What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-12-17 compared with 2020-12-22 · 260 added, 640 removed, 437 unchanged (67% of the section changed)

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

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

We cater to luxury first-time, move-up, empty-nester, active-adult, affordable luxury and second-home buyers in the United States (“Traditional Home Building Product”), as well as urban and suburban renters.

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

We cater to luxury first-time, move-up, empty-nester, active-adult, and second-home buyers in the United States (“Traditional Home Building Product”), as well as urban and suburban renters.

We also design, build, market, and sell urban low-, mid-, and high-rise condominiums through Toll Brothers City Living ® (“City Living”).

At October 31, 2020, we were operating in 24 states, as well as in the District of Columbia.

At October 31, 2021, we were operating in 24 states, and in the District of Columbia.

In the five years ended October 31, 2021, we delivered 42,005 homes from 835 communities, including 9,986 homes from 497 communities in fiscal 2021.

At October 31, 2021, we had 995 communities in various stages of planning, development or operations containing approximately 80,900 home sites that we owned or controlled through options.

We operate our own architectural, engineering, mortgage, title, land development, insurance, smart home technology, and landscaping subsidiaries.

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

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

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

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

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

See the section entitled “Toll Brothers Apartment Living/Toll Brothers Campus Living” below.

We operate our own architectural, engineering, mortgage, title, land development, golf course development, and landscaping subsidiaries.

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

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

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

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At October 31, 2021, our total equity and our debt to total capitalization ratio were $5.34 billion and 0.40 to 1.00, respectively.

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

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

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

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

As part of our strategy to expand our geographic footprint and product offerings, in fiscal 2021, we acquired substantially all of the assets and operations of StoryBook Homes, LLC (“StoryBook”), a privately-held home builder serving the Las Vegas, Nevada market, for approximately $38.8 million in cash.

The assets acquired were primarily inventory for future communities, including approximately 550 home sites owned or controlled through land purchase agreements.

Our Business Environment and Current Outlook

We have recently experienced very strong demand for our homes.

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

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

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

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

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

We have also limited lot releases in some communities.

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

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

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

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

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

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

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

During fiscal year 2021, we continued to experience very strong demand for our homes as the overall housing market remained robust.

During the year, we signed 12,472 net contracts with a value of $11.54 billion, up 26% in units and 44% in dollars compared to fiscal 2020.

The strength in demand continued in our fourth quarter, as we signed net contracts of 2,957 homes and $3.00 billion, down 13% in homes compared to a very strong fourth quarter of fiscal 2020, and up 10% in dollars compared to the same period.

Signed contracts, in both units and dollars, were the second highest totals for any quarter in our history (behind only the fourth quarter of fiscal 2020).

In response to the strong demand and in an effort to drive profitability and manage growth, we continued to raise prices in substantially all of our communities during the fourth quarter.

We have also limited lot releases in some of our communities in order to better align sales with our production capacity.

We continue to attribute the strong demand for new homes to a number of factors, including a supply-demand imbalance resulting from over a decade of underproduction of new homes, low mortgage rates, a tight supply of resale homes, favorable demographics, and a renewed appreciation for the importance of home.

We believe many of these factors will continue to support demand in the foreseeable future.

Our backlog at October 31, 2021 was 10,302 homes and $9.50 billion, up 32% in units and 49% in dollars, as compared to our backlog at October 31, 2020.

This was our highest year-end backlog in both units and dollars.

We, like many other home builders, are currently experiencing shortages for certain building materials and tightness in labor markets for a number of reasons, including the strong demand environment and disruptions to global supply chains caused by the pandemic and other factors.

These disruptions have extended our build times (the time it takes from contract signing to delivery of the completed home) by up to eight weeks as compared to our more typical build time of 9 to 12 months.

We continue to work with our suppliers and trade partners to resolve these issues, but we do not expect material or labor conditions to significantly improve in the near term.

Continued supply chain disruptions and labor and material shortages could further elongate delivery times and increase cost pressures.

Although housing market demand has remained strong over the past year and as we enter fiscal 2022, future economic conditions and the demand for homes are subject to continued uncertainty due to many factors, including the impacts of inflation, supply chain disruptions and labor shortages, the ongoing impact of the pandemic and government directives, actions and economic relief efforts related thereto, and the further impact of these actions on the economy, mortgage rates and markets, employment levels, consumer confidence, and financial markets, among other things.

The potential effect of these factors on our future operational and financial performance is highly uncertain, unpredictable and outside our control.

As a result, our past performance may not be indicative of future results.

Competitive Landscape

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Land Acquisition and Development

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

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

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

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

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

generally commencing construction of a detached home only after executing an agreement of sale and receiving a substantial down payment from the buyer;

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At October 31, 2021, we controlled approximately 80,900 home sites, as compared to approximately 63,200 home sites at October 31, 2020, and approximately 59,200 home sites at October 31, 2019.

In addition, at October 31, 2020, we expect to purchase approximately 2,100 additional home sites from several land development joint ventures in which we have an interest, at prices not yet determined.

In addition, at

October 31, 2021, we expect to purchase approximately 5,800 additional home sites from several Land Development Joint Ventures in which we have an interest, at prices not yet determined.

Of the approximately 80,900 total home sites that we owned or controlled through options at October 31, 2021, we owned approximately 36,100 and controlled approximately 44,800 through options.

Of the 80,900 home sites, approximately 17,200 were substantially improved.

In addition, at October 31, 2020, our Land Development Joint Ventures owned approximately 9,600 home sites (including 139 home sites included in the 27,000 controlled through options), and our Home Building Joint Ventures owned approximately 67 home sites.

In addition, at October 31, 2021, our Land Development Joint Ventures owned approximately 23,700 home sites (including 190 home sites included in the 44,800 controlled through options).

At October 31, 2021, we were selling from 340 communities, compared to 317 communities at October 31, 2020, and 333 communities at October 31, 2019.

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

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

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

We believe that our home buyers generally are, and should continue to be, well-positioned to secure mortgages due to their typically lower loan-to-value ratios and attractive credit profiles, as compared to the average home buyer.

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

In fiscal 2021, we announced a strategic partnership with Equity Residential, to selectively acquire and develop sites for new rental apartment communities in metro Boston, MA;

Orange County/San Diego, CA;

and Dallas-Fort Worth, TX.

The strategic partnership has an initial term of three years.

For selected projects, Equity Residential is expected to invest 75% of the equity and we are expected to invest the remaining 25% of the equity.

It is expected that each project will also be financed with approximately 60% leverage.

Equity Residential will have the option to acquire each property upon stabilization.

The parties have targeted an initial minimum co-investment of $733.0 million in combined equity, or $1.83 billion in aggregate value, assuming 60% leverage.

In the fourth quarter of fiscal 2021, we entered into three joint ventures with Equity Residential under this arrangement.

We also continue to evaluate potential strategic partnerships for our apartment projects in metro markets that are not designated to be developed exclusively with Equity Residential.

In fiscal 2021, five of our Rental Property Joint Ventures sold their assets to unrelated parties, resulting in an aggregate gain of $177.6 million recognized by the joint ventures.

From our investments in these joint ventures, we received cash and recognized an aggregate gain of $74.8 million in fiscal 2021.

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

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

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

From our investment in this joint venture, we received cash of $7.4 million and recognized a gain from this sale of $3.8 million in fiscal 2019.

In fiscal 2018, three of our Rental Property Joint Ventures sold their assets to unrelated parties for $477.5 million.

These joint ventures had owned, developed, and operated multifamily rental properties located in suburban Washington, D.C.

and Westborough, Massachusetts, and a student housing community in College Park, Maryland.

From our investment in these joint ventures, we received cash of $79.1 million and recognized gains from these sales of $67.2 million in fiscal 2018.

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

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The value of net sales contracts signed was $11.54 billion (12,472 homes) in fiscal 2021 and $8.00 billion (9,932 homes) in fiscal 2020.

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

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

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

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

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

The increase in the aggregate value of net contracts signed in fiscal 2021, as compared to fiscal 2020, was due to a 26% increase in the number of net contracts signed and a 15% increase in the average value of each contract signed.

The increase in the number of net contracts signed in fiscal 2021, as compared to fiscal 2020, reflects an overall increase in demand in the housing market, including a resurgence in demand for our homes that began at the outset of our fiscal 2020 third quarter.

We attribute the increase in demand to a number of factors, including low interest rates, a continued undersupply of homes, favorable

demographics, and consumers’ increased focus on the importance of home.

The increase in average price of net contracts signed in fiscal 2021, as compared to fiscal 2020, was principally due to price increases in many of our markets, partially offset by a shift in mix to lower price product types.

The value of our backlog at October 31, 2021, 2020, and 2019 was $9.50 billion (10,302 homes), $6.37 billion (7,791 homes), and $5.26 billion (6,266 homes), respectively.

Approximately 90% of the homes in backlog at October 31, 2021 are expected to be delivered by October 31, 2022.

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

The 49% increase in the value of homes in backlog at October 31, 2021, as compared to October 31, 2020, was due to an increase in the value of net contracts signed and higher home sales revenues in fiscal 2021, as compared to fiscal 2020.

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

CRITICAL ACCOUNTING POLICIES

We believe the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements.

Inventory is stated at cost unless an impairment exists, in which case it is written down to fair value in accordance with U.S.

generally accepted accounting principles (“GAAP”).

CRITICAL ACCOUNTING ESTIMATES

generally accepted accounting principles (“GAAP”) require us to make estimates and assumptions that affect our reported amounts in the consolidated financial statements and accompanying notes.

Our estimates are based on (i) currently known facts and circumstances, (ii) prior experience, (iii) assessments of probability, (iv) forecasted financial information, and (v) assumptions that management believes to be reasonable but that are inherently uncertain and unpredictable.

We use our best judgment when measuring these estimates, and if warranted, use external advice.

On an ongoing basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP.

However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

In times of economic disruption when uncertainty regarding future economic conditions is heightened, these estimates and assumptions are subject to greater variability.

For a discussion of all our significant accounting policies, including our critical accounting policies, refer to Note 1,“Significant Accounting Policies” of the Consolidated Financial Statements.

We believe that the accounting estimates and assumptions described below involve significant subjectivity and judgment, and changes to such estimates or assumptions could have a material impact on our financial condition or operating results.

Therefore, we consider an understanding of the variability and judgment required in making these estimates and assumptions to be critical in fully understanding and evaluating our reported financial results.

We believe the following critical accounting estimates reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements.

Inventory is stated at cost unless an impairment exists, in which case it is written down to fair value in accordance with GAAP.

In addition to direct land acquisition, land development, 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 periods 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 the community’s inventory until it reopens, and other carrying costs are expensed as incurred.

Once a parcel of land has been approved for development and we open the community, it can typically take four or more years to fully develop, sell, and deliver all the homes in that community.

Longer or shorter time periods are possible 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 to regularly review the carrying value of each of our communities and write down the value of those communities when we believe the values are not recoverable.

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Estimated fair value is primarily determined by discounting the estimated future cash flow of each community.

The impairment is charged to cost of home sales revenues in the period in which the impairment is determined.

During the year ended October 31, 2021, we utilized a discount rate of approximately 14% in our valuations.

The discount rate used in determining each asset’s fair value reflects inherent risks associated with the related estimated cash flows, as well as current risk-free rates available in the market and estimated market risk premiums.

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;

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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.

Any impairment is charged to cost of home sales revenues in the period in which the impairment is determined.

Future Communities :

We evaluate all land held for future communities or future sections of operating communities, whether owned or optioned, 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 in which the land is located and the estimated probability of obtaining the necessary approvals, the estimated time and cost it will take to obtain those 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.

This evaluation encompasses the same types of estimates used for operating communities described above, as well as an evaluation of the regulatory environment in which the land is located and the estimated probability of obtaining the necessary approvals, the estimated time and cost it will take to obtain those approvals, alternative land uses and the possible concessions that may be required to be given in order to obtain them.

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 we own, whether the land will likely be developed as contemplated or in an alternative manner, or should be sold.

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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.

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):

We have not made any material changes in the accounting methodology we use to assess possible impairments during the past three fiscal years.

We recognized 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, 2021, 2020, and 2019, as shown in the table below (amounts in thousands):

2021 2020 2019

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$ 26,535 $ 55,883 $ 42,360

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

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

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

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

($ amounts in thousands):

Impaired operating communities

Three months ended:

communities tested Number of communities Fair value of

impairment charges Impairment charges recognized

January 31 65 — $ — $ —

April 30 80 1 $ 2,754 300

July 31 66 — $ — —

October 31 53 1 $ 1,113 375

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

April 30 64 6 $ 36,159 17,495

July 31 69 3 $ 5,436 1,100

October 31 71 7 $ 18,910 6,695

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

April 30 65 4 $ 21,811 13,325

July 31 55 5 $ 43,063 9,065

October 31 43 6 $ 24,692 4,025

Revenue and Cost Recognition

Home sales revenues and cost recognition:

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.

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.

Cost of Revenue Recognition

Cost of revenues from home sales are recognized at the time each home is delivered and title and possession are transferred to the buyer.

Any changes resulting from a change in the estimated number of homes to be constructed or in the estimated costs subsequent to the commencement of delivery of homes are allocated to the remaining undelivered homes in the community.

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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.

Forfeited Customer Deposits:

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.

On November 1, 2018, we adopted Accounting Standards Codification (“ASC”) Topic 606 “Revenue from Contracts with Customers” (“ASC 606”), which supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, “Revenue Recognition,” and most industry-specific guidance.

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

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

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

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

We rely on certain estimates to determine our construction and land development costs.

Construction and land costs are comprised of direct and allocated costs, including estimated future costs.

In determining these costs, we compile community budgets that are based on a variety of assumptions, including future construction schedules and costs to be incurred.

Actual results can differ from budgeted amounts for various reasons, including construction delays, labor or material shortages, slower absorptions, increases in costs that have not yet been committed, changes in governmental requirements, or other unanticipated issues encountered during construction and development and other factors beyond our control.

To address uncertainty in these budgets, we assess, update and revise community budgets on a regular basis, utilizing the most current information available to estimate home construction and land costs.

We have not made any material changes in the methodology used in developing and revising community budgets over the past three fiscal years.

Warranty and Self-Insurance

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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.

Warranty costs are accrued based upon historical experience related to product type, geographic location and other community specific factors.

Adjustments to our warranty liabilities related to homes delivered in prior years are recorded in the period in which a change in our estimate occurs.

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See Note 7, “Accrued Expenses” in Item 15(a)1 of this Form 10-K for additional information regarding these warranty charges.

We have not made any material changes in our methodology or significant assumptions used to establish our warranty reserves during the past three fiscal years.

Self-Insurance:

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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.

OFF-BALANCE SHEET ARRANGEMENTS

We also operate through a number of joint ventures.

We earn construction and management fee income from many of these joint ventures.

Our investments in these entities are generally accounted for using the equity method of accounting.

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 our purchase;

instead, our cost basis in the home sites is reduced by our share of the earnings realized by the joint venture from those home sites.

At October 31, 2020, we had investments in these entities of $430.7 million, and were committed to invest or advance up to an additional $75.0 million to these entities if they require additional funding.

At October 31, 2020, we had agreed to terms for the acquisition of 139 home sites from one Land Development Joint Ventures for an estimated aggregate purchase price of $10.1 million.

In addition, we expect to purchase approximately 2,100 additional home sites over a number of years from several of these joint ventures;

the purchase price of these home sites will be determined at a future date.

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 the obligation of an unconsolidated entity due to a triggering event, the collateral should be sufficient to repay all or a significant portion of the obligation.

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

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

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

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

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

The trends, uncertainties or other factors that impact our business and the industry in general also impact the unconsolidated entities in which we have investments.

We review each of our investments on a quarterly basis for indicators of impairment.

We have not made any material changes in our methodology used to establish our self-insurance reserves during the past three fiscal years.

Over the past three fiscal years adjustments to our estimates have not been material.

Investments in Unconsolidated Entities

We evaluate our investments in unconsolidated entities for indicators of impairment on a quarterly basis.

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

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

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

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

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

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

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

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

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

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

The amount of impairment recognized is the excess of the investment’s carrying amount over its estimated fair value.

The evaluation of our investments in unconsolidated entities for other-than-temporary impairment entails a detailed cash flow analysis using many estimates, including but not limited to:

(1) projected future distributions from the unconsolidated entities,

(2) discount rates applied to the future distributions and (3) various other factors.

For our unconsolidated entities that develop for-sale homes and condominiums these other factors include those that are similar to how we evaluate our inventory for impairment as described above, such as expected sales pace, expected sales price, and costs incurred and anticipated.

For our unconsolidated entities that own, develop and manage for-rent residential apartments, these other factors may include rental trends, expected future expenses and cap rates.

Our assumptions on the projected future distributions from unconsolidated entities are also dependent on market conditions, sufficiency of financing and capital and competition.

We believe our assumptions on discount rates require significant judgment because the selection of the discount rate may significantly impact the estimated fair value of our investments in unconsolidated entities.

A higher discount rate reduces the estimated fair value of our investments in unconsolidated entities, while a lower discount rate increases the estimated fair value of our investments in unconsolidated entities.

During the year ended October 31, 2021, we utilized discount rates ranging from 9% to 15% in our valuations.

Because of changes in economic conditions, actual results could differ materially from management’s assumptions and may require material valuation adjustments to our investments in unconsolidated entities to be recorded in the future.

RESULTS OF OPERATIONS

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Years ended October 31,

2020 2019 % Change 2020 vs.

2021 2020 % Change

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Income from operations 1,020.9 550.3 86 %

Income from unconsolidated entities 0.9 24.9 (96) % 85.2 (71) %

Income from unconsolidated entities 74.0 0.9 NM

Other income - net 40.6 35.7 14 %

Expenses related to early retirement of debt (35.2) — NM

Income before income taxes 1,100.3 586.9 87 %

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Deliveries – units 9,986 8,496 18 %

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

Deliveries – average sales price (in ‘000s) $ 844.4 $ 816.5 3 %

Net contracts signed – value $ 11,539.9 $ 7,995.1 44 %

Net contracts signed – units 12,472 9,932 26 %

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

Net contracts signed – average sales price (in ‘000s) $ 925.3 $ 805.0 15 %

At October 31,

2020 2019 % Change 2020 vs.

2021 2020 % Change

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Backlog – units 10,302 7,791 32 %

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

Backlog – average sales price (in ‘000s) $ 922.1 $ 818.2 13 %

Amounts may not add due to rounding.

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

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

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

Prior periods are not restated.

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

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

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

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

NM - Not Meaningful

A discussion and analysis regarding Results of Operations and Analysis of Financial Condition for the year ended October 31, 2020, as compared to the year ended October 31, 2019, is included in Part II, Item 7, “MD&A” to our Annual Report on Form 10-K for the fiscal year ended October 31, 2020, filed with the SEC on December 22, 2020.

FISCAL 2021 COMPARED TO FISCAL 2020

Home Sales Revenues and Home Sales Cost of Revenues

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

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

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

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

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

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

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

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

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

The increase in home sales revenues in fiscal 2021, as compared to fiscal 2020, was attributable to an 18% increase in the number of homes delivered and a 3% increase in the average price of the homes delivered.

The increase in the number of homes delivered in fiscal 2021, as compared to fiscal 2020, is principally due to an increase in the number of homes in backlog at October 31, 2020, as compared to the number of homes in backlog at October 31, 2019, as a result of increased demand for our homes partially offset by lower backlog conversion in fiscal 2021.

In addition, restrictions and related impacts on economic activity from the COVID-19 pandemic adversely impacted our ability to construct and deliver homes in certain markets in the second half of fiscal 2020, including New Jersey, New York City, metro Seattle and California.

The increase in the average delivered home price was mainly due to sales price increases, partially offset by a shift in mix to lower price product types.

Home sales cost of revenues, as a percentage of homes sales revenues, in fiscal 2021 was 77.5%, as compared to 79.8% in fiscal 2020.

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

higher land, land development, material and labor costs;

and higher inventory impairment charges.

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

The decrease in fiscal 2021 was principally due to a shift in the mix of revenues to higher margin products/areas, higher sales prices outpacing cost increases, lower inventory impairment charges and lower interest expense as a percentage of home sales revenues.

Interest cost in fiscal 2021 was $187.2 million or 2.2% of home sales revenues, as compared to $174.4 million or 2.6% of home sales revenues in fiscal 2020.

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

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

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

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

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

and (4) sales of commercial and retail properties generally located at our City Living buildings.

Land sales to joint ventures in which we retain an interest are generally sold at our land basis and therefore little to no gross margin is earned on these sales.

In fiscal 2021, we sold a parking garage and retail space associated with our Hoboken, New Jersey condominium projects for $82.4 million and we recognized gains of $38.3 million.

In addition, we sold ten land parcels to newly formed Rental Property Joint Ventures in which we have an interest for $227.8 million.

No gains were recognized on these land sales to joint ventures.

During fiscal 2020, we sold six land parcels to newly formed Rental Property Joint Ventures in which we retained an interest for approximately $74.1 million.

Minimal gains were recognized on these land sales to joint ventures.

Selling, General and Administrative Expenses (“SG&A”)

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

SG&A spending increased by $54.6 million in fiscal 2021, as compared to fiscal 2020.

As a percentage of home sales revenues, SG&A was 10.9% and 12.5% in fiscal 2021 and 2020, respectively.

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

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

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

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

The dollar increase in SG&A was due primarily to higher commissions and insurance costs incurred due to the 22% increase in home sales revenues, increased compensation costs due to a higher number of employees and normal compensation increases, partially offset by lower sales and marketing expenses being incurred in a high demand environment.

The decrease in SG&A as a percentage of revenues was due to a 22% increase in revenues partially offset by a 6% increase in SG&A spending in fiscal 2021, as compared to fiscal 2020.

Income from Unconsolidated Entities

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

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

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

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

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

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

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

For our Rental Property Joint Ventures specifically, these entities typically generate operating losses until the related property reaches stabilization.

For the fiscal years 2021 and 2020, our earnings related to the Rental Property Joint Ventures include approximately $18.1 million and $1.1 million of our share of net operating losses incurred by these joint ventures, respectively, of which approximately $17.8 million and $11.3 million was our share of the depreciation expense recognized by these joint ventures, respectively.

The increase in income from unconsolidated entities from $0.9 million in fiscal 2020 to $74.0 million in fiscal 2021, was due mainly to $74.8 million of gains recognized in the fiscal 2021 period related to property sales by five of our Rental Property

Joint Ventures, a $6.0 million gain recognized in the fiscal 2021 period related to asset sales of commercial properties by one of our Land Development Joint Ventures, increased earnings at two of our Land Development Joint Ventures due to lot sales and a decrease in other than temporary impairment charges recognized.

These increases are partially offset by a $10.7 million gain recognized in the fiscal 2020 period from the sale of our investment in one of our Rental Property Joint Ventures to our joint venture partner and lower income from a Home Building Joint Venture and Land Development Joint Venture which are delivering their final lots/units.

Other Income - Net

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Income from ancillary businesses $ 36,711 $ 25,540

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

Management fee income from Home Building Joint Ventures, net 1,646 3,636

Other 2,257 6,517

Total other income – net $ 40,614 $ 35,693

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

higher losses incurred in our apartment living operations;

lower income from golf club operations;

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

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

The increase in income from ancillary businesses in fiscal 2021, as compared to fiscal 2020, was principally due to higher income from our mortgage and title operations due to increased volume, as well as lower losses incurred in our apartment living operations.

These increases were partially offset by gains of $13.0 million recognized in fiscal 2020 from the sale of golf club properties with no similar sales in fiscal 2021, coupled with losses generated from our City Living commercial operations.

In fiscal 2021 and 2020, our apartment living operations incurred $28.3 million and $28.6 million of expenses, respectively, offset by $20.2 million and $14.0 million of management fee income, respectively.

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

The decrease in fiscal 2021, as compared to fiscal 2020, was primarily related to the decrease in the number of communities.

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

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

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

The decrease in “Other” in fiscal 2021, as compared to fiscal 2020, was principally due to lower interest income earned.

Expenses Related to Early Retirement of Debt

In fiscal 2021, we redeemed, prior to maturity, all $250.0 million aggregate principal amount of our then-outstanding 5.625% Senior Notes due 2024.

In connection with this redemption, we incurred a pre-tax charge of $34.2 million, inclusive of the write-off of unamortized deferred financing costs, which is recorded in our Consolidated Statement of Operations and Comprehensive Income.

No similar charges were incurred in fiscal 2020.

Income Before Income Taxes

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

In fiscal 2021, we reported income before income taxes of $1.10 billion or 12.5% of revenues, as compared to $586.9 million, or 8.3% of revenues in fiscal 2020.

Income Tax Provision

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a benefit of $4.7 million from excess tax benefits related to stock-based compensation;

and the reversal of $1.7 million of

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

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

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

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

FISCAL 2019 COMPARED TO FISCAL 2018

HOME SALES REVENUES AND HOME SALES COST OF REVENUES

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

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

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

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

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

Home sales cost of revenues, as a percentage of homes sales revenues, in fiscal 2019 was 78.2%, as compared to 77.5% in fiscal 2018.

The increase in fiscal 2019 was primarily due to higher land, land development, material and labor costs;

a shift in the mix of our home sales revenues to lower margin products/areas;

the recovery of approximately $9.7 million from litigation settlements in fiscal 2018;

a $7.0 million benefit in fiscal 2018 from the reversal of an accrual related to an indemnification obligation related to the Shapell acquisition that expired;

and higher inventory impairment charges in fiscal 2019, as compared to fiscal 2018.

These increases were offset, in part, by a state reimbursement of previously expensed environmental clean-up costs received in fiscal 2019;

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

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

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

Interest cost in fiscal 2019 was $185.0 million or 2.6% of home sales revenues, as compared to $190.7 million or 2.7% of home sales revenues in fiscal 2018.

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

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

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

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

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

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

SG&A spending increased by $59.0 million in fiscal 2019 compared to fiscal 2018.

As a percentage of home sales revenues, SG&A was 12.4% and 11.5% in fiscal 2019 and 2018, respectively.

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

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

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

INCOME FROM UNCONSOLIDATED ENTITIES

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

These decreases were offset, in part, by a $3.8 million gain recognized in fiscal 2019 from an asset sale by one of our Rental Property Joint Ventures located in Phoenixville, Pennsylvania;

higher earnings from two of our Home Building Joint Ventures;

and a $3.0 million decrease in impairment charges recognized in fiscal 2019 as compared to fiscal 2018.

OTHER INCOME - NET

The table below provides the components of “Other Income – net” for the years ended October 31, 2019 and 2018 (amounts in thousands):

Income from ancillary businesses 53,568 25,692

Management fee income from home building unconsolidated entities, net 9,948 11,740

Income from land sales — 6,331

Retained customer deposits — 8,937

Other 17,986 9,760

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

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

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

The increase in income from ancillary businesses in fiscal 2019, as compared to fiscal 2018, was mainly due to gains recognized of $35.1 million from the sale of seven golf clubs in fiscal 2019 and lower losses incurred in our apartment living operations in fiscal 2019, as compared to fiscal 2018, partially offset by a $10.7 million gain from a bulk sale of security monitoring accounts by our home control solutions business in fiscal 2018.

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 2019 and 2018, our apartment living operations earned fees from unconsolidated entities of $11.9 million and $7.5 million, respectively.

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

The increase in “other” in fiscal 2019 was principally due to higher interest income earned in fiscal 2019 compared to fiscal 2018, offset, in part, by $2.6 million received in fiscal 2018 from the resolution of a matter involving defective floor joists.

INCOME BEFORE INCOME TAXES

In fiscal 2019, we reported income before income taxes of $787.2 million or 10.9% of revenues, as compared to $933.9 million, or 13.1% of revenues in fiscal 2018.

INCOME TAX PROVISION

and the reversal of $1.0 million of previously accrued tax provisions on uncertain tax positions that were no longer necessary due to the expiration of the statute of limitations.

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

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

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

Based upon the blended federal statutory rate of 23.3% for fiscal 2018, our federal tax provision would have been $217.9 million.

The difference between the tax provision recognized and the tax provision based on the federal statutory rate was mainly due to tax law changes of $38.7 million;

a benefit of $18.2 million related to the utilization of domestic production activities deductions;

the reversal of $4.7 million of previously accrued

tax provisions on uncertain tax positions that were no longer necessary due to the expiration of the statute of limitations and settlements with certain taxing jurisdictions;

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

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

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

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

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

and the reversal of $1.7 million of previously accrued tax provisions on uncertain tax positions that were no longer necessary due to the expiration of the statute of limitations.

CAPITAL RESOURCES AND LIQUIDITY

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

Our cash flows from operations generally provide us with a significant source of liquidity.

Our cash flows provided by operating activities, supplemented with our short-term borrowings and long-term debt, have been sufficient to fund our operations while allowing us to invest in activities that support the long-term growth of our operations.

Our primary uses of cash include inventory additions in the form of land acquisitions and deposits to obtain control of land, land development, working capital to fund day to day operations, and investments in existing and future unconsolidated joint ventures.

We may also use cash to fund capital expenditures such as investments in our information technology systems.

From time to time we use some or all of the remaining available cash flow to repay debt, and to fund share repurchases and dividends on our common stock.

We believe our sources of cash and liquidity will continue to be adequate to fund operations, finance our strategic operating initiatives, repay debt, fund our share repurchases and pay dividends for the foreseeable future.

At October 31, 2021, we had $1.64 billion of cash and cash equivalents on hand and approximately $1.81 billion available for borrowing under our Revolving Credit Facility.

Short-term Liquidity and Capital Resources

For at least the next twelve months, we expect our principal demand for funds will be for inventory additions in the form of land acquisition, deposits to control land and land development, operating expenses, including our general and administrative expenses, investments and funding of capital improvements, investments in existing and future unconsolidated joint ventures, debt repayment, common stock repurchases, and dividend payments.

Demand for funds include interest and principal payments on current and future debt financing, including the $409.9 million principal payment on our 5.875% Senior Notes due February 15, 2022, which we repaid at par, plus accrued interest, on November 15, 2021.

We expect to meet our short-term liquidity requirements primarily through our cash and cash equivalents on hand and net cash flows provided by operations.

Additional sources of funds include distributions from our unconsolidated joint ventures, borrowing capacity under our revolving credit facility and our mortgage company loan facility, and borrowings from banks and other lenders.

We believe we will have sufficient liquidity available to fund our business needs, commitments and contractual obligations in a timely manner for the next twelve months.

We may, however, seek additional financing to fund future growth or refinance our existing indebtedness through the debt capital markets, but we cannot be assured that such financing will be available on favorable terms, or at all.

Long-term Liquidity and Capital Resources

Beyond the next twelve months, our principal demands for funds will be for the payments of the principal amount of our long-term debt as it becomes due or matures, land purchases and inventory additions needed to grow our business, long-term capital investments and investments in unconsolidated joint ventures, common stock repurchases, and dividend payments.

Over the longer term, to the extent the sources of capital described above are insufficient to meet our needs, we may also conduct additional public offerings of our securities, refinance debt or dispose of certain assets to fund our operating activities, debt service, dividends and common stock repurchases.

We expect these resources will be adequate to fund our ongoing operating activities as well as providing capital for investment in future land purchases and related development activities and future joint ventures.

Material Cash Requirements

We are a party to many contractual obligations involving commitments to make payments to third parties.

These obligations impact our short-term and long-term liquidity and capital resource needs.

Certain contractual obligations are reflected on the Consolidated Balance Sheet as of October 31, 2021, while others are considered future commitments.

Our contractual obligations primarily consist of long-term debt and related interest payments, payments due on our Mortgage Company Loan Facility, purchase obligations related to expected acquisition of land under purchase agreements and land development agreements (many of which are secured by letters of credit or surety bonds), operating leases, and obligations under our deferred compensation plan, supplemental executive retirement plans, and 401(k) savings plans.

We also enter into certain short-term lease commitments, commitments to fund our existing or future unconsolidated joint ventures, letters of credit and other purchase obligations in the normal course of business.

For more information regarding our primary obligations, refer to Note 6, “Loans Payable, Senior Notes, and Mortgage Company Loan Facility,” and Note 15, “Commitments and Contingencies,” to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for amounts outstanding as of October 31, 2021, related to debt and commitments and contingencies, respectively.

We also operate through a number of joint ventures and have undertaken various commitments as a result of those arrangements.

At October 31, 2021, we had investments in these entities of $599.1 million, and were committed to invest or advance up to an additional $248.0 million to these entities if they require additional funding.

We expect to purchase approximately 5,800 home sites over a number of years from several of these joint ventures.

The purchase price of these home sites will be determined at a future date.

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

In some instances, we and our joint venture partner 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;

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

In these situations where we have joint and several guarantees with our joint venture partner, 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.

We believe that as of October 31, 2021, in the event we become legally obligated to perform under a guarantee of the obligation of an unconsolidated entity due to a triggering event, the collateral should be sufficient to repay all or a significant portion of the obligation.

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

At October 31, 2021, we had guaranteed the debt of certain unconsolidated entities with loan commitments aggregating $2.20 billion, of which, if the full amount of the debt obligations were borrowed, we estimate $418.8 million to be our maximum exposure related to repayment and carry cost guarantees.

At October 31, 2021, the unconsolidated entities had borrowed an aggregate of $1.09 billion, of which we estimate $222.0 million to be our maximum exposure related to repayment and carry cost guarantees.

These maximum exposure estimates do not take into account any estimates related to the environmental or “bad boy acts” indemnifications provided to the lenders or recoveries from the underlying collateral or any reimbursement from our partners.

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

Debt Service Requirements

Our financing strategy is to ensure liquidity and access to capital markets, to maintain a balanced profile of debt maturities, and to manage our exposure to floating interest rate volatility.

Outside of the normal course of operations, one of our principal liquidity needs is the payment of principal and interest on outstanding indebtedness.

We are required by the terms of certain loan documents to meet certain covenants, such as financial ratios and reporting requirements.

As of October 31, 2021, we were in compliance with all such covenants and requirements on our term loan, credit facility and other loans payable.

Refer to Note 6, “Loans Payable, Senior Notes, and Mortgage Company Loan Facility” in the Notes to the Consolidated Financial Statements in Item 15(a)1 of this Form 10-K for additional information.

Operating Activities

Cash provided by operating activities during fiscal 2021 was $1.30 billion.

Cash provided by operating activities was generated primarily from $833.6 million of net income plus $23.2 million of stock-based compensation, $76.3 million of depreciation and amortization, $26.5 million of inventory impairments and write-offs, and a net deferred tax benefit of $11.8 million;

an increase of $214.8 million in accounts payable and accrued expenses;

an increase of $165.6 million in net customer deposits;

and a decrease of $135.8 million in receivables, prepaid assets, and other assets.

This activity was offset, in part, by an increase of $196.2 million in inventory;

an increase of $18.6 million in mortgage loans held for sale;

and a $38.7 million gain from the sale of assets.

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

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

a $352.9 million decrease in inventory;

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

Investing Activities

Cash used in investing activities during fiscal 2021 was $4.2 million, primarily related to $221.9 million used to fund investments in unconsolidated entities and $66.9 million for the purchase of property and equipment.

This activity was offset, in part, by $203.5 million of cash received as returns on our investments in unconsolidated entities and proceeds of $80.4 million of cash received from sales of certain commercial properties.

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

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

Financing Activities

We used $1.01 billion of cash from financing activities in fiscal 2021, primarily for the repurchase of $378.3 million of our common stock;

repayments of $267.0 million of other loans payable, net of new borrowings;

$294.2 million of redemption of senior notes, and payment of $76.6 million of dividends on our common stock, offset, in part, by the proceeds of $10.5 million from our stock-based benefit plans.

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

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

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

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

It was generated primarily from $590.0 million of net income plus $26.2 million of stock-based compensation, $72.1 million of depreciation and amortization, $42.4 million of inventory impairments and write-offs, and a net deferred tax benefit of $102.8 million;

offset, in part, by a $40.2 million increase in inventory;

an increase of $185.3 million in receivables, prepaid assets, and other assets;

an increase of $45.6 million in mortgage loans held for sale;

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

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

$87.0 million for the purchase of property and equipment;

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

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

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

the repurchase of $233.5 million of our common stock;

and payment of $63.6 million of dividends on our common stock, offset, in part, by the net proceeds of $396.4 million from the issuance of $400.0 million aggregate principal amount of 3.80% Senior Notes due 2029;

borrowings of $227.4 million of other loans payable, net of new repayments;

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

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

Because we own a supply of several years of home sites, we do not need to buy home sites immediately to replace those that we deliver.

In addition, we generally do not begin construction of our detached homes until we have a signed contract with the home buyer.

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

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

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

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

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

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

and approximately 53,400 at October 31, 2018.

Of the approximately 63,200 home sites owned or controlled through options at October 31, 2020, we owned approximately 36,100.

Of our owned home sites at October 31, 2020, significant improvements were completed on approximately 16,600 of them.

At October 31, 2020, the aggregate purchase price of land parcels under option and purchase agreements was approximately $2.64 billion (including $10.1 million of land to be acquired from joint ventures in which we have invested).

Of the $2.64 billion of land purchase commitments, we had paid or deposited $223.6 million and, if we acquire all of these land parcels, we will be required to pay an additional $2.42 billion.

The purchases of these land parcels are scheduled over the next several years.

In addition, we expect to purchase approximately 2,100 additional home sites over a number of years from several of these joint ventures.

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.

During the past several years, we have made a number of investments in unconsolidated entities related to the acquisition and development of land for future home sites, the construction of luxury for-sale condominiums, and for-rent apartments.

Our investment activities related to investments in, and distributions of investments from, unconsolidated entities are contained in the Consolidated Statements of Cash Flows under “Net cash (used in) provided by investing activities.” At October 31, 2020, we had investments in these entities of $430.7 million, and were committed to invest or advance up to an additional $75.0 million to these entities if they require additional funding.

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

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

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

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

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

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

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

Based upon the minimum tangible net worth requirement, our ability to repurchase our common stock was limited to approximately $3.18 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.

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

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

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

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

These interest rate swaps were designated as cash flow hedges.

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

Due to the uncertainties in the economy and for home builders in general, we cannot be certain that we will be able to replace existing financing or find sources of additional financing in the future.

The long-term impact of inflation on us is manifested in increased costs for land, land development, construction, and overhead.

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Increases in sales prices, whether the result of inflation or demand, may affect the ability of prospective buyers to afford new homes.

CONTRACTUAL OBLIGATIONS

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

2021 2022 – 2023 2024 – 2025 Thereafter Total

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

Loans payable (a) 136.7 128.4 148.8 874.6 1,288.5

Mortgage company loan facility (a)(b) 150.1 — — — 150.1

Operating lease obligations 19.9 33.7 22.5 204.5 280.6

Purchase obligations (c) 1,487.2 935.5 255.1 234.0 2,911.8

Retirement plans (d) 13.3 16.9 16.9 61.9 109.0

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

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

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

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

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

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

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

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

SUPPLEMENTAL GUARANTOR INFORMATION

At October 31, 2021, our 100%-owned subsidiary, Toll Brothers Finance Corp.

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

(the “Subsidiary Issuer”), had issued and outstanding $2.41 billion aggregate principal amount of senior notes maturing on various dates between February 15, 2022 and November 1, 2029 (the “Senior Notes”), although all $409.9 million in outstanding principal amount of Senior Notes due February 15, 2022 was repaid subsequent to October 31, 2021.

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

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

Holders of the Senior Notes have a direct claim only against

the Subsidiary Issuer and the Guarantors.

Holders of the Senior Notes have a direct claim only against the Subsidiary Issuer and the Guarantors.

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

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

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

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

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

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

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Inventory $ 7,758.6

Amount due from Nonguarantor Subsidiaries $ 671.1

Amount due from Non-Guarantor Subsidiaries $ 573.3

Total assets $ 10,475.8

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Traditional Home Building and City Living, our urban development division.

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

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:

Within Traditional Home Building, we operate in five geographic segments around the United States as follows:

Eastern Region:

• The North region:

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

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

• The Mid-Atlantic region:

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California, Oregon and Washington.

Previously, our geographic segments were:

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

• Mid-Atlantic :

Delaware, Maryland, Pennsylvania and Virginia;

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

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

• California :

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

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

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

Our geographic reporting segments are consistent with how our chief operating decision makers are assessing operating performance and allocating capital.

The following tables summarize information related to revenues, net contracts signed, and income (loss) before income taxes by segment for fiscal years 2021 and 2020.

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2021 2020 % Change 2021 2020 % Change 2021 2020 % Change

Restated Restated Restated

Traditional Home Building:

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Total revenue $ 8,790.3 $ 7,077.7

Fiscal 2019 Compared to Fiscal 2018

($ in millions) Units Delivered Average Delivered Price

($ in thousands)

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

Restated Restated Restated Restated Restated Restated

Traditional Home Building:

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

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

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

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

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

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

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

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

Land sales and other revenue 143.6

Total revenue $ 7,224.0 $ 7,143.3

Net Contracts Signed:

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2021 2020 % Change 2021 2020 % Change 2021 2020 % Change

Restated Restated Restated

Traditional Home Building:

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Total $ 11,539.9 $ 7,995.1 44 % 12,472 9,932 26 % $ 925.3 $ 805.0 15 %

Fiscal 2019 Compared to Fiscal 2018

Net Contract Value

($ in millions) Net Contracted Units Average Contracted Price

($ in thousands)

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

Restated Restated Restated Restated Restated Restated

Traditional Home Building:

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

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

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

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

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

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

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

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

Backlog at October 31:

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2021 2020 % Change 2021 2020 % Change 2021 2020 % Change

Restated Restated Restated

Traditional Home Building:

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Total $ 9,499.1 $ 6,374.6 49 % 10,302 7,791 32 % $ 922.1 $ 818.2 13 %

October 31, 2019 Compared to October 31, 2018

Backlog Value

($ in millions) Backlog Units Average Backlog Price

($ in thousands)

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

Restated Restated Restated Restated Restated Restated

Traditional Home Building:

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

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

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

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

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

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

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

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

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

2020 2019 % Change 2020 vs.

2021 2020 % Change

Restated Restated

Traditional Home Building:

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Total $ 1,100.3 $ 586.9 87 %

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

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

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.

income from certain of our ancillary businesses, and income from our Rental Property Joint Ventures and Gibraltar Joint Ventures.

Total Assets ($ amounts in millions):

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Total $ 11,537.9 $ 11,065.7

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

FISCAL 2020 COMPARED TO FISCAL 2019 (Restated)

“Corporate and other” is comprised principally of cash and cash equivalents, restricted cash, income taxes receivable, properties held for rental apartments, 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.

A discussion and analysis regarding our Segments’ Results of Operations and Analysis of Financial Condition for the year ended October 31, 2020, as compared to the year ended October 31, 2019 is included in Part II, Item 7, “MD&A” to our Annual Report on Form 10-K for the fiscal year ended October 31, 2020, filed with the SEC on December 22, 2020.

FISCAL 2021 COMPARED TO FISCAL 2020

Traditional Home Building

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Number of selling communities at October 31, 64 70 (9) %

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

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

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

The increase in the number of homes delivered in fiscal 2021 was mainly due to an increase in the number of homes in backlog at October 31, 2020, as compared to the number of homes in backlog at October 31, 2019.

The increase in the average price of homes delivered in fiscal 2021 was principally due to sales price increases.

The decrease in the number of net contracts signed in fiscal 2021, as compared to fiscal 2020, was principally due to a decrease in the average number of selling communities, offset, in part, by an increase in demand in fiscal 2021.

The increase in the average value of each contract signed in fiscal 2021, as compared to fiscal 2020, was mainly due to shifts in the number of contracts signed to more expensive areas and/or products and price increases.

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

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

land development, and material and labor costs;

higher impairment charges;

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

The increase in income before income taxes in fiscal 2021 was principally attributable to higher earnings from increased revenues and lower home sales cost of revenues, as a percentage of home sales revenues.

The decrease in home sales cost of revenues, as a percentage of home sales revenues in fiscal 2021 was primarily due to a shift in product mix/areas to higher-margin areas, sales price increases and lower inventory impairment charges.

Inventory impairment charges were $12.2 million in fiscal 2021, as compared to $28.4 million in fiscal 2020.

During the fourth quarter of fiscal 2021, we decided to sell the remaining lots in two communities, one in Connecticut and one in Illinois, in bulk sales.

Based on our current estimates of bulk sale prices for these communities, we recognized impairment charges of $8.7 related to these communities.

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

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

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

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Number of selling communities at October 31,

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

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

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

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

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

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

The increase in the number of homes delivered in fiscal 2021, as compared to fiscal 2020, was mainly due to an increase in the number of homes in backlog at October 31, 2020, as compared to the number of homes in backlog at October 31, 2019, partially offset by lower backlog conversion in fiscal 2021.

The increase in the average delivered price in fiscal 2021 was primarily due a shift in the number of homes delivered to more expensive areas and/or products, as well as sales price increases.

The increase in the average value of each contract signed in fiscal 2021 was primarily due to shifts in the number of contracts signed to more expensive areas and/or products, as well as sales price increases in fiscal 2021.

The increase in income before income taxes in fiscal 2021, as compared to fiscal 2020, was mainly due to higher earnings from increased revenues, coupled with lower home sales costs of revenues, as a percentage of home sale revenues.

The decrease in home sales costs of revenues, as a percentage of home sale revenues, in fiscal 2021 was primarily due to a shift in product mix/areas to higher-margin areas, lower interest costs as a percentage of home sales revenue and reduced inventory impairment charges.

A $6.0 million gain recognized from an asset sale of a commercial property by one of our Land Development Joint Ventures was also recognized during fiscal 2021 with no similar gain in fiscal 2020.

Inventory impairment charges were $10.9 million and $17.9 million in fiscal 2021 and 2020, respectively.

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

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

In the third quarter of fiscal 2021, we decided to sell the remaining lots in one community located in Maryland in a bulk sale.

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

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

This resulted in an impairment charge of $10.1 million in fiscal 2021 related to this community.

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

In addition, in the third quarter of fiscal 2020, we decided to sell the remaining lots in one community located in Maryland in a bulk sale.

As a result, we wrote down the carrying value of inventory in this community to its estimated fair value, resulting in an impairment charge of $13.5 million in fiscal 2020 .

Year ended October 31,

14 unchanged sentences

Number of selling communities at October 31,

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

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

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

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

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

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

The increase in the number of net contracts signed in fiscal 2021, as compared to fiscal 2020, was principally due to an increase in demand from our homes and an increase in the average number of selling communities in fiscal 2021, offset by our limiting of lot releases in certain communities.

The increases in the average value of each contract signed in the fiscal 2021 periods were primarily due to sales price increases in fiscal 2021 and a shift in the number of contracts signed to more expensive areas and/or products.

The increase in income before income taxes in fiscal 2021, as compared to fiscal 2020, was principally due to higher earnings from increased home sales revenues and lower home sales costs of revenues, as a percentage of home sales revenues, offset, in part, by higher SG&A costs due to increased sales volume.

The decrease in home sales cost of revenues, as a percentage of home sales revenues, was mainly due to a shift in product mix/areas to higher-margin areas, lower interest costs as a percentage of home sales revenue and lower inventory impairment changes in fiscal 2021, as compared to fiscal 2020.

Inventory impairment charges were $0.7 million and $2.9 million in fiscal 2021 and 2020, respectively.

15 unchanged sentences

Number of selling communities at October 31,

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

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

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

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

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

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

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

partially offset by lower backlog conversion in fiscal 2021.

The increase in the average price of homes delivered in fiscal 2021 was primarily due to a shift in the number of homes delivered to more expensive areas and/or products and sales price increases.

The increase in the number of net contracts signed in fiscal 2021, as compared to fiscal 2020, was principally due to increased demand for our homes and an increase in the average number of selling communities.

The increases in the average value of each contract signed in fiscal 2021 was mainly due to shifts in the number of contracts signed to more expensive areas and/or products and price increases.

The increase in income before income taxes in fiscal 2021, as compared to fiscal 2020, was mainly due to higher earnings from increased revenues coupled with lower home sales cost of revenues, as a percentage of home sales revenues, offset in part by higher SG&A costs due to increased volume.

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

Year ended October 31,

14 unchanged sentences

Number of selling communities at October 31,

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

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

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

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

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

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

The increase in the number of homes delivered in fiscal 2021, as compared to fiscal 2020, was mainly due to an increase in the number of homes in backlog at October 31, 2020, as compared to the number of homes in backlog at October 31, 2019, coupled with higher backlog conversion in fiscal 2021.

The decrease in the average price of homes delivered in fiscal 2021 was primarily due to a shift in the number of homes delivered to less expensive areas and/or products.

The increase in the number of net contracts signed in fiscal 2021, as compared to fiscal 2020, was principally due to an increase in demand, as well as an increase in the number of selling communities.

The increase in the average value of each contract signed in fiscal 2021 was mainly due to price increases, partially offset by a shift in the number of contracts signed in less expensive areas.

The increase in income before income taxes in fiscal 2021, as compared to fiscal 2020, was primarily due to higher earnings from increased revenues, lower SG&A costs and lower inventory impairment charges.

Inventory impairment charges were $1.3 million and $6.0 million in fiscal 2021 and 2020, respectively.

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

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

Year ended October 31,

14 unchanged sentences

Number of selling communities at October 31,

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

The increase in the number of homes delivered in fiscal 2021, as compared to fiscal 2020, was mainly attributable to the low number of deliveries in fiscal 2020 due to the impacts of the COVID-19 pandemic, in particular in New York City and northern New Jersey, during the second half of fiscal 2020.

The increase in the average price of homes delivered in fiscal 2021, as compared to fiscal 2020, was primarily due to a shift in the number of homes delivered to more expensive areas and/or products.

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

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

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

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

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

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

The increase in the number of net contracts signed in fiscal 2021, as compared to fiscal 2020, was primarily due to an increase in demand in fiscal 2021 coupled with the low number of net contracts signed in the second half of fiscal 2020 following the onset of the COVID-19 pandemic.

The increase in income before income taxes in fiscal 2021, as compared to fiscal 2020, was mainly due to higher earnings from increased revenues and decreases in losses from our investments in unconsolidated entities.

In fiscal 2021, losses from our investments in unconsolidated entities in City Living decreased $7.0 million as compared to fiscal 2020.

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

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

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

Year ended October 31,

Deliveries and home sales revenues 44 147 $ 139.6 $ 330.8

Net contracts signed 22 39 $ 73.3 $ 128.1

At October 31,

4 26 $ 10.0 $ 76.3

Corporate and Other

In fiscal 2021 and 2020, loss before income taxes was $154.9 million and $180.1 million respectively.

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

higher losses incurred in our apartment living operations;

lower income from golf club operations;

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

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

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

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

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

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

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

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

and lower SG&A costs.

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

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

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

Traditional Home Building

Year ended October 31,

2019 2018 % Change

Units Delivered and Home Sales Revenues:

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

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

Average delivered price ($ in thousands)

$ 667.7 $ 671.9 (1) %

Net Contracts Signed:

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

Net contracted units 2,267 2,247 1 %

Average contracted price ($ in thousands)

$ 666.8 $ 672.6 (1) %

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

84.9 % 85.0 %

Income before income taxes ($ in millions)

$ 81.4 $ 98.2 (17) %

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

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

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

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

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

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

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

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

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

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

As a result, the carrying values of these communities were written down to their estimated fair values, which resulted in a charge to income before income taxes of $4.9 million in fiscal 2019.

During fiscal 2018, we determined that the pricing assumptions used in prior impairment reviews for one operating community located in Connecticut needed to be reduced, primarily due to a lack of improvement and/or a decrease in customer demand as a result of weaker than expected market conditions.

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

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

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

As a result, the carrying values of these communities were written down to their estimated fair values, which resulted in a charge to income before income taxes of $4.4 million in fiscal 2018.

Year ended October 31,

2019 2018 % Change

Units Delivered and Home Sales Revenues:

Home sales revenues ($ in millions) $ 804.4 775.7 4 %

Units delivered 1,237 1,271 (3) %

Average delivered price ($ in thousands)

$ 650.3 $ 610.3 7 %

Net Contracts Signed:

Net contract value ($ in millions) $ 772.5 $ 759.5 2 %

Net contracted units 1,159 1,176 (1) %

Average contracted price ($ in thousands)

$ 666.5 $ 645.8 3 %

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

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

$ 50.7 $ 59.3 (15) %

Number of selling communities at October 31,

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

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

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

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

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

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

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

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

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

The carrying value of this community was written down to its estimated fair value resulting in a charge to income before income taxes in fiscal 2018 of $6.7 million.

Year ended October 31,

2019 2018 % Change

Units Delivered and Home Sale Revenues:

Home sales revenues ($ in millions) $ 991.9 868.6 14 %

Units delivered 1,298 1,114 17 %

Average delivered price ($ in thousands)

$ 764.2 $ 779.7 (2) %

Net Contracts Signed:

Net contract value ($ in millions) $ 941.0 $ 948.3 (1) %

Net contracted units 1,307 1,212 8 %

Average contracted price ($ in thousands)

$ 720.0 $ 782.4 (8) %

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

Income before income taxes ($ in millions)

$ 106.1 $ 99.9 6 %

Number of selling communities at October 31,

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

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

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

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

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

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

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

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

During fiscal 2019, we decided to sell the remaining lots in a bulk sale in one community located in Texas rather than sell and construct homes, primarily due to a lack of improvement and/or a decrease in customer demand.

As a result, the carrying value of this community was written down to its estimated fair value, which resulted in a charge to income before income taxes of $1.5 million in fiscal 2019.

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

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

Year ended October 31,

2019 2018 % Change

Units Delivered and Home Sales Revenues:

Home sales revenues ($ in millions) $ 1,130.9 1,126.6 — %

Units delivered 1,711 1,797 (5) %

Average delivered price ($ in thousands)

$ 661.0 $ 626.9 5 %

Net Contracts Signed:

Net contract value ($ in millions) $ 1,456.2 $ 1,229.6 18 %

Net contracted units 2,097 1,871 12 %

Average contracted price ($ in thousands)

$ 694.4 $ 657.2 6 %

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

Income before income taxes ($ in millions)

$ 113.0 $ 136.2 (17) %

Number of selling communities at October 31,

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

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

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

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

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

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

Year ended October 31,

2019 2018 % Change

Units Delivered and Home Sales Revenues:

Home sales revenues ($ in millions) $ 2,416.6 $ 2,533.5 (5) %

Units delivered 1,434 1,655 (13) %

Average delivered price ($ in thousands)

$ 1,685.2 $ 1,530.8 10 %

Net Contracts Signed:

Net contract value ($ in millions) $ 1,804.8 $ 2,877.8 (37) %

Net contracted units 1,095 1,830 (40) %

Average contracted price ($ in thousands)

$ 1,648.2 $ 1,572.6 5 %

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

Income before income taxes ($ in millions)

509.8 571.4 (11) %

Number of selling communities at October 31,

The decrease in the number of homes delivered in fiscal 2019 was mainly due to lower backlog conversion in fiscal 2019, as compared to fiscal 2018, offset, in part, by the increased number of homes in backlog at October 31, 2018, as compared to the number of homes in backlog at October 31, 2017.

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

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

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

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

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

Year ended October 31,

2019 2018 % Change

Units Delivered and Home Sales Revenues:

Home sales revenues ($ in millions) $ 253.2 $ 321.0 (21) %

Units delivered 204 169 21 %

Average delivered price ($ in thousands)

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

Net Contracts Signed:

Net contract value ($ in millions) $ 224.7 $ 277.8 (19) %

Net contracted units 150 183 (18) %

Average contracted price ($ in thousands)

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

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

Income before income taxes ($ in millions)

$ 70.1 $ 78.1 (10) %

Number of selling communities at October 31,

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

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

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

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

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

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

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

The lower home sales cost of revenues, as a percentage of home sale revenues, in fiscal 2019 was due primarily to a shift in the number of homes delivered to buildings with higher margins;

a state reimbursement of previously expensed environmental clean-up costs received in fiscal 2019;

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

and lower interest costs in fiscal 2019.

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

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

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

This decrease was primarily due a shift in the number of homes delivered to buildings with lower margins and a shift in the number of homes delivered in joint ventures where our ownership percentage was lower in fiscal 2019, as compared to fiscal 2018.

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

Year ended October 31,

Deliveries and home sales revenues 147 14 $ 330.8 $ 65.7

Net contracts signed 39 102 $ 128.1 $ 245.6

At October 31,

26 134 $ 76.3 $ 279.0

Corporate and other

In fiscal 2019 and 2018, loss before income taxes was $143.9 million and $109.2 million, respectively.

The increase in the loss before income taxes in fiscal 2019 was principally attributable to $67.2 million of gains recognized in fiscal 2018 from asset sales by our Rental Property Joint Ventures located in College Park, Maryland, Herndon, Virginia, and Westborough, Massachusetts;

a $10.7 million gain from a bulk sale of security monitoring accounts by our home control solutions business in fiscal 2018;

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

and higher SG&A costs in fiscal 2019.

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

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

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

and higher interest income in fiscal 2019.

The decrease in the loss before income taxes in fiscal 2021 was principally attributable to higher income generated by our Rental Property Joint Ventures primarily as a result of $74.8 million of gains recognized in the fiscal 2021 period related to property sales by five of our Rental Property Joint Ventures;

higher earnings from our mortgage company and title company operations due to an increase in volumes and improved interest spreads in fiscal 2021;

lower losses incurred in our apartment living operations;

and directly expensed interest of $2.4 million in the fiscal 2020 period with no similar charges in fiscal 2021.

These increases were offset, in part by a $35.2 million charge incurred related to early retirement of debt in fiscal 2021, lower interest income in fiscal 2021, gains recognized in fiscal 2020 of $13.0 million from the sale of golf club properties, and higher SG&A costs in fiscal 2021 primarily due to normal compensation increases and an increase in insurance costs due to higher revenues.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis