Toll Brothers, Inc. 10-K

ITEM 1. BUSINESS Toll Brothers, Inc., a corporation incorporated in Delaware in May 1986, began doing business through predecessor entities in 1967. When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to Toll Brothers, Inc. and its subsidiaries, unless the context otherwise requires. References herein to fiscal year refer to our fiscal years ended or ending October 31. General We design, build, market, sell, and arrange financing for an array of luxury residential single-family detached home, attached home, master-planned, and urban low-, mid-, and high-rise communities. This is done 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, as well as urban and suburban renters under the brand names Toll Brothers Apartment Living ® and Toll Brothers Campus Living ® . 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, 2023, we were operating in 24 states and in the District of Columbia. In the five years ended October 31, 2023, we delivered 46,701 homes from 931 communities, including 9,597 homes from 481 communities in fiscal 2023. At October 31, 2023, we had 930 communities in various stages of planning, development or operations containing approximately 70,700 home sites that we owned or controlled through options. Backlog consists of homes under contract but not yet delivered to our home buyers. We had a backlog of $6.95 billion (6,578 homes) at October 31, 2023; we expect to deliver approximately 96% of these homes in fiscal 2024. We operate our own architectural, engineering, mortgage, title, land development, insurance, smart home technology and landscaping subsidiaries. We also develop master-planned and golf course communities as well as operate, in certain regions, our own lumber distribution, house component assembly and manufacturing operations. In addition to our residential for-sale business, we also develop and operate urban and suburban for-rent apartment communities primarily through joint ventures. These projects are located in various metropolitan areas throughout the country and are generally being operated or developed (or we expect will be developed) with partners under the brand names Toll Brothers Apartment Living ® and Toll Brothers Campus Living ® . At October 31, 2023, we or joint ventures in which we have an interest, controlled 44 land parcels as for-rent apartment projects containing approximately 22,200 planned units. See “Investments in Unconsolidated Entities” below for more information relating to our joint ventures. Our Communities and Homes Our home building communities are generally located in affluent suburban areas near major transit hubs and highways that provide access to employment and urban centers. They are generally located on land we have either acquired and developed or acquired fully approved and, in some cases, improved. At October 31, 2023, we were operating in the following major suburban and urban residential markets: • Boston, Massachusetts metropolitan area • New Haven County, Connecticut • Westchester and Dutchess Counties, New York • New York metropolitan area • Central and northern New Jersey • Philadelphia, Pennsylvania metropolitan area • Virginia and Maryland suburbs of Washington, D.C. • Delaware • Raleigh and Charlotte, North Carolina metropolitan areas • Nashville, Tennessee 1 • Charleston, Greenville, Hilton Head and Myrtle Beach, South Carolina • Atlanta, Georgia metropolitan area • Southeast and southwest coasts and the Jacksonville, Orlando, and Tampa areas of Florida • Detroit, Michigan metropolitan area • Chicago, Illinois metropolitan area • Dallas, Houston, Austin, and San Antonio, Texas metropolitan areas • Denver, Colorado metropolitan area, Fort Collins and Colorado Springs, Colorado • Phoenix, Arizona metropolitan area • Las Vegas and Reno, Nevada metropolitan areas • Boise and Coeur d’Alene, Idaho metropolitan areas • Salt Lake City, Utah metropolitan area and St. George/Southern Utah • San Diego and Palm Springs, California • Los Angeles, California metropolitan area and Orange County • San Francisco Bay, Sacramento, and San Jose areas of northern California • Seattle, Spokane, and Clark County, Washington metropolitan areas, and • Portland, Oregon metropolitan area. We develop individual stand-alone single-product communities as well as multi-product, master-planned communities. Our master-planned communities enable us to offer multiple home types and sizes to a broad range of move-up, first-time, empty-nester, active-adult, and second-home buyers. We seek to realize efficiencies from shared common costs, such as land development and infrastructure, over the several communities within the master-planned community. Each of our detached home communities offers several home plans with the opportunity for many of our home buyers to select various structural options and exterior styles. We design each community to fit existing land characteristics. We strive to achieve diversity among architectural styles within a community by offering a variety of house models and several exterior design options for each model, preserving existing trees, foliage and other natural features whenever feasible, and curving street layouts to allow relatively few homes to be seen from any vantage point. Our communities have attractive entrances with distinctive signage and landscaping. We believe that our added attention to detail gives each community a diversified neighborhood appearance that enhances home values. Our attached home communities generally offer one- to four-story homes, provide for select exterior options, and often include commonly owned recreational facilities, such as clubhouses, playing fields, swimming pools, and tennis courts. The majority of our homes are sold on a built-to-order basis where we do not begin construction of the home until we have a signed contract with a customer. However, we also build quick move-in homes (also known as “spec” homes) in most of our communities, which are homes started without a signed agreement with a customer. These homes allow us to compete more effectively with existing homes available in the market, especially for homebuyers that require a home within a short time frame. We sell our quick move-in homes at various stages of construction, which allows many buyers of such homes to select their finishing options at our design studios. We determine our quick move-in home strategy for each community based on local market factors and maintain a level of quick move-in home inventory based on our current and planned sales pace and construction cadence for the community. We are continuously developing new designs to replace or augment existing ones to ensure that our homes reflect current consumer tastes. Increasingly, we are modifying designs and the number of options we provide to offer our customers a curated experience while gaining efficiencies in the home building process, particularly in respect to our affordable luxury product and our quick move-in homes. We use our own architectural staff and also engage unaffiliated architectural firms to develop new designs. A wide selection of structural and finishing options are available to our home buyers for additional charges. The number and complexity of options available typically increase with the size and base sales price of our homes and are generally only available on our built-to-order homes. Major options include home offices, fitness rooms, multi-generational living suites, 2 finished basements, and spacious indoor/outdoor living areas. We also offer numerous interior fit-out options such as flooring, wall tile, plumbing, cabinets, fixtures, appliances, lighting, and home-automation and security technologies. We market our high-quality homes to both upscale luxury and affordable luxury home buyers. Our luxury homes are marketed primarily to buyers who generally have previously owned a home and who are seeking to buy a larger or more desirable home — the so-called “move-up” market. Our affordable luxury homes are marketed primarily to more affluent first-time buyers. We believe our reputation as a builder of luxury homes in these markets enhances our competitive position with respect to the sale of our smaller, more moderately priced homes. We continue to pursue growth initiatives by expanding our product lines and price points to appeal to buyers across the demographic spectrum. We have also significantly expanded our geographic footprint over the past decade. In addition to our traditional “move-up” home buyer, we are focusing on the “empty-nester” market, the millennial generation, and the affordable luxury buyer. We market to the “empty-nester” market, which we believe has strong growth potential. We have developed a number of home designs with features such as single-story living and first-floor primary bedroom suites, as well as communities with recreational amenities, such as golf courses, marinas, pool complexes, country clubs, fitness and recreation centers that we believe appeal to this category of home buyer. We have integrated certain of these designs and features in some of our other home types and communities. As of October 31, 2023, we were selling from 57 age-restricted active-adult communities, in which at least one home occupant must be at least 55 years of age. With the millennial generation in its prime family formation years, we also continue to focus on this group with our core suburban homes, affordable luxury offerings, urban condominiums and luxury rental apartment products. Through our City Living brand, with third-party joint venture partners, we currently are developing two high-density, high-rise urban luxury communities to serve affluent move-up families, empty-nesters, and young professionals who are seeking to live in or close to major cities. Our City Living communities are generally high-rise condominiums that take an extended period of time to construct. We generally start selling homes in these communities after construction has commenced. By the time construction has been completed, we typically have a significant number of homes under contract with buyers in backlog. Once construction has been completed, the homes in backlog in these communities are generally delivered quickly. Because of the larger upfront costs and longer development time periods associated with high-rise projects, we generally expect to continue developing future high density, high-rise urban luxury condominium communities through joint ventures with third parties. We believe that the demographics supporting the luxury first-time, move-up, empty-nester, active-adult, affordable luxury and second-home upscale markets will provide us with an opportunity for growth in the future. We continue to believe that many of our communities are in desirable locations that are difficult to replace and that many of these communities have substantial embedded value that may be realized in the future. At October 31, 2023, we were selling homes from 370 communities, compared to 348 communities at October 31, 2022, and 340 communities at October 31, 2021. The following table summarizes certain information with respect to our operating communities at October 31, 2023: Total number of operating communities Number of selling communities Homes approved Homes closed Homes under contract but not closed (Backlog) Home sites available North 57 40 7,541 4,283 956 2,302 Mid-Atlantic 60 43 6,606 2,692 945 2,969 South 133 115 16,050 6,151 2,312 7,587 Mountain 126 120 17,958 6,882 1,577 9,479 Pacific 56 52 6,044 2,393 788 2,883 Total 432 370 54,199 22,401 6,578 25,220 At October 31, 2023, significant site improvements had not yet commenced on approximately 15,000 of the 25,220 available home sites. Of the 25,220 available home sites, approximately 8,700 were not yet owned by us but were controlled through options. 3 Of our 432 operating communities at October 31, 2023, a total of 370 communities were offering homes for sale; with the remaining consisting primarily of sold out communities where not all homes had been completed and delivered. Of the 370 communities in which homes were being offered for sale at October 31, 2023, a total of 304 were detached home communities and 66 were attached home communities. At October 31, 2023, we had 3,026 quick move-in homes in various stages of construction in our communities, of which 1,460 were affordable luxury homes, 1,011 were luxury homes, and 555 were active-adult homes. As a result of the breath of our products and geographic footprint, we have a wide range of base sales prices for our homes. The percentage of the 9,597 homes delivered in fiscal 2023 within the various ranges of base sales price was as follows: Range of Base Sales Price Percentage of Homes Delivered in Fiscal 2023 Less than $500,000 7% $500,000 to $750,000 31% $750,000 to $1,000,000 24% $1,000,000 to 2,000,000 32% More than $2,000,000 6% Of the homes delivered in fiscal 2023, approximately 24% of our home buyers paid the full purchase price in cash; the remaining home buyers borrowed approximately 69% of the sales price of the home. The table below provides the average value of all structural and finishing options purchased by our home buyers, including lot premiums, and the value of these options and premiums as a percent of the base sales price of the homes purchased in fiscal 2023, 2022, and 2021: 2023 2022 2021 Option value (in thousands) Percent of base sales price Option value (in thousands) Percent of base sales price Option value (in thousands) Percent of base sales price Overall $ 224 26.5 % $ 190 25.3 % $ 168 23.9 % Detached $ 251 29.2 % $ 215 28.9 % $ 193 28.4 % Attached $ 136 17.0 % $ 117 15.4 % $ 105 15.3 % In general, the ability to purchase a premium lot or customize a home with structural options and interior finishes varies widely across our product lines and what stage of construction the home is in when a purchase contract is signed, which may result in significant variation in the option value as a percentage of base sales price. For example, our attached homes and our quick move-in homes do not offer the opportunity for buyers to add significant structural options to their homes and thus they have a smaller option value as a percentage of base sales price. For more information regarding revenues, net contracts signed, income (loss) before income taxes, and assets by segment, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Segments” in Item 7 of this Form 10-K. Acquisitions From time to time, we acquire home builders in order to increase our footprint and/or product offerings in an existing market or to expand into a new market. These acquisitions are generally completed using available cash on hand and primarily consist of smaller privately-held builders. In fiscal 2023, we did not make any acquisitions. 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. Land Policy Before entering into an agreement to purchase a land parcel, we complete extensive comparative studies and analyses that assist us in evaluating the acquisition. These analyses may include soil tests, environmental studies, an evaluation of necessary zoning and other governmental entitlements and extensive market research to evaluate which of our product offerings are appropriate for the market. In addition to purchasing land parcels outright, we strive to enter into option agreements and other arrangements 4 to defer the acquisition of land until we are closer in time to delivering the completed home to our customer. We have also entered into several joint ventures with other builders, financial partners, or developers to develop land for the use of the joint venture partners or for sale to third parties. These structures are generally more capital efficient than outright land purchases that occur earlier in the entitlement and development process. Our business is subject to many risks, including risks associated with obtaining the necessary approvals on a property and completing the land improvements on it. In order to reduce the financial risk associated with land acquisitions and holdings and to more efficiently manage our capital, where practicable, we enter into option agreements (also referred to herein as “land purchase contracts,” “purchase agreements,” or “options”) to purchase land, on a non-recourse basis, thereby limiting our financial exposure to amounts expended in obtaining any necessary governmental approvals, the costs incurred in the planning and design of the community, and, in some cases, some or all of the cost of the option (also referred to as “deposits”). Option agreements enable us to obtain necessary governmental approvals before we acquire title to the land, and allow us to acquire lots over a specified period of time at contracted prices. The use of these agreements may increase our overall cost basis in the land that we eventually acquire, but reduces our risk by allowing us to obtain the necessary development approvals before acquiring the land or allowing us to forego or delay the acquisition to a later date. In prior periods, during the time it took to obtain approvals, the value of the purchase agreements and land generally increased; however, in any given time period, this may not happen. We have the ability to extend some of these purchase agreements for varying periods of time, which in some cases would require an additional payment. Our purchase agreements are typically subject to numerous conditions, including, but not limited to, the ability to obtain necessary governmental approvals for the proposed community. In certain instances, our deposit under an agreement may be returned to us if all approvals are not obtained, although predevelopment costs usually will not be recoverable. We generally have the right to cancel any of our agreements to purchase land by forfeiture of some or all of the deposits we have made pursuant to the agreement. During fiscal 2023 and 2022, we acquired control of approximately 4,200 and 5,700 home sites, respectively, net of options terminated and lots sold. During fiscal year 2023 and 2022, we forfeited control of over 4,000 and 9,000 lots, respectively, subject to land purchase agreements primarily because the planned community no longer met our development criteria. At October 31, 2023, we controlled approximately 70,700 home sites, as compared to approximately 76,000 home sites at October 31, 2022. At October 31, 2023 and October 31, 2022, our percentage of optioned versus owned lots was 49% and 50%, respectively. We, either alone or in joint venture, are developing several parcels of land for master-planned communities in which we intend to build homes on a portion of the lots, with the remaining lots being sold to other builders. At October 31, 2023, one of these master-planned communities was wholly owned, while the remaining communities were developed through joint ventures with other builders or financial partners. At October 31, 2023, our Land Development Joint Ventures owned approximately 25,800 home sites. At October 31, 2023, we had agreed to acquire 332 home sites and expect to purchase approximately 8,200 additional home sites from several of our Land Development Joint Ventures over a number of years. Our ability and willingness to continue development activities over the long term will depend on, among other things, a suitable economic environment and our continued ability to locate and enter into options or agreements to purchase land, obtain governmental approvals for suitable parcels of land, and consummate the acquisition and complete the development of such land on acceptable terms. The following is a summary of home sites for future communities (as distinguished from operating communities) that we either owned or controlled through options or purchase agreements at October 31, 2023: Number of communities Number of home sites North 74 4,905 Mid-Atlantic 121 8,353 South 137 11,084 Mountain 102 9,602 Pacific 64 4,922 Total 498 38,866 Of the 38,866 planned home sites at October 31, 2023, we owned 12,866 and controlled 26,000 through options and purchase agreements. At October 31, 2023, the aggregate purchase price of land parcels subject to option and purchase agreements in both operating and future communities was approximately $4.22 billion (including $31.5 million of land to be acquired from joint ventures in which we have invested). Of the $4.22 billion of land purchase contracts, we paid or deposited $449.9 million. If we acquire all 5 of these land parcels, we will be required to pay an additional $3.77 billion. The purchases of these land parcels are expected to occur over the next several years. We have additional land parcels under option that have been excluded from this aggregate purchase price because 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. These option contracts have either been written off or written down to the estimated amount that we expect to recover when the contracts are terminated. We have a substantial amount of land currently under control for which approvals have been obtained or are being sought. We devote significant resources to locating suitable land for future development and obtaining the required approvals on land under our control. There can be no assurance that the necessary development approvals will be secured for the land currently under our control or for land that we may acquire control of in the future. In addition, upon obtaining such development approvals, we may elect not to complete the purchases of land under option or complete the development of land that we own. We generally have been successful in obtaining governmental approvals in the past. We believe that we have an adequate supply of land in our existing communities and proposed communities (assuming that all properties are developed) to maintain our operations at current levels for several years. Community Development We expend considerable effort in developing a plan for each community, which includes determining the size, style, and price range of the homes; the layout of the streets and individual home sites; and the overall community design. After the necessary governmental subdivision and other approvals have been obtained, which may take several years, we improve the land by clearing and grading it; installing roads, underground utilities, recreational amenities, and distinctive entrance features; and staking out individual home sites. We act as a general contractor for substantially all of our communities. Subcontractors perform all home construction and land development work, generally under fixed-price contracts. We generally have multiple sources for the materials we purchase and believe our suppliers have sufficient capacity to support our business operations. However, factors beyond our control can and have resulted in disruptions to our supply chain, the availability of labor, and the ability of municipalities to process approvals, which can result in elongated production cycles. See “Risk Factors – Risks Related to Our Business and Industry” in Item 1A and “Manufacturing/Distribution Facilities” in Item 2 of this Form 10-K. Our construction managers coordinate subcontracting activities and supervise all aspects of construction work and quality control. One of the ways in which we seek to achieve home buyer satisfaction is by providing our construction managers with incentive compensation arrangements based upon each home buyer’s satisfaction, as expressed by the buyers’ responses on pre- and post-closing questionnaires. The most significant variable affecting the timing of our sales, other than housing demand, is the opening of the community for sale, which occurs after receipt of final land regulatory approvals. Receipt of approvals allows us to begin the process of obtaining executed sales contracts from home buyers. Although our sales and construction activities vary somewhat by season, which can affect the timing of closings, any such seasonal effect is relatively insignificant compared to the effect of the timing of receipt of final regulatory approvals, the opening of the community, and the subsequent timing of closings. Marketing and Sales We believe that our marketing strategy for our homes has enhanced our reputation as a builder and developer of high quality luxury homes. We believe this reputation results in greater demand for all of our product types. We generally include attractive design features even in our less expensive homes, based on our belief that these enhancements improve our marketing and sales effort. In determining the prices for our homes, in addition to management’s extensive experience, we utilize an internally developed value analysis program that compares our homes with homes offered by other builders and competitive resale homes in each local market area. In our application of this program, we assign a positive or negative dollar value to differences between our product features and those of our competitors, such as home and community amenities, location, and reputation. We typically have a sales center in each community that is staffed by our own sales personnel. Sales personnel are generally compensated with both salary and commission. A significant portion of our sales is also derived from the introduction of customers to our communities by local real estate agents, to whom we pay a real estate agent commission. We expend great effort and cost in designing and merchandising our model homes, which play an important role in our marketing. Interior merchandising varies among the models and is carefully selected to reflect the lifestyles of prospective buyers. Visitors to our website, www.TollBrothers.com, can obtain detailed information regarding our communities and homes across the country, take panoramic or video tours of our homes, and design their own homes based upon our available floor plans and 6 options . We have increasingly focused our marketing efforts to the digital environment for media buying and have adopted a number of virtual tools and techniques to allow our sales personnel to engage in remote interactions with potential customers. We have a two-step sales process. The first step takes place when a potential home buyer visits one of our communities (either in person or virtually) and decides to purchase one of our homes, at which point the home buyer signs a non-binding deposit agreement and provides a small, refundable deposit. This deposit will reserve, for a short period of time, the home site or unit that the home buyer has selected. This deposit also locks in the base price of the home. Because these deposit agreements are non-binding, they are not recorded as signed contracts, nor are they recorded in backlog. Deposit rates are tracked on a weekly basis to help us monitor the strength or weakness in demand in each of our communities. If demand for homes in a particular community is strong, we determine whether the base sales prices in that community should be increased. If demand for the homes in a particular community is weak, we determine whether or not sales incentives and/or discounts on home prices should be adjusted. The second step in the sales process occurs when we sign a binding agreement of sale contract with the home buyer and the home buyer provides a larger cash down payment that is generally non-refundable. Cash down payments averaged approximately 8% of the total purchase price of a home in fiscal year 2023. Between the time that the home buyer signs the non-binding deposit agreement and the binding agreement of sale, which typically takes about three weeks, the home buyer is required to complete a financial questionnaire that allows us to determine whether the home buyer has the financial resources necessary to purchase the home. If we determine that the home buyer is not financially qualified, we will not enter into an agreement of sale. During fiscal 2023, 2022, and 2021, our customers signed binding net contracts for $7.91 billion (8,077 homes), $9.07 billion (8,255 homes), and $11.54 billion (12,472 homes), respectively. When we report net contracts signed, the number and value of contracts signed are reported net of all cancellations occurring during the reporting period, whether the cancelled contracts were originally signed in that reporting period or in a prior period. Additionally, all options selected during the reporting period are reported as sales in that reporting period regardless of when the original contract was signed. Only outstanding agreements of sale that have been signed by both the home buyer and us as of the end of the period for which we are reporting are reported as contracts and included in backlog. Customer Mortgage Financing We maintain relationships with a diversified group of mortgage financial institutions, many of which are among the largest in the industry. We believe that national, regional and community banks continue to recognize the long-term value in creating relationships with our affluent 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, better able to secure mortgages due to their typically lower loan-to-value ratios and attractive credit profiles, as compared to the average home buyer. Our mortgage subsidiary, Toll Brothers Mortgage Company (“TBMC”), provides mortgage financing for a portion of our home closings. Our mortgage subsidiary determines whether the home buyer qualifies for the mortgage that the home buyer is seeking based upon information provided by the home buyer and other sources. For those home buyers who qualify, our mortgage subsidiary provides the home buyer with a mortgage commitment that specifies the terms and conditions of a proposed mortgage loan based upon then-current market conditions. Information about the number and amount of loans funded by our mortgage subsidiary is contained in the table below. Fiscal year Total Toll Brothers, Inc. settlements (a) TBMC financed settlements* (b) Gross capture rate (b/a) Amount financed (in millions) 2023 9,597 3,123 32.5% $ 1,598.6 2022 10,515 3,706 35.2% $ 2,030.6 2021 9,986 4,364 43.7% $ 2,160.8 * Amounts exclude referred loans, which amounted to 9.5%, 6.5%, and 5.6% of our home closings in fiscal 2023, 2022, and 2021, respectively. Prior to the actual closing of the home and funding of the mortgage, the home buyer may lock in an interest rate based upon the terms of the commitment. At the time of rate lock, our mortgage subsidiary agrees to sell the proposed mortgage loan to one of several third-party established mortgage financing institutions (“investors”) that are willing to honor the terms and conditions, including the interest rate, committed to the home buyer. We believe that these investors have adequate financial resources to honor their commitments to our mortgage subsidiary. Mortgage loans are sold to investors with limited recourse provisions derived from industry-standard representations and warranties in the relevant agreements. These representations and warranties primarily involve the absence of misrepresentations by the borrower or other parties, the appropriate underwriting of the loan, 7 and in some cases, a required minimum number of payments to be made by the borrower. The Company generally does not retain any other continuing interest related to mortgage loans sold in the secondary market. At October 31, 2023, our mortgage subsidiary was committed to fund $2.17 billion of mortgage loans. Of these commitments, $354.7 million, as well as $104.7 million of mortgage loans receivable, had “locked-in” interest rates as of October 31, 2023. Our mortgage subsidiary funds its commitments through a combination of its own capital, capital provided from us, its loan facility, and the sale of mortgage loans to various investors. Our mortgage subsidiary has commitments from investors to acquire all $459.4 million of these locked-in loans and receivables. Our home buyers had not locked in the interest rate on the remaining $1.82 billion of mortgage loan commitments as of October 31, 2023. Backlog We had a backlog of $6.95 billion (6,578 homes) at October 31, 2023; $8.87 billion (8,098 homes) at October 31, 2022; and $9.50 billion (10,302 homes) at October 31, 2021. Of the 6,578 homes in backlog at October 31, 2023, approximately 96% are expected to be delivered by October 31, 2024. This delivery estimate is based on current expectations regarding our backlog conversion rate. Our backlog conversion rate can vary based on a number of factors, including the availability of subcontractors and qualified trades people; the availability of adequate utility infrastructure and services; the ability of municipalities to process permits, conduct inspections and take similar actions in a timely manner; and shortages, delays in availability, or fluctuations in prices of building materials. See “Risk Factors – Risks Related to Our Business and Industry – Component shortages and increased costs of labor and supplies are beyond our control and can result in delays and increased costs to develop our communities.” Competition The home building business is highly competitive and fragmented. We compete with numerous home builders of varying sizes, ranging from local to national in scope, some of which have greater sales and financial resources than we do. Sales of existing homes also provide competition. We compete primarily on the basis of price, location, design, quality, service, and reputation. We believe our financial stability, relative to many other home builders in our industry, is a favorable competitive factor. Seasonality Our quarterly operating results typically fluctuate with the seasons. A significant portion of our agreements of sale are generally entered into with customers in the winter and spring months. Weather-related events can delay housing starts and closings and increase costs. See “Risk Factors – Risks Related to Our Business and Industry – Our quarterly operating results may fluctuate due to the seasonal nature of our business” and “Risk Factors – Risks Related to Other Events and Factors – Adverse weather conditions, natural disasters, and other conditions could disrupt the development of our communities, which could harm our sales and results of operation” in Item 1A of this Form 10-K. Investments in Unconsolidated Entities We have investments in joint ventures (i) to develop lots for the joint venture participants and for sale to outside builders (“Land Development Joint Ventures”); (ii) to develop for-sale homes (“Home Building Joint Ventures”); (iii) to develop luxury for-rent residential apartments and single family homes, and commercial space (“Rental Property Joint Ventures”); and (iv) to provide financing and land banking for residential builders and developers for the acquisition and development of land and home sites (“Gibraltar Joint Ventures”). At October 31, 2023, we had investments of $959.0 million in these unconsolidated entities and were committed to invest or advance up to an additional $400.8 million to these entities if they require additional funding. In fiscal 2023, 2022, and 2021, we recognized income from the unconsolidated entities in which we had an investment of $50.1 million, $23.7 million, and $74.0 million, respectively. In addition, we earned construction and management fee income from these unconsolidated entities of $39.2 million in fiscal 2023, $33.9 million in fiscal 2022, and $24.3 million in fiscal 2021. Land Development Joint Ventures At October 31, 2023, we had investments in 16 Land Development Joint Ventures to develop land. Some of these Land Development Joint Ventures develop land for the sole use of the venture participants, including us, and others develop land for sale to the joint venture participants and to unrelated builders. At October 31, 2023, we had $351.2 million invested in our Land Development Joint Ventures and funding commitments of $204.4 million to nine of the Land Development Joint Ventures which will be funded if additional investments in the ventures are required. At October 31, 2023, twelve of these joint ventures had aggregate loan commitments of $610.8 million and outstanding borrowings against these commitments of $445.5 million. At October 31, 2023, our Land Development Joint Ventures owned approximately 25,800 home sites. 8 At October 31, 2023, we had agreed to acquire 332 home sites from three of our Land Development Joint Ventures for an aggregate purchase price of approximately $31.5 million. In addition, we expect to purchase approximately 8,200 additional home sites over a number of years from several of these joint ventures. The purchase prices of these home sites will be determined at a future date. We count lots in these joint ventures as optioned lots if we have a contractual right to acquire them. Home Building Joint Ventures At October 31, 2023, we had an aggregate $65.3 million of investments in our Home Building Joint Ventures to develop luxury for-sale homes. In fiscal 2023, the value of net contracts signed by our Home Building Joint Ventures was $101.3 million (77 homes), and they delivered $38.9 million (9 homes) of revenue. Rental Property Joint Ventures As part of our strategy to expand product lines, over the past several years, we acquired control of a number of land parcels intended to be developed as for-rent apartment or single family rental home projects, including several student housing sites. At October 31, 2023, we had an aggregate of $531.8 million of investments in 43 Rental Property Joint Ventures. At October 31, 2023, we or joint ventures in which we have an interest controlled 44 land parcels that are planned as for-rent apartment projects containing approximately 22,200 units. At October 31, 2023, joint ventures in which we had an interest had aggregate loan commitments of $3.73 billion and outstanding borrowings against these commitments of $2.15 billion. These projects are located in multiple metropolitan areas throughout the country and are being operated or developed (or we expect will be developed) with partners under the brand names Toll Brothers Apartment Living and Toll Brothers Campus Living. At October 31, 2023, we had approximately 3,400 units in for-rent apartment projects that were occupied or ready for occupancy, 3,400 units in the lease-up stage, 9,900 units in the design phase or under development, and 5,500 units in the planning stage. Of the 22,200 units at October 31, 2023, 14,500 were owned by joint ventures in which we have an interest, approximately 1,800 were owned by us, and 5,900 were under contract to be purchased by us. Gibraltar Joint Ventures Over the past several years, we, through Gibraltar, entered into several ventures with an institutional investor to provide financing and land banking to residential buildings and developers. We have an approximate 25% interest in these ventures. These ventures finance builders’ and developers’ acquisition and development of land and home sites and pursue other complementary investment strategies. We may invest up to $100.0 million in these ventures. As of October 31, 2023, we had an investment of $10.8 million. Regulatory and Environmental Matters We are subject to various local, state, and federal statutes, ordinances, rules, and regulations concerning zoning, building design, construction, and similar matters, including local regulations that impose restrictive zoning and density requirements. In a number of our markets, there has been an increase in state and local legislation authorizing the acquisition of land as dedicated open space, mainly by governmental, quasi-public, and nonprofit entities. In addition, we are subject to various licensing, registration, and filing requirements in connection with the construction, advertisement, and sale of homes in our communities. The impact of these laws and requirements has been to increase our overall costs, and they may have delayed, and in the future may delay, the opening of communities, or may have caused, and in the future may cause, us to conclude that development of particular communities would not be economically feasible, even if any or all necessary governmental approvals were obtained. See “Land Policy” in this Item 1. We also may be subject to periodic delays or may be precluded entirely from developing communities due to building moratoriums in one or more of the areas in which we operate. Generally, such moratoriums often relate to insufficient water or sewage facilities or inadequate road capacity. In order to secure certain approvals in some areas, we may be required to provide affordable housing at below market rental or sales prices. The impact of these requirements on us depends on how the various state and local governments in the areas in which we engage, or intend to engage, in development implement their programs for affordable housing. To date, these restrictions have not had a material impact on us. We also are subject to a variety of local, state, and federal statutes, ordinances, rules, and regulations concerning protection of public health and the environment (“environmental laws”). The particular environmental laws that apply to any given community vary according to the location and environmental condition of the site and the present and former uses of the site. An increased regulatory focus on reducing greenhouse gas emissions has led to legislative mandates in certain jurisdictions that require new homes to be more energy efficient than existing homes, or that mandate energy efficient features, such as solar panels, be included in new construction. Complying with these environmental laws may result in delays, may cause us to incur substantial compliance and other costs, and/or may prohibit or severely restrict development in certain environmentally sensitive regions or areas. 9 Before consummating an acquisition of land, we generally engage independent environmental consultants to evaluate land for the potential of hazardous or toxic materials, wastes, or substances, and we believe that because of this, we have not been significantly affected to date by the presence of such materials on our land. Our mortgage subsidiary is subject to various state and federal statutes, rules, and regulations, including those that relate to licensing, lending operations, and other areas of mortgage origination and financing. The impact of those statutes, rules, and regulations can be to increase our home buyers’ cost of financing, increase our cost of doing business, and restrict our home buyers’ access to some types of loans. Insurance/Warranty All of our homes are sold under our limited warranty as to workmanship and mechanical equipment. Many homes also come with a limited multi-year warranty as to structural integrity. We maintain insurance, subject to deductibles and self-insured amounts, to protect us against various risks associated with our activities, including, among others, general liability, “all-risk” property, construction defects, workers’ compensation, automobile, and employee fidelity. We accrue for our expected costs associated with the deductibles and self-insured amounts. Human Capital Resources At October 31, 2023, we employed approximately 4,800 persons full-time, as compared to approximately 5,200 employees at October 31, 2022. At October 31, 2023, approximately 1% of our employees were covered by a collective bargaining agreement. We believe our employees are among our most important resources and are critical to our continued success. We focus significant attention on attracting and retaining talented and experienced individuals to manage and support our operations, and our management team routinely reviews employee turnover rates at various levels of the organization. Management also reviews employee engagement and satisfaction surveys to monitor employee morale and receive feedback on a variety of issues. We pay our employees competitively and offer a broad range of company-paid benefits, which we believe are competitive with others in our industry. We are committed to hiring, developing and supporting a diverse and inclusive workplace. Our management teams and all of our employees are expected to exhibit and promote honest, ethical and respectful conduct in the workplace. All of our employees must adhere to a code of conduct that sets standards for appropriate behavior and includes required annual training on preventing, identifying, reporting and stopping any type of unlawful discrimination. In recent years, we have implemented protocols and procedures to protect our employees, subcontractors and customers. For example, we have expanded technologies that allow for virtual interactions in many aspects of our business, including customer facing activities. Many administrative and operational routines have been modified including with respect to providing our employees with greater flexibility to work remotely. Many of these modifications have been well received by our employees with minimal disruption to our operations and have continued through fiscal 2023. Available Information We file annual, quarterly and current reports, proxy statements, and other information with the Securities and Exchange Commission (the “SEC”). These filings are available over the internet at the SEC’s website at http://www.sec.gov. Our principal Internet address is www.tollbrothers.com. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 available through our website under “Investor Relations” (our “Investor Relations website”), free of charge, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We provide information about our business and financial performance, including our Company Overview, on our Investor Relations website. Additionally, we webcast our earnings calls and certain events we participate in with members of the investment community on the Investor Relations portion of our website. Further corporate governance information, including our code of ethics and business conduct, corporate governance guidelines, and board committee charters, is also available on the Investor Relations portion of our website. The content of our websites is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only. 10 FORWARD-LOOKING STATEMENTS Certain information included in this report or in other materials we have filed or will file with the SEC (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. One can identify these statements by the fact that they do not relate to matters of strictly historical or factual nature and generally discuss or relate to future events. These statements contain words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “may,” “can,” “could,” “might,” “should,” “likely,” “will,” and other words or phrases of similar meaning. Such statements may include, but are not limited to, information related to: market conditions; mortgage rates; inflation rates; demand for our homes; our built-to-order and quick move-in home strategy; sales paces and prices; effects of home buyer cancellations; our strategic priorities; growth and expansion; our land acquisition, land development and capital allocation priorities; anticipated operating results; home deliveries; financial resources and condition; changes in revenues; changes in profitability; changes in margins; changes in accounting treatment; cost of revenues, including expected labor and material costs; availability of labor and materials; selling, general and administrative expenses; interest expense; inventory write-downs; home warranty and construction defect claims; unrecognized tax benefits; anticipated tax refunds; joint ventures in which we are involved; anticipated results from our investments in unconsolidated entities; our ability to acquire land and pursue real estate opportunities; our ability to gain approvals and open new communities; our ability to market, construct and sell homes and properties; our ability to deliver homes from backlog; our ability to secure materials and subcontractors; our ability to produce the liquidity and capital necessary to conduct normal business operations or to expand and take advantage of opportunities; the outcome of legal proceedings, investigations, and claims; and the impact of public health or other emergencies. Any or all of the forward-looking statements included in this report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. This can occur as a result of assumptions or estimates that differ from actual results or as a consequence of known or unknown risks and uncertainties. Many of the factors mentioned in “Item 1A - Risk Factors” below or in other reports or public statements made by us will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from our forward-looking statements. From time to time, forward-looking statements also are included in other reports on Forms 10-Q and 8-K; in press releases; in presentations; on our website; and in other materials released to the public. These statements may include guidance regarding our future performance, such as our anticipated annual revenue, home deliveries, and margins, that represents management’s estimates as of the date of publication. Guidance is based upon a number of assumptions and estimates that, while presented with numerical specificity, is inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some of which will change. Forward-looking statements, including guidance, speak only as of the date they are made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. For a more detailed discussion of factors that we believe could cause our actual results to differ materially from expected and historical results, see “Item 1A – Risk Factors” below. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995, and all of our forward-looking statements are expressly qualified in their entirety by the cautionary statements contained or referenced in this section. INFORMATION ABOUT OUR EXECUTIVE OFFICERS Information about our executive officers is incorporated by reference from “Part III, Item 10” of this Form 10-K.