What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-12-19 compared with 2021-12-17 · 319 added, 157 removed, 540 unchanged (47% of the section changed)

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References herein to fiscal year refer to our fiscal years ended or ending October 31.

Unless otherwise stated in this report, net contracts signed represents a number or value equal to the gross number or value of contracts signed during the relevant period, less the number or value of contracts canceled during the relevant period, which includes contracts that were signed during the relevant period and in prior periods.

Unless otherwise stated in this report, net contracts signed represents a number or value equal to the gross number or value of contracts signed during the relevant period, less the number or value of contracts cancelled during the relevant period, which includes contracts that were signed during the relevant period and in prior periods.

Backlog consists of homes under contract but not yet delivered to our home buyers (“backlog”).

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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”).

We cater to luxury first-time, move-up, empty-nester, active-adult, and second-home buyers in the United States, as well as urban and suburban renters.

We also design, build, market, and sell high-density, high-rise urban luxury condominiums with third-party joint venture partners through Toll Brothers City Living ® (“City Living”).

At October 31, 2022, we were operating in 24 states and in the District of Columbia.

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

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

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

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

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Financial Highlights

In fiscal 2021, we recognized $8.43 billion of home sales revenues and net income of $833.6 million, as compared to $6.94 billion of revenues and net income of $446.6 million in fiscal 2020.

In fiscal 2022, we recognized $10.28 billion of revenues, consisting of $9.71 billion of home sales revenues and $564.4 million of land sales and other revenues, and net income of $1.29 billion, as compared to $8.79 billion of revenues, consisting of $8.43 billion of home sales revenues and $358.6 million of land sales and other revenues, and net income of $833.6 million in fiscal 2021.

In fiscal 2022 and 2021, the value of net contracts signed was $9.07 billion (8,255 homes) and $11.54 billion (12,472 homes), respectively.

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At October 31, 2022, our total equity and our debt to total capitalization ratio were $6.02 billion and 0.36 to 1.00, respectively.

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.

As part of our strategy to expand our geographic footprint and product offerings, in fiscal 2022, we acquired substantially all of the assets and operations of a privately-held home builder with operations in San Antonio, Texas for approximately $48.1 million in cash.

The assets acquired, which consisted of 16 communities, were primarily inventory, including approximately 450 home sites owned or controlled through land purchase agreements.

In fiscal 2021, we acquired substantially all of the assets and operations of 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.

These acquisitions were accounted for as asset acquisitions and were not material to our results of operations or financial condition.

Our Business Environment and Current Outlook

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.

We entered fiscal year 2022 with a strong backlog of 10,302 homes valued at $9.5 billion.

During the year, we delivered 10,515 homes at an average delivered price of $923,600, increasing home sales revenues by 15.2% to $9.7 billion compared to $8.4 billion in fiscal year 2021.

In the fourth quarter, we delivered 3,765 homes at an average price of $951,100 as compared to 3,341 homes and $883,100 in the fourth quarter of fiscal 2021.

These results reflect the robust housing market and strong demand for our homes that we experienced beginning in the second quarter of fiscal 2020 through the end of the second quarter of fiscal 2022.

Since then, overall demand for new homes has significantly weakened, which we primarily attribute to the steep increases in mortgage rates during 2022.

Corresponding with the weakened housing market, we experienced a significant decline in demand for our homes in the second half of fiscal year 2022.

In the third and fourth fiscal quarters of 2022, we signed 2,452 net contracts with an aggregate value of $2.98 billion as compared to 6,111 net contracts with an aggregate value of $5.98 billion in the third and fourth fiscal quarters of 2021, representing a year-over-year decline of 60% in units and 56% in dollars.

In light of continued uncertainty regarding the direction of mortgage rates and overall macro-economic conditions, it is unclear whether demand for new homes will improve in the near term.

However, over the long term, we believe that the housing market will continue to benefit from strong fundamentals, including demographic and migration trends and an overall shortage of homes in the United States.

Our backlog at October 31, 2022 was 8,098 homes and $8.87 billion, down 21% in units and 7% in dollars, as compared to our backlog at October 31, 2021.

We continue to experience extended build times (the time it takes from contract signing to delivery of the completed home) due to the impacts of supply chain, labor and other disruptions that characterized the home construction industry during fiscal 2022.

However, with weakness in the housing market and fewer home starts in the overall market, we expect these disruptions to recede.

In addition, we continue to work with our suppliers and trade partners to resolve issues that arise.

Competitive Landscape

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During fiscal 2022 and 2021, we acquired control of approximately 5,700 and 27,700 home sites, respectively, net of options terminated and home sites sold.

During fiscal year 2022, we forfeited control of over 9,000 lots subject to land purchase agreements primarily because the planned community no longer met our development criteria.

At October 31, 2022, we controlled approximately 76,000 home sites, as compared to approximately 80,900 home sites at October 31, 2021, and approximately 63,200 home sites at October 31, 2020.

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.

In addition, at October 31, 2022, we expect to purchase approximately

6,700 additional home sites from several Land Development Joint Ventures in which we have an interest, at prices not yet determined.

Of the approximately 76,000 total home sites that we owned or controlled through options at October 31, 2022, we owned approximately 37,700 and controlled approximately 38,300 through options.

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Toll Brothers Apartment Living/Toll Brothers Campus Living

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

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

At October 31, 2022, we or joint ventures in which we have an interest, controlled 73 land parcels that are planned as for-rent apartment projects containing approximately 25,000 units.

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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.

Through the fourth quarter of fiscal 2022, we entered into four 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 2022, one of our Rental Property Joint Ventures sold its assets to an unrelated party, resulting in a gain of $29.9 million recognized by the joint venture.

From our investment in this joint venture, we received cash and recognized a gain of $21.0 million in fiscal 2022.

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.

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

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

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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Contracts and Backlog

The aggregate value of net sales contracts signed increased 44% in fiscal 2021, as compared to fiscal 2020.

The aggregate value of net sales contracts signed decreased 21% in fiscal 2022, as compared to fiscal 2021.

The value of net sales contracts signed was $9.07 billion (8,255 homes) in fiscal 2022 and $11.54 billion (12,472 homes) in fiscal 2021.

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 decrease in the aggregate value of net contracts signed in fiscal 2022, as compared to fiscal 2021, was due to a 34% decrease in the number of net contracts signed, offset by a 19% increase in the average value of each contract signed.

The decrease in the number of net contracts signed in fiscal 2022, as compared to fiscal 2021, reflects an overall moderation in demand from the extremely strong prior year primarily due to the steep increases in mortgage rates during 2022.

The increase in average value attributed to each signed contracts signed in fiscal 2022 was principally due to price increases in many of our markets, as well

as a shift in the number of contracts signed to more expensive areas and/or products.

The average value attributed to each contract signed includes the value of each binding agreement of sale that was signed in the period, as well as the value of all options selected during the period, regardless of when the initial agreement of sale related to such options was signed.

The value of our backlog at October 31, 2022, 2021, and 2020 was $8.87 billion (8,098 homes), $9.50 billion (10,302 homes), and $6.37 billion (7,791 homes), respectively.

Approximately 90% of the homes in backlog at October 31, 2022 are expected to be delivered by October 31, 2023.

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.

The 7% decrease in the value of homes in backlog at October 31, 2022, as compared to October 31, 2021, was due to the delivery of more homes out of backlog than were added during fiscal 2022, offset, in part, by an increase in the average value of each contract signed.

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

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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.

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

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.

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

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.

During the year ended October 31, 2022, we did not record any inventory impairment charges on our operating communities and therefore no discount rate was used.

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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(iv) alternative product offerings that may be offered in a community that will have an impact on sales pace, sales price, building cost, or the number of homes that can be built in a particular community;

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.

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.

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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.

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.

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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.

Over the past several years, we have had a significant number of warranty claims related primarily to homes built in Pennsylvania and Delaware.

Over the past decade, we have had a significant number of warranty claims related primarily to homes built in Pennsylvania and Delaware.

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

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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.

(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.

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Income from operations 1,508.6 1,020.9 48 %

Income from unconsolidated entities 74.0 0.9 NM

Income from unconsolidated entities 23.7 74.0 (68) %

Other income - net 171.4 40.6 322 %

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Backlog – average sales price (in ‘000s) $ 1,095.8 $ 922.1 19 %

Amounts may not add due to rounding.

Due to rounding, amounts may not add.

“Net contracts signed – value” is net of all cancellations that occurred in the period.

It includes the value of each binding agreement of sale that was signed in the period, plus the value of all options that were selected during the period, regardless of when the initial agreements of sale related to such options were signed.

NM - Not Meaningful

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Home Sales Revenues and Home Sales Cost of Revenues

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.

The increase in home sales revenues in fiscal 2022, as compared to fiscal 2021, was attributable to a 5% increase in the number of homes delivered and a 9% increase in the average price of the homes delivered.

The increase in the number of homes delivered in fiscal 2022, as compared to fiscal 2021, is principally due to an increase in the number of homes in backlog at October 31, 2021, as compared to the number of homes in backlog at October 31, 2020, partially offset by lower backlog conversion in fiscal 2022, primarily due to supply chain disruptions, labor shortages, and municipality-related delays.

The increase in the average delivered home price was mainly due to our ability to raise prices in the first half of our fiscal year when the housing market was strong, as well as an increase in homes delivered in more expensive product types/geographic regions.

Home sales cost of revenues, as a percentage of homes sales revenues, in fiscal 2022 was 74.5%, as compared to 77.5% in fiscal 2021.

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.

The decrease in fiscal 2022 was principally due to a shift in the mix of revenues to higher margin products/areas, sales price increases outpacing cost increases, and lower interest expense as a percentage of home sales revenues.

Interest cost in fiscal 2022 was $164.8 million or 1.7% of home sales revenues, as compared to $187.2 million or 2.2% of home sales revenues in fiscal 2021.

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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.

In fiscal 2022, we sold nine land parcels to newly formed Rental Property Joint Ventures in which we have an interest for approximately $322.3 million.

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

In addition, during fiscal 2022, we recorded an impairment charge of $5.2 million related to office space associated with certain Hoboken, New Jersey condominium projects in connection with a planned sale.

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

In addition, in fiscal 2021, 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.

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

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As a percentage of home sales revenues, SG&A was 10.1% and 10.9% in fiscal 2022 and 2021, respectively.

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.

The dollar increase in SG&A was primarily due to higher headcount and additional investments in information technology in addition to normal compensation increases, offset by reduced commissions due to lower broker co-op rates.

In addition, fiscal 2022 includes a $10.0 million charge for a charitable contribution made to the Toll Brothers Foundation.

The decrease in SG&A as a percentage of revenues was due to a 15% increase in revenues and reduced commission rates in fiscal 2022, as compared to fiscal 2021.

Income from Unconsolidated Entities

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

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

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

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

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

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

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

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For the fiscal years 2022 and 2021, our earnings related to the Rental Property Joint Ventures include approximately $17.5 million and $18.1 million of our share of net operating losses incurred by these joint ventures, respectively, of which approximately $21.7 million and $17.8 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.

The decrease in income from unconsolidated entities from $74.0 million in fiscal 2021 to $23.7 million in fiscal 2022, was due mainly to a $74.8 million of gains related to property sales by five of our Rental Property Joint Ventures and a $6.0 million gain related to an asset sale of commercial property by one of our Land Development Joint Ventures in the fiscal 2021 period.

In the fiscal 2022 period we recognized a $21.0 million gain related to a property sale by one of our Rental Property Joint Ventures, higher income by a joint venture that owns a hotel and increased earnings from our Land Development Joint Ventures due to lot sales.

In addition, during the fiscal 2022 period, we recognized other-than-temporary impairment charges on our investments in certain Home Building and Rental Property Joint Ventures of $8.0 million compared to $2.1 million in the fiscal 2021 period.

Other Income - Net

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Income from ancillary businesses $ 24,668 $ 36,711

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

Management fee income from Land Development and Home Building Joint Ventures – net

Gain on litigation settlement – net 141,234 —

Other (2,493) 2,257

Total other income – net

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.

$ 171,377 $ 40,614

The decrease in income from ancillary businesses in fiscal 2022, as compared to fiscal 2021, was principally due to lower earnings from our mortgage operations due to lower volume and increased competition, as well as higher operating losses incurred in our apartment living operations.

This decrease was partially offset by a gain of $9.0 million related to the bulk sale of security monitoring accounts by our smart home technologies business in fiscal 2022.

In addition, in fiscal 2022 and 2021, our apartment living operations earned fees from unconsolidated entities of $23.2 million and $20.2 million, respectively.

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

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

Management fee income from Home Building and Land Development Joint Ventures - net includes fees earned by our City Living and home building operations.

The increase in fiscal 2022, as compared to fiscal 2021, was primarily related to an increase in Joint Ventures to which we provide services.

In fiscal 2022, we entered into a $192.5 million settlement agreement with Southern California Gas Company to resolve our claims associated with a natural gas leak that occurred from October 2015 through February 2016 at the Aliso Canyon underground storage facility located near certain of our communities in southern California.

As a result, net of legal fees and expenses, we recorded a pre-tax gain of $148.4 million, of which $141.2 million was recorded in Other Income - net in our Consolidated Statements of Operations and Comprehensive Income in fiscal 2022.

The remainder was recorded as an offset to previously incurred expenses.

No similar gains were incurred in fiscal 2021.

Expenses Related to Early Retirement of Debt

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Income Before Income Taxes

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.

In fiscal 2022, we reported income before income taxes of $1.70 billion or 16.6% of revenues, as compared to $1.10 billion, or 12.5% of revenues in fiscal 2021.

Income Tax Provision

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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.

Demand for funds include interest and principal payments on current and future debt financing.

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.

In addition, we received net cash proceeds of approximately $148 million in the fourth quarter of fiscal 2022 related to a litigation settlement.

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.

We may, however, seek additional financing to fund future growth, refinance our existing indebtedness, or for other purposes.

There can be no assurance 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.

Beyond the next twelve months, we expect that our principal demand for funds will be for payment of the principal on our long-term debt as it becomes due or matures, land purchases and inventory additions, 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.

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Material Cash Requirements

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

We are a party to many contractual obligations and 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, 2022, 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.

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.

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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;

In 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.

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, 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.

We believe that as of October 31, 2022, in the event we had become legally obligated to perform under a guarantee of the obligation of an unconsolidated entity due to a triggering event, the collateral would have been sufficient to repay all or a significant portion of the obligation.

If it were not, we and our partners would have needed to contribute additional capital to the entity.

At October 31, 2022, we had guaranteed the debt of certain unconsolidated entities with loan commitments aggregating $2.86 billion, of which, if the full amount of the debt obligations were borrowed, we estimate $597.8 million to be our maximum exposure related to repayment and carry cost guarantees.

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Operating Activities

Cash provided by operating activities during fiscal 2022 was $986.8 million.

Cash provided by operating activities was generated primarily from $1.29 billion of net income plus $21.1 million of stock-based compensation, $76.8 million of depreciation and amortization, $32.7 million of inventory impairments and write-offs, less $23.7 million of income from unconsolidated entities;

an increase of $152.5 million in accounts payable and accrued expenses;

an increase of $160.5 million in current income taxes, net;

and an increase of $50.7 million in sale of mortgage loans, net of originations.

This activity was offset, in part, by an increase of $618.8 million in inventory;

a net deferred tax benefit of $96.7 million;

and a decrease of $95.0 million in receivables, prepaid assets, and other assets.

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;

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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;

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

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

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

Investing Activities

Cash used in investing activities during fiscal 2022 was $153.2 million, primarily related to $226.7 million used to fund our investments in unconsolidated entities and $71.7 million for the purchase of property and equipment.

This activity was offset, in part, by $116.8 million of cash received as returns from our investments in unconsolidated entities and $28.3 million of cash proceeds from the sale of assets.

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;

$71.7 million used to fund investments in unconsolidated entities;

and $60.3 million used to acquire Thrive.

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

Financing Activities

We used $1.12 billion of cash from financing activities in fiscal 2022, primarily for the redemption of $409.9 million of senior notes;

the repurchase of $542.7 million of our common stock;

payments of $51.6 million of loans payable, net of new borrowings;

the payment of dividends on our common stock of $88.9 million and payments related to noncontrolling interest - net of $25.8 million.

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;

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$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;

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

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

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

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

Interest rates, the length of time that land remains in inventory, and the proportion of inventory that is financed affect our interest costs.

If we are unable to raise sales prices enough to compensate for higher costs, or if mortgage interest rates increase significantly, affecting prospective buyers’ ability to adequately finance home purchases, our home sales revenues, gross margins, and net income could be adversely affected.

For example, since the end of the second quarter of fiscal 2022, overall demand for new homes has significantly weakened, which we primarily attribute to the high inflationary period and steep mortgage rate increases during 2022.

Additionally, interest rates, the length of time that land remains in inventory, and the proportion of inventory that is financed affect our interest costs.

If we are unable to raise sales prices enough to compensate for higher costs, or if mortgage rates increase significantly, affecting prospective buyers’ ability to adequately finance home purchases, our home sales revenues, gross margins, and net income could be adversely affected.

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

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At October 31, 2022, our 100%-owned subsidiary, Toll Brothers Finance Corp.

(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.

(the “Subsidiary Issuer”), had issued and outstanding $2.00 billion aggregate principal amount of senior notes maturing on various dates between April 15, 2023 and November 1, 2029 (the “Senior Notes”).

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

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

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

The Subsidiary

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

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

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Net income $ 1,199.4

We operate in two segments:

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

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

We operate in five geographic segments, with current operations generally located in the states listed below:

Eastern Region:

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

At October 31, 2022, we concluded that our City Living operations were no longer a reportable operating segment, primarily due to its insignificance as a result of the change in structure and shift in strategy for its operations.

Therefore, we have five operating segments as reflected above.

Amounts reported in prior periods have been restated to conform to the fiscal 2022 presentation.

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

The following tables summarize information related to revenues, net contracts signed, and income (loss) before income taxes by segment for fiscal years 2022, 2021 and 2020.

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2022 2021 % Change 2022 2021 % Change 2022 2021 % Change

Traditional Home Building:

(restated) (restated) (restated)

North $ 1,853.7 $ 2,011.9 (8) % 2,163 2,503 (14) % $ 857.0 $ 803.8 7 %

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Pacific 2,442.0 2,156.1 13 % 1,731 1,566 11 % $ 1,410.7 $ 1,376.8 2 %

Traditional Home Building 8,060.4 6,817.3 18 % 9,754 8,400 16 % 826.4 811.6 2 %

City Living 370.8 120.9 207 % 232 96 142 % 1,598.3 1,259.4 27 %

Total home building 9,712.1 8,431.2 15 % 10,515 9,986 5 % $ 923.6 $ 844.4 9 %

Other (0.9) 0.5

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Total revenue $ 10,275.6 $ 8,790.3

Units Delivered and Revenues (continued):

Fiscal 2021 Compared to Fiscal 2020

($ in millions) Units Delivered Average Delivered Price

($ in thousands)

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

(restated) (restated) (restated) (restated) (restated) (restated) (restated) (restated) (restated)

North $ 2,011.9 $ 1,480.2 36 % 2,503 2,103 19 % $ 803.8 $ 703.9 14 %

Mid-Atlantic 1,076.9 851.1 27 % 1,402 1,274 10 % $ 768.1 $ 668.1 15 %

South 1,183.3 1,041.2 14 % 1,783 1,566 14 % $ 663.7 $ 664.9 — %

Mountain 2,003.0 1,535.8 30 % 2,732 2,219 23 % $ 733.2 $ 692.1 6 %

Pacific 2,156.1 2,029.9 6 % 1,566 1,334 17 % $ 1,376.8 $ 1,521.7 (10) %

Total home building 8,431.2 6,938.2 22 % 9,986 8,496 18 % $ 844.4 $ 816.5 3 %

Other 0.5 (0.8)

Total home sales revenue 8,431.7 $ 6,937.4 22 % 9,986 8,496 18 % $ 844.4 $ 816.5 3 %

Land sales and other revenue 358.6 140.3

Total revenue $ 8,790.3 $ 7,077.7

Net Contracts Signed:

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2022 2021 % Change 2022 2021 % Change 2022 2021 % Change

Traditional Home Building:

(restated) (restated) (restated)

North $ 1,534.7 $ 1,996.4 (23) % 1,596 2,245 (29) % $ 961.6 $ 889.3 8 %

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Pacific 2,269.3 2,781.7 (18) % 1,374 1,966 (30) % $ 1,651.6 $ 1,414.9 17 %

Traditional Home Building 11,280.2 7,885.6 43 % 12,316 9,859 25 % 915.9 799.8 15 %

City Living 259.7 109.5 137 % 156 73 114 % 1,664.7 1,500.0 11 %

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

Total consolidated $ 9,067.4 $ 11,539.9 (21) % 8,255 12,472 (34) % $ 1,098.4 $ 925.3 19 %

Fiscal 2021 Compared to Fiscal 2020

Net Contract Value

($ in millions) Net Contracted Units Average Contracted Price

($ in thousands)

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

(restated) (restated) (restated) (restated) (restated) (restated) (restated) (restated) (restated)

North $ 1,996.4 $ 1,659.4 20 % 2,245 2,245 — % $ 889.3 $ 739.2 20 %

Mid-Atlantic 1,310.7 1,077.8 22 % 1,465 1,475 (1) % $ 894.7 $ 730.7 22 %

South 2,109.6 1,320.1 60 % 2,765 2,006 38 % $ 763.0 $ 658.1 16 %

Mountain 3,341.5 2,008.2 66 % 4,031 2,802 44 % $ 828.9 $ 716.7 16 %

Pacific 2,781.7 1,929.6 44 % 1,966 1,404 40 % $ 1,414.9 $ 1,374.4 3 %

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

Backlog at October 31:

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2022 2021 % Change 2022 2021 % Change 2022 2021 % Change

Traditional Home Building:

(restated) (restated) (restated)

North $ 1,119.5 $ 1,494.2 (25) % 1,122 1,737 (35) % $ 997.8 $ 860.2 16 %

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Pacific 1,844.3 2,013.3 (8) % 1,087 1,444 (25) % $ 1,696.7 $ 1,394.3 22 %

Traditional Home Building 9,470.8 6,235.7 52 % 10,289 7,702 34 % 920.5 809.6 14 %

City Living 28.3 138.9 (80) % 13 89 (85) % 2,173.0 1,560.3 39 %

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

Total consolidated $ 8,874.1 $ 9,499.1 (7) % 8,098 10,302 (21) % $ 1,095.8 $ 922.1 19 %

October 31, 2021 Compared to October 31, 2020

Backlog Value

($ in millions) Backlog Units Average Backlog Price

($ in thousands)

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

(restated) (restated) (restated) (restated) (restated) (restated) (restated) (restated) (restated)

North $ 1,494.2 $ 1,508.0 (1) % 1,737 1,995 (13) % $ 860.2 $ 755.9 14 %

Mid-Atlantic 1,004.5 770.4 30 % 1,053 990 6 % $ 954.0 $ 778.2 23 %

South 1,965.2 1,038.4 89 % 2,470 1,488 66 % $ 795.6 $ 697.9 14 %

Mountain 3,021.9 1,670.7 81 % 3,598 2,274 58 % $ 839.9 $ 734.7 14 %

Pacific 2,013.3 1,387.1 45 % 1,444 1,044 38 % $ 1,394.3 $ 1,328.6 5 %

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

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

2021 2020 % Change

Traditional Home Building:

2022 2021 % Change 2022 vs 2021 2020 % Change 2021 vs 2020

(restated) (restated) (restated)

North $ 280.8 $ 313.7 (10) % $ 87.5 259 %

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Pacific 572.8 382.9 50 % 351.5 9 %

Traditional Home Building 1,097.5 737.3 49 %

City Living 157.7 29.7 431 %

Total home building 1,802.3 1,255.2 44 % 767.0 64 %

Corporate and other (98.6) (154.9) 36 % (180.1) 14 %

Total $ 1,100.3 $ 586.9 87 %

Total consolidated $ 1,703.7 $ 1,100.3 55 % $ 586.9 87 %

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

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interest income;

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

income from certain of our ancillary businesses, including our apartment rental development business;

and income from our Rental Property Joint Ventures and Gibraltar Joint Ventures.

Total Assets ($ amounts in millions):

At October 31,

Traditional Home Building:

North $ 1,465.0 $ 1,624.4

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Pacific 2,174.1 2,221.8

Traditional Home Building 8,328.2 7,711.1

City Living 333.0 539.8

Total home building 9,611.3 8,661.2

Corporate and other 2,677.4 2,876.7

Total $ 11,537.9 $ 11,065.7

“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

Total consolidated $ 12,288.7 $ 11,537.9

“Corporate and other” is comprised principally of cash and cash equivalents, restricted cash, deferred tax assets, 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.

FISCAL 2022 COMPARED TO FISCAL 2021 (Restated)

Year ended October 31,

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Number of selling communities at October 31, 53 66 (20) %

The decrease in the number of homes delivered in fiscal 2022 was mainly due to a decrease in the number of homes in backlog at October 31, 2021, as compared to the number of homes in backlog at October 31, 2020.

The increase in the average price of homes delivered in fiscal 2022 was principally due to sales price increases.

The decrease in the number of net contracts signed in fiscal 2022, as compared to fiscal 2021, was principally due to a decrease in the average number of selling communities, as well as a weakening in demand in the second half of fiscal 2022.

The increase in the average value of each contract signed in fiscal 2022, as compared to fiscal 2021, 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 2022 was principally attributable to lower earnings from decreased revenues, offset by 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 2022 was primarily due to a shift in product mix/areas to higher-margin areas and sales price increases.

Furthermore, fiscal 2021 benefited from gains of $38.3 million recognized from the sales of a parking garage and retail space associated with one of our Hoboken, New Jersey condominium projects, offset by $2.1 million of other-than-temporary impairment charges that we recognized on two of our Home Building Joint Ventures.

Inventory impairment charges were $11.9 million in fiscal 2022, as compared to $12.2 million in fiscal 2021.

During the fourth quarter of fiscal 2022, we decided to sell a land parcel in Philadelphia, Pennsylvania that formerly was included in our City

Living segment.

In connection with this planned sale, we recognized an impairment charge of $10.3 million.

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.

As a result, we recognized an impairment charge of $8.7 million in the fourth quarter of fiscal 2021.

Year ended October 31,

2022 2021 % Change

Units Delivered and Home Sales Revenues:

Home sales revenues ($ in millions) $ 1,149.0 $ 1,076.9 7 %

Units delivered 1,222 1,402 (13) %

Average delivered price ($ in thousands)

$ 940.3 $ 768.1 22 %

Net Contracts Signed:

Net contract value ($ in millions) $ 1,105.4 $ 1,310.7 (16) %

Net contracted units 1,012 1,465 (31) %

Average contracted price ($ in thousands)

$ 1,092.3 $ 894.7 22 %

Home sales cost of revenues as a percentage of home sales revenues 76.1 % 80.0 %

Income before income taxes ($ in millions) $ 189.5 $ 128.5 47 %

Number of selling communities at October 31,

The decrease in the number of homes delivered in fiscal 2022, as compared to fiscal 2021, was mainly due to lower backlog conversion in fiscal 2022, partially offset by an increase in the number of homes in backlog at October 31, 2021, as compared to the number of homes in backlog at October 31, 2020.

The increase in the average delivered price in fiscal 2022 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 decrease in the number of net contracts signed in fiscal 2022, as compared to fiscal 2021, was principally due to a weakening in demand in the second half of fiscal 2022.

The increase in the average value of each contract signed in fiscal 2022 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 2022.

The increase in income before income taxes in fiscal 2022, as compared to fiscal 2021, 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 2022 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.

Included in fiscal 2021 income before income taxes was a $6.0 million gain recognized from an asset sale of a commercial property by one of our Land Development Joint Ventures.

Inventory impairment charges were $3.4 million and $12.0 million in fiscal 2022 and 2021, respectively.

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.

This resulted in an impairment charge of $10.1 million in fiscal 2021.

Year ended October 31,

2022 2021 % Change

Units Delivered and Home Sales Revenues:

Home sales revenues ($ in millions) $ 1,519.6 $ 1,183.3 28 %

Units delivered 2,033 1,783 14 %

Average delivered price ($ in thousands)

$ 747.5 $ 663.7 13 %

Net Contracts Signed:

Net contract value ($ in millions) $ 1,838.3 $ 2,109.6 (13) %

Net contracted units 1,981 2,765 (28) %

Average contracted price ($ in thousands)

$ 928.0 $ 763.0 22 %

Home sales cost of revenues as a percentage of home sales revenues 75.6 % 76.7 %

Income before income taxes ($ in millions)

$ 249.7 $ 153.8 62 %

Number of selling communities at October 31,

The increase in the number of homes delivered in fiscal 2022, as compared to fiscal 2021, was mainly due to an increase in the number of homes in backlog at October 31, 2021, as compared to the number of homes in backlog at October 31, 2020, partially offset by lower backlog conversion in fiscal 2022.

The increase in the average delivered price in fiscal 2022 was primarily due to a shift in the number of homes delivered to more expensive areas and/or products, as well as sales price increases.

The decrease in the number of net contracts signed in fiscal 2022, as compared to fiscal 2021, was principally due to a weakening in demand during the second half of fiscal 2022.

The increase in the average value of each contract signed in the fiscal 2022 period was primarily due to sales price increases in fiscal 2022 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 2022, as compared to fiscal 2021, 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 resulting from 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, offset by higher inventory impairment changes in fiscal 2022.

Inventory impairment charges were $3.4 million and $0.7 million in fiscal 2022 and 2021, respectively.

Year ended October 31,

2022 2021 % Change

Units Delivered and Home Sales Revenues:

Home sales revenues ($ in millions) $ 2,747.8 $ 2,003.0 37 %

Units delivered 3,366 2,732 23 %

Average delivered price ($ in thousands)

$ 816.3 $ 733.2 11 %

Net Contracts Signed:

Net contract value ($ in millions) $ 2,319.7 $ 3,341.5 (31) %

Net contracted units 2,292 4,031 (43) %

Average contracted price ($ in thousands)

$ 1,012.1 $ 828.9 22 %

Home sales cost of revenues as a percentage of home sales revenues 74.6 % 77.2 %

Income before income taxes ($ in millions)

$ 509.5 $ 276.3 84 %

Number of selling communities at October 31,

The increase in the average price of homes delivered in fiscal 2022 was primarily due to a shift in the number of homes delivered to more expensive areas and/or products and sales price increases.

The decrease in the number of net contracts signed in fiscal 2022, as compared to fiscal 2021, was principally due to a weakening in demand during the second half of fiscal 2022.

The decrease in the average value of each contract signed in fiscal 2022 was mainly due to shifts in the number of contracts signed to less expensive areas and/or products.

The increase in income before income taxes in fiscal 2022, as compared to fiscal 2021, 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 resulting from 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,

2022 2021 % Change

Units Delivered and Home Sales Revenues:

Home sales revenues ($ in millions) $ 2,442.0 $ 2,156.1 13 %

Units delivered 1,731 1,566 11 %

Average delivered price ($ in thousands)

$ 1,410.7 $ 1,376.8 2 %

Net Contracts Signed:

Net contract value ($ in millions) $ 2,269.3 $ 2,781.7 (18) %

Net contracted units 1,374 1,966 (30) %

Average contracted price ($ in thousands)

$ 1,651.6 $ 1,414.9 17 %

Home sales cost of revenues as a percentage of home sales revenues 70.5 % 75.4 %

Income before income taxes ($ in millions)

572.8 382.9 50 %

Number of selling communities at October 31,

The increase in the average price of homes delivered in fiscal 2022

was primarily due increases in sales prices, partially offset by a shift in the number of homes delivered to less expensive areas and/or products.

The decrease in the number of net contracts signed in fiscal 2022, as compared to fiscal 2021, was principally due to a weakening in demand during the second half of fiscal 2022, as well as a decrease in the number of selling communities.

The decrease in the average value of each contract signed in fiscal 2022 was mainly due to a shift in the number of contracts signed in less expensive areas.

The increase in income before income taxes in fiscal 2022, as compared to fiscal 2021, was primarily due to higher earnings from increased revenues and lower SG&A costs, offset by higher inventory impairment charges.

Inventory impairment charges were $10.0 million and $1.3 million in fiscal 2022 and 2021, respectively.

During the fourth quarter of fiscal 2022, we decided to sell a land parcel in California that was formerly included in our City Living segment.

In connection with this planned sale, we recognized an impairment charge of $5.6 million.

Corporate and Other

In fiscal 2022 and 2021, loss before income taxes was $98.6 million and $154.9 million respectively.

The decrease in the loss before income taxes in fiscal 2022 was principally attributable to a favorable litigation settlement.

As a result of the settlement, net of legal fees and expenses, we recorded a pre-tax gain of $148.4 million, of which $141.2 million was recorded in Other Income - net in our Consolidated Statements of Operations and Comprehensive Income in fiscal 2022.

The remainder was recorded as an offset to previously incurred expenses.

Coincident with this settlement, we made a charitable contribution of $10.0 million to the Toll Brothers Foundation, which was recorded in Selling, general and administrative in our Consolidated Statements of Operations and Comprehensive Income in fiscal 2022.

In addition, we incurred a $35.2 million charge related to the early retirement of debt in fiscal 2021.

These decreases to loss before income taxes were offset by higher income generated by our Rental Property Joint Ventures in fiscal 2021 primarily as a result of $74.8 million of gains recognized related to property sales by five of our Rental Property Joint Ventures;

lower earnings from our mortgage company due to a decrease in volume and increased interest spreads in fiscal 2022;

higher SG&A costs in fiscal 2022 primarily due to normal compensation increases and additional investments in information technology, and higher losses incurred in our apartment living operations.

FISCAL 2021 (Restated) COMPARED TO FISCAL 2020 (Restated)

Year ended October 31,

2021 2020 % Change

Units Delivered and Home Sales Revenues:

Home sales revenues ($ in millions) $ 2,011.9 $ 1,480.2 36 %

Units delivered 2,503 2,103 19 %

Average delivered price ($ in thousands)

$ 803.8 $ 703.9 14 %

Net Contracts Signed:

Net contract value ($ in millions) $ 1,996.4 $ 1,659.4 20 %

Net contracted units 2,245 2,245 — %

Average contracted price ($ in thousands)

$ 889.3 $ 739.2 20 %

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

78.8 % 84.2 %

Income before income taxes ($ in millions)

$ 313.7 $ 87.5 259 %

Number of selling communities at October 31, 66 73 (10) %

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 number of net contracts signed in fiscal 2021, as compared to fiscal 2020, was flat.

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 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.

The decrease in losses from our investments in unconsolidated entities is 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.

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.

As a result, we recognized impairment charges of $8.7 million in the fourth quarter of fiscal 2021.

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.

14 unchanged sentences

Home sales cost of revenues as a percentage of home sales revenues 80.0 % 83.7 %

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

$ 129.0 $ 50.6 155 %

Income before income taxes ($ in millions) $ 128.5 $ 52.0 147 %

Number of selling communities at October 31,

9 unchanged sentences

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

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

This resulted in an impairment charge of $10.1 million in fiscal 2021.

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 .

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,

36 unchanged sentences

Number of selling communities at October 31,

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 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.

19 unchanged sentences

Number of selling communities at October 31,

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.

4 unchanged sentences

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,

2021 2020 % Change

Units Delivered and Home Sales Revenues:

Home sales revenues ($ in millions) $ 370.8 $ 120.9 207 %

Units delivered 232 96 142 %

Average delivered price ($ in thousands)

$ 1,598.3 $ 1,259.4 27 %

Net Contracts Signed:

Net contract value ($ in millions) $ 259.7 $ 109.5 137 %

Net contracted units 156 73 114 %

Average contracted price ($ in thousands)

$ 1,664.7 $ 1,500.0 11 %

Home sales cost of revenues as a percentage of home sales revenues 61.0 % 61.7 %

Income before income taxes ($ in millions)

$ 157.7 $ 29.7 431 %

Number of selling communities at October 31,

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 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.

Corporate and Other

6 unchanged sentences

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