as an Audit and Advisory Business Services Partner, responsible for the real estate practice for Ernst & Young LLP in the Philadelphia marketplace. During the period from 1998 to 2005, he served on the Toll Brothers, Inc. audit engagement. The other information required by this item will be included in the “Election of Directors” and “Corporate Governance” sections of our Proxy Statement for the 2021 Annual Meeting of Stockholders (the “2021 Proxy Statement”). Code of Ethics We have adopted a Code of Ethics for the Principal Executive Officer and Senior Financial Officers (“Code of Ethics”) that applies to our principal executive officer, principal financial officer, principal accounting officer, controller, and persons performing similar functions designated by our Board of Directors. The Code of Ethics is available on our Internet website at www.TollBrothers.com under “Investor Relations – Corporate Governance.” If we were to amend or waive any provision of our Code of Ethics, we intend to satisfy our disclosure obligations with respect to any such waiver or amendment by posting such information on our Internet website set forth above rather than by filing a Form 8-K. Indemnification of Directors and Officers Our Certificate of Incorporation and Bylaws provide for indemnification of our directors and officers. We have also entered into individual indemnification agreements with each of our directors. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will be included in the “Executive Compensation” section of our 2021 Proxy Statement and is incorporated herein by reference. 56 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required in this item will be included in the “Voting Securities and Beneficial Ownership” and “Equity Compensation Plan Information” sections of our 2021 Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; DIRECTOR INDEPENDENCE The information required in this item will be included in the “Corporate Governance” and “Certain Relationships and Transactions” sections of our 2021 Proxy Statement and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required in this item will be included in the “Ratification of the Re-Appointment of Independent Registered Public Accounting Firm” section of the 2021 Proxy Statement and is incorporated herein by reference. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) Financial Statements and Financial Statement Schedules Page 1. Financial Statements Management’s Annual Report on Internal Control Over Financial Reporting F- 1 Reports of Independent Registered Public Accounting Firm F- 2 Consolidated Balance Sheets F- 7 Consolidated Statements of Operations and Comprehensive Income F- 8 Consolidated Statements of Changes in Equity F- 9 Consolidated Statements of Cash Flows F- 10 Notes to Consolidated Financial Statements F- 11 2. Financial Statement Schedules None Financial statement schedules have been omitted because either they are not applicable or the required information is included in the financial statements or notes hereto. (b) Exhibits The following exhibits are included with this report or incorporated herein by reference: Exhibit Number Description 3.1 Second Restated Certificate of Incorporation of the Registrant, dated September 8, 2005, is hereby incorporated by reference to Exhibit 3.1 of the Registrant’s Form 10-Q for the quarter ended July 31, 2005. 3.2 Certificate of Amendment of the Second Restated Certificate of Incorporation of the Registrant, filed with the Secretary of State of the State of Delaware, is hereby incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 22, 2010. 3.3 Certificate of Amendment of the Second Restated Certificate of Incorporation of the Registrant, dated as of March 16, 2011, is hereby incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 18, 2011. 3.4 Certificate of Amendment of the Second Restated Certificate of Incorporation of the Registrant, dated as of March 8, 2016, is hereby incorporated by reference to Annex B to the Registrant’s definitive proxy statement on Schedule 14A its 2016 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on February 2, 2016. 57 Exhibit Number Description 3.5 Bylaws of the Registrant, as Amended and Restated June 11, 2008, are hereby incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 13, 2008. 3.6 Amendment to the By-laws of the Registrant, dated as of September 24, 2009, is hereby incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 24, 2009. 3.7 Amendment to the By-laws of the Registrant, dated as of June 15, 2011, is hereby incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 16, 2011. 3.8 Amendment to the By-laws of the Registrant, dated as of January 20, 2016, is hereby incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 20, 2016. 3.9 Amendment to the By-laws of the Registrant, dated as of September 20, 2016, is hereby incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 20, 2016. 4.1 Specimen Stock Certificate is hereby incorporated by reference to Exhibit 4.1 of the Registrant’s Form 10-K for the year ended October 31, 2017. 4.2 Indenture, dated as of February 7, 2012, among Toll Brothers Finance Corp., the Registrant and the other guarantors named therein and The Bank of New York Mellon, as trustee, is hereby incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 7, 2012. 4.3 Authorizing Resolutions, dated as of January 31, 2012, relating to the $300,000,000 principal amount of 5.875% Senior Notes due 2022 of Toll Brothers Finance Corp. guaranteed on a senior basis by the Registrant and certain of its subsidiaries, is hereby incorporated by reference Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 7, 2012. 4.4 Form of Global Note for Toll Brothers Finance Corp.’s 5.875% Senior Notes due 2022 is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 7, 2012. 4.5 Authorizing Resolutions, dated as of April 3, 2013, relating to the $300,000,000 principal amount of 4.375% Senior Notes due 2023 of Toll Brothers Finance Corp. guaranteed on a senior basis by the Registrant and certain of its subsidiaries, is hereby incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 10, 2013. 4.6 Authorizing Resolutions, dated as of May 8, 2013, relating to the $100,000,000 principal amount of 4.375% Senior Notes due 2023 of Toll Brothers Finance Corp. guaranteed on a senior basis by Toll Brothers, Inc. and certain of its subsidiaries is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 13, 2013. 4.7 Form of Global Note for Toll Brothers Finance Corp.’s 4.375% Senior Notes due 2023 is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 10, 2013. 4.8 Authorizing Resolutions, dated as of November 21, 2013, relating to the $250,000,000 principal amount of 5.625% Senior Notes due 2024 of Toll Brothers Finance Corp. guaranteed on a senior basis by the Registrant and certain of its subsidiaries, is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 21, 2013. 4.9 Form of Global Note for Toll Brothers Finance Corp.’s 5.625% Senior Notes due 2024 is hereby incorporated by reference to Exhibit 4.5 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 21, 2013. 4.10 Authorizing Resolutions, dated as of October 30, 2015, relating to the $350,000,000 principal amount of 4.875% Senior Notes due 2025 of Toll Brothers Finance Corp. guaranteed on a senior basis by the Registrant and certain of its subsidiaries, is hereby incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2015. 58 Exhibit Number Description 4.11 Form of Global Note for Toll Brothers Finance Corp.’s 4.875% Senior Notes due 2025 is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2015. 4.12 Authorizing Resolutions, dated as of March 10, 2017, relating to the $300,000,000 principal amount of 4.875% Senior Notes due 2027 of Toll Brothers Finance Corp. guaranteed on a senior basis by the Registrant and certain of its subsidiaries, is hereby incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2017. 4.13 Form of Global Note for Toll Brothers Finance Corp.’s 4.875% Senior Notes due 2027 is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2017. 4.14 Authorizing Resolutions, dated as of June 12, 2017, relating to the $150,000,000 principal amount of 4.875% Senior Notes due 2027 of Toll Brothers Finance Corp. guaranteed on a senior basis by the Registrant and certain of its subsidiaries, is hereby incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 12, 2017. 4.15 Form of Global Note for Toll Brothers Finance Corp.’s 4.875% Senior Notes due 2027 is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 12, 2017 4.16 Authorizing Resolution, dated as of January 22, 2018, relating to the $400,000,000 aggregate principal amount of 4.350% Senior Notes due 2028 of Toll Brothers Finance Corp., guaranteed on a senior basis by Toll Brothers, Inc. and certain of its subsidiaries, is hereby incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 22, 2018. 4.17 Form of Global Note for the Issuer’s 4.350% Senior Notes due 2028 is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 22, 2018. 4.18 Authorizing Resolution, dated as of September 12, 2019, relating to the $400,000,000 aggregate principal amount of 3.800% Senior Notes due 2029 of Toll Brothers Finance Corp., guaranteed on a senior basis by Toll Brothers, Inc. and certain of its subsidiaries, is hereby incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 12, 2019. 4.19 Form of Global Note for the Issuer’s 3.800% Senior Notes due 2029 is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 12, 2019. 4.20 First Supplemental Indenture dated as of April 27, 2012, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.3 of the Registrant’s Form 10-Q for the quarter ended April 30, 2012. 4.21 Second Supplemental Indenture dated as of April 30, 2013, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.4 of the Registrant’s Form 10-Q for the quarter ended April 30, 2013. 4.22 Third Supplemental Indenture dated as of April 30, 2014, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.1 of the Registrant’s Form 10-Q for the quarter ended April 30, 2014. 4.23 Fourth Supplemental Indenture dated as of July 31, 2014, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.1 of the Registrant’s Form 10-Q for the quarter ended July 31, 2014. 4.24 Fifth Supplemental Indenture dated as of October 31, 2014, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.55 of the Registrant’s Form 10-K for the year ended October 31, 2014. 59 Exhibit Number Description 4.25 Sixth Supplemental Indenture dated as of January 30, 2015, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.3 of the Registrant’s Form 10-Q for the quarter ended January 31, 2015. 4.26 Seventh Supplemental Indenture dated as of April 30, 2015, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.3 of the Registrant’s Form 10-Q for the quarter ended April 30, 2015. 4.27 Eighth Supplemental Indenture dated as of October 30, 2015, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.34 of the Registrant’s Form 10-K for the year ended October 31, 2015. 4.28 Ninth Supplemental Indenture dated as of January 29, 2016, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q for the quarter ended January 31, 2016. 4.29 Tenth Supplemental Indenture dated as of April 29, 2016, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q for the quarter ended April 30, 2016. 4.30 Eleventh Supplemental Indenture dated as of October 31, 2016, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.41 of the Registrant’s Form 10-K for the year ended October 31, 2016. 4.31 Twelfth Supplemental Indenture dated as of October 31, 2016, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.42 of the Registrant’s Form 10-K for the year ended October 31, 2016. 4.32 Thirteenth Supplemental Indenture dated as of January 31, 2017, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q for the quarter ended January 31, 2017. 4.33 Fourteenth Supplemental Indenture dated as of April 28, 2017, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q for the quarter ended April 30, 2017. 4.34 Fifteenth Supplemental Indenture dated as of July 31, 2017, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q for the quarter ended July 31, 2017. 4.35 Sixteenth Supplemental Indenture dated as of October 31, 2017, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.55 of the Registrant’s Form 10-K for the year ended October 31, 2017. 4.36 Seventeenth Supplemental Indenture dated as of October 31, 2017, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.56 of the Registrant’s Form 10-K for the year ended October 31, 2017. 4.37 Eighteenth Supplemental Indenture dated as of April 13, 2018, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.3 of the Registrant’s Form 10-Q for the quarter ended April 30, 2018. 60 Exhibit Number Description 4.38 Nineteenth Supplemental Indenture dated as of April 30, 2018, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.4 of the Registrant’s Form 10-Q for the quarter ended April 30, 2018. 4.39 Twentieth Supplemental Indenture dated as of October 31, 2018, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.62 of the Registrant’s Form 10-K for the year ended October 31, 2018. 4.40 Twenty-First Supplemental Indenture dated as of January 31, 2019, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q for the quarter ended January 31, 2019. 4.41 Twenty-Second Supplemental Indenture dated as of October 30, 2019, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.41 of the Registrant’s Form 10-K for the year ended October 31, 2019. 4.42 Twenty-third Supplemental Indenture dated as of October 30, 2019, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.42 of the Registrant’s Form 10-K for the year ended October 31, 2019. 4.43 Twenty-fourth Supplemental Indenture dated as of April 30, 2020, to the Indenture dated as of February 7, 2012 by and among the parties listed on Twenty-fourth Supplemental Indenture dated as of April 30, 2020, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.1 of the Registrant’s Form 10-Q for the quarter ended April 30, 2020. A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.1 on the Registrant’s Form 10-Q for the quarter ended April 30, 2020. 4.44 Twenty-fifth Supplemental Indenture dated as of October 30, 2020, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee. ** 4.45 Description of Certain of Registrant’s Securities is hereby incorporated by reference to Exhibit 4.43 of the Registrant’s Form 10-K for the year ended October 31, 2019. 10.1 Amended and Restated Credit Agreement, dated as of October 31,2019, among the First Huntingdon Finance Corp., Toll Brothers, Inc., and the lenders party thereto and Citibank, N.A., as Administrative Agent, is hereby incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 1, 2019. 10.2 Revolving Extension Agreements, effective as of October 31, 2020, with respect to the Amended and Restated Credit Agreement, dated as of October 31, 2019, among the Borrower, the Registrant, the lenders party thereto and Citibank, N.A., as Administrative Agent is hereby incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 31, 2020. 10.3 Credit Agreement by and among First Huntingdon Finance Corp., Toll Brothers, Inc., the lenders party thereto and SunTrust Bank, as Administrative Agent dated February 3, 2014, is hereby incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 5, 2014 10.4 Amendment No. 1, dated as of May 19, 2016, to the Credit Agreement, dated as of February 3, 2014, among First Huntingdon Finance Corp., Toll Brothers, Inc., the Lenders party thereto and SunTrust Bank, as Administrative Agent, is hereby incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on May 24, 2016. 10.5 Amendment No. 2, dated August 2, 2016, to Credit Agreement dated as of February 3, 2014, as amended, by and among First Huntingdon Finance Corp., Toll Brothers, Inc., the designated guarantors party thereto, the lenders party thereto and SunTrust Bank, as Administrative Agent, is hereby incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on August 4, 2016. 61 Exhibit Number Description 10.6 Amendment No. 3, dated November 1, 2018, to Credit Agreement dated as of February 3, 2014, as amended, by and among First Huntingdon Finance Corp., Toll Brothers, Inc., the designated guarantors party thereto, the lenders party thereto and SunTrust Bank, as Administrative Agent, is hereby incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 2, 2018. 10.7 Amendment No. 4, dated as of October 31, 2019, to the Credit Agreement, dated as of February 3, 2014,as amended, by and First Huntingdon Finance Corp., Toll Brothers, Inc., the designated guarantors party thereto, the lenders party thereto and SunTrust Bank, as Administrative Agent, is hereby incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 1, 2019. 10.8 Term Loan Extension Agreements, effective as of October 31, 2020, with respect to the Term Loan Credit Agreement dated as of February 3, 2014 (as amended by Amendment No. 1, dated as of May 19, 2016, Amendment No. 2, dated as of August 2, 2016, Amendment No. 3, dated as of November 1, 2018, and Amendment No. 4, dated as of November 1, 2019) among the Registrant, the Borrower, the lenders party thereto and SunTrust Bank, as Administrative Agent is hereby incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 31, 2020. 10.9* Toll Brothers, Inc. Employee Stock Purchase Plan (2017) is hereby incorporated by reference to Annex A to the Registrant’s Definitive Proxy Statement on Schedule 14A for its 2017 Annual Meeting of Stockholders filed with the SEC on January 31, 2017. 10.10* Amendment No. 1, dated as of December 13, 2017, to the Toll Brothers, Inc. Employee Stock Purchase Plan (2017) is hereby incorporated by reference to Exhibit 10.7 of the Registrant’s Form 10-K for the year ended October 31, 2017. 10.11* Amendment No. 2, dated as of June 19, 2018, to the Toll Brothers, Inc. Employee Stock Purchase Plan (2017) is hereby incorporated by reference to Exhibit 10.8 of the Registrant’s Form 10-K for the year ended October 31, 2018. 10.12* Toll Brothers, Inc. Amended and Restated Stock Incentive Plan for Employees (2007) (amended and restated as of September 17, 2008, is hereby incorporated by reference to Exhibit 4.1 of the Registrant’s Amendment No. 1 to its Registration Statement on Form S-8 (No. 333-143367) filed with the Securities and Exchange Commission on October 29, 2008. 10.13* Form of Non-Qualified Stock Option Grant pursuant to the Toll Brothers, Inc. Stock Incentive Plan for Employees (2007) is hereby incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on December 19, 2007. 10.14* Form of Addendum to Non-Qualified Stock Option Grant pursuant to the Toll Brothers, Inc. Stock Incentive Plan for Employees (2007) is hereby incorporated by reference to Exhibit 10.3 of the Registrant’s Form 10-Q for the quarter ended July 31, 2007. 10.15* Form of Stock Award Grant pursuant to the Toll Brothers, Inc. Stock Incentive Plan for Employees (2007) is hereby incorporated by reference to Exhibit 10.4 of the Registrant’s Form 10-Q for the quarter ended July 31, 2007. 10.16* Toll Brothers, Inc. Stock Incentive Plan for Employees (2014) is hereby incorporated by reference to Annex A to the Registrant’s definitive proxy statement on Schedule 14A for its 2014 Annual Meeting of Stockholders filed with the SEC on February 3, 2014. 10.17* Form of Non-Qualified Stock Option Grant pursuant to the Toll Brothers, Inc. Stock Incentive Plan for Employees (2014) is incorporated by reference to Exhibit 10.16 of the Registrant’s Form 10-K for the period ended October 31, 2014. 10.18* Form of Restricted Stock Unit Agreement (Performance Based) pursuant to the Toll Brothers, Inc. Stock Incentive Plan for Employees (2014) is incorporated by reference to Exhibit 10.17 of the Registrant’s Form 10-K for the period ended October 31, 2014. 10.19* Form of Non-Qualified Stock Option Grant, is hereby incorporated by reference to Exhibit 10.18 of the Registrant’s Form 10-K for the year ended October 31, 2016. 62 Exhibit Number Description 10.20* Form of Restricted Stock Unit Agreement (Performance Based), is hereby incorporated by reference to Exhibit 10.19 of the Registrant’s Form 10-K for the year ended October 31, 2016. 10.21* Form of Restricted Stock Unit Agreement (Total Shareholder Return Performance Based), is hereby incorporated by reference to Exhibit 10.20 of the Registrant’s Form 10-K for the year ended October 31, 2016. 10.22* Toll Brothers, Inc. Amended and Restated Stock Incentive Plan for Non-Employee Directors (2007) (amended and restated as of September 17, 2008) is hereby incorporated by reference to Exhibit 4.1 of the Registrant’s Amendment No. 1 to its Registration Statement on Form S-8 (No. 333-144230) filed with the Securities and Exchange Commission on October 29, 2008. 10.23* Form of Non-Qualified Stock Option Grant pursuant to the Toll Brothers, Inc. Stock Incentive Plan for Non-Employee Directors (2007) is hereby incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 19, 2007. 10.24* Form of Addendum to Non-Qualified Stock Option Grant pursuant to the Toll Brothers, Inc. Amended and Restated Stock Incentive Plan for Non-Employee Directors (2007) is hereby incorporated by reference to Exhibit 10.6 of the Registrant’s Form 10-Q for the quarter ended July 31, 2007. 10.25* Form of Restricted Stock Unit Award Agreement pursuant to the Toll Brothers, Inc. Amended and Restated Stock Incentive Plan for Non-Employee Directors (2007) is incorporated by reference to Exhibit 10.21 of the Registrant’s Form 10-K for the period ended October 31, 2014. 10.26* Toll Brothers, Inc. Stock Incentive Plan for Non-Executive Directors (2016) is hereby incorporated by reference to Annex A to the Registrant’s definitive proxy statement on Schedule 14A for its 2016 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on February 2, 2016. 10.27* Form of Non-Qualified Stock Option Grant (Non-Executive Directors), is hereby incorporated by reference to Exhibit 10.26 of the Registrant’s Form 10-K for the year ended October 31, 2016. 10.28* Form of Restricted Stock Unit Agreement (Non-Executive Directors), is hereby incorporated by reference to Exhibit 10.27 of the Registrant’s Form 10-K for the year ended October 31, 2016. 10.29* Toll Brothers, Inc. 2019 Omnibus Incentive Plan, is hereby incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 14, 2019. 10.30* Form of Non-Qualified Stock Option Grant pursuant to the Toll Brothers, Inc. 2019 Omnibus Incentive Plan, is hereby incorporated by reference to Exhibit 10.28 of the Registrant’s Form 10-K for the year ended October 31, 2019. 10.31* Form of Restricted Stock Unit Agreement pursuant to the Toll Brothers, Inc. 2019 Omnibus Incentive Plan, is hereby incorporated by reference to Exhibit 10.29 of the Registrant’s Form 10-K for the year ended October 31, 2019. 10.32* Form of Restricted Stock Unit Agreement (Performance Based) pursuant to the Toll Brothers, Inc. 2019 Omnibus Incentive Plan, is hereby incorporated by reference to Exhibit 10.30 of the Registrant’s Form 10-K for the year ended October 31, 2019. 10.33* Form of Restricted Stock Unit Agreement (Total Shareholder Return Performance Based), pursuant to the Toll Brothers, Inc. 2019 Omnibus Incentive Plan, is hereby incorporated by reference to Exhibit 10.31 of the Registrant’s Form 10-K for the year ended October 31, 2019. 10.34* Toll Brothers, Inc. Senior Officer Bonus Plan is hereby incorporated by reference to Annex A to the Registrant’s definitive proxy statement on Schedule 14A for its 2015 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on January 30, 2015. 10.35* Toll Brothers, Inc. Supplemental Executive Retirement Plan, as amended effective as of October 29, 2019, is hereby incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 10-Q filed with the Securities and Exchange Commission on October 30, 2019. 10.36* Toll Bros., Inc. Non-Qualified Deferred Compensation Plan, amended and restated as of November 1, 2008, is incorporated by reference to Exhibit 10.45 of the Registrant’s Form 10-K for the period ended October 31, 2008. 63 Exhibit Number Description 10.37* Amendment Number 1 dated November 1, 2010 to the Toll Bros., Inc. Non-Qualified Deferred Compensation Plan, amended and restated as of November 1, 2008, is incorporated by reference to Exhibit 10.40 of the Registrant’s Form 10-K for the period ended October 31, 2010. 10.38* Amendment Number 2 dated December 30, 2010 to the Toll Bros., Inc. Non-Qualified Deferred Compensation Plan, amended and restated as of November 1, 2008 is incorporated by reference to Exhibit 10.28 of the Registrant’s Form 10-K for the period ended October 31, 2014. 10.39* Amendment Number 3 dated December 22, 2011 to the Toll Bros., Inc. Non-Qualified Deferred Compensation Plan, amended and restated as of November 1, 2008, is incorporated by reference to Exhibit 10.29 of the Registrant’s Form 10-K for the period ended October 31, 2014. 10.40* Toll Bros., Inc. Nonqualified Deferred Compensation Plan, amended and restated effective as of December 31, 2014, is incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q for the quarter ended January 31, 2015. 10.41* Toll Brothers, Inc. Executive Severance Plan, is hereby incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 14, 2019. 10.42* Form of Indemnification Agreement between the Registrant and the members of its Board of Directors, is hereby incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 17, 2009. 10.43* Advisory and Non-Competition Agreement between the Registrant and Robert I. Toll, dated as of October 17, 2018, is hereby incorporated by reference to Exhibit 10.34 to the Registrant’s Form 10-K for the year ended October 31, 2018. 10.44* Advisory and Non-Competition Agreement Extension between the Registrant and Robert I. Toll, dated as of October 29, 2019, is hereby incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2019. 10.45* Advisory and Non-Competition Agreement Extension between the Registrant and Robert I. Toll, dated as of October 16.2020** 21** Subsidiaries of the Registrant. 22** List of guarantor subsidiaries 23** Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm 31.1** Certification of Douglas C. Yearley, Jr. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2** Certification of Martin P. Connor pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** Certification of Douglas C. Yearley, Jr. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2** Certification of Martin P. Connor pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101 The following financial statements from Toll Brothers, Inc. Annual Report on Form 10-K for the year ended October 31, 2020, filed on December 22, 2020, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income, (iii) Consolidated Statements of Changes in Equity, (iv) Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements. 101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this report. ** Filed electronically herewith. 64 The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves; they should not be relied on for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time. ITEM 16. FORM 10-K SUMMARY None. 65 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on December 22, 2020. TOLL BROTHERS, INC. By: /s/ Douglas C. Yearley, Jr. Douglas C. Yearley, Jr. Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Douglas C. Yearley, Jr. Chairman of the Board and Chief Executive December 22, 2020 Douglas C. Yearley, Jr. Officer (Principal Executive Officer) /s/ Martin P. Connor Senior Vice President and Chief Financial Officer December 22, 2020 Martin P. Connor (Principal Financial Officer) /s/ Michael J. Grubb Senior Vice President and Chief Accounting December 22, 2020 Michael J. Grubb Officer (Principal Accounting Officer) /s/ Edward G. Boehne Director December 22, 2020 Edward G. Boehne /s/ Richard J. Braemer Director December 22, 2020 Richard J. Braemer /s/ Stephen F. East Director December 22, 2020 Stephen F. East /s/ Christine N. Garvey Director December 22, 2020 Christine N. Garvey /s/ Karen H. Grimes Director December 22, 2020 Karen H. Grimes /s/ Carl B. Marbach Director December 22, 2020 Carl B. Marbach /s/ John A. McLean Director December 22, 2020 John A. McLean /s/ Stephen A. Novick Director December 22, 2020 Stephen A. Novick 66 Signature Title Date /s/ Wendell E. Pritchett Director December 22, 2020 Wendell E. Pritchett /s/ Paul E. Shapiro Director December 22, 2020 Paul E. Shapiro /s/ Robert I. Toll Director December 22, 2020 Robert I. Toll 67 Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on this evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of October 31, 2020. During fiscal 2020, we completed the acquisitions of each of The Thrive Group, LLC (“Thrive”) and Keller Homes, Inc. (“Keller”). In accordance with SEC Staff guidance permitting a company to exclude an acquired business from management’s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition is completed, we have excluded each of Thrive and Keller from the Company’s assessment of the effectiveness of internal control over financial reporting as of October 31, 2020. These companies represented approximately 1% of the Company’s total assets as of October 31, 2020 and less than 1% of the Company’s revenues for the fiscal year ended October 31, 2020. Our independent registered public accounting firm, Ernst & Young LLP, has issued its report, which is included herein, on the effectiveness of our internal control over financial reporting. F-1 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Toll Brothers, Inc. Opinion on Internal Control over Financial Reporting We have audited Toll Brothers, Inc.’s internal control over financial reporting as of October 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Toll Brothers, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of October 31, 2020, based on the COSO criteria. As indicated in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of The Thrive Group, LLC and Keller Homes, Inc., which are included in the 2020 consolidated financial statements of the Company and constitute approximately 1% of total assets as of October 31, 2020 and less than 1% of revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of The Thrive Group, LLC and Keller Homes, Inc. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2020 consolidated financial statements of the Company and our report dated December 22, 2020 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Philadelphia, Pennsylvania December 22, 2020 F-2 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Toll Brothers, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Toll Brothers, Inc. (the Company) as of October 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income, changes in equity and cash flows for each of the three years in the period ended October 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at October 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of October 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated December 22, 2020 expressed an unqualified opinion thereon. Adoption of ASU No. 2014-09 As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for revenue recognition, inventory and cost of revenues in 2019 due to the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) , and related Subtopic ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers. Adoption of ASU No. 2016-02 As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in 2020 due to the adoption of ASU No. 2016-02, Leases. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. F-3 Water Intrusion Reserves Description of the Matter As described in Note 7 of the consolidated financial statements, the Company accrues for the estimated repair costs to be incurred for known and unknown water intrusion claims from owners of certain homes built in Pennsylvania and Delaware. At October 31, 2020, the Company had an accrued liability for water intrusion claims of $79.5 million, representing its best estimate of the expected costs related to known and future water intrusion claims. The Company calculated the estimated liability for water intrusion claims using assumptions that are subject to significant uncertainty, including the number of homes that require repairs, outcomes of litigation or arbitrations, the extent of repairs required, the repair procedures employed, and the expected costs of those repairs or costs incurred to otherwise settle the homeowner’s claim. Due to the degree of judgment required in making these assumptions and the inherent uncertainty of certain outcomes, it is reasonably possible that the actual costs will differ from the amount accrued. If it is reasonably possible that such additional costs may be incurred and the effect on the financial statements is material, the Company discloses an estimate of the amount or range of additional costs or a statement that such an estimate cannot be made within the notes to the financial statements. Auditing the Company’s accounting for water intrusion claims, and the related disclosures, was especially challenging as evaluating the likelihood and amount of cost was highly subjective and required significant judgment. In particular, management’s estimates were sensitive to assumptions about the number of claims and the costs to settle the claims, which are projected to be resolved over an extended period of time, and the amount accrued by the Company was sensitive to relatively small changes in those assumptions. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s review of the accrual calculation, including controls over the significant assumptions and the data inputs utilized in the calculations, as well as the financial statement disclosures. For example, we tested controls over management’s review of the accrual calculation, including its review of the significant assumptions and the data inputs utilized in the calculations. We also tested controls over management’s review of the disclosure in the notes to the consolidated financial statements for compliance with generally accepted accounting principles. To test the estimated liability and related financial statement disclosures for water intrusion claims, we performed audit procedures that included, among others, testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We compared the significant assumptions used by management to historical water intrusion claims data, historical data about additional homes delivered by the Company that could potentially be subject to water intrusion claims, and historical costs incurred to either repair homes or otherwise settle water intrusion claims from homeowners. We also reviewed contractual agreements and evaluated management’s conclusions about the Company’s legal and contractual obligations with respect to water intrusion claims. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the accrual for water intrusion claims that would result from changes in the assumptions. We recalculated the Company’s liability for water intrusion claims using management’s data and evaluated the disclosure of the liability in the Company’s consolidated financial statements. F-4 Insurance Receivable Description of the Matter As described in Note 7 of the consolidated financial statements, the Company recorded a receivable for expected recoveries from insurance carriers. At October 31, 2020, the Company recorded an estimated insurance receivable of $68.4 million, inclusive of amounts that are subject to dispute with the Company’s insurance carriers. Auditing management’s accounting for the existence of insurance receivable was especially challenging due to the complexity and variability of the underlying claims. Evaluating the likelihood and amount of recoveries from insurance carriers was highly subjective and required significant judgment. In particular, as stated in Note 7 of the consolidated financial statements, management’s estimates were sensitive to assumptions about the amount of losses that the Company will incur on warranty related repairs by policy year and management’s conclusions about the legal merits that support the pending and future insurance claims. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s review of the expected recoveries from insurance carriers and the recorded receivable, including controls over the significant assumptions and the data inputs used to calculate the expected recoverable amount, as well as the financial statement disclosures. For example, we tested controls over management’s review of the insurance policies and related coverage, the legal merits of the claims made and the expected amounts to be covered under those insurance policies. To test the expected recoveries from insurance carriers, we performed audit procedures that included, among others, reading and understanding the Company’s insurance policies, testing the claims submitted under the Company’s insurance policies to verify the completeness, occurrence and measurement of the loss, and, when applicable, vouching cash receipts from the insurance carrier for previously submitted claims. We also tested the Company’s calculation of the losses the Company expects to incur on warranty related repairs by policy year. We reviewed communications between the Company and its insurance carriers and evaluated management’s conclusions about the legal merits of the insurance claims with respect to the recorded receivable by performing procedures that included, among others, reviewing correspondence from external counsel regarding the legal merits of the Company’s insurance claims. Inventory Impairment Description of the Matter As described in Note 1 of the consolidated financial statements, the Company states its inventory at cost unless an impairment exists, in which case the inventory is written down to fair value. For the year ended October 31, 2020, the Company recorded inventory impairment charges of $32.3 million. The Company regularly evaluates whether there are any impairment indicators for inventory present at the community level. If impairment indicators are present, the Company reviews the carrying value of each community’s inventory by comparing the estimated future undiscounted cash flow to the carrying value. For inventory for which the carrying value exceeds the future undiscounted cash flows, the Company writes down the carrying value of the inventory to its estimated fair value primarily based on a discounted cash flow model. Auditing management’s accounting for inventory impairment, its tests for recoverability and, when applicable, its measurement of impairment losses, was especially challenging and involved a high degree of subjectivity as a result of the assumptions and estimates inherent in these evaluations. In particular, management’s assumptions and estimates included future home and/or land sales prices, the pace of future sales, and the applicable discount rates, which were sensitive to expectations about future demand, operations and economic factors. Additionally, the fair value of certain communities was highly sensitive to relatively small changes in one or more of those assumptions. F-5 How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s inventory impairment review process. For example, we tested controls over management’s review of the significant assumptions and data inputs utilized in the calculation of future undiscounted and discounted cash flows. To test the Company’s estimated future cash flows used to test for the recoverability of a community and, if applicable, the measurement of an impairment loss, we performed audit procedures that included, among others, testing the significant assumptions discussed above and the underlying data used by the Company in its impairment analyses, evaluating the methodologies applied by management, and recalculating the total undiscounted and discounted cash flows, if applicable, for each analysis. In certain cases, we involved our internal real estate valuation specialists to assist in performing these procedures. We compared the significant assumptions used by management to historical sales data, sales trends, and observable market-specific data. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of inventory that would result from changes in the assumptions. /s/ Ernst & Young LLP We have served as the Company’s auditor since 1983. Philadelphia, Pennsylvania December 22, 2020 F-6 CONSOLIDATED BALANCE SHEETS (Amounts in thousands) October 31, 2020 2019 ASSETS Cash and cash equivalents $ 1,370,944 $ 1,286,014 Inventory 7,658,906 7,873,048 Property, construction, and office equipment, net 316,125 273,412 Receivables, prepaid expenses, and other assets (1) 956,294 715,441 Mortgage loans held for sale, at fair value 231,797 218,777 Customer deposits held in escrow 77,291 74,403 Investments in unconsolidated entities 430,701 366,252 Income taxes receivable 23,675 20,791 $ 11,065,733 $ 10,828,138 LIABILITIES AND EQUITY Liabilities Loans payable $ 1,147,955 $ 1,111,449 Senior notes 2,661,718 2,659,898 Mortgage company loan facility 148,611 150,000 Customer deposits 459,406 385,596 Accounts payable 411,397 348,599 Accrued expenses 1,110,196 950,932 Income taxes payable 198,974 102,971 Total liabilities 6,138,257 5,709,445 Equity Stockholders’ equity Preferred stock, none issued — — Common stock, 152,937 shares issued at October 31, 2020 and 2019 1,529 1,529 Additional paid-in capital 717,272 726,879 Retained earnings 5,164,086 4,774,422 Treasury stock, at cost — 26,410 and 11,999 shares at October 31, 2020 and 2019, respectively ( 1,000,454 ) ( 425,183 ) Accumulated other comprehensive loss ( 7,198 ) ( 5,831 ) Total stockholders’ equity 4,875,235 5,071,816 Noncontrolling interest 52,241 46,877 Total equity 4,927,476 5,118,693 $ 11,065,733 $ 10,828,138 (1) As of October 31, 2020 and 2019, receivables, prepaid expenses, and other assets include $ 163.0 million and $ 145.8 million, respectively, of assets related to consolidated variable interest entities ("VIEs"). See Note 4, “Investments in Unconsolidated Entities” for additional information regarding VIEs. See accompanying notes. F-7 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Amounts in thousands, except per share data) Year ended October 31, 2020 2019 2018 Revenues: Home sales $ 6,937,357 $ 7,080,379 $ 7,143,258 Land sales and other 140,302 143,587 — 7,077,659 7,223,966 7,143,258 Cost of revenues: Home sales 5,534,103 5,534,217 5,536,812 Land sales and other 125,854 129,704 — 5,659,957 5,663,921 5,536,812 Selling, general and administrative 867,442 879,245 820,230 Income from operations 550,260 680,800 786,216 Other: Income from unconsolidated entities 948 24,868 85,240 Other income – net 35,693 81,502 62,460 Income before income taxes 586,901 787,170 933,916 Income tax provision 140,277 197,163 185,765 Net income $ 446,624 $ 590,007 $ 748,151 Other comprehensive (loss) income, net of tax ( 1,367 ) ( 6,525 ) 2,926 Total comprehensive income $ 445,257 $ 583,482 $ 751,077 Per share: Basic earnings $ 3.43 $ 4.07 $ 4.92 Diluted earnings $ 3.40 $ 4.03 $ 4.85 Weighted-average number of shares: Basic 130,095 145,008 151,984 Diluted 131,247 146,501 154,201 See accompanying notes. F-8 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Amounts in thousands) Common Stock Addi- tional Paid-in Capital Retained Earnings Treasury Stock Accum- ulated Other Compre- hensive Loss Stock-holders’ Equity Non-controlling Interest Total Equity Shares $ $ $ $ $ $ $ $ Balance, 11/1/2017 177,937 1,779 720,115 4,474,064 ( 662,854 ) ( 1,910 ) 4,531,194 5,896 4,537,090 Cumulative effect adjustment upon adoption of ASU 2016-09 and ASU 2018-02 372 1,413 ( 322 ) 1,463 1,463 Net income 748,151 748,151 748,151 Purchase of treasury stock ( 503,159 ) ( 503,159 ) ( 503,159 ) Exercise of stock options and stock based compensation issuances ( 21,789 ) 33,969 12,180 12,180 Employee stock purchase plan issuances 43 1,166 1,209 1,209 Stock-based compensation 28,312 28,312 28,312 Dividends declared ( 62,077 ) ( 62,077 ) ( 62,077 ) Other comprehensive income 2,926 2,926 2,926 Loss attributable to non-controlling interest — ( 15 ) ( 15 ) Capital contribution — 2,832 2,832 Balance, 10/31/2018 177,937 1,779 727,053 5,161,551 ( 1,130,878 ) 694 4,760,199 8,713 4,768,912 Cumulative effect adjustment upon adoption of ASC 606, net of tax ( 17,987 ) ( 17,987 ) ( 17,987 ) Net income 590,007 590,007 590,007 Purchase of treasury stock ( 233,523 ) ( 233,523 ) ( 233,523 ) Exercise of stock options and stock based compensation issuances ( 26,368 ) 42,392 16,024 16,024 Employee stock purchase plan issuances 14 1,309 1,323 1,323 Stock-based compensation 26,180 26,180 26,180 Cancellation of treasury stock ( 25,000 ) ( 250 ) ( 895,267 ) 895,517 — — Dividends declared ( 63,882 ) ( 63,882 ) ( 63,882 ) Other comprehensive loss ( 6,525 ) ( 6,525 ) ( 6,525 ) Loss attributable to non-controlling interest — ( 19 ) ( 19 ) Capital contributions — 38,183 38,183 Balance, 10/31/2019 152,937 1,529 726,879 4,774,422 ( 425,183 ) ( 5,831 ) 5,071,816 46,877 5,118,693 Net income 446,624 446,624 446,624 Purchase of treasury stock ( 634,057 ) ( 634,057 ) ( 634,057 ) Exercise of stock options and stock based compensation issuances ( 33,263 ) 56,702 23,439 23,439 Employee stock purchase plan issuances ( 670 ) 2,084 1,414 1,414 Stock-based compensation 24,326 24,326 24,326 Dividends declared ( 56,960 ) ( 56,960 ) ( 56,960 ) Other comprehensive loss ( 1,367 ) ( 1,367 ) ( 1,367 ) Loss attributable to non-controlling interest — ( 10 ) ( 10 ) Capital contributions — 5,374 5,374 Balance, 10/31/2020 152,937 1,529 717,272 5,164,086 ( 1,000,454 ) ( 7,198 ) 4,875,235 52,241 4,927,476 See accompanying notes. F-9 CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Year ended October 31, 2020 2019 2018 Cash flow provided by operating activities: Net income $ 446,624 $ 590,007 $ 748,151 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 68,873 72,149 25,259 Stock-based compensation 24,326 26,180 28,312 Income from unconsolidated entities ( 948 ) ( 24,868 ) ( 85,240 ) Distributions of earnings from unconsolidated entities 27,236 31,799 86,099 Income from foreclosed real estate and distressed loans ( 623 ) ( 947 ) ( 1,551 ) Deferred tax provision (benefit) 97,780 102,764 ( 21,930 ) Inventory impairments and write-offs 55,883 42,360 35,156 Gain on the sale of golf club properties and an office building ( 12,970 ) ( 36,277 ) — Other ( 3,151 ) ( 1,042 ) 3,111 Changes in operating assets and liabilities Decrease (increase) in inventory 352,858 ( 40,236 ) ( 143,598 ) Origination of mortgage loans ( 1,815,824 ) ( 1,611,496 ) ( 1,449,494 ) Sale of mortgage loans 1,806,278 1,565,944 1,410,627 Increase in receivables, prepaid expenses, and other assets ( 176,293 ) ( 185,261 ) ( 99,604 ) Increase in income taxes receivable ( 2,884 ) ( 20,791 ) — Increase (decrease) in customer deposits – net 70,423 14,041 ( 718 ) Increase (decrease) in accounts payable and accrued expenses 71,835 ( 64,518 ) 57,927 Decrease in income taxes payable ( 1,306 ) ( 22,147 ) ( 4,296 ) Net cash provided by operating activities 1,008,117 437,661 588,211 Cash flow (used in) provided by investing activities: Purchase of property, construction, and office equipment – net ( 109,564 ) ( 86,971 ) ( 28,232 ) Investments in unconsolidated entities ( 71,650 ) ( 56,560 ) ( 27,491 ) Return of investments in unconsolidated entities 47,403 147,927 133,190 Investment in foreclosed real estate and distressed loans ( 1,110 ) ( 731 ) ( 966 ) Return of investments in foreclosed real estate and distressed loans 1,808 3,147 4,765 Proceeds from the sale of golf club properties and an office building 15,617 79,647 — Business acquisitions ( 60,349 ) ( 162,373 ) — Net cash (used in) provided by investing activities ( 177,845 ) ( 75,914 ) 81,266 Cash flow used in financing activities: Proceeds from issuance of senior notes — 400,000 400,000 Proceeds from loans payable 4,027,152 2,699,028 2,630,835 Debt issuance costs — ( 6,180 ) ( 3,531 ) Principal payments of loans payable ( 4,112,956 ) ( 2,471,616 ) ( 2,690,164 ) Redemption of senior notes — ( 600,000 ) — Proceeds from stock-based benefit plans, net 24,856 17,369 13,392 Purchase of treasury stock ( 634,057 ) ( 233,523 ) ( 503,159 ) Dividends paid ( 56,588 ) ( 63,641 ) ( 61,704 ) (Payments) receipts related to noncontrolling interest, net ( 1,718 ) 49 30 Net cash used in financing activities ( 753,311 ) ( 258,514 ) ( 214,301 ) Net increase in cash, cash equivalents, and restricted cash 76,961 103,233 455,176 Cash, cash equivalents, and restricted cash, beginning of period 1,319,643 1,216,410 761,234 Cash, cash equivalents, and restricted cash, end of period $ 1,396,604 $ 1,319,643 $ 1,216,410 See accompanying notes. F-10 Notes to Consolidated Financial Statements 1. Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of Toll Brothers, Inc. (the “Company,” “we,” “us,” or “our”), a Delaware corporation, and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Investments in 50% or less owned partnerships and affiliates are accounted for using the equity method unless it is determined that we have effective control of the entity, in which case we would consolidate the entity. References herein to fiscal year refer to our fiscal years ended or ending October 31. Use of Estimates The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires us to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. In times of economic disruption when uncertainty regarding future economic conditions is heightened, these estimates and assumptions are subject to greater variability. The Company is currently subject to risks and uncertainties resulting from the COVID-19 pandemic, which adversely impacted our results of operations in the second quarter of fiscal 2020, and is likely to continue to impact our results of operations as well as our business operations. As a result, actual results could differ from the estimates and assumptions we make that affect the amounts reported in the Consolidated Financial Statements and accompanying notes, and such differences may be material. Reclassifications 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. Cash and Cash Equivalents Liquid investments or investments with original maturities of three months or less are classified as cash equivalents. Our cash balances exceed federally insurable limits. We monitor the cash balances in our operating accounts and adjust the cash balances as appropriate; however, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, we have experienced no loss or lack of access to cash in our operating accounts. Inventory Inventory is stated at cost unless an impairment exists, in which case it is written down to fair value in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment” (“ASC 360”). In addition to direct land acquisition costs, land development costs, and home construction costs, costs also include interest, real estate taxes, and direct overhead related to development and construction, which are capitalized to inventory during the period beginning with the commencement of development and ending with the completion of construction. For those communities that have been temporarily closed, no additional capitalized interest is allocated to a community’s inventory until it reopens. While the community remains closed, carrying costs such as real estate taxes are expensed as incurred. We capitalize certain interest costs to qualified inventory during the development and construction period of our communities in accordance with ASC 835-20, “Capitalization of Interest” (“ASC 835-20”). Capitalized interest is charged to home sales cost of sales revenues when the related inventory is delivered. Interest incurred on home building indebtedness in excess of qualified inventory, as defined in ASC 835-20, is charged to the Consolidated Statements of Operations and Comprehensive Income in the period incurred. Once a parcel of land has been approved for development and we open one of our typical communities, it may take four or more years to fully develop, sell, and deliver all the homes in such community. Longer or shorter time periods are possible F-11 depending on the number of home sites in a community and the sales and delivery pace of the homes in a community. Our master planned communities, consisting of several smaller communities, may take up to 10 years or more to complete. Because our inventory is considered a long-lived asset under GAAP, we are required, under ASC 360, to regularly review the carrying value of each community and write down the value of those communities for which we believe the values are not recoverable. Operating Communities : When the profitability of an operating community deteriorates, the sales pace declines significantly, or some other factor indicates a possible impairment in the recoverability of the asset, the asset is reviewed for impairment by comparing the estimated future undiscounted cash flow for the community to its carrying value. If the estimated future undiscounted cash flow is less than the community’s carrying value, the carrying value is written down to its estimated fair value. Estimated fair value is primarily determined by discounting the estimated future cash flow of each community. The impairment is charged to home sales cost of revenues in the period in which the impairment is determined. In estimating the future undiscounted cash flow of a community, we use various estimates such as (i) the expected sales pace in a community, based upon general economic conditions that will have a short-term or long-term impact on the market in which the community is located and on competition within the market, including the number of home sites available and pricing and incentives being offered in other communities owned by us or by other builders; (ii) the expected sales prices and sales incentives to be offered in a community; (iii) costs expended to date and expected to be incurred in the future, including, but not limited to, land and land development, home construction, interest, and overhead costs; (iv) alternative product offerings that may be offered in a community that will have an impact on sales pace, sales price, building cost, or the number of homes that can be built on a particular site; and (v) alternative uses for the property such as the possibility of a sale of the entire community to another builder or the sale of individual home sites. Future Communities : We evaluate all land held for future communities or future sections of operating communities, whether owned or under contract, to determine whether or not we expect to proceed with the development of the land as originally contemplated. This evaluation encompasses the same types of estimates used for operating communities described above, as well as an evaluation of the regulatory environment applicable to the land and the estimated probability of obtaining the necessary approvals, the estimated time and cost it will take to obtain the approvals, and the possible concessions that may be required to be given in order to obtain them. Concessions may include cash payments to fund improvements to public places such as parks and streets, dedication of a portion of the property for use by the public or as open space, or a reduction in the density or size of the homes to be built. Based upon this review, we decide (i) as to land under contract to be purchased, whether the contract will likely be terminated or renegotiated, and (ii) as to land owned, whether the land will likely be developed as contemplated or in an alternative manner, or should be sold. We then further determine whether costs that have been capitalized to the community are recoverable or should be written off. The write-off is charged to home sales cost of revenues in the period in which the need for the write-off is determined. The estimates used in the determination of the estimated cash flows and fair value of both current and future communities are based on factors known to us at the time such estimates are made and our expectations of future operations and economic conditions. Should the estimates or expectations used in determining estimated fair value deteriorate in the future, we may be required to recognize additional impairment charges and write-offs related to current and future communities and such amounts could be material. Variable Interest Entities We are required to consolidate variable interest entities (“VIEs”) in which we have a controlling financial interest in accordance with ASC 810, “Consolidation” (“ASC 810”). A controlling financial interest will have both of the following characteristics: (i) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Our variable interest in VIEs may be in the form of equity ownership, contracts to purchase assets, management services and development agreements between us and a VIE, loans provided by us to a VIE or other member, and/or guarantees provided by members to banks and other parties. We have a significant number of land purchase contracts and financial interests in other entities which we evaluate in accordance with ASC 810. We analyze our land purchase contracts and the entities in which we have an investment to determine whether the land sellers and entities are VIEs and, if so, whether we are the primary beneficiary. We examine specific criteria and use our judgment when determining if we are the primary beneficiary of a VIE. Factors considered in determining whether we are the primary beneficiary include risk and reward sharing, experience and financial condition of other member(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE’s executive committee, existence of unilateral kick-out rights or voting rights, level of economic disproportionality between us and the other member(s), and contracts to purchase assets from VIEs. The determination whether an entity is a VIE and, if so, whether we are the primary beneficiary may require significant judgment. F-12 Property, Construction, and Office Equipment Property, construction, and office equipment are recorded at cost and are stated net of accumulated depreciation of $ 266.7 million and $ 252.5 million at October 31, 2020 and 2019, respectively. For property and equipment related to onsite sales offices, depreciation is recorded using the units of production method as homes are delivered. For all other property and equipment, depreciation is recorded using a straight-line method over the estimated useful lives of the related assets. In fiscal 2020, 2019, and 2018, we recognized $ 67.6 million, $ 67.6 million, and $ 21.0 million of depreciation expense, respectively. Subsequent events In November 2020, we closed on the sale of a parking garage at one of our City Living properties in Hoboken, New Jersey for $ 34.7 million and we expect to recognize a gain of approximately $ 24.0 million during our first quarter of fiscal 2021 as a result of this sale. Mortgage Loans Held for Sale Residential mortgage loans held for sale are measured at fair value in accordance with the provisions of ASC 825, “Financial Instruments” (“ASC 825”). We believe the use of ASC 825 improves consistency of mortgage loan valuations between the date the borrower locks in the interest rate on the pending mortgage loan and the date of the mortgage loan sale. At the end of the reporting period, we determine the fair value of our mortgage loans held for sale and the forward loan commitments we have entered into as a hedge against the interest rate risk of our mortgage loans using the market approach to determine fair value. The evaluation is based on the current market pricing of mortgage loans with similar terms and values as of the reporting date, and such pricing is applied to the mortgage loan portfolio. We recognize the difference between the fair value and the unpaid principal balance of mortgage loans held for sale as a gain or loss. In addition, we recognize the change in fair value of our forward loan commitments as a gain or loss. Interest income on mortgage loans held for sale is calculated based upon the stated interest rate of each loan. In addition, the recognition of net origination costs and fees associated with residential mortgage loans originated are expensed as incurred. These gains and losses, interest income, and origination costs and fees are recognized in “Other income - net” in the Consolidated Statements of Operations and Comprehensive Income. Investments in Unconsolidated Entities In accordance with ASC 323, “Investments—Equity Method and Joint Ventures,” we review each of our investments on a quarterly basis for indicators of impairment. A series of operating losses of an investee, the inability to recover our invested capital, or other factors may indicate that a loss in value of our investment in the unconsolidated entity has occurred. If a loss exists, we further review the investment 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 from the unconsolidated entity. In addition, for in vestments in rental properties, we review rental trends, expected future expenses, and expected cash flows to determine estimated fair values of the properties. Our unconsolidated entities that develop land or develop for-sale homes and condominiums evaluate their inventory in a similar manner as we do. See “Inventory” above for more detailed disclosure on our evaluation of inventory. 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 underlying properties. 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. We are a party to several joint ventures with unrelated parties to develop and sell land that is owned by the joint ventures. We recognize our proportionate share of the earnings from the sale of home sites to other builders, including our joint venture partners. We do not recognize earnings from the home sites we purchase from these ventures at the time of purchase; instead, our cost basis in those home sites is reduced by our share of the earnings realized by the joint venture from sales of those home sites to us. We are also a party to several other joint ventures. We recognize our proportionate share of the earnings and losses of our unconsolidated entities. F-13 Fair Value Disclosures We use ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), to measure the fair value of certain assets and liabilities. ASC 820 provides a framework for measuring fair value in accordance with GAAP, establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, and requires certain disclosures about fair value measurements. The fair value hierarchy is summarized below: Level 1: Fair value determined based on quoted prices in active markets for identical assets or liabilities. Level 2: Fair value determined using significant observable inputs, generally either quoted prices in active markets for similar assets or liabilities or quoted prices in markets that are not active. Level 3: Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or similar techniques. Treasury Stock Treasury stock is recorded at cost. Issuance of treasury stock is accounted for on a first-in, first-out basis. Differences between the cost of treasury stock and the re-issuance proceeds are charged to additional paid-in capital. When treasury stock is canceled, any excess purchase price over par value is charged directly to retained earnings. Revenue and Cost Recognition As discussed under “Recent Accounting Pronouncements” below, on November 1, 2018, we adopted Accounting Standards Codification (“ASC”) Topic 606 “Revenue from Contracts with Customers” (“ASC 606”). As a result of this adoption, we updated our revenue recognition policies effective November 1, 2018, as follows: Home sales revenues: Revenues and cost of revenues from home sales are recognized at the time each home is delivered and title and possession are transferred to the buyer. For the majority of our home closings, our performance obligation to deliver a home is satisfied in less than one year from the date a binding sale agreement is signed. In certain states where we build, we are not able to complete certain outdoor features prior to the closing of the home. Effective November 1, 2018, to the extent these separate performance obligations are not complete upon the home closing, we defer a portion of the home sales revenues related to these obligations and subsequently recognize the revenue upon completion of such obligations. As of October 31, 2020, the home sales revenues and related costs we deferred related to these obligations were immaterial. Our contract liabilities, consisting of deposits received from customers for sold but undelivered homes, totaled $ 459.4 million and $ 385.6 million at October 31, 2020 and October 31, 2019, respectively. Of the outstanding customer deposits held as of October 31, 2019, we recognized $ 332.8 million in home sales revenues during the fiscal year ended October 31, 2020. Of the outstanding customer deposits held as of October 31, 2018, we recognized $ 367.8 million in home sales revenues during the fiscal year ended October 31, 2019. For our standard attached and detached homes, land, land development, and related costs, both incurred and estimated to be incurred in the future, are amortized to the cost of homes closed based upon the total number of homes to be constructed in each community. Any changes resulting from a change in the estimated number of homes to be constructed or in the estimated land, land development, and related costs subsequent to the commencement of delivery of homes are allocated to the remaining undelivered homes in the community. Home construction and related costs are charged to the cost of homes closed under the specific identification method. The estimated land, common area development, and related costs of master planned communities, including the cost of golf courses, net of their estimated residual value, are allocated to individual communities within a master planned community on a relative sales value basis. Any changes resulting from a change in the estimated number of homes to be constructed or in the estimated costs are allocated to the remaining home sites in each of the communities of the master planned community. For high-rise/mid-rise projects, land, land development, construction, and related costs, both incurred and estimated to be incurred in the future, are generally amortized to the cost of units closed based upon an estimated relative sales value of the units closed to the total estimated sales value. Any changes resulting from a change in the estimated total costs or revenues of the project are allocated to the remaining units to be delivered. Land sales and other revenues: Our revenues from land sales and other generally consist of: (1) lot sales to third-party builders within our master planned communities; (2) land sales to joint ventures in which we retain an interest; and (3) bulk land sales to third parties of land we have decided no longer meets our development criteria. In general, our performance obligation for each of these land sales is fulfilled upon the delivery of the land, which generally coincides with the receipt of cash consideration from the counterparty. Effective November 1, 2018, in land sale transactions that contain repurchase options, revenues and related costs are not recognized until the repurchase option expires. In addition, when we sell land to a joint venture in which we retain an interest, we do not recognize revenue or gains on the sale to the extent of our retained interest in such joint venture. F-14 Forfeited Customer Deposits: Effective November 1, 2018, forfeited customer deposits are recognized in “Home sales revenues” in our Consolidated Statements of Operations and Comprehensive Income in the period in which we determine that the customer will not complete the purchase of the home and we have the right to retain the deposit. Sales Incentives: In order to promote sales of our homes, we may offer our home buyers sales incentives. These incentives will vary by type of incentive and by amount on a community-by-community and home-by-home basis. Incentives are reflected as a reduction in home sales revenues. Incentives are recognized at the time the home is delivered to the home buyer and we receive the sales proceeds. Advertising Costs We expense advertising costs as incurred. Advertising costs were $ 37.1 million, $ 38.5 million, and $ 28.5 million for the years ended October 31, 2020, 2019, and 2018, respectively. Warranty and Self-Insurance Warranty: We provide all of our home buyers with a limited warranty as to workmanship and mechanical equipment. We also provide many of our home buyers with a limited 10 -year warranty as to structural integrity. We accrue for expected warranty costs at the time each home is closed and title and possession are transferred to the home buyer. Warranty costs are accrued based upon historical experience. Adjustments to our warranty liabilities related to homes delivered in prior periods are recorded in the period in which a change in our estimate occurs. Over the past several years, we have had a significant number of warranty claims related primarily to homes built in Pennsylvania and Delaware. See Note 7 – “Accrued Expenses” for additional information regarding these warranty charges. Self-Insurance: We maintain, and require the majority of our subcontractors to maintain, general liability insurance (including construction defect and bodily injury coverage) and workers’ compensation insurance. 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. 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-insured liability. We record expenses and liabilities based on the estimated costs required to cover our self-insured liability and the estimated costs of potential claims and claim adjustment expenses that are above our coverage limits or that are not covered by our insurance policies. These estimated costs are based on an analysis of our historical claims and industry data, and include an estimate of claims incurred but not yet reported (“IBNR”). We engage a third-party actuary that uses our historical claim and expense data, input from our internal legal and risk management groups, as well as industry data, to estimate our liabilities related to unpaid claims, IBNR associated with the risks that we are assuming for our self-insured liability, and other required costs to administer current and expected claims. These estimates are subject to uncertainty due to a variety of factors, the most significant being the long period of time between the delivery of a home to a home buyer and when a structural warranty or construction defect claim may be made, and the ultimate resolution of the claim. Though state regulations vary, construction defect claims may be reported and resolved over a prolonged period of time, which can extend for 10 years or longer. As a result, the majority of the estimated liability relates to IBNR. Adjustments to our liabilities related to homes delivered in prior years are recorded in the period in which a change in our estimate occurs. 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, 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. Due to the degree of judgment required, and the potential for variability in these underlying assumptions, our actual future costs could differ from those estimated, and the difference could be material to our consolidated financial statements. Stock-Based Compensation We account for our stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation” (“ASC 718”). We use a lattice model for the valuation of our stock option grants. The option pricing models used are designed to estimate the value of options that, unlike employee stock options and restricted stock units, can be traded at any time and are F-15 transferable. In addition to restrictions on trading, employee stock options and restricted stock units may include other restrictions such as vesting periods. Further, such models require the input of highly subjective assumptions, including the expected volatility of the stock price. Stock-based compensation expense is generally included in “Selling, general and administrative” expense in our Consolidated Statements of Operations and Comprehensive Income. Legal Expenses Transactional legal expenses for land acquisition and entitlement, and financing are capitalized and expensed over their appropriate life. We expense legal fees related to litigation, warranty and insurance claims when incurred. Income Taxes We account for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities are recorded based on temporary differences between the amounts reported for financial reporting purposes and the amounts reported for income tax purposes. In accordance with the provisions of ASC 740, we assess the realizability of our deferred tax assets. A valuation allowance must be established when, based upon available evidence, it is more likely than not that all or a portion of the deferred tax assets will not be realized. See “Income Taxes – Valuation Allowance” below. Federal and state income taxes are calculated on reported pre-tax earnings based on current tax law and also include, in the applicable period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provisions differ from the amounts currently receivable or payable because certain items of income and expense are recognized for financial reporting purposes in different periods than for income tax purposes. Significant judgment is required in determining income tax provisions and evaluating tax positions. We establish reserves for income taxes when, despite the belief that our tax positions are fully supportable, we believe that our positions may be challenged and disallowed by various tax authorities. The consolidated tax provisions and related accruals include the impact of such reasonably estimable disallowances as deemed appropriate. To the extent that the probable tax outcome of these matters changes, such changes in estimates will impact the income tax provision in the period in which such determination is made. ASC 740 clarifies the accounting for uncertainty in income taxes recognized and prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. ASC 740 requires a company to recognize the financial statement effect of a tax position when it is “more-likely-than-not” (defined as a substantiated likelihood of more than 50 %), based on the technical merits of the position, that the position will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to be recognized in the financial statements based upon the largest amount of benefit that is greater than 50 % likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Our inability to determine that a tax position meets the more-likely-than-not recognition threshold does not mean that the Internal Revenue Service (“IRS”) or any other taxing authority will disagree with the position that we have taken. If a tax position does not meet the more-likely-than-not recognition threshold, despite our belief that our filing position is supportable, the benefit of that tax position is not recognized in the Consolidated Statements of Operations and Comprehensive Income and we are required to accrue potential interest and penalties until the uncertainty is resolved. Potential interest and penalties are recognized as a component of the provision for income taxes. Differences between amounts taken in a tax return and amounts recognized in the financial statements are considered unrecognized tax benefits. We believe that we have a reasonable basis for each of our filing positions and intend to defend those positions if challenged by the IRS or other taxing jurisdiction. If the IRS or other taxing authorities do not disagree with our position, and after the statute of limitations expires, we will recognize the unrecognized tax benefit in the period that the uncertainty of the tax position is eliminated. 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. F-16 Segment Reporting We operate in two segments: traditional home building and urban infill. We build and sell homes for detached and attached homes in luxury residential communities located in affluent suburban markets and cater to move-up, empty-nester, active-adult, affordable luxury and second-home buyers in the United States (“Traditional Home Building”). We also build and sell homes in urban infill markets through Toll Brothers City Living ® (“City Living”). We have determined that our Traditional Home Building operations operate in five geographic segments. 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; and • The Pacific region: California, Oregon and Washington. Previously, our geographic segments were: • North : Connecticut, Illinois, Massachusetts, Michigan, New Jersey and New York; • Mid-Atlantic : Delaware, Maryland, Pennsylvania and Virginia; • South : Florida, Georgia, North Carolina, South Carolina and Texas; • West : Arizona, Colorado, Idaho, Nevada, Oregon, Utah and Washington; and • California : California. Our 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. In fiscal 2018, we acquired land and commenced development activities in the Salt Lake City, Utah and Portland, Oregon markets. We opened communities in these markets in fiscal 2019. In addition, as a result of recent acquisitions, we commenced operations in Georgia and South Carolina in fiscal 2019 and Tennessee in fiscal 2020. Recent Accounting Pronouncements In March 2020, the Securities and Exchange Commission (SEC) adopted amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees, in Rule 3-10 of Regulation S-X. The amended rule focuses on providing material, relevant and decision-useful information regarding guarantees and other credit enhancements, while eliminating certain prescriptive requirements. The Company adopted these amendments on October 31, 2020. Accordingly, summarized financial information has been presented only for the issuers and guarantors of the Company's registered securities for the most recent fiscal year and as permitted, this information is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations. In October 2020, the FASB issued ASU 2020-09, “Debt (Topic 470) - Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762,” to reflect the SEC’s new disclosure rules on guaranteed debt securities offerings adopted by the Company. In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”), which requires an entity to recognize assets and liabilities on the balance sheet for the rights and obligations created by leased assets and provide additional disclosures. In July 2018, the FASB issued ASU No. 2018-11, “Leases: Targeted Improvements” (“ASU 2018-11”), which provides an entity with the option to apply the transition provisions of the new standard at its adoption date instead of at its earliest comparative period presented. ASU 2018-11 also provides an entity with a practical expedient that permits lessors to not separate non-lease components from the associated lease component if certain conditions are met. ASU 2016-02, as amended by ASU 2018-11, became effective for our fiscal year beginning November 1, 2019, and we adopted the new standard using a modified retrospective approach. The prior year period was not recast and our Consolidated Balance Sheet as of October 31, 2019 does not reflect any changes resulting from the adoption of the new standard. We elected to apply the transition provisions that allow us to carry forward our historical assessment of (1) whether contracts are or contain leases, (2) lease classification, and (3) initial direct costs. In addition, we elected the practical expedient that allows lessees the option to account for lease and non-lease components together as a single component for all classes of underlying assets. As a result of the adoption, we recorded a F-17 right-of-use (“ROU”) asset and lease liability of $ 114.5 million and $ 118.5 million, respectively, as of November 1, 2019. The ROU asset is included in “Receivables, prepaid expenses, and other assets” and the corresponding lease liability is included in “Accrued expenses” in our Consolidated Balance Sheet. The adoption of ASU 2016-02 had no impact on retained earnings and did not materially impact our Consolidated Statements of Operations and Comprehensive Income or Consolidated Statements of Cash Flows. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate credit losses. ASU 2016-13 will be effective for our fiscal year beginning November 1, 2020. We believe that the adoption of ASU 2016-13 will not have a material impact on our consolidated financial statements or disclosures. We also do not expect significant changes to our business processes, systems, or internal controls as a result of implementing the standard. In May 2014, the FASB created ASC 606 with the issuance ASU No. 2014-09, “Revenue from Contracts with Customers,” which provides guidance for revenue recognition. ASC 606 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. ASC 606 supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition,” and most industry-specific guidance. ASC 606 also supersedes some cost guidance included in ASC Subtopic 605-35, “Revenue Recognition—Construction-Type and Production-Type Contracts.” The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under the previous guidance. These judgments and estimates include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14 “Revenue from Contracts with Customers” (“ASU 2015-14”), which delayed the effective date of ASC 606 by one year. ASC 606, as amended by ASU 2015-14, became effective for our fiscal year beginning November 1, 2018, and we adopted the new standard under the modified retrospective transition method applied to contracts that were not completed as of November 1, 2018. We elected to apply the practical expedient which allows us to immediately expense incremental costs of obtaining a contract that would otherwise have been recognized in one year or less. We recognized the cumulative effect, net of tax, of applying ASC 606 as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the previous accounting standards. The adoption of ASC 606 did not have a material impact on our Consolidated Balance Sheet or Consolidated Statement of Operations or Comprehensive Income, and there have been no significant changes to our internal controls, processes, or systems as a result of implementing this new standard. However, the adoption of ASC 606 resulted in the following changes: • Prior to adoption of ASC 606, we capitalized certain costs related to our marketing efforts, including sales offices and model home upgrades and furnishings within “Inventory” on our Consolidated Balance Sheets and amortized such costs through “Selling, general, and administrative” on our Consolidated Statements of Operations and Comprehensive Income. As of November 1, 2018, we reclassifi ed $ 104.8 million to “Property, construction, and office equipment, net” on our Consolidated Balance Sheets, primarily related to sales offices and model home improvement costs. The amortization of such costs will remain unchanged and will continue to be included in “Selling, general, and administrative” on our Consolidated Statements of Operations and Comprehensive Income. Additionally, we recorded a net cumulative effect adjustment to retained earnings of approximately $ 13.2 million for certain other marketing costs that no longer qualify for capitalization under the new guidance, and such costs will be expensed as incurred in the future. • Prior to adoption of ASC 606, we recorded our land sale revenues, net of their related expenses, within “Other income – net” on our Consolidated Statements of Operations and Comprehensive Income. As of November 1, 2018, we are presenting this activity in income from operations and breaking out the components of land sales revenues and land sales cost of revenues on our Consolidated Statements of Operations and Comprehensive Income. In addition, due to the existence of certain repurchase options in existing agreements to sell lots to third party builders in our master planned communities, both for wholly owned projects as well as projects in which we are a joint venture partner, we recorded a net cumulative effect adjustment to retained earnings of approximately $ 4.6 million to account for previously settled lots for which the related repurchase option had not yet expired. Because the amount of the deferred earning is not material to our consolidated financial statements, we have elected to recognize the revenue and related expenses for such lots in future periods when such repurchase options expire rather than account for them as leases under ASC 840, “Leases.” F-18 • Prior to adoption of ASC 606, retained customer deposits were classified in “Other income – net” on our Consolidated Statements of Operations and Comprehensive Income. As of November 1, 2018, retained customer deposits, which totaled $ 11.8 million for our fiscal year ending October 31, 2020, are included in “Home sales revenue” on our Consolidated Statements of Operations and Comprehensive Income. Prior period balances for retained customer deposits have not been reclassified and are not material to our consolidated financial statements. 2. Acquisitions In fiscal 2020, we acquired substantially all of the assets and operations of The Thrive Group, LLC (“Thrive”), an urban infill builder with operations in Atlanta, Georgia and Nashville, Tennessee, and Keller Homes, Inc. (“Keller”), a builder with operations in 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. One of these acquisitions was accounted for as a business combination and neither were material to our results of operations or financial condition. In fiscal 2019, we acquired substantially all of the assets and operations of Sharp Residential, LLC (“Sharp”) and Sabal Homes LLC (“Sabal”), for approximately $ 162.4 million in cash. Sharp operates in metropolitan Atlanta, Georgia; Sabal operates in the Charleston, Greenville, and Myrtle Beach, South Carolina markets. The assets acquired, were 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. These acquisitions were accounted for as a business combination and were not material to our results of operations or financial condition. 3. Inventory Inventory at October 31, 2020 and 2019 consisted of the following (amounts in thousands): 2020 2019 Land controlled for future communities $ 223,525 $ 182,929 Land owned for future communities 1,036,843 868,202 Operating communities 6,398,538 6,821,917 $ 7,658,906 $ 7,873,048 Operating communities include communities offering homes for sale, communities that have sold all available home sites but have not completed delivery of the homes, communities that were previously offering homes for sale but are temporarily closed due to business conditions or non-availability of improved home sites and that are expected to reopen within 12 months of the end of the fiscal year being reported on, and communities preparing to open for sale. The carrying value attributable to operating communities includes the cost of homes under construction, land and land development costs, the carrying cost of home sites in current and future phases of these communities, and the carrying cost of model homes. Communities that were previously offering homes for sale but are temporarily closed due to business conditions, do not have any remaining backlog, and are not expected to reopen within 12 months of the end of the fiscal period being reported on have been classified as land owned for future communities. Backlog consists of homes under contract but not yet delivered to our home buyers (“backlog”). Information regarding the classification, number, and carrying value of these temporarily closed communities at October 31, 2020, 2019, and 2018, is provided in the table below ($ amounts in thousands): 2020 2019 2018 Land owned for future communities: Number of communities 10 16 17 Carrying value (in thousands) $ 68,064 $ 120,857 $ 124,426 Operating communities: Number of communities 4 1 1 Carrying value (in thousands) $ 32,112 $ 2,871 $ 2,622 F-19 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): Charge: 2020 2019 2018 Land controlled for future communities $ 23,539 $ 11,285 $ 2,820 Land owned for future communities 31,669 — 2,185 Operating communities 675 31,075 30,151 $ 55,883 $ 42,360 $ 35,156 See Note 12, “Fair Value Disclosures,” for information regarding (1) the number of operating communities that we tested for potential impairment, the number of operating communities in which we recognized impairment charges, the amount of impairment charges recognized, and the fair value of those communities, net of impairment charges. and (2) the number of future communities impaired, the amount of impairment charges recognized, and the fair value of those communities, net of impairment charges. See Note 15, “Commitments and Contingencies,” for information regarding land purchase commitments. At October 31, 2020, we evaluated our land purchase contracts, including those to acquire land for apartment developments, to determine whether any of the selling entities were VIEs and, if they were, whether we were the primary beneficiary of any of them. Under these land purchase contracts, we do not possess legal title to the land; our maximum exposure to loss is generally limited to deposits paid to the sellers and predevelopment costs incurred; and the creditors of the sellers generally have no recourse against us. At October 31, 2020, we determined that 207 land purchase contracts, with an aggregate purchase price of $ 2.31 billion, on which we had made aggregate deposits totaling $ 208.7 million, were VIEs, but that we were not the primary beneficiary of any VIE related to such land purchase contracts. At October 31, 2019, we determined that 127 land purchase contracts, with an aggregate purchase price of $ 2.00 billion, on which we had made aggregate deposits totaling $ 149.2 million, were VIEs, but that we were not the primary beneficiary of any VIE related to such land purchase contracts. Interest incurred, capitalized, and expensed in each of the three fiscal years ended October 31, 2020, 2019, and 2018, was as follows (amounts in thousands): 2020 2019 2018 Interest capitalized, beginning of year $ 311,323 $ 319,364 $ 352,049 Interest incurred 172,530 178,035 165,977 Interest expensed to home sales cost of revenues ( 174,375 ) ( 185,045 ) ( 190,734 ) Interest expensed to land sales and other cost of revenues ( 5,443 ) ( 1,787 ) — Interest expensed in other income – net ( 2,440 ) — ( 3,760 ) Interest capitalized on investments in unconsolidated entities ( 3,835 ) ( 4,571 ) ( 7,220 ) Previously capitalized interest on investments in unconsolidated entities transferred to inventory 215 5,327 3,052 Interest capitalized, end of year $ 297,975 $ 311,323 $ 319,364 4. Investments in Unconsolidated Entities We have investments in various unconsolidated entities and our ownership interest in these investments range from 15.8 % to 50 %. These entities, which are structured as joint ventures (i) develop land for the joint venture participants and for sale to outside builders (“Land Development Joint Ventures”); (ii) develop for-sale homes (“Home Building Joint Ventures”); (iii) develop luxury for-rent residential apartments, commercial space, and a hotel (“Rental Property Joint Ventures”), which includes our investment in Toll Brothers Realty Trust (the “Trust”); and (iv) invest in distressed loans and real estate and provide financing and land banking to residential builders and developers for the acquisition and development of land and home sites (“Gibraltar Joint Ventures”). In fiscal 2020, 2019 and 2018, we recognized income from the unconsolidated entities in which we had an investment of $ 0.9 million, $ 24.9 million, and $ 85.2 million, respectively. F-20 The table below provides information as of October 31, 2020, regarding active joint ventures that we are invested in, by joint venture category ($ amounts in thousands): Land Development Joint Ventures Home Building Joint Ventures Rental Property Joint Ventures Gibraltar Joint Ventures Total Number of unconsolidated entities 9 4 26 7 46 Investment in unconsolidated entities $ 127,690 $ 33,819 $ 247,049 $ 22,143 $ 430,701 Number of unconsolidated entities with funding commitments by the Company 3 — 10 1 14 Company’s remaining funding commitment to unconsolidated entities $ 33,045 $ — $ 24,343 $ 17,601 $ 74,989 Certain joint ventures in which we have investments obtained debt financing to finance a portion of their activities. The table below provides information at October 31, 2020, regarding the debt financing obtained by category ($ amounts in thousands): Land Development Joint Ventures Home Building Joint Ventures Rental Property Joint Ventures Total Number of joint ventures with debt financing 4 1 23 28 Aggregate loan commitments $ 158,823 $ 30,953 $ 1,660,496 $ 1,850,272 Amounts borrowed under commitments $ 118,071 $ 30,953 $ 1,217,614 $ 1,366,638 More specific and/or recent information regarding our investments in and future commitments to these entities is provided below. New Joint Ventures The table below provides information on joint ventures entered into during fiscal 2020 ($ amounts in thousands): Land Development Joint Ventures Rental Property Joint Ventures Number of unconsolidated joint ventures entered into during the period 1 7 Investment balance at October 31, 2020 $ 24,602 $ 80,448 The table below provides information on joint ventures entered into during fiscal 2019 ($ amounts in thousands): Land Development Joint Ventures Rental Property Joint Ventures Number of unconsolidated joint ventures entered into during the period 1 10 Investment balance at October 31, 2019 $ 5,913 $ 49,691 Number of consolidated joint ventures entered into during the period — 4 Carrying value of consolidated joint ventures’ assets at October 31, 2019 $ — $ 124,988 Noncontrolling interests in consolidated joint ventures at October 31, 2019 $ — $ 37,832 Results of Operations and Intra-entity Transactions In fiscal 2020, 2019 and 2018, certain of our rental property joint ventures sold their underlying assets to unrelated parties or to our joint venture partner. In connection with these sales, we recognized gains of $ 10.7 million, $ 3.8 million, and $ 67.2 million, respectively, which is included in “Income from unconsolidated entities” in our Consolidated Statements of Operations and Comprehensive Income. In fiscal 2020, we recognized other-than-temporary impairment charges on a Home Building Joint Venture of $ 6.0 million. In fiscal 2019 and 2018, we recognized an other-than-temporary impairment charge on certain Land Development Joint Ventures of $ 1.0 million and $ 6.0 million, respectively. In fiscal 2020, 2019 and 2018, purchases from unconsolidated entities principally related to our acquisition of lots from our Land Development Joint Ventures and were $ 17.6 million, $ 137.1 million, and $ 153.2 million, respectively. Our share of income from the lots we acquired was insignificant in each period. Sales to unconsolidated entities principally related to land F-21 sales to our Rental Property Joint Ventures for which we recognized gains in land sales and other revenues of $ 1.2 million, $ 9.4 million and $ 1.0 million in our fiscal 2020, 2019 and 2018, Consolidated Statements of Operations and Comprehensive Income, respectively. Guarantees The unconsolidated entities in which we have investments generally finance their activities with a combination of partner equity and debt financing. In some instances, we have guaranteed debt of unconsolidated entities. These guarantees may include any or all of the following: (i) project completion guarantees, including any cost overruns; (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; (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, 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 an obligation of an unconsolidated entity due to a triggering event, the collateral in such entity should be sufficient to repay a significant portion of the obligation. If it is not, we and our partners would need to contribute additional capital to the venture. Information with respect to certain of the Company’s unconsolidated entities’ outstanding debt obligations, loan commitments and our guarantees thereon are as follows ($ amounts in thousands): October 31, 2020 Loan commitments in the aggregate $ 1,508,300 Our maximum estimated exposure under repayment and carry cost guarantees if the full amount of the debt obligations were borrowed $ 229,300 Debt obligations borrowed in the aggregate $ 1,024,700 Our maximum estimated exposure under repayment and carry cost guarantees of the debt obligations borrowed $ 179,100 Estimated fair value of guarantees provided by us related to debt and other obligations $ 6,100 Terms of guarantees 1 month - 3.5 years The maximum exposure estimates presented above do not take into account any recoveries from the underlying collateral or any reimbursement from our partners. We have not made payments under any of the guarantees, nor have we been called upon to do so. Variable Interest Entities The table below provide information as of October 31, 2020 and 2019, regarding our unconsolidated joint venture-related variable interests in VIEs ($ amounts in thousands): October 31, 2020 October 31, 2019 Number of Joint Venture VIEs that the Company is not the Primary Beneficiary (“PB”) 12 13 Investment balance in unconsolidated Joint Venture VIEs included in Investments in unconsolidated entities in our Consolidated Balance Sheets $ 63,100 $ 37,000 Our maximum exposure to losses related to loan guarantees and additional commitments provided to unconsolidated Joint Venture VIEs $ 122,100 $ 84,300 Our ownership interest in the above unconsolidated Joint Venture VIEs ranges from 20 % to 50 %. F-22 The table below provide information as of October 31, 2020 and 2019, regarding our consolidated joint venture-related variable interests in VIEs ($ amounts in thousands): Balance Sheet Classification October 31, 2020 October 31, 2019 Number of Joint Venture VIEs that the Company is the PB and consolidates 5 5 Carrying value of consolidated VIEs assets Receivables prepaid expenses, and other assets $ 163,000 $ 145,800 Our partners’ interests in consolidated VIEs Noncontrolling interest $ 46,200 $ 41,000 Our ownership interest in the above consolidated Joint Venture VIEs ranges from 50 % to 98 %. As shown above, we have concluded we are the PB of certain VIEs due to our controlling financial interest in such ventures as we have the power to direct the activities that most significantly impact the joint ventures’ performance and the obligation to absorb expected losses or receive benefits from the joint ventures. The assets of these VIEs can only be used to settle the obligations of the VIEs. In addition, in certain of the joint ventures, in the event additional contributions are required to be funded to the joint ventures prior to the admission of any additional investor at a future date, we will fund 100% of such contributions, including our partner’s pro rata share, which we expect would be funded through an interest-bearing loan. For other VIEs, we have concluded that we are not the PB because the power to direct the activities of such VIEs that most significantly impact their performance was either shared by us and such VIEs’ other partners or such activities were controlled by our partner. For VIEs where the power to direct significant activities is shared, business plans, budgets, and other major decisions are required to be unanimously approved by all members. Management and other fees earned by us are nominal and believed to be at market rates, and there is no significant economic disproportionality between us and other members. Subsequent events In November 2020, we entered into a joint venture with an unrelated party to develop a for-rent residential apartment project in Cambridge, Massachusetts. Prior to the formation of this venture, we acquired the property and incurred approximately $ 60.1 million of land and land development costs. Our partner acquired a 75 % interest in this entity for approximately $ 49.2 million, of which $ 44.0 million was distributed to us. Our initial investment is $ 16.4 million. Concurrent with its formation, the joint venture entered into a $ 141.7 million construction loan agreement to finance the development of this project. We and an affiliate of our partner provided certain guarantees under the construction loan agreement. We estimate that our maximum exposure under recourse guarantees, if the full amount of the loan commitment was borrowed, would be the $ 28.3 million without taking into account any recoveries from the underlying collateral or any reimbursement from our partner. In December 2020, a Rental Property Joint Venture that we previously formed in fiscal 2018 secured a $ 160.0 million construction loan to finance the development of a project located in Washington, D.C. We and an affiliate of our partner provided certain guarantees under the construction loan agreement. We estimate that our maximum exposure under recourse guarantees, if the full amount of the loan commitment was borrowed, would be $ 24.0 million without taking into account any recoveries from the underlying collateral or any reimbursement from our partner. Joint Venture Condensed Financial Information The Condensed Balance Sheets, as of the dates indicated, and the Condensed Statements of Operations and Comprehensive Income, for the periods indicated, for the unconsolidated entities in which we have an investment, aggregated by type of business, are included below (in thousands). F-23 Condensed Balance Sheets: October 31, 2020 Land Develop- ment Joint Ventures Home Building Joint Ventures Rental Property Joint Ventures Gibraltar Joint Ventures Total Cash and cash equivalents $ 24,330 $ 18,106 $ 64,244 $ 2,798 $ 109,478 Inventory 303,960 198,260 — 8,780 511,000 Loan receivables, net — — — 78,576 78,576 Rental properties — — 1,244,911 — 1,244,911 Rental properties under development — — 666,386 — 666,386 Real estate owned — — — 6,752 6,752 Other assets 108,289 21,930 38,851 298 169,368 Total assets $ 436,579 $ 238,296 $ 2,014,392 $ 97,204 $ 2,786,471 Debt, net of deferred financing costs $ 117,342 $ 30,116 $ 1,220,607 $ — $ 1,368,065 Other liabilities 54,714 12,768 113,282 6,053 186,817 Members’ equity 264,523 195,412 680,503 90,735 1,231,173 Noncontrolling interest — — — 416 416 Total liabilities and equity $ 436,579 $ 238,296 $ 2,014,392 $ 97,204 $ 2,786,471 Company’s net investment in unconsolidated entities (1) $ 127,690 $ 33,819 $ 247,049 $ 22,143 $ 430,701 October 31, 2019 Land Develop- ment Joint Ventures Home Building Joint Ventures Rental Property Joint Ventures Gibraltar Joint Ventures Total Cash and cash equivalents $ 23,669 $ 38,115 $ 20,647 $ 3,388 $ 85,819 Inventory 247,866 313,991 — 17,369 579,226 Loan receivables, net — — — 56,545 56,545 Rental properties — — 1,021,848 — 1,021,848 Rental properties under development — — 535,197 — 535,197 Real estate owned — — — 12,267 12,267 Other assets 96,602 78,916 36,879 364 212,761 Total assets $ 368,137 $ 431,022 $ 1,614,571 $ 89,933 $ 2,503,663 Debt, net of deferred financing costs $ 88,050 $ 132,606 $ 1,006,201 $ — $ 1,226,857 Other liabilities 49,302 33,959 84,735 7,831 175,827 Members’ equity 230,785 264,457 523,635 81,686 1,100,563 Noncontrolling interest — — — 416 416 Total liabilities and equity $ 368,137 $ 431,022 $ 1,614,571 $ 89,933 $ 2,503,663 Company’s net investment in unconsolidated entities (1) $ 110,306 $ 60,512 $ 174,292 $ 21,142 $ 366,252 (1) Differences between our net investment in unconsolidated entities and our underlying equity in the net assets of the entities amounted to $ 29.4 million and $ 30.9 million as of October 31, 2020 and 2019, respectively, and are primarily a result of other than temporary impairments related to our investments in unconsolidated entities; interest capitalized on our investments; the estimated fair value of the guarantees provided to the joint ventures; unrealized gains on our retained joint venture interests; gains recognized from the sale of our ownership interests; and distributions from entities in excess of the carrying amount of our net investment. F-24 Condensed Statements of Operations and Comprehensive Income: For the year ended October 31, 2020 Land Develop- ment Joint Ventures Home Building Joint Ventures Rental Property Joint Ventures Gibraltar Joint Ventures Total Revenues $ 87,174 $ 139,587 $ 111,122 $ 26,781 $ 364,664 Cost of revenues 64,810 124,899 37,770 15,762 243,241 Other expenses 2,948 15,731 117,419 1,505 137,603 Total expenses 67,758 140,630 155,189 17,267 380,844 Gain on disposition of loans and REO — — — 1,053 1,053 Income (loss) from operations 19,416 ( 1,043 ) ( 44,067 ) 10,567 ( 15,127 ) Other income (loss) 3,061 536 ( 448 ) — 3,149 Income (loss) before income taxes 22,477 ( 507 ) ( 44,515 ) 10,567 ( 11,978 ) Income tax provision (benefit) 188 ( 254 ) — — ( 66 ) Net income (loss) including earnings from noncontrolling interests 22,289 ( 253 ) ( 44,515 ) 10,567 ( 11,912 ) Plus: loss attributable to noncontrolling interest — — — 48 48 Net income (loss) attributable to controlling interest $ 22,289 $ ( 253 ) $ ( 44,515 ) $ 10,615 $ ( 11,864 ) Company’s equity (deficit) in earnings of unconsolidated entities (2) $ 11,412 $ ( 3,424 ) $ ( 9,389 ) $ 2,349 $ 948 For the year ended October 31, 2019 Land Develop- ment Joint Ventures Home Building Joint Ventures Rental Property Joint Ventures Gibraltar Joint Ventures Total Revenues $ 261,677 $ 374,587 $ 99,401 $ 21,377 $ 757,042 Cost of revenues (3) 246,980 323,764 68,502 13,234 652,480 Other expenses (3) 4,752 24,633 58,928 1,880 90,193 Total expenses 251,732 348,397 127,430 15,114 742,673 Gain on disposition of loans and REO — — — 4,383 4,383 Income (loss) from operations 9,945 26,190 ( 28,029 ) 10,646 18,752 Other income 3,079 6,144 16,651 12,793 38,667 Income (loss) before income taxes 13,024 32,334 ( 11,378 ) 23,439 57,419 Income tax provision 193 457 — — 650 Net income (loss) including earnings from noncontrolling interests 12,831 31,877 ( 11,378 ) 23,439 56,769 Less: income attributable to noncontrolling interest — — — ( 9,593 ) ( 9,593 ) Net income (loss) attributable to controlling interest $ 12,831 $ 31,877 $ ( 11,378 ) $ 13,846 $ 47,176 Company’s equity (deficit) in earnings of unconsolidated entities (2) $ 6,160 $ 17,004 $ ( 824 ) $ 2,528 $ 24,868 F-25 For the year ended October 31, 2018 Land Develop- ment Joint Ventures Home Building Joint Ventures Rental Property Joint Ventures Gibraltar Joint Ventures Total Revenues $ 351,397 $ 148,002 $ 121,276 $ 19,592 $ 640,267 Cost of revenues (3) 317,103 109,357 74,946 17,817 519,223 Other expenses (3) 9,385 11,742 61,502 3,201 85,830 Total expenses 326,488 121,099 136,448 21,018 605,053 Gain on disposition of loans and REO — — — 53,192 53,192 Income (loss) from operations 24,909 26,903 ( 15,172 ) 51,766 88,406 Other income 5,939 2,134 222,744 1,937 232,754 Income before income taxes 30,848 29,037 207,572 53,703 321,160 Income tax provision 86 767 — — 853 Net income including earnings from noncontrolling interests 30,762 28,270 207,572 53,703 320,307 Less: income attributable to noncontrolling interest — — — ( 28,297 ) ( 28,297 ) Net income attributable to controlling interest 30,762 28,270 207,572 25,406 292,010 Company’s equity in earnings of unconsolidated entities (2) $ 3,392 $ 14,069 $ 62,204 $ 5,575 $ 85,240 (2) Differences between our equity in earnings of unconsolidated entities and the underlying net income (loss) of the entities are primarily a result of distributions from entities in excess of the carrying amount of our investment; other than temporary impairments related to our investments in unconsolidated entities; recoveries of previously incurred charges; unrealized gains on our retained joint venture interests; gained recognized from the sale of our investment to our joint venture partner; and our share of the entities’ profits related to home sites purchased by us which reduces our cost basis of the home sites acquired. (3) 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. Prior year periods have been reclassified to conform to the 2020 presentation. 5. Receivables, Prepaid Expenses, and Other Assets Receivables, prepaid expenses, and other assets at October 31, 2020 and 2019, consisted of the following (amounts in thousands): 2020 2019 Expected recoveries from insurance carriers and others $ 79,269 $ 114,162 Improvement cost receivable 86,116 100,864 Escrow cash held by our captive title company 24,712 32,863 Properties held for rental apartment and commercial development 542,796 367,072 Prepaid expenses 28,104 26,041 Right-of-use asset (1) 105,004 — Other 90,293 74,439 $ 956,294 $ 715,441 (1) On November 1, 2019, we adopted ASU 2016-02 which resulted in the establishment of a right-of-use (“ROU”) asset on our Consolidated Balance Sheet as of October 31, 2020. The Consolidated Balance Sheet as of October 31, 2019 does not reflect any changes resulting from the adoption of the new standard. See Note 1, “Significant Accounting Policies – Recent Accounting Pronouncements” for additional information regarding the adoption of ASU 2016-02. See Note 7, “Accrued Expenses,” for additional information regarding the expected recoveries from insurance carriers and others. F-26 As of October 31, 2020 and 2019, properties held for rental apartment and commercial development include $ 163.0 million and $ 145.8 million, respectively, of assets related to consolidated VIEs. See Note 4, “Investments in Unconsolidated Entities” for additional information regarding VIEs. 6. Loans Payable, Senior Notes, and Mortgage Company Loan Facility Loans Payable At October 31, 2020 and 2019, loans payable consisted of the following (amounts in thousands): 2020 2019 Senior unsecured term loan $ 800,000 $ 800,000 Loans payable – other 351,257 314,577 Deferred issuance costs ( 3,302 ) ( 3,128 ) $ 1,147,955 $ 1,111,449 Senior Unsecured Term Loan 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. The Term Loan Facility provides an accordion feature under which we may, subject to certain conditions set forth in the agreement, increase the Term Loan Facility up to a maximum aggregate amount of $ 1.5 billion. On October 31, 2020, we entered into term loan extension agreements with the banks which extended the maturity date of all $ 800.0 million of outstanding term loans under the Term Loan Facility from November 1, 2024 to November 1, 2025, with no payments being required before the maturity date. Under the Term Loan Facility, as amended, we may select interest rates equal to (i) London Interbank Offered Rate (“LIBOR”) plus an applicable margin, (ii) the base rate (as defined in the agreement) plus an applicable margin, or (iii) the federal funds/Euro rate (as defined in the agreement) plus an applicable margin, in each case, based on our leverage ratio. At October 31, 2020, the interest rate on the Term Loan Facility was 1.46 % per annum. We and substantially all of our 100 %-owned home building subsidiaries are guarantors under the Term Loan Facility. The Term Loan Facility contains substantially the same financial covenants as the Revolving Credit Facility, as described below. Revolving Credit Facility We have a $ 1.905 billion senior unsecured, five -year revolving credit facility (the “Revolving Credit Facility”) with a syndicate of banks 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 $ 1.850 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. On October 31, 2019, we amended our Revolving Credit Facility to replace our then existing $ 1.295 billion revolving credit facility. Under the amended terms, up to 100 % of the commitment is available for letters of credit. The Revolving Credit Facility, as amended, has an accordion feature under which we may, subject to certain conditions set forth in the agreement, increase the Revolving Credit Facility up to a maximum aggregate amount of $ 2.5 billion. Prior to the amendment, the maximum aggregate amount of the accordion feature was $ 2.0 billion. We may select interest rates for the Revolving Credit Facility equal to (i) LIBOR plus an applicable margin or (ii) the lenders’ base rate plus an applicable margin, which in each case is based on our credit rating and leverage ratio. At October 31, 2020, the interest rate on outstanding borrowings under the Revolving Credit Facility would have been 1.51 % per annum. We are obligated to pay an undrawn commitment fee that is based on the average daily unused amount of the Aggregate Credit Commitment and our credit ratings and leverage ratio. Any proceeds from borrowings under the Revolving Credit Facility may be used for general corporate purposes. We and substantially all of our 100 %-owned home building subsidiaries are guarantors under the Revolving Credit Facility. Under the terms of the Revolving Credit Facility, at October 31, 2020, 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. Based upon the limitations related to our repurchase of common stock in the Revolving Credit Facility, our ability to repurchase our common stock was limited to approximately $ 3.18 billion as of October 31, 2020. In addition, under the provisions of the Revolving Credit Facility, our ability to pay cash dividends was limited to approximately $ 2.56 billion as of October 31, 2020. 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. F-27 Loans Payable – Other “Loans payable – other” primarily represent purchase money mortgages on properties we acquired that the seller had financed and various revenue bonds that were issued by government entities on our behalf to finance community infrastructure and our manufacturing facilities. Information regarding our loans payable at October 31, 2020 and 2019, is included in the table below ($ amounts in thousands): 2020 2019 Aggregate loans payable at October 31 $ 351,257 $ 314,577 Weighted-average interest rate 4.30 % 4.49 % Interest rate range 0.20% - 7.00% 1.26% - 7.00% Loans secured by assets Carrying value of loans secured by assets $ 351,257 $ 314,577 Carrying value of assets securing loans $ 947,989 $ 850,381 The contractual maturities of “Loans payable – other” as of October 31, 2020, ranged from one month to 30 years . Senior Notes At October 31, 2020 and 2019, senior notes consisted of the following (amounts in thousands): 2020 2019 5.875% Senior Notes due February 15, 2022 $ 419,876 $ 419,876 4.375% Senior Notes due April 15, 2023 400,000 400,000 5.625% Senior Notes due January 15, 2024 250,000 250,000 4.875% Senior Notes due November 15, 2025 350,000 350,000 4.875% Senior Notes due March 15, 2027 450,000 450,000 4.35% Senior Notes due February 15, 2028 400,000 400,000 3.80% Senior Notes due November 1, 2029 400,000 400,000 Bond discounts, premiums, and deferred issuance costs, net ( 8,158 ) ( 9,978 ) $ 2,661,718 $ 2,659,898 The senior notes are the unsecured obligations of Toll Brothers Finance Corp., our 100 %-owned subsidiary. The payment of principal and interest is fully and unconditionally guaranteed, jointly and severally, by us and substantially all of our 100 %-owned home building subsidiaries (together with Toll Brothers Finance Corp., the “Senior Note Parties”). The senior notes rank equally in right of payment with all the Senior Note Parties’ existing and future unsecured senior indebtedness, including the Revolving Credit Facility and the Term Loan Facility. The senior notes are structurally subordinated to the prior claims of creditors, including trade creditors, of our subsidiaries that are not guarantors of the senior notes. Each series of senior notes is redeemable in whole or in part at any time at our option, at prices that vary based upon the then-current rates of interest and the remaining original term of the senior notes to be redeemed. On October 31, 2019, we redeemed, prior to maturity, the $ 250.0 million of then-outstanding principal amount of 6.75 % Senior Notes due November 1, 2019, at par, plus accrued interest. In September 2019, we issued $ 400.0 million aggregate principal amount of 3.80 % Senior Notes due 2029. The Company received $ 396.4 million of net proceeds from the issuance of these senior notes. On November 30, 2018, we redeemed, prior to maturity, the $ 350.0 million of then-outstanding principal amount of 4.00 % Senior Notes due December 31, 2018, at par, plus accrued interest. In January 2018, we issued $ 400.0 million aggregate principal amount of 4.350 % Senior Notes due 2028. The Company received $ 396.4 million of net proceeds from the issuance of these senior notes. Mortgage Company Loan Facility In October 2017, TBI Mortgage ® Company (“TBI Mortgage”), our wholly owned mortgage subsidiary, entered into a mortgage warehousing agreement (“Warehousing Agreement”) with a bank to finance the origination of mortgage loans by TBI Mortgage. The Warehousing Agreement is accounted for as a secured borrowing under ASC 860, “Transfers and Servicing.” In December 2018, the Warehousing Agreement was amended to provide for loan purchases up to $ 75.0 million, subject to certain sublimits. In addition, the Warehousing Agreement, as amended, provides for an accordion feature under which TBI Mortgage F-28 may request that the aggregate commitments under the Warehousing Agreement be increased to an amount up to $ 150.0 million for a short period of time. In December 2019, the Warehousing Agreement was amended to extend the expiration date on substantially the same terms as the existing agreement. The Warehousing Agreement, as amended, expires on December 4, 2020 , and borrowings thereunder bear interest at LIBOR plus 1.90 % per annum. At October 31, 2020, the interest rate on the Warehousing Agreement was 2.04 % per annum. In addition, we are subject to an under usage fee based on outstanding balances, as defined in the Warehousing Agreement. Borrowings under this facility are included in the fiscal 2021 maturities. At each of October 31, 2020 and 2019, there was $ 148.6 million and $ 150.0 million, respectively, outstanding under the Warehousing Agreement, which are included in liabilities in our Consolidated Balance Sheets. At October 31, 2020 and 2019, amounts outstanding under the agreement were collateralized by $ 219.4 million and $ 208.6 million, respectively, of mortgage loans held for sale, which are included in assets in our Consolidated Balance Sheets. As of October 31, 2020, there were no aggregate outstanding purchase price limitations reducing the amount available to TBI Mortgage. There are several restrictions on purchased loans under the agreement, including that they cannot be sold to others, they cannot be pledged to anyone other than the agent, and they cannot support any other borrowing or repurchase agreements. Subsequent events 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. In December 2020, TBI Mortgage amended the Warehousing Agreement to extend the expiration date to January 18, 2021 on substantially the same terms as the existing agreement. General As of October 31, 2020, the annual aggregate maturities of our loans and notes during each of the next five fiscal years are as follows (amounts in thousands): Amount 2021 $ 260,635 2022 $ 453,134 2023 $ 452,691 2024 $ 306,070 2025 $ 59,151 7. Accrued Expenses Accrued expenses at October 31, 2020 and 2019, consisted of the following (amounts in thousands): 2020 2019 Land, land development and construction $ 233,783 $ 192,658 Compensation and employee benefits 219,965 183,592 Escrow liability 23,067 31,587 Self-insurance 215,884 193,405 Warranty 157,351 201,886 Lease liabilities (1) 124,756 — Deferred income 34,096 51,678 Interest 38,446 31,307 Commitments to unconsolidated entities 8,928 9,283 Other 53,920 55,536 $ 1,110,196 $ 950,932 (1) On November 1, 2019, we adopted ASU 2016-02, which resulted in the establishment of lease liabilities on our Consolidated Balance Sheet as of October 31, 2020. The Consolidated Balance Sheet as of October 31, 2019 does not F-29 reflect any changes resulting from the adoption of the new standard. See Note 1, “Significant Accounting Policies – Recent Accounting Pronouncements” for additional information regarding the adoption of ASU 2016-02. At the time each home is closed and title and possession are transferred to the home buyer, we record an initial accrual for expected warranty costs on that home. Our initial accrual for expected warranty costs is based upon historical warranty claim experience. Adjustments to our warranty liabilities related to homes delivered in prior periods are recorded in the period in which a change in our estimate occurs. The table below provides a reconciliation of the changes in our warranty accrual during fiscal 2020, 2019, and 2018 (amounts in thousands): 2020 2019 2018 Balance, beginning of year $ 201,886 $ 258,831 $ 329,278 Additions - homes closed during the year 36,103 35,475 37,045 Addition - liabilities acquired 190 855 Increase in accruals for homes closed in prior years 6,711 6,023 6,162 Decrease to water intrusion accrual ( 24,400 ) — — Charges incurred ( 63,139 ) ( 99,298 ) ( 113,654 ) Balance, end of year $ 157,351 $ 201,886 $ 258,831 Since fiscal 2014, we have received water intrusion claims from owners of homes built since 2002 in communities located in Pennsylvania and Delaware (which are in our North region). During fiscal 2020, we continued to receive water intrusion claims from homeowners in this region, mostly related to older homes, and we continue to perform review procedures to assess, among other things, the number of affected homes, whether repairs are likely to be required, and the extent of such repairs. Our review process, conducted quarterly, includes an analysis of many factors applicable to these communities to determine whether a claim is likely to be received and the estimated costs to resolve any such claim, including: the closing dates of the homes; the number of claims received; our inspection of homes; an estimate of the number of homes we expect to repair; the type and cost of repairs that have been performed in each community; the estimated costs to remediate pending and future claims; the expected recovery from our insurance carriers and suppliers; and the previously recorded amounts related to these claims. We also monitor legal developments relating to these types of claims and review the volume, relative merits and adjudication of claims in litigation or arbitration. From October 31, 2016 through the second quarter of fiscal 2020, our recorded aggregate estimated repair costs to be incurred for known and unknown water intrusion claims was $ 324.4 million and our recorded aggregate expected recoveries from insurance carriers and suppliers were approximately $ 152.6 million. Based on trends in claims experience over several years and lower than anticipated repair costs, in the second fiscal quarter of 2020, we reduced the estimate of the aggregate estimated repair costs to be incurred for known and unknown water intrusion claims by $ 24.4 million. Because this reduction was associated with periods in which we expect our insurance deductibles and self-insured retentions to be exhausted, we reduced our aggregate expected recoveries from insurance carriers and suppliers by a corresponding $ 24.4 million. Our recorded remaining estimated repair costs, which reflects a reduction for the aggregate amount expended to resolve claims, were approximately $ 79.5 million at October 31, 2020 and $ 124.6 million at October 31, 2019. Our recorded remaining expected recoveries from insurance carriers and suppliers were approximately $ 68.4 million at October 31, 2020 and $ 97.9 million at October 31, 2019. As noted above, our review process includes a number of estimates that are based on assumptions with uncertain outcomes, including, but not limited to, the number of homes to be repaired, the extent of repairs needed, the repair procedures employed, the cost of those repairs, outcomes of litigation or arbitrations, and expected recoveries from insurance carriers and suppliers. Due to the degree of judgment required in making these estimates and the inherent uncertainty in potential outcomes, it is reasonably possible that our actual costs and recoveries could differ from those recorded and such differences could be material. In addition, due to such uncertainty, we are unable to estimate the range of any such differences. With respect to our insurance receivables, disputes between homebuilders and carriers over coverage positions relating to construction defect claims are common, and resolution of claims with carriers involves the exchange of significant amounts of information and frequently involves legal action. While our primary insurance carrier has funded substantially all of the water intrusion claims that we have submitted to it to date, other insurance carriers have disputed coverage for the same claims under policies that are substantially the same. As a result, we entered arbitration proceedings during the third quarter of fiscal 2019 with these carriers. Based on the legal merits that support our pending insurance claims, review by legal counsel, our history of collecting significant amounts funded by our primary carrier under policies that are substantially the same, and the high credit ratings of our insurance carriers, we believe collection of our remaining recorded insurance receivables is probable. However, due to the complexity of the underlying claims and the variability of the other factors described above, it is reasonably possible that our actual insurance F-30 recoveries could materially differ from those recorded. Resolution of these known and unknown claims is expected to take several years. 8. Income Taxes The following table provides a reconciliation of our effective tax rate from the federal statutory tax rate for the fiscal years ended October 31, 2020, 2019, and 2018 ($ amounts in thousands): 2020 2019 2018 $ %* $ %* $ %* Federal tax provision at statutory rate 123,249 21.0 165,306 21.0 217,914 23.3 State tax provision, net of federal benefit 25,793 4.4 37,898 4.8 47,073 5.0 Domestic production activities deduction — — — — ( 18,168 ) ( 1.9 ) Other permanent differences 4,755 0.8 4,866 0.6 ( 2,322 ) ( 0.2 ) Reversal of accrual for uncertain tax positions ( 1,749 ) ( 0.3 ) ( 5,348 ) ( 0.7 ) ( 4,741 ) ( 0.5 ) Accrued interest on anticipated tax assessments 404 0.1 453 0.1 737 0.1 Increase in unrecognized tax benefits — — 2,153 0.3 1,122 0.1 Changes in tax law — — ( 523 ) ( 0.1 ) ( 38,740 ) ( 4.1 ) Excess stock compensation benefit ( 3,339 ) ( 0.6 ) ( 2,143 ) ( 0.3 ) ( 4,236 ) ( 0.5 ) Energy tax credits ( 11,467 ) ( 2.0 ) ( 3,123 ) ( 0.4 ) ( 3,231 ) ( 0.4 ) Other 2,631 0.5 ( 2,376 ) ( 0.3 ) ( 9,643 ) ( 1.0 ) Income tax provision* 140,277 23.9 197,163 25.0 185,765 19.9 * Due to rounding, percentages may not add 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. The Tax Act, among other changes, reduced the corporate income tax rate from 35 % to 21 % and repealed the domestic production activities deduction effective for tax years beginning after December 31, 2017. For companies with a fiscal year that does not end on December 31, the change in law requires the application of a blended tax rate for the year of the change. Our blended tax rate for our fiscal year ending October 31, 2018 was 23.3 %. Thereafter, the applicable statutory rate is 21 %. ASC 740, “Income Taxes” (“ASC 740”), requires all companies to reflect the effects of the new law in the period in which the law was enacted. Accordingly, we reduced the statutory tax rate applied to earnings from 35 % in fiscal 2017 to 23.3 % in fiscal 2018 and to 21 % in fiscal 2019. In addition, 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. We are subject to state tax in the jurisdictions in which we operate. We estimate our state tax liability based upon the individual taxing authorities’ regulations, estimates of income by taxing jurisdiction, and our ability to utilize certain tax-saving strategies. Based on our estimate of the allocation of income or loss among the various taxing jurisdictions and changes in tax regulations and their impact on our tax strategies, we estimated that our rate for state income taxes, before federal benefit, will be 5.6 % in fiscal 2020. Our state income tax rate, before federal benefit, was 6.1 % and 6.6 % in fiscal 2019 and 2018, respectively. The following table provides information regarding the provision (benefit) for income taxes for each of the fiscal years ended October 31, 2020, 2019, and 2018 (amounts in thousands): 2020 2019 2018 Federal $ 114,204 $ 161,904 $ 157,836 State 26,073 35,259 27,929 $ 140,277 $ 197,163 $ 185,765 Current $ 42,497 $ 94,399 $ 207,695 Deferred 97,780 102,764 ( 21,930 ) $ 140,277 $ 197,163 $ 185,765 F-31 The components of income taxes payable at October 31, 2020 and 2019 are set forth below (amounts in thousands): 2020 2019 Current $ 6,591 $ 7,897 Deferred 192,383 95,074 $ 198,974 $ 102,971 The following table provides a reconciliation of the change in the unrecognized tax benefits for the years ended October 31, 2020, 2019, and 2018 (amounts in thousands): 2020 2019 2018 Balance, beginning of year $ 7,897 $ 12,222 $ 16,993 Increase in benefit as a result of tax positions taken in prior years 512 2,148 2,140 Increase in benefit as a result of tax positions taken in current year 306 1,126 949 Decrease in benefit as a result of settlements ( 2,670 ) ( 4,707 ) Decrease in benefit as a result of lapse of statute of limitations ( 2,124 ) ( 4,929 ) ( 3,153 ) Balance, end of year $ 6,591 $ 7,897 $ 12,222 The statute of limitations has expired on our federal tax returns for fiscal years through 2016. The statue of limitations for our major state tax jurisdictions remains open for examination for fiscal year 2015 and subsequent years. Our unrecognized tax benefits are included in the current portion of “Income taxes payable” on our Consolidated Balance Sheets. If these unrecognized tax benefits reverse in the future, they would have a beneficial impact on our effective tax rate at that time. During the next 12 months, it is reasonably possible that the amount of unrecognized tax benefits will change, but we are not able to provide a range of such change. The anticipated changes will be principally due to the expiration of tax statutes, settlements with taxing jurisdictions, increases due to new tax positions taken, and the accrual of estimated interest and penalties. The amounts accrued for interest and penalties are included in the current portion of “Income taxes payable” on our Consolidated Balance Sheets. The following table provides information as to the amounts recognized in our tax provision, before reduction for applicable taxes and reversal of previously accrued interest and penalties, of potential interest and penalties in the fiscal years ended October 31, 2020, 2019, and 2018, and the amounts accrued for potential interest and penalties at October 31, 2020 and 2019 (amounts in thousands): Expense recognized in the Consolidated Statements of Operations and Comprehensive Income Fiscal year 2020 $ 512 2019 $ 593 2018 $ 1,152 Accrued at: October 31, 2020 $ 1,270 October 31, 2019 $ 1,169 F-32 The components of net deferred tax assets and liabilities at October 31, 2020 and 2019 are set forth below (amounts in thousands): 2020 2019 Deferred tax assets: Accrued expenses $ 57,089 $ 54,162 Impairment charges 42,956 43,583 Inventory valuation differences 48,276 55,313 Stock-based compensation expense 19,905 23,928 Amounts related to unrecognized tax benefits 319 311 State tax, net operating loss carryforwards 68,705 67,718 Other 1,830 18 Total assets 239,080 245,033 Deferred tax liabilities: Capitalized interest 37,697 44,196 Deferred income 351,589 277,005 Expenses taken for tax purposes not for book 5,346 3,571 Depreciation 23,567 5,024 Deferred marketing 13,264 10,311 Total liabilities 431,463 340,107 Net deferred tax liabilities ( 192,383 ) ( 95,074 ) In accordance with GAAP, we assess whether a valuation allowance should be established based on our determination of whether it is more-likely-than-not that some portion or all of the deferred tax assets would not be realized. At October 31, 2020 and 2019, we determined that it was more-likely-than-not that our deferred tax assets would be realized. Accordingly, at October 31, 2020 and 2019, we did not have valuation allowances recorded against our federal or state deferred tax assets. 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 5 years to 20 years. 9. Stockholders’ Equity Our authorized capital stock consists of 400 million shares of common stock, $ 0.01 par value per share (“common stock”), and 15 million shares of preferred stock, $ 0.01 par value per share. At October 31, 2020, we had 126.5 million shares of common stock issued and outstanding, 5.1 million shares of common stock reserved for outstanding stock options and restricted stock units, 6.7 million shares of common stock reserved for future stock option and award issuances, and 352,000 shares of common stock reserved for issuance under our employee stock purchase plan. As of October 31, 2020, no shares of preferred stock have been issued. Cash Dividends On February 21, 2017, our Board of Directors approved the initiation of quarterly cash dividends to shareholders. During the fiscal years ended October 31, 2020 and 2019, we declared and paid aggregate cash dividends of $ 0.44 and $ 0.44 per share, respectively, to our shareholders. Stock Repurchase Program In each year since fiscal 2017, our Board of Directors has renewed its authorization to repurchase up to 20 million shares of our common stock in open market transactions, privately negotiated transactions (including accelerated share repurchases), issuer tender offers or other financial arrangements or transactions for general corporate purposes, including to obtain shares for the Company’s equity award and other employee benefit plans. Most recently, on March 10, 2020, our Board of Directors authorized the repurchase of 20 million shares of our common stock and terminated, effective the same date, the existing authorization that had been in effect since December 11, 2019. The Board of Directors did not fix any expiration date for this repurchase program. F-33 The following table provides information about the share repurchase programs for the fiscal years ended October 31, 2020, 2019, and 2018: 2020 2019 2018 Number of shares purchased (in thousands) 15,952 6,619 12,108 Average price per share $ 39.75 $ 35.28 $ 41.56 Remaining authorization at October 31 (in thousands) 19,984 13,953 10,989 Subsequent to October 31, 2020 and through December 21, 2020, we repurchased approximat ely 2.4 million shares of our common stock at an average price of $ 45.04 per sh are, substantially all of which were purchased under the repurchase program authorized by our Board of Directors on March 10, 2020. Transfer Restriction On March 17, 2010, our Board of Directors adopted a Certificate of Amendment to the Second Restated Certificate of Incorporation of the Company (the “Certificate of Amendment”). The Certificate of Amendment includes an amendment approved by our stockholders at the 2010 Annual Meeting of Stockholders that restricts certain transfers of our common stock. The Certificate of Amendment’s transfer restrictions generally restrict any direct or indirect transfer of our common stock if the effect would be to increase the direct or indirect ownership of any Person (as defined in the Certificate of Amendment) from less than 4.95 % to 4.95 % or more of our common stock or increase the ownership percentage of a Person owning or deemed to own 4.95 % or more of our common stock. Any direct or indirect transfer attempted in violation of this restriction would be void as of the date of the prohibited transfer as to the purported transferee. 10. Stock-Based Benefit Plans We grant stock options, restricted stock, and various types of restricted stock units to our employees and our non-employee directors under our stock incentive plans. On March 12, 2019, shareholders approved the Toll Brothers, Inc. 2019 Omnibus Incentive Plan (the “Omnibus Plan”), which, succeeded the Toll Brothers, Inc. Stock Incentive Plan for Employees (2014) and the Toll Brothers, Inc. Stock Incentive Plan for Non-Executive Directors (2016) with respect to prospective equity awards, and no additional equity awards may be granted under such prior plans. As a result, the Omnibus Plan is the sole plan out of which new equity awards may be granted to employees (including executive officers), directors and other eligible participants under the plan. The Omnibus Plan provides for the granting of incentive stock options (solely to employees) and nonqualified stock options with a term of up to 10 years at a price not less than the market price of the stock at the date of grant. The Omnibus Plan also provide for the issuance of stock appreciation rights and restricted and unrestricted stock awards and stock units, which may be performance-based. At October 31, 2020, 2019, and 2018, we had 6.7 million; 7.7 million; and 5.1 million shares, respectively, available for grant under the plans. Prior to the adoption of the Omnibus Plan, the Company had granted equity awards under four separate stock incentive plans for employees, officers, and directors with respect to which equity awards remained outstanding as of October 31, 2020. No additional equity awards may be granted under these plans. Stock options granted under these plans were made with a term of up to 10 years at a price not less than the market price of the stock at the date of grant. Stock options and restricted stock units granted under these plans generally vested over a four-year period for employees and a two-year period for non-employee directors. The following table provides information regarding the amount of total stock-based compensation expense recognized by us for fiscal 2020, 2019, and 2018 (amounts in thousands): 2020 2019 2018 Total stock-based compensation expense recognized $ 24,326 $ 26,180 $ 28,312 Income tax benefit recognized $ 6,227 $ 6,749 $ 7,902 At October 31, 2020, 2019, and 2018, the aggregate unamortized value of outstanding stock-based compensation awards was approximately $ 15.9 million, $ 18.7 million, and $ 20.9 million, respectively. Information about our more significant stock-based compensation programs is outlined below. Stock Options: Stock options granted to employees generally vest over a four-year period, although certain grants may vest over a longer or shorter period. Stock options granted to non-employee directors generally vest over a two-year period. Shares issued upon the exercise of a stock option are either from shares held in treasury or newly issued shares. F-34 The fair value of each option award is estimated on the date of grant using a lattice-based option valuation model that uses ranges of assumptions noted in the following table. Expected volatilities were based on implied volatilities from traded options on our stock, historical volatility of our stock, and other factors. The expected lives of options granted were derived from the historical exercise patterns and anticipated future patterns and represent the period of time that options granted are expected to be outstanding. The ranges set forth below result from certain groups of employees exhibiting different behaviors. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The following table summarizes the weighted-average assumptions and fair value used for stock option grants in each of the fiscal years ended October 31, 2020, 2019, and 2018: 2020 2019 2018 Expected volatility 27.42% - 28.30% 28.61% - 31.34% 27.66% - 31.83% Weighted-average volatility 27.42 % 30.46 % 30.33 % Risk-free interest rate 1.72% - 1.78% 2.65% - 2.76% 2.17% - 2.35% Expected life (years) 4.64 - 5.76 4.63 - 8.50 5.00 - 8.50 Dividends 1.11 % 1.36 % none Weighted-average fair value per share of options granted $ 9.68 $ 10.22 $ 16.09 The fair value of stock option grants is recognized evenly over the vesting period of the options or over the period between the grant date and the time the option becomes nonforfeitable by the employee, whichever is shorter. Information regarding the stock compensation expense related to stock options for fiscal 2020, 2019 and 2018 was as follows (amounts in thousands): 2020 2019 2018 Stock compensation expense recognized - options $ 3,144 $ 5,181 $ 7,497 At October 31, 2020, total compensation cost related to nonvested stock option awards not yet recognized was approximately $ 2.5 million, and the weighted-average period over which we expect to recognize such compensation costs was approximately 1.1 years. The following table summarizes stock option activity for our plans during each of the fiscal years ended October 31, 2020, 2019, and 2018 (amounts in thousands, except per share amounts): 2020 2019 2018 Number of options Weighted- average exercise price Number of options Weighted- average exercise price Number of options Weighted- average exercise price Balance, beginning 4,780 $ 30.59 5,503 $ 28.84 6,120 $ 27.60 Granted 118 39.51 344 32.42 210 47.84 Exercised ( 1,284 ) 24.50 ( 1,044 ) 21.87 ( 797 ) 24.16 Canceled ( 54 ) 33.83 ( 23 ) 34.47 ( 30 ) 33.08 Balance, ending 3,560 $ 33.03 4,780 $ 30.59 5,503 $ 28.84 Options exercisable, at October 31, 2,969 $ 32.38 3,799 $ 29.52 4,231 $ 27.03 The weighted average remaining contractual life (in years) for options outstanding and exercisable at October 31, 2020, was 4.7 and 4.1 , respectively. The intrinsic value of options outstanding and exercisable is the difference between the fair market value of our common stock on the applicable date (“Measurement Value”) and the exercise price of those options that had an exercise price that was less than the Measurement Value. The intrinsic value of options exercised is the difference between the fair market value of our common stock on the date of exercise and the exercise price. The following table provides information pertaining to the intrinsic value of options outstanding and exercisable at October 31, 2020, 2019, and 2018 (amounts in thousands): 2020 2019 2018 Intrinsic value of options outstanding $ 34,058 $ 45,551 $ 30,477 Intrinsic value of options exercisable $ 29,961 $ 39,350 $ 29,010 F-35 Information pertaining to the intrinsic value of options exercised and the fair market value of options that became vested or modified in each of the fiscal years ended October 31, 2020, 2019, and 2018, is provided below (amounts in thousands): 2020 2019 2018 Intrinsic value of options exercised $ 23,281 $ 16,491 $ 18,165 Fair market value of options vested $ 5,926 $ 7,723 $ 10,007 Our stock option plans permit optionees to exercise stock options using a “net exercise” method at the discretion of the Executive Compensation Committee of the Board of Directors (“Executive Compensation Committee”). In a net exercise, we withhold from the total number of shares that otherwise would be issued to an optionee upon exercise of the stock option that number of shares having a fair market value at the time of exercise equal to the option exercise price and applicable minimum income tax withholdings and remit the remaining shares to the optionee. In fiscal 2018, the net exercise method was not utilized to exercise options. The following table provides information regarding the use of the net exercise method for fiscal 2020 and 2019: 2020 2019 Options exercised 100,000 33,250 Shares withheld 65,487 21,842 Shares issued 34,513 11,408 Average fair market value per share withheld $ 43.11 $ 33.03 Aggregate fair market value of shares withheld (in thousands) $ 2,823 $ 721 Performance-Based Restricted Stock Units: In fiscal 2020, 2019, and 2018, the Executive Compensation Committee approved awards of performance-based restricted stock units (“Performance-Based RSUs”) relating to shares of our common stock to certain members of our senior management. The number of shares earned for Performance-Based RSUs are based on the attainment of certain operational performance metrics approved by the Executive Compensation Committee in the year of grant. The number of shares underlying the Performance-Based RSUs that may be issued to the recipients ranges from, 0 % to 150 % for grants awarded in fiscal 2020 and 2019 and 0 % to 110 % for grants awarded in fiscal 2018, of the base award depending on actual achievement as compared to the target performance goals. Shares earned based on actual performance generally vest pro-rata over a four-year period provided the recipients continue to be employed by us as specified in the award document. The value of the Performance-Based RSUs was determined to be equal to the estimated number of shares of our common stock to be issued multiplied by the closing price of our common stock on the New York Stock Exchange (“NYSE”) on the date the Performance-Based RSU awards were approved by the Executive Compensation Committee (“Valuation Date”), adjusted for post-vesting restrictions applicable to retirement eligible participants. We evaluate the performance goals quarterly and estimate the number of shares underlying the Performance-Based RSUs that are probable of being issued. The following table provides information regarding the issuance, valuation assumptions, and amortization of the Performance-Based RSUs issued in fiscal 2020, 2019, and 2018: 2020 2019 2018 Number of shares underlying Performance-Based RSUs to be issued 116,423 158,721 135,554 Aggregate number of Performance-Based RSUs outstanding at October 31 579,115 645,538 786,857 Weighted-average fair value per share of Performance-Based RSUs $ 32.55 $ 34.86 $ 47.84 Aggregate grant date fair value of Performance-Based RSUs issued (in thousands) $ 3,790 $ 5,533 $ 6,485 Performance-Based RSU expense recognized (in thousands) $ 5,986 $ 5,514 $ 6,949 Unamortized value of Performance-Based RSUs at October 31 (in thousands) $ 1,674 $ 3,431 $ 3,824 Shares earned with respect to Performance-Based RSUs issued in December 2013, 2014, and 2015 were delivered in fiscal 2018, 2019, and 2020, respectively. The recipients of these Performance-Based RSUs elected to use a portion of the shares underlying the Performance-Based RSUs to pay the required income withholding taxes on the payout. In fiscal 2020, the gross value of the payout was $ 7.2 million ( 182,846 shares), the minimum income tax withholding was $ 3.0 million ( 75,206 shares) and the net value of the shares delivered was $ 4.3 million ( 107,640 shares). In fiscal 2019, the gross value of the payout was $ 9.7 million ( 300,040 shares), the minimum income tax withholding was $ 4.0 million ( 123,409 shares) and the net value of the shares delivered was $ 5.7 million ( 176,631 shares). In fiscal 2018, the gross value of the payout was $ 13.7 million ( 288,814 shares), the minimum income tax withholding was $ 6.0 million ( 126,330 shares) and the net value of the shares delivered was $ 7.7 million ( 162,484 shares). F-36 Total Shareholder Return Restricted Stock Units: In fiscal 2020, 2019, and 2018, the Executive Compensation Committee approved awards of relative total shareholder return performance-based restricted stock units (“TSR RSUs”) relating to 37,527 , 48,710 and 39,411 target shares, respectively, of our common stock to certain members of our senior management. Shares underlying the TSR RSUs granted are earned by comparing our total shareholder return during specified performance periods to the total shareholder returns of companies in a performance peer group as defined in the award document. The specified performance periods are as follows: Performance Period Target Number of TSR RSUs issued Fiscal 2020 November 1, 2019 to October 31, 2022 37,527 Fiscal 2019 November 1, 2018 to October 31, 2021 48,710 Fiscal 2018 November 1, 2017 to October 31, 2020 39,411 The TSR RSUs generally vest at the end of a 3 -year period provided the recipients continue to be employed by us as specified in the award document. Based upon our ranking in the performance peer group, the recipient of the TSR RSUs may earn a total award ranging from 0 % to 150 % for awards granted in fiscal 2020 and 2019 and 0 % to 200 % for awards granted in fiscal 2018, of the target number of TSR RSUs granted. In fiscal 2020, recipients of the fiscal 2018 TSR RSUs earned 0 % of the target based on total shareholder return ranking in the performance peer group during the three-year period ending October 31, 2020. In fiscal 2019, recipients of the fiscal 2017 TSR RSUs earned 0 % of the target based on total shareholder return ranking in the performance peer group during the three-year period ending October 31, 2019. In fiscal 2018, recipients earned 76.81 % of the 52,679 target TSR RSUs awarded in fiscal 2016 based upon our total shareholder return ranking in the performance peer group during the three-year period ended October 31, 2018. We estimated the fair value of the TSR RSUs at the grant date using a Monte Carlo simulation. The following table summarizes the assumptions used in the Monte Carlo simulation and the fair value per share of the TSR RSUs granted in fiscal 2020, 2019, and 2018: 2020 2019 2018 Weighted-average volatility 27.96 % 29.06 % 26.58 % Risk-free interest rate 1.66 % 2.64 % 1.92 % Dividends none none none Weighted-average fair value per share of TSR RSUs $ 37.66 $ 36.46 $ 52.62 The length of each performance period was used as the expected term in the simulation for each respective tranche. The following table provides information on expense recognized and the unamortized value of our TSR RSUs for fiscal 2020, 2019, and 2018 (amounts in thousands): 2020 2019 2018 TSR RSUs expense recognized $ 2,264 $ 1,673 $ 2,502 Unamortized value of TSR RSUs at October 31 $ 716 $ 1,875 $ 1,773 Our stock incentive plans permit us to withhold from the total number of shares that otherwise would be issued to a TSR RSU recipient upon distribution that number of shares having a fair value at the time of distribution equal to the applicable income tax withholdings due and remit the remaining shares to the restricted stock unit recipient. The following table provides information regarding the number of shares withheld, the income tax withholding due, and the remaining shares issued to the recipients for fiscal 2019: 2019 Number of shares withheld 16,643 Income tax withholdings due $ 537,902 Remaining shares issued to the recipients 23,817 F-37 Time-Based Restricted Stock Units: In fiscal 2020, 2019, and 2018, we issued time-based restricted stock units (“Time-Based RSUs”) to various officers, employees, and non-employee directors. These Time-Based RSUs generally vest in annual installments over a two- to four-year period. The value of the Time-Based RSUs was determined to be equal to the number of shares of our common stock underlying the Time-Based RSUs multiplied by the closing price of our common stock on the NYSE on the date the Time-Based RSUs were awarded, adjusted for post-vesting restrictions applicable to retirement eligible participants. The following table provides information regarding these Time-Based RSUs for fiscal 2020, 2019, and 2018: 2020 2019 2018 Time-Based RSUs issued: Number of Time-Based RSUs issued 461,280 449,380 296,790 Weighted-average fair value per share of Time-Based RSUs $ 37.43 $ 33.04 $ 47.84 Aggregate fair value of Time-Based RSUs issued (in thousands) $ 17,267 $ 14,848 $ 14,198 Time-Based RSU expense recognized (in thousands): $ 12,744 $ 13,627 $ 11,193 2020 2019 2018 At October 31: Aggregate number of Time-Based RSUs outstanding 1,315,371 1,137,936 850,853 Cumulative unamortized value of Time-Based RSUs (in thousands) $ 10,972 $ 8,694 $ 8,818 Our stock incentive plans permit us to withhold from the total number of shares that otherwise would be issued to a restricted stock unit recipient upon distribution that number of shares having a fair value at the time of distribution equal to the applicable income tax withholdings due and remit the remaining shares to the restricted stock unit recipient. The following table provides information regarding the number of shares withheld, the income tax withholding due, and the remaining shares issued to the recipients for fiscal 2020, 2019, and 2018: 2020 2019 2018 Number of shares withheld 58,356 29,681 23,289 Income tax withholdings due $ 2,214 $ 1,042 $ 1,145 Remaining shares issued to the recipients 236,697 82,795 58,552 Employee Stock Purchase Plan Our employee stock purchase plan enables substantially all employees to purchase our common stock at 95 % of the market price of the stock on specified offering dates without restriction or at 85 % of the market price of the stock on specified offering dates subject to restrictions. The plan, which terminates in December 2027, provides that 500,000 shares be reserved for purchase. At October 31, 2020, 352,000 shares were available for issuance. The following table provides information regarding our employee stock purchase plan for fiscal 2020, 2019, and 2018: 2020 2019 2018 Shares issued 54,235 41,744 35,471 Average price per share $ 26.10 $ 31.80 $ 34.08 Compensation expense recognized (in thousands) $ 189 $ 184 $ 171 F-38 11. Earnings Per Share Information Information pertaining to the calculation of earnings per share for each of the fiscal years ended October 31, 2020, 2019, and 2018, is as follows (amounts in thousands): 2020 2019 2018 Numerator: Net income as reported $ 446,624 $ 590,007 $ 748,151 Denominator: Basic weighted-average shares 130,095 145,008 151,984 Common stock equivalents (a) 1,152 1,493 2,217 Diluted weighted-average shares 131,247 146,501 154,201 Other information: Weighted-average number of antidilutive options and restricted stock units (b) 2,141 1,156 813 Shares issued under stock incentive and employee stock purchase plans 1,541 1,394 1,066 (a) Common stock equivalents represent the dilutive effect of outstanding in-the-money stock options using the treasury stock method and shares expected to be issued under our restricted stock units programs. (b) Weighted-average number of antidilutive options and restricted stock units are based upon the average of the average quarterly closing prices of our common stock on the NYSE for the year. 12. Fair Value Disclosures Financial Instruments A summary of assets and (liabilities) at October 31, 2020 and 2019, related to our financial instruments, measured at fair value on a recurring basis, is set forth below (amounts in thousands): Fair value Financial Instrument Fair value hierarchy October 31, 2020 October 31, 2019 Residential Mortgage Loans Held for Sale Level 2 $ 231,797 $ 218,777 Forward Loan Commitments – Residential Mortgage Loans Held for Sale Level 2 $ ( 31 ) $ 298 Interest Rate Lock Commitments (“IRLCs”) Level 2 $ 628 $ 964 Forward Loan Commitments – IRLCs Level 2 $ ( 628 ) $ ( 964 ) At October 31, 2020 and 2019, the carrying value of cash and cash equivalents and customer deposits held in escrow approximated fair value. Mortgage Loans Held for Sale At the end of the reporting period, we determine the fair value of our mortgage loans held for sale and the forward loan commitments we have entered into as a hedge against the interest rate risk of our mortgage loans and commitments using the market approach to determine fair value. The evaluation is based on the current market pricing of mortgage loans with similar terms and values as of the reporting date and the application of such pricing to the mortgage loan portfolio. We recognize the difference between the fair value and the unpaid principal balance of mortgage loans held for sale as a gain or loss. In addition, we recognize the change in fair value of our forward loan commitments as a gain or loss. These gains and losses are included in “Other income – net” in our Consolidated Statements of Operations and Comprehensive Income. Interest income on mortgage loans held for sale is calculated based upon the stated interest rate of each loan and is also included in “Other income – net.” The table below provides, for the periods indicated, the aggregate unpaid principal and fair value of mortgage loans held for sale as of the date indicated (amounts in thousands): At October 31, Aggregate unpaid principal balance Fair value Excess 2020 $ 225,826 $ 231,797 $ 5,971 2019 $ 216,280 $ 218,777 $ 2,497 F-39 IRLCs represent individual borrower agreements that commit us to lend at a specified price for a specified period as long as there is no violation of any condition established in the commitment contract. These commitments have varying degrees of interest rate risk. We utilize best-efforts forward loan commitments (“Forward Commitments”) to hedge the interest rate risk of the IRLCs and residential mortgage loans held for sale. Forward Commitments represent contracts with third-party investors for the future delivery of loans whereby we agree to make delivery at a specified future date at a specified price. The IRLCs and Forward Commitments are considered derivative financial instruments under ASC 815, “Derivatives and Hedging,” which requires derivative financial instruments to be recorded at fair value. We estimate the fair value of such commitments based on the estimated fair value of the underlying mortgage loan and, in the case of IRLCs, the probability that the mortgage loan will fund within the terms of the IRLC. The fair values of IRLCs and forward loan commitments are included in either “Receivables, prepaid expenses and other assets” or “Accrued expenses” in our Consolidated Balance Sheets, as appropriate. To manage the risk of non-performance of investors regarding the Forward Commitments, we assess the creditworthiness of the investors on a periodic basis. Inventory We recognize inventory impairment charges based on the difference in the carrying value of the inventory and its fair value at the time of the evaluation. The fair value of the aforementioned inventory was determined using Level 3 criteria. Estimated fair value is primarily determined by discounting the estimated future cash flow of each community. See Note 1, “Significant Accounting Policies - Inventory,” for additional information regarding our methodology on determining fair value. As further discussed in Note 1, determining the fair value of a community’s inventory involves a number of variables, many of which are interrelated. If we used a different input for any of the various unobservable inputs used in our impairment analysis, the results of the analysis may have been different, absent any other changes. The table below summarizes, for the periods indicated, the ranges of certain quantitative unobservable inputs utilized in determining the fair value of impaired operating communities: Three months ended: Selling price per unit ($ in thousands) Sales pace per year (in units) Discount rate Fiscal 2020: January 31 — — — April 30 613 - 789 9 14.3% July 31 — — — October 31 — — — Fiscal 2019: January 31 836 - 13,495 2 - 12 12.5% - 15.8% April 30 372 - 1,915 2 - 19 12.0% - 26.0% July 31 530 - 1,113 2 - 9 7.8% - 13.0% October 31 478 - 857 2 - 5 13.8% - 14.5% 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 estimated fair value of these communities in the aggregate, net of impairment charges, was $ 21.8 million. For the majority of these communities, the estimated fair values were determined based upon the expected sales price per lot in a community sale to another builder. The range of sales price per lot utilized in determining fair values in fiscal 2020 was approximately $ 33,000 - $ 180,000 per lot. There were no impairment charges on land owned for future communities in 2019 and $ 2.2 million recognized in fiscal 2018. F-40 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 ($ amounts in thousands): Impaired operating communities Three months ended: Number of communities tested Number of communities Fair value of communities, net of impairment charges Impairment charges recognized Fiscal 2020: January 31 65 — $ — $ — April 30 80 1 $ 2,754 300 July 31 66 — $ — — October 31 53 1 $ 1,113 375 $ 675 Fiscal 2019: 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 $ 31,075 Fiscal 2018: 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 $ 30,151 Debt The table below provides, as of the dates indicated, the book value and estimated fair value of our debt at October 31, 2020 and 2019 (amounts in thousands): 2020 2019 Fair value hierarchy Book value Estimated fair value Book value Estimated fair value Loans payable (a) Level 2 $ 1,151,257 $ 1,157,315 $ 1,114,577 $ 1,112,040 Senior notes (b) Level 1 2,669,876 2,888,822 2,669,876 2,823,043 Mortgage company loan facility (c) Level 2 148,611 148,611 150,000 150,000 $ 3,969,744 $ 4,194,748 $ 3,934,453 $ 4,085,083 (a) The estimated fair value of loans payable was based upon contractual cash flows discounted at interest rates that we believed were available to us for loans with similar terms and remaining maturities as of the applicable valuation date. (b) The estimated fair value of our senior notes is based upon their market prices as of the applicable valuation date. (c) We believe that the carrying value of our mortgage company loan borrowings approximates their fair value. 13. Employee Retirement and Deferred Compensation Plans Salary Deferral Savings Plans We maintain salary deferral savings plans covering substantially all employees. We recognized an expense, net of plan forfeitures, with respect to the plans of $ 6.1 million, $ 14.1 million, and $ 12.6 million for the fiscal years ended October 31, 2020, 2019, and 2018, respectively, which is included in “Selling, general and administrative” expense in the Consolidated Statements of Operations and Comprehensive Income. Deferred Compensation Plan We have an unfunded, nonqualified deferred compensation plan that permits eligible employees to defer a portion of their compensation. The deferred compensation, together with certain of our contributions, earns various rates of return depending upon when the compensation was deferred. A portion of the deferred compensation and interest earned may be forfeited by a F-41 participant if he or she elects to withdraw the compensation prior to the end of the deferral period. We accrued $ 35.1 million and $ 31.1 million at October 31, 2020 and 2019, respectively, for our obligations under the plan. Defined Benefit Retirement Plans We have two unfunded defined benefit retirement plans. Retirement benefits generally vest when the participant reaches normal retirement age. Such age was reduced from age 62 to age 58 in fiscal 2019. Unrecognized prior service costs are being amortized over the period from the date participants enter the plans until their interests are fully vested. We used a 1.95 %, 2.61 %, and 4.06 % discount rate in our calculation of the present value of our projected benefit obligations at October 31, 2020, 2019, and 2018, respectively. The rates represent the approximate long-term investment rate at October 31 of the fiscal year for which the present value was calculated. Information related to the plans is based on actuarial information calculated as of October 31, 2020, 2019 and 2018. Information related to our retirement plans for each of the fiscal years ended October 31, 2020, 2019, and 2018, is as follows (amounts in thousands): 2020 2019 2018 Plan costs: Service cost $ 453 $ 403 $ 568 Interest cost 1,158 1,416 1,198 Amortization of prior service cost 1,468 506 936 Amortization of unrecognized losses 23 — 17 $ 3,102 $ 2,325 $ 2,719 Projected benefit obligation: Beginning of year $ 45,070 $ 35,515 $ 38,222 Plan amendments adopted during year 2,600 4,956 — Service cost 453 403 568 Interest cost 1,158 1,416 1,198 Benefit payments ( 1,636 ) ( 1,358 ) ( 1,358 ) Change in unrecognized gain/loss 729 4,138 ( 3,115 ) Projected benefit obligation, end of year $ 48,374 $ 45,070 $ 35,515 Unamortized prior service cost: Beginning of year $ 5,320 $ 870 $ 1,806 Plan amendments adopted during year 2,600 4,956 — Amortization of prior service cost ( 1,468 ) ( 506 ) ( 936 ) Unamortized prior service cost, end of year $ 6,452 $ 5,320 $ 870 Accumulated unrecognized (loss) gain, October 31 $ ( 3,273 ) $ ( 2,567 ) $ 1,571 Accumulated benefit obligation, October 31 $ 48,374 $ 45,070 $ 35,515 Accrued benefit obligation, October 31 $ 48,374 $ 45,070 $ 35,515 The accrued benefit obligation is included in accrued expenses on our Consolidated Balance Sheets. The table below provides, based upon the estimated retirement dates of the participants in the retirement plans, the amounts of benefits we would be required to pay in each of the next five fiscal years and for the five fiscal years ended October 31, 2030 in the aggregate (in thousands): Year ending October 31, Amount 2021 $ 1,930 2022 $ 2,851 2023 $ 3,148 2024 $ 3,180 2025 $ 3,314 November 1, 2025 – October 31, 2030 $ 17,289 F-42 14. Accumulated Other Comprehensive (Loss) Income Accumulated other comprehensive (loss) income was primarily related to employee retirement plans. The tables below provide, for the fiscal years ended October 31, 2020, 2019 and 2018, the components of accumulated other comprehensive (loss) income (amounts in thousands): 2020 2019 2018 Balance, beginning of period $ ( 5,831 ) $ 694 $ ( 1,910 ) Other comprehensive (loss) income before reclassifications ( 3,329 ) ( 9,094 ) 3,115 Gross amounts reclassified from accumulated other comprehensive income 1,491 304 953 Income tax benefit (expense) 471 2,265 ( 1,142 ) Other comprehensive (loss) income, net of tax ( 1,367 ) ( 6,525 ) 2,926 Adoption of ASU 2018-02 — — ( 322 ) Balance, end of period $ ( 7,198 ) $ ( 5,831 ) $ 694 Reclassifications for the amortization of the employee retirement plans are included in “Other income – net” in the Consolidated Statements of Operations and Comprehensive Income. 15. Commitments and Contingencies Legal Proceedings We are involved in various claims and litigation arising principally in the ordinary course of business. We believe that adequate provision for resolution of all current claims and pending litigation has been made and that the disposition of these matters will not have a material adverse effect on our results of operations and liquidity or on our financial condition. In March 2018, the Pennsylvania Attorney General informed the Company that it was conducting a review of our construction of stucco homes in Pennsylvania after January 1, 2005 and requested that we voluntarily produce documents and information. The Company has produced documents and information in response to this request and, in addition, has produced requested information and documents in response to a subpoena issued in the second quarter of fiscal 2019. Management cannot at this time predict the eventual scope or outcome of this matter. Land Purchase Commitments Generally, our agreements to acquire land parcels do not require us to purchase those land parcels, although we, in some cases, forfeit any deposit balance outstanding if and when we terminate an agreement. If market conditions are weak, approvals needed to develop the land are uncertain, or other factors exist that make the purchase undesirable, we may choose not to acquire the land. Whether a purchase agreement is legally terminated or not, we review the amount recorded for the land parcel subject to the purchase agreement to determine whether the amount is recoverable. While we may not have formally terminated the purchase agreements for those land parcels that we do not expect to acquire, we write off any nonrefundable deposits and costs previously capitalized to such land parcels in the periods that we determine such costs are not recoverable. Information regarding our land purchase commitments at October 31, 2020 and 2019, is provided in the table below (amounts in thousands): 2020 2019 Aggregate purchase commitments: Unrelated parties $ 2,630,128 $ 2,349,900 Unconsolidated entities that the Company has investments in 10,097 10,826 Total $ 2,640,225 $ 2,360,726 Deposits against aggregate purchase commitments $ 223,571 $ 168,778 Additional cash required to acquire land 2,416,654 2,191,948 Total $ 2,640,225 $ 2,360,726 Amount of additional cash required to acquire land included in accrued expenses $ 19,590 $ 14,620 In addition, we expect to purchase approximately 2,100 additional home sites over a number of years from several joint ventures in which we have investments; the purchase prices of these home sites will be determined at a future date. F-43 At October 31, 2020, we also 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 have additional land parcels under option that have been excluded from the aforementioned aggregate purchase amounts since we do not believe that we will complete the purchase of these land parcels and no additional funds will be required from us to terminate these contracts. Investments in Unconsolidated Entities At October 31, 2020, we had investments in a number of unconsolidated entities, were committed to invest or advance additional funds, and had guaranteed a portion of the indebtedness and/or loan commitments of these entities. See Note 4, “Investments in Unconsolidated Entities,” for more information regarding our commitments to these entities. Surety Bonds and Letters of Credit At October 31, 2020, we had outstanding surety bonds amounting to $ 742.9 million, primarily related to our obligations to governmental entities to construct improvements in our communities. We estimate that $ 356.9 million of work remains on these improvements. We have an additional $ 182.1 million of surety bonds outstanding that guarantee other obligations. We do not believe it is probable that any outstanding bonds will be drawn upon. At October 31, 2020, we had outstanding letters of credit of $ 119.0 million under our Revolving Credit Facility. These letters of credit were issued to secure our various financial obligations, including insurance policy deductibles and other claims, land deposits, and security to complete improvements in communities in which we are operating. We do not believe that it is probable that any outstanding letters of credit will be drawn upon. Backlog At October 31, 2020, we had agreements of sale outstanding to deliver 7,791 homes with an aggregate sales value of $ 6.37 billion. Mortgage Commitments Our mortgage subsidiary provides mortgage financing for a portion of our home closings. For those home buyers to whom our mortgage subsidiary provides mortgages, we determine whether the home buyer qualifies for the mortgage based upon information provided by the home buyer and other sources. For those home buyers who qualify, our mortgage subsidiary provides the home buyer with a mortgage commitment that specifies the terms and conditions of a proposed mortgage loan based upon then-current market conditions. Prior to the actual closing of the home and funding of the mortgage, the home buyer will lock in an interest rate based upon the terms of the commitment. At the time of rate lock, our mortgage subsidiary agrees to sell the proposed mortgage loan to one of several outside recognized mortgage financing institutions (“investors”) that is willing to honor the terms and conditions, including interest rate, committed to the home buyer. We believe that these investors have adequate financial resources to honor their commitments to our mortgage subsidiary. Mortgage loans are sold to investors with limited recourse provisions derived from industry-standard representations and warranties in the relevant agreements. These representations and warranties primarily involve the absence of misrepresentations by the borrower or other parties, the appropriate underwriting of the loan and in some cases, a required minimum number of payments to be made by the borrower. The Company generally does not retain any other continuing interest related to mortgage loans sold in the secondary market. Information regarding our mortgage commitments at October 31, 2020 and 2019, is provided in the table below (amounts in thousands): 2020 2019 Aggregate mortgage loan commitments: IRLCs $ 381,116 $ 565,634 Non-IRLCs 1,688,801 1,364,972 Total $ 2,069,917 $ 1,930,606 Investor commitments to purchase: IRLCs $ 381,116 $ 565,634 Mortgage loans receivable 217,876 208,591 Total $ 598,992 $ 774,225 F-44 Lease Commitments We lease certain facilities, equipment, and properties held for rental apartment operation or development under non-cancelable operating leases which, in the case of certain rental properties, have an initial term of 99 years. We recognize lease expense for these leases on a straight-line basis over the lease term. ROU assets and lease liabilities are recorded on the balance sheet for all leases with an expected term over one year. A majority of our facility lease agreements include rental payments based on a pro-rata share of the lessor’s operating costs which are variable in nature. Our lease agreements do not contain any residual value guarantees or material restrictive covenants. ROU assets are classified within “Receivables, prepaid expenses, and other assets” and the corresponding lease liability is included in “Accrued expenses” in our Consolidated Balance Sheet. We elected the short-term lease recognition exemption for all leases that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that we are reasonably certain to exercise. For such leases, we do not recognize ROU assets or lease liabilities and instead recognize lease payments in our Consolidated Statements of Operations and Comprehensive Income on a straight-line basis. At October 31, 2020, ROU assets and lease liabilities were $ 105.0 million and $ 124.8 million, respectively. Payments on lease liabilities totaled $ 16.6 million for the year ending October 31, 2020. Lease expense includes costs for leases with terms in excess of one year as well as short-term leases with terms of one year or less. For the fiscal years ending October 31, 2020, 2019 and 2018, our total lease expense was $ 21.6 million, $ 20.2 million, and $ 15.8 million, respectively, inclusive of variable lease costs of approximately $ 3.1 million and short-term lease costs of approxima tel y $ 3.5 million in fiscal 2020. S ublease income was de minimis. Information regarding our remaining lease payments as of October 31, 2020 is provided in the table below (amounts in thousands): Year ended October 31, 2021 $ 19,942 2022 18,093 2023 15,621 2024 13,018 2025 9,475 Thereafter 204,509 Total lease payments (a) $ 280,658 Less: Interest (b) 155,902 Present value of lease liabilities $ 124,756 (a) Lease payments include options to extend lease terms that are reasonably certain of being exercised (b) Our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our discount rate for such leases to determine the present value of lease payments at the lease commencement date. The majority of our facility leases give us the option to extend the lease term. The exercise of lease renewal options is at our discretion. For several of our facility leases we are reasonably certain the option will be exercised and thus the renewal term has been included in our calculation of the ROU asset and lease liability. The weighted average remaining lease term and weighted average discount rate used in calculating these facility lease liabilities, excluding our land leases, were 8.81 years and 4.1 %, respectively, at October 31, 2020. We have a small number of land leases with initial terms of 99 years. We are not reasonably certain that, if given the option, we would extend these leases. We have therefore excluded the renewal terms from our ROU asset and lease liability for these leases. The weighted average remaining lease term and weighted average discount rate used in calculating these land lease liabilities were 93.9 years and 4.5 %, respectively, at October 31, 2020. F-45 16. Other Income – Net The table below provides the components of “Other income – net” for the years ended October 31, 2020, 2019, and 2018 (amounts in thousands): 2020 2019 2018 Interest income $ 10,009 $ 19,017 $ 8,570 Income from ancillary businesses 25,540 53,568 25,692 Management fee income from home building unconsolidated entities, net 3,636 9,948 11,740 Retained customer deposits — — 8,937 Income from land sales — — 6,331 Directly expensed interest ( 2,440 ) — — Other ( 1,052 ) ( 1,031 ) 1,190 Total other income – net $ 35,693 $ 81,502 $ 62,460 As a result of our adoption of ASC 606 as of November 1, 2018, revenues and cost of revenues from land sales are presented as separate components on our Consolidated Statement of Operations and Comprehensive Income. In addition, retained customer deposits are presented in home sales revenues on our Consolidated Statement of Operations and Comprehensive Income. Because we elected to apply the modified retrospective method of adoption, prior periods have not been restated to reflect these changes in presentation . See Note 1, “Significant Accounting Policies – Recent Accounting Pronouncements” for additional information regarding the impact of the adoption of ASC 606. Management fee income from home building unconsolidated entities presented above primarily represents fees earned by our City Living and Traditional Home Building operations. In addition, in fiscal 2020, 2019 and 2018, our apartment living operations earned fees from unconsolidated entities of $ 14.0 million, $ 11.9 million, and $ 7.5 million, respectively. Fees earned by our apartment living operations are included in income from ancillary businesses above. Income from ancillary businesses is generated by our mortgage, title, landscaping, security monitoring, Gibraltar, apartment living, and golf course and country club operations. The table below provides revenues and expenses for these ancillary businesses for the years ended October 31, 2020, 2019, and 2018 (amounts in thousands): 2020 2019 2018 Revenues $ 118,855 $ 150,114 $ 158,051 Expenses $ 106,285 $ 132,823 $ 132,359 Other income $ 12,970 $ 36,277 $ — In fiscal 2020, we sold one of our golf club properties to a third party for $ 15.6 million and recognized a gain of $ 9.1 million. In addition, we recognized a previously deferred gain of $ 3.8 million related to the sale of a golf club property from fiscal 2019. In fiscal 2019, we sold seven of our golf club properties to third parties for $ 64.3 million and we recognized a gain of $ 35.1 million during the year ended October 31, 2019 as a result of these sales. In fiscal 2018, we recognized a $ 10.7 million gain from a bulk sale of security monitoring accounts by our home control solutions business, which is included in income from ancillary businesses above. In addition, in fiscal 2018, we recognized a $ 3.5 million write-down of a commercial property operated by Toll Brothers Apartment Living, which is included in income from ancillary businesses above. The table below provides revenues and expenses recognized from land sales for the year ended October 31, 2018 (amounts in thousands): 2018 Revenue $ 134,327 Expense 127,996 $ 6,331 Land sale revenues for the year ended October 31, 2018 included $ 80.3 million related to sale transactions with four Rental Property Joint Ventures in which we have interests ranging from 25 % to 50 %. On one of these transactions, we recognized a gain of $ 1.0 million in fiscal 2018. In addition, due to our continued involvement in the joint venture primarily through guarantees provided on the joint venture’s debt, we deferred $ 3.8 million of the gain realized on this sale. We will recognize the deferred gain into income as the guarantees provided expire. F-46 See Note 4, “Investments in Unconsolidated Entities,” for more information on these transactions. 17. Information on Segments The table below summarizes revenue and income (loss) before income taxes for our segments for each of the fiscal years ended October 31, 2020, 2019, and 2018 (amounts in thousands). 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. See Note 1. Amounts for fiscal 2019 and 2018 have been restated to reflect this change. Revenue Income (loss) before income taxes 2020 2019 2018 2020 2019 2018 (Restated) (Restated) (Restated) (Restated) Traditional Home Building: North $ 1,364,750 $ 1,484,430 $ 1,517,917 $ 57,826 $ 81,350 $ 98,233 Mid-Atlantic 845,597 804,342 775,676 50,621 50,737 59,254 South 1,041,204 991,915 868,580 108,399 106,082 99,920 Mountain 1,535,757 1,130,874 1,126,580 167,687 112,979 136,163 Pacific 2,029,851 2,416,629 2,533,506 352,831 509,760 571,353 Traditional Home Building 6,817,159 6,828,190 6,822,259 737,364 860,908 964,923 City Living 120,946 253,188 320,999 29,679 70,133 78,149 Corporate and other ( 748 ) ( 999 ) ( 180,142 ) ( 143,871 ) ( 109,156 ) 6,937,357 7,080,379 7,143,258 586,901 787,170 933,916 Land sales and other revenue 140,302 143,587 — Total $ 7,077,659 $ 7,223,966 $ 7,143,258 $ 586,901 $ 787,170 $ 933,916 “Corporate and other” is comprised principally of general corporate expenses such as the offices of our executive officers; the corporate finance, accounting, audit, tax, human resources, risk management, information technology, marketing, and legal groups; interest income; income from certain of our ancillary businesses, including Gibraltar; and income from our Rental Property Joint Ventures and Gibraltar Joint Ventures. Total assets for each of our segments at October 31, 2020 and 2019, are shown in the table below (amounts in thousands): 2020 2019 (Restated) Traditional Home Building: North $ 1,427,523 $ 1,487,012 Mid-Atlantic 918,641 854,470 South 1,176,962 1,165,974 Mountain 1,961,348 1,769,649 Pacific 2,226,685 2,627,417 Traditional Home Building 7,711,159 7,904,522 City Living 539,750 529,507 Corporate and other 2,814,824 2,394,109 $ 11,065,733 $ 10,828,138 “Corporate and other” is comprised principally of cash and cash equivalents, restricted cash, income tax receivable, investments in our Rental Property Joint Ventures, expected recoveries from insurance carriers and suppliers, our Gibraltar investments and operations, manufacturing facilities, and our mortgage and title subsidiaries. F-47 Inventory for each of our segments, as of the dates indicated, is shown in the table below (amounts in thousands): Land controlled for future communities Land owned for future communities Operating communities Total Balances at October 31, 2020 Traditional Home Building: North $ 40,753 $ 155,737 $ 1,140,833 $ 1,337,323 Mid-Atlantic 31,572 142,196 647,481 821,249 South 13,964 122,671 847,360 983,995 Mountain 8,811 38,370 1,840,830 1,888,011 Pacific 128,425 379,916 1,656,682 2,165,023 Traditional Home Building 223,525 838,890 6,133,186 7,195,601 City Living — 197,953 265,352 463,305 $ 223,525 $ 1,036,843 $ 6,398,538 $ 7,658,906 Balances at October 31, 2019 (Restated) Traditional Home Building: North $ 32,712 $ 99,947 $ 1,233,234 $ 1,365,893 Mid-Atlantic 50,534 76,682 705,763 832,979 South 10,326 118,830 845,590 974,746 Mountain 18,973 34,165 1,651,792 1,704,930 Pacific 70,384 353,186 2,115,531 2,539,101 Traditional Home Building 182,929 682,810 6,551,910 7,417,649 City Living — 185,391 270,008 455,399 $ 182,929 $ 868,201 $ 6,821,918 $ 7,873,048 The amounts we have provided for inventory impairment charges and the expensing of costs that we believed not to be recoverable for each of our segments, for the years ended October 31, 2020, 2019, and 2018, are shown in the table below (amounts in thousands): 2020 2019 2018 (Restated) (Restated) Traditional Home Building: North $ 28,352 $ 25,472 $ 20,675 Mid-Atlantic 17,905 1,535 11,839 South 2,869 8,452 720 Mountain 790 984 176 Pacific 5,967 1,117 879 Traditional Home Building 55,883 37,560 34,289 City Living — 4,800 98 Corporate and other — — 769 $ 55,883 $ 42,360 $ 35,156 F-48 The net carrying value of our investments in unconsolidated entities and our equity in earnings (losses) from such investments, for each of our segments, as of the dates indicated, are shown in the table below (amounts in thousands): Investments in unconsolidated entities Equity in earnings (losses) from unconsolidated entities At October 31, Year ended October 31, 2020 2019 2020 2019 2018 (Restated) (Restated) (Restated) Traditional Home Building: Mid-Atlantic $ 33,523 $ 8,525 $ ( 11 ) $ — $ ( 4,000 ) South 93,734 91,956 14,012 19,098 12,263 Mountain — — 381 — ( 63 ) Pacific 433 9,825 1,280 ( 37 ) 2,404 Traditional Home Building 127,690 110,306 15,662 19,061 10,604 City Living 33,819 60,512 ( 7,674 ) 4,103 6,857 Corporate and other 269,192 195,434 ( 7,040 ) 1,704 67,779 $ 430,701 $ 366,252 $ 948 $ 24,868 $ 85,240 “Corporate and other” is comprised of our investments in the Rental Property Joint Ventures and the Gibraltar Joint Ventures. 18. Supplemental Disclosure to Consolidated Statements of Cash Flows The following are supplemental disclosures to the Consolidated Statements of Cash Flows for each of the fiscal years ended October 31, 2020, 2019 and 2018 (amounts in thousands): 2020 2019 2018 Cash flow information: Interest paid, net of amount capitalized $ 18,326 $ 35,422 $ 20,812 Income tax payments $ 48,509 $ 141,681 $ 215,092 Income tax refunds $ 1,822 $ 4,344 $ 3,101 Noncash activity: Cost of inventory acquired through seller financing, municipal bonds, or accrued liabilities, net $ 158,435 $ 213,824 $ 185,633 Increase in inventory for capitalized interest, our share of earnings, and allocation of basis difference in land purchased from unconsolidated entities $ 215 $ 5,300 $ 1,320 Increase in receivables, prepaid expenses, and other assets and accrued expenses related to the adoption of ASU 2016-02 $ 122,269 $ — $ — Reclassification from inventory to property, construction, and office equipment, net due to the adoption of ASC 606 $ — $ 104,807 $ — Net decrease in inventory and retained earnings due to the adoption of ASC 606 $ — $ 8,989 $ — Net increase in accrued expenses and decrease in retained earnings due to the adoption of ASC 606 $ — $ 6,541 $ — Net decrease in investment in unconsolidated entities and retained earnings due to the adoption of ASC 606 $ — $ 2,457 $ — Cost of inventory acquired through foreclosure $ — $ — $ 4,609 Cancellation of treasury stock $ — $ 895,517 $ — Non-controlling interest $ 7,092 $ 38,134 $ 2,801 Reclassification of inventory to property, construction, and office equipment, net $ 16,558 $ — $ — Decrease (increase) in unrecognized gain in defined benefit plans $ 729 $ 4,138 $ ( 3,115 ) Defined benefit plan amendment $ 2,600 $ 4,956 $ — Income tax benefit (expense) recognized in total comprehensive income $ 471 $ 2,265 $ ( 1,141 ) Transfer of other assets to inventory, net $ — $ 7,100 $ 16,763 F-49 2020 2019 2018 Transfer of inventory to investment in unconsolidated entities $ 13,690 $ — $ — Transfer of other assets to investment in unconsolidated entities, net $ 52,345 $ 44,139 $ 60,971 Reclassification of deferred income from accrued expenses to investment in unconsolidated entities $ — $ — $ 5,995 Increase in investments in unconsolidated entities for change in the fair value of debt guarantees $ 25 $ 928 $ 623 Miscellaneous increases (decreases) to investments in unconsolidated entities $ 645 $ ( 1,876 ) $ 1,776 Business Acquisitions: Fair value of assets purchased $ 63,854 $ 173,516 $ — Liabilities assumed $ 3,505 $ 11,143 $ — Cash paid $ 60,349 $ 162,373 $ — At October 31, 2020 2019 2018 Cash, cash equivalents, and restricted cash Cash and cash equivalents $ 1,370,944 $ 1,286,014 $ 1,182,195 Restricted cash and cash held by our captive title company included in receivables, prepaid expenses, and other assets $ 25,660 $ 33,629 $ 34,215 Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows $ 1,396,604 $ 1,319,643 $ 1,216,410 F-50 19. Summary Consolidated Quarterly Financial Data (Unaudited) The table below provides summary income statement data for each quarter of fiscal 2020 and 2019 (amounts in thousands, except per share data): Three Months Ended October 31 July 31 April 30 January 31 Fiscal 2020: Revenue: Home sales $ 2,495,974 $ 1,627,812 $ 1,516,234 $ 1,297,337 Land sales and other $ 49,693 $ 23,677 $ 32,838 $ 34,094 Gross profit: Home sales (a) $ 502,079 $ 341,704 $ 295,256 $ 264,215 Land sales and other $ 4,798 $ 1,418 $ 6,420 $ 1,812 Income before income taxes $ 266,991 $ 151,865 $ 102,113 $ 65,932 Net income $ 199,317 $ 114,761 $ 75,670 $ 56,876 Earnings per share (b) Basic $ 1.57 $ 0.91 $ 0.59 $ 0.41 Diluted $ 1.55 $ 0.90 $ 0.59 $ 0.41 Weighted-average number of shares Basic 127,310 126,722 128,205 138,145 Diluted 128,892 127,399 128,809 139,889 Fiscal 2019: Revenue: Home sales $ 2,292,044 $ 1,756,970 $ 1,712,057 $ 1,319,308 Land sales and other $ 86,956 $ 8,721 $ 4,037 $ 43,873 Gross profit Home sales (a) $ 478,262 $ 391,653 $ 373,183 $ 303,064 Land sales and other $ 658 $ 2,489 $ 1,116 $ 9,620 Income before income taxes $ 272,649 $ 186,916 $ 176,159 $ 151,446 Net income $ 202,315 $ 146,318 $ 129,324 $ 112,050 Earnings per share (b) Basic $ 1.43 $ 1.01 $ 0.88 $ 0.76 Diluted $ 1.41 $ 1.00 $ 0.87 $ 0.76 Weighted-average number of shares Basic 141,909 144,750 146,622 146,751 Diluted 143,567 146,275 148,129 148,032 (a) 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. Prior periods have been reclassified to conform to the 2020 presentation. (b) Due to rounding, the sum of the quarterly earnings per share amounts may not equal the reported earnings per share for the year. F-51