Toll Brothers, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures Any controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected; however, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Our Chief Executive Officer and Chief Financial Officer, with the assistance of management, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (“Exchange Act”), as of the end of the period covered by this report (“Evaluation Date”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management’s Annual Report on Internal Control Over Financial Reporting and Attestation Report of the Independent Registered Public Accounting Firm Management’s Annual Report on Internal Control Over Financial Reporting and the attestation report of our independent registered public accounting firm on internal control over financial reporting on pa ges F-1 and F-2, re spectively, are incorporated herein by reference. Changes in Internal Control Over Financial Reporting We are in the process of a complex implementation of a new ERP system that affects many of our financial processes. This project is expected to improve the efficiency and effectiveness of certain financial and business transaction processes, as well as the underlying systems environment. The new ERP system will be a significant component of our internal control over financial reporting. Other than the ERP system implementation noted above, there has not been any change in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our quarter ended October 31, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. For a discussion of risks related to the implementation of our new ERP system, see “Risk Factors - Risks Related to Our Business and Industry - We are implementing a new enterprise resource planning system, and challenges with the implementation of the system may impact our business and operations.” ITEM 9B. OTHER INFORMATION Securities Trading Plans of Directors and Executive Officers During the period covered by this Annual Report on Form 10-K, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K . 45 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The following table includes information with respect to all persons serving as executive officers as of the date of this Form 10-K. All executive officers serve at the pleasure of our Board of Directors. Name Age Positions Douglas C. Yearley, Jr. 63 Chairman of the Board and Chief Executive Officer Robert Parahus 60 President and Chief Operating Officer Martin P. Connor 59 Senior Vice President and Chief Financial Officer Douglas C. Yearley, Jr. joined us in 1990 as assistant to the Chief Executive Officer with responsibility for land acquisitions. He has been an officer since 1994, holding the position of Senior Vice President from January 2002 until November 2005, the position of Regional President from November 2005 until November 2009, and the position of Executive Vice President from November 2009 until June 2010, when he was promoted to Chief Executive Officer. On November 1, 2018, he was appointed to the position of Chairman of the Board and Chief Executive Officer. Mr. Yearley was elected a Director in June 2010. Robert Parahus joined us in 1986 and served in various positions with us, including Regional President from 2006 through October 31, 2019. During this time, he oversaw the Company’s home building operations in New Jersey, New York, Connecticut, Massachusetts, and Florida, and had oversight responsibility for Toll Integrated Systems, the Company’s building component manufacturing operations. He was appointed to the position of Executive Vice President and Co-Chief Operating Officer effective November 1, 2019, with responsibility for the Company’s eastern region. Effective November 1, 2021, Mr. Parahus was promoted to President and Chief Operating Officer. Martin P. Connor joined us as Vice President and Assistant Chief Financial Officer in December 2008 and was appointed a Senior Vice President in December 2009. Mr. Connor was appointed to his current position of Senior Vice President and Chief Financial Officer in September 2010. From June 2008 to December 2008, Mr. Connor was President of Marcon Advisors LLC, a finance and accounting consulting firm that he founded. From October 2006 to June 2008, Mr. Connor was Chief Financial Officer and Director of Operations for O’Neill Properties, a diversified commercial real estate developer in the Mid-Atlantic area. Prior to October 2006, he spent over 20 years at Ernst & Young LLP as an Audit and Advisory Business Services Partner, responsible for the real estate practice for Ernst & Young LLP in the Philadelphia marketplace. During the period from 1998 to 2005, he served on the Toll Brothers, Inc. audit engagement. Mr. Connor is a director of Univest Financial Corporation, a publicly traded banking and financial services provider serving customers primarily in Pennsylvania and New Jersey. The other information required by this item will be included in the “Election of Directors” and “Corporate Governance” sections of our Proxy Statement for the 2024 Annual Meeting of Stockholders (the “2024 Proxy Statement”). Code of Ethics We have adopted a Code of Ethics for the Principal Executive Officer and Senior Financial Officers (“Code of Ethics”) that applies to our principal executive officer, principal financial officer, principal accounting officer, controller, and persons performing similar functions designated by our Board of Directors. The Code of Ethics is available on our Internet website at www.tollbrothers.com under “Investor Relations – Corporate Governance.” If we were to amend or waive any provision of our Code of Ethics, we intend to satisfy our disclosure obligations with respect to any such waiver or amendment by posting such information on our Internet website set forth above rather than by filing a Form 8-K. Indemnification of Directors and Officers Our Certificate of Incorporation and Bylaws provide for indemnification of our directors and officers. We have also entered into individual indemnification agreements with each of our directors. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will be included in the “Executive Compensation” section of our 2024 Proxy Statement and is incorporated herein by reference. 46 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required in this item will be included in the “Voting Securities and Beneficial Ownership” and “Equity Compensation Plan Information” sections of our 2024 Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; DIRECTOR INDEPENDENCE The information required in this item will be included in the “Corporate Governance” and “Certain Relationships and Transactions” sections of our 2024 Proxy Statement and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required in this item will be included in the “Ratification of the Re-Appointment of Independent Registered Public Accounting Firm” section of the 2024 Proxy Statement and is incorporated herein by reference. 47 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) Financial Statements and Financial Statement Schedules Page 1. Financial Statements Management’s Annual Report on Internal Control Over Financial Reporting F- 1 Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) F- 2 Consolidated Balance Sheets F- 6 Consolidated Statements of Operations and Comprehensive Income F- 7 Consolidated Statements of Changes in Equity F- 8 Consolidated Statements of Cash Flows F- 9 Notes to Consolidated Financial Statements F- 10 2. Financial Statement Schedules None Financial statement schedules have been omitted because either they are not applicable or the required information is included in the financial statements or notes hereto. (b) Exhibits The following exhibits are included with this report or incorporated herein by reference: Exhibit Number Description 3.1 Second Restated Certificate of Incorporation of the Registrant, dated September 8, 2005, is hereby incorporated by reference to Exhibit 3.1 of the Registrant’s Form 10-Q for the quarter ended July 31, 2005. 3.2 Certificate of Amendment of the Second Restated Certificate of Incorporation of the Registrant, filed with the Secretary of State of the State of Delaware, is hereby incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 22, 2010. 3.3 Certificate of Amendment of the Second Restated Certificate of Incorporation of the Registrant, dated as of March 16, 2011, is hereby incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 18, 2011. 3.4 Certificate of Amendment of the Second Restated Certificate of Incorporation of the Registrant, dated as of March 8, 2016, is hereby incorporated by reference to Annex B to the Registrant’s definitive proxy statement on Schedule 14A its 2016 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on February 2, 2016. 3.5 By-Laws of Toll Brothers, Inc., as Amended and Restated June 13, 2023 is hereby incorporated by reference to Exhibit 3.01 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 13, 2023 4.1 Specimen Stock Certificate is hereby incorporated by reference to Exhibit 4.1 of the Registrant’s Form 10-K for the year ended October 31, 2017. 4.2 Indenture, dated as of February 7, 2012, among Toll Brothers Finance Corp., the Registrant and the other guarantors named therein and The Bank of New York Mellon, as trustee, is hereby incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 7, 2012. 48 Exhibit Number Description 4.3 Authorizing Resolutions, dated as of October 30, 2015, relating to the $350,000,000 principal amount of 4.875% Senior Notes due 2025 of Toll Brothers Finance Corp. guaranteed on a senior basis by the Registrant and certain of its subsidiaries, is hereby incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2015. 4.4 Form of Global Note for Toll Brothers Finance Corp.’s 4.875% Senior Notes due 2025 is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2015. 4.5 Authorizing Resolutions, dated as of March 10, 2017, relating to the $300,000,000 principal amount of 4.875% Senior Notes due 2027 of Toll Brothers Finance Corp. guaranteed on a senior basis by the Registrant and certain of its subsidiaries, is hereby incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2017. 4.6 Form of Global Note for Toll Brothers Finance Corp.’s 4.875% Senior Notes due 2027 is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2017. 4.7 Authorizing Resolutions, dated as of June 12, 2017, relating to the $150,000,000 principal amount of 4.875% Senior Notes due 2027 of Toll Brothers Finance Corp. guaranteed on a senior basis by the Registrant and certain of its subsidiaries, is hereby incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 12, 2017. 4.8 Form of Global Note for Toll Brothers Finance Corp.’s 4.875% Senior Notes due 2027 is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 12, 2017 4.9 Authorizing Resolution, dated as of January 22, 2018, relating to the $400,000,000 aggregate principal amount of 4.350% Senior Notes due 2028 of Toll Brothers Finance Corp., guaranteed on a senior basis by Toll Brothers, Inc. and certain of its subsidiaries, is hereby incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 22, 2018. 4.10 Form of Global Note for the Issuer’s 4.350% Senior Notes due 2028 is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 22, 2018. 4.11 Authorizing Resolution, dated as of September 12, 2019, relating to the $400,000,000 aggregate principal amount of 3.800% Senior Notes due 2029 of Toll Brothers Finance Corp., guaranteed on a senior basis by Toll Brothers, Inc. and certain of its subsidiaries, is hereby incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 12, 2019. 4.12 Form of Global Note for the Issuer’s 3.800% Senior Notes due 2029 is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 12, 2019. 4.13 First Supplemental Indenture dated as of April 27, 2012, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.3 of the Registrant’s Form 10-Q for the quarter ended April 30, 2012. 4.14 Second Supplemental Indenture dated as of April 30, 2013, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.4 of the Registrant’s Form 10-Q for the quarter ended April 30, 2013. 4.15 Third Supplemental Indenture dated as of April 30, 2014, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.1 of the Registrant’s Form 10-Q for the quarter ended April 30, 2014. 4.16 Fourth Supplemental Indenture dated as of July 31, 2014, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.1 of the Registrant’s Form 10-Q for the quarter ended July 31, 2014. 49 Exhibit Number Description 4.17 Fifth Supplemental Indenture dated as of October 31, 2014, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.55 of the Registrant’s Form 10-K for the year ended October 31, 2014. 4.18 Sixth Supplemental Indenture dated as of January 30, 2015, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.3 of the Registrant’s Form 10-Q for the quarter ended January 31, 2015. 4.19 Seventh Supplemental Indenture dated as of April 30, 2015, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.3 of the Registrant’s Form 10-Q for the quarter ended April 30, 2015. 4.20 Eighth Supplemental Indenture dated as of October 30, 2015, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.34 of the Registrant’s Form 10-K for the year ended October 31, 2015. 4.21 Ninth Supplemental Indenture dated as of January 29, 2016, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q for the quarter ended January 31, 2016. 4.22 Tenth Supplemental Indenture dated as of April 29, 2016, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q for the quarter ended April 30, 2016. 4.23 Eleventh Supplemental Indenture dated as of October 31, 2016, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.41 of the Registrant’s Form 10-K for the year ended October 31, 2016. 4.24 Twelfth Supplemental Indenture dated as of October 31, 2016, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.42 of the Registrant’s Form 10-K for the year ended October 31, 2016. 4.25 Thirteenth Supplemental Indenture dated as of January 31, 2017, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q for the quarter ended January 31, 2017. 4.26 Fourteenth Supplemental Indenture dated as of April 28, 2017, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q for the quarter ended April 30, 2017. 4.27 Fifteenth Supplemental Indenture dated as of July 31, 2017, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q for the quarter ended July 31, 2017. 4.28 Sixteenth Supplemental Indenture dated as of October 31, 2017, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.55 of the Registrant’s Form 10-K for the year ended October 31, 2017. 4.29 Seventeenth Supplemental Indenture dated as of October 31, 2017, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.56 of the Registrant’s Form 10-K for the year ended October 31, 2017. 50 Exhibit Number Description 4.30 Eighteenth Supplemental Indenture dated as of April 13, 2018, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.3 of the Registrant’s Form 10-Q for the quarter ended April 30, 2018. 4.31 Nineteenth Supplemental Indenture dated as of April 30, 2018, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.4 of the Registrant’s Form 10-Q for the quarter ended April 30, 2018. 4.32 Twentieth Supplemental Indenture dated as of October 31, 2018, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.62 of the Registrant’s Form 10-K for the year ended October 31, 2018. 4.33 Twenty-First Supplemental Indenture dated as of January 31, 2019, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q for the quarter ended January 31, 2019. 4.34 Twenty-Second Supplemental Indenture dated as of October 30, 2019, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.41 of the Registrant’s Form 10-K for the year ended October 31, 2019. 4.35 Twenty-third Supplemental Indenture dated as of October 30, 2019, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.42 of the Registrant’s Form 10-K for the year ended October 31, 2019. 4.36 Twenty-fourth Supplemental Indenture dated as of April 30, 2020, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.1 of the Registrant’s Form 10-Q for the quarter ended April 30, 2020. 4.37 Twenty-fifth Supplemental Indenture dated as of October 30, 2020, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.44 of the Registrant’s Form 10-K for the year ended October 31, 2020. 4.38 Twenty-sixth Supplemental Indenture dated as of April 30, 2021, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.1 of the Registrant’s Form 10-Q for the quarter ended April 30, 2021. 4.39 Twenty-seventh Supplemental Indenture dated as of July 29, 2022, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.1 of the Registrant’s Form 10-Q for the quarter ended July 31, 2022. 4.40 Twenty-eighth Supplemental Indenture dated as of October 31, 2022, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporate by reference to Exhibit 4.43 of the Registrants’s Form 10-K for the year ended October 31, 2022. 4.41 Twenty-ninth Supplemental Indenture dated as of January 31, 2023, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporate by reference to Exhibit 4.1 of the Registrants’s Form 10-Q for the quarter ended January 31, 2023. 4.42 Thirtieth Supplemental Indenture dated as of July 31, 2023, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporate by reference to Exhibit 4.1 of the Registrants’s Form 10-Q for the quarter ended July 31, 2023. 51 Exhibit Number Description 4.43 Thirty-first Supplemental Indenture dated as of October 31, 2023, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee.** 4.44 Description of Certain of Registrant’s Securities is hereby incorporated by reference to Exhibit 4.44 of the Registrant’s Form 10-K for the year ended October 31, 2021. 10.1 Credit Agreement, dated as of February 14, 2023, by and among First Huntingdon Finance Corp., Toll Brothers, Inc., the Lenders party thereto and Mizuho Bank, Ltd. as Administrative Agent, is hereby incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 15, 2023 10.2 Credit Agreement by and among First Huntingdon Finance Corp., Toll Brothers, Inc., the lenders party thereto and SunTrust Bank, as Administrative Agent dated February 3, 2014, is hereby incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 5, 2014 10.3 Amendment No. 1, dated as of May 19, 2016, to the Credit Agreement, dated as of February 3, 2014, among First Huntingdon Finance Corp., Toll Brothers, Inc., the Lenders party thereto and SunTrust Bank, as Administrative Agent, is hereby incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on May 24, 2016. 10.4 Amendment No. 2, dated August 2, 2016, to Credit Agreement dated as of February 3, 2014, as amended, by and among First Huntingdon Finance Corp., Toll Brothers, Inc., the designated guarantors party thereto, the lenders party thereto and SunTrust Bank, as Administrative Agent, is hereby incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on August 4, 2016. 10.5 Amendment No. 3, dated November 1, 2018, to Credit Agreement dated as of February 3, 2014, as amended, by and among First Huntingdon Finance Corp., Toll Brothers, Inc., the designated guarantors party thereto, the lenders party thereto and SunTrust Bank, as Administrative Agent, is hereby incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 2, 2018. 10.6 Amendment No. 4, dated as of October 31, 2019, to the Credit Agreement, dated as of February 3, 2014, as amended, by and First Huntingdon Finance Corp., Toll Brothers, Inc., the designated guarantors party thereto, the lenders party thereto and SunTrust Bank, as Administrative Agent, is hereby incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 1, 2019. 10.7 Amendment No. 5, dated as of February 14, 2023, to the Credit Agreement, dated as of February 3, 2014 (as amended by Amendment No. 1, dated as of May 19, 2016, Amendment No. 2, dated as of August 2, 2016, Amendment No. 3, dated as of November 1, 2018 and Amendment No. 4, dated as of October 31, 2019), among First Huntingdon Finance Corp., Toll Brothers, Inc., the Lenders party thereto and Truist Bank, as Administrative Agent, is hereby incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 15, 2023 10.8 Term Loan Extension Agreements, effective as of October 31, 2020, with respect to the Term Loan Credit Agreement dated as of February 3, 2014 (as amended by Amendment No. 1, dated as of May 19, 2016, Amendment No. 2, dated as of August 2, 2016, Amendment No. 3, dated as of November 1, 2018, and Amendment No. 4, dated as of November 1, 2019) among the Registrant, the Borrower, the lenders party thereto and SunTrust Bank, as Administrative Agent is hereby incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 31, 2020. 10.9 Term Loan Extension Agreements, effective as of October 31, 2021, with respect to the Term Loan Credit Agreement dated as of February 3, 2014 (as amended by Amendment No. 1, dated as of May 19, 2016, Amendment No. 2, dated as of August 2, 2016, Amendment No. 3, dated as of November 1, 2018, and Amendment No. 4, dated as of November 1, 2019) among the Registrant, the Borrower, the lenders party thereto and Truist Bank (as successor by merger to SunTrust Bank), as Administrative Agent is hereby incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 31, 2020. 10.10* Toll Brothers, Inc. Employee Stock Purchase Plan (2017) is hereby incorporated by reference to Annex A to the Registrant’s Definitive Proxy Statement on Schedule 14A for its 2017 Annual Meeting of Stockholders filed with the SEC on January 31, 2017. 52 Exhibit Number Description 10.11* Amendment No. 1, dated as of December 13, 2017, to the Toll Brothers, Inc. Employee Stock Purchase Plan (2017) is hereby incorporated by reference to Exhibit 10.7 of the Registrant’s Form 10-K for the year ended October 31, 2017. 10.12* Amendment No. 2, dated as of June 19, 2018, to the Toll Brothers, Inc. Employee Stock Purchase Plan (2017) is hereby incorporated by reference to Exhibit 10.8 of the Registrant’s Form 10-K for the year ended October 31, 2018. 10.13* Toll Brothers, Inc. Amended and Restated Stock Incentive Plan for Employees (2007) (amended and restated as of September 17, 2008, is hereby incorporated by reference to Exhibit 4.1 of the Registrant’s Amendment No. 1 to its Registration Statement on Form S-8 (No. 333-143367) filed with the Securities and Exchange Commission on October 29, 2008. 10.14* Form of Non-Qualified Stock Option Grant pursuant to the Toll Brothers, Inc. Stock Incentive Plan for Employees (2007) is hereby incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on December 19, 2007. 10.15* Form of Addendum to Non-Qualified Stock Option Grant pursuant to the Toll Brothers, Inc. Stock Incentive Plan for Employees (2007) is hereby incorporated by reference to Exhibit 10.3 of the Registrant’s Form 10-Q for the quarter ended July 31, 2007. 10.16* Toll Brothers, Inc. Stock Incentive Plan for Employees (2014) is hereby incorporated by reference to Annex A to the Registrant’s definitive proxy statement on Schedule 14A for its 2014 Annual Meeting of Stockholders filed with the SEC on February 3, 2014. 10.17* Form of Non-Qualified Stock Option Grant pursuant to the Toll Brothers, Inc. Stock Incentive Plan for Employees (2014) is incorporated by reference to Exhibit 10.16 of the Registrant’s Form 10-K for the period ended October 31, 2014. 10.18* Form of Non-Qualified Stock Option Grant, is hereby incorporated by reference to Exhibit 10.18 of the Registrant’s Form 10-K for the year ended October 31, 2016. 10.19* Toll Brothers, Inc. Amended and Restated Stock Incentive Plan for Non-Employee Directors (2007) (amended and restated as of September 17, 2008) is hereby incorporated by reference to Exhibit 4.1 of the Registrant’s Amendment No. 1 to its Registration Statement on Form S-8 (No. 333-144230) filed with the Securities and Exchange Commission on October 29, 2008. 10.20* Form of Non-Qualified Stock Option Grant pursuant to the Toll Brothers, Inc. Stock Incentive Plan for Non-Employee Directors (2007) is hereby incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 19, 2007. 10.21* Form of Addendum to Non-Qualified Stock Option Grant pursuant to the Toll Brothers, Inc. Amended and Restated Stock Incentive Plan for Non-Employee Directors (2007) is hereby incorporated by reference to Exhibit 10.6 of the Registrant’s Form 10-Q for the quarter ended July 31, 2007. 10.22* Toll Brothers, Inc. Stock Incentive Plan for Non-Executive Directors (2016) is hereby incorporated by reference to Annex A to the Registrant’s definitive proxy statement on Schedule 14A for its 2016 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on February 2, 2016. 10.23* Form of Non-Qualified Stock Option Grant (Non-Executive Directors), is hereby incorporated by reference to Exhibit 10.26 of the Registrant’s Form 10-K for the year ended October 31, 2016. 10.24* Toll Brothers, Inc. 2019 Omnibus Incentive Plan, is hereby incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 14, 2019. 10.25* Form of Non-Qualified Stock Option Grant pursuant to the Toll Brothers, Inc. 2019 Omnibus Incentive Plan, is hereby incorporated by reference to Exhibit 10.28 of the Registrant’s Form 10-K for the year ended October 31, 2019. 10.26* Form of Restricted Stock Unit Agreement pursuant to the Toll Brothers, Inc. 2019 Omnibus Incentive Plan, is hereby incorporated by reference to Exhibit 10.29 of the Registrant’s Form 10-K for the year ended October 31, 2019. 53 Exhibit Number Description 10.27* Form of Restricted Stock Unit Agreement (Performance Based) pursuant to the Toll Brothers, Inc. 2019 Omnibus Incentive Plan, is hereby incorporated by reference to Exhibit 10.30 of the Registrant’s Form 10-K for the year ended October 31, 2019. 10.28* Toll Brothers, Inc. Supplemental Executive Retirement Plan, as amended effective as of October 29, 2019, is hereby incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 10-Q filed with the Securities and Exchange Commission on October 30, 2019. 10.29* Toll Bros., Inc. Non-Qualified Deferred Compensation Plan, amended and restated as of November 1, 2008, is incorporated by reference to Exhibit 10.45 of the Registrant’s Form 10-K for the period ended October 31, 2008. 10.30* Amendment Number 1 dated November 1, 2010 to the Toll Bros., Inc. Non-Qualified Deferred Compensation Plan, amended and restated as of November 1, 2008, is incorporated by reference to Exhibit 10.40 of the Registrant’s Form 10-K for the period ended October 31, 2010. 10.31* Amendment Number 2 dated December 30, 2010 to the Toll Bros., Inc. Non-Qualified Deferred Compensation Plan, amended and restated as of November 1, 2008 is incorporated by reference to Exhibit 10.28 of the Registrant’s Form 10-K for the period ended October 31, 2014. 10.32* Amendment Number 3 dated December 22, 2011 to the Toll Bros., Inc. Non-Qualified Deferred Compensation Plan, amended and restated as of November 1, 2008, is incorporated by reference to Exhibit 10.29 of the Registrant’s Form 10-K for the period ended October 31, 2014. 10.33* Toll Bros., Inc. Nonqualified Deferred Compensation Plan, amended and restated effective as of December 31, 2014, is incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q for the quarter ended January 31, 2015. 10.34* Toll Brothers, Inc. Executive Severance Plan, is hereby incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 14, 2019. 10.35* Form of Indemnification Agreement between the Registrant and the members of its Board of Directors, is hereby incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 17, 2009. 21** Subsidiaries of the Registrant. 22** List of guarantor subsidiaries 23** Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm 31.1** Certification of Douglas C. Yearley, Jr. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2** Certification of Martin P. Connor pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** Certification of Douglas C. Yearley, Jr. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2** Certification of Martin P. Connor pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97* Compensation Clawback Policy 101 The following financial statements from Toll Brothers, Inc. Annual Report on Form 10-K for the year ended October 31, 2023, filed on December 20, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income, (iii) Consolidated Statements of Changes in Equity, (iv) Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements. 101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 54 Exhibit Number Description 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this report. ** Filed electronically herewith. The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves; they should not be relied on for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time. ITEM 16. FORM 10-K SUMMARY None. 55 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on December 20, 2023. TOLL BROTHERS, INC. By: /s/ Douglas C. Yearley, Jr. Douglas C. Yearley, Jr. Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Douglas C. Yearley, Jr. Chairman of the Board and Chief Executive December 20, 2023 Douglas C. Yearley, Jr. Officer (Principal Executive Officer) /s/ Martin P. Connor Senior Vice President and Chief Financial Officer December 20, 2023 Martin P. Connor (Principal Financial Officer) /s/ Michael J. Grubb Senior Vice President and Chief Accounting December 20, 2023 Michael J. Grubb Officer (Principal Accounting Officer) /s/ Stephen F. East Director December 20, 2023 Stephen F. East /s/ Christine N. Garvey Director December 20, 2023 Christine N. Garvey /s/ Karen H. Grimes Director December 20, 2023 Karen H. Grimes /s/ Derek T. Kan Director December 20, 2023 Derek T. Kan /s/ Carl B. Marbach Director December 20, 2023 Carl B. Marbach /s/ John A. McLean Director December 20, 2023 John A. McLean /s/ Wendell E. Pritchett Director December 20, 2023 Wendell E. Pritchett 56 Signature Title Date /s/ Paul E. Shapiro Director December 20, 2023 Paul E. Shapiro /s/ Scott D. Stowell Director December 20, 2023 Scott D. Stowell 57 Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on this evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of October 31, 2023. Our independent registered public accounting firm, Ernst & Young LLP, has issued its report, which is included herein, on the effectiveness of our internal control over financial reporting. F-1 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Toll Brothers, Inc. Opinion on Internal Control Over Financial Reporting We have audited Toll Brothers, Inc.’s internal control over financial reporting as of October 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Toll Brothers, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of October 31, 2023, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2023 consolidated financial statements of the Company and our report dated December 20, 2023 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Philadelphia, Pennsylvania December 20, 2023 F-2 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Toll Brothers, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Toll Brothers, Inc. (the Company) as of October 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income, changes in equity and cash flows for each of the three years in the period ended October 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at October 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of October 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated December 20, 2023 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Accrual for Self-insurance Description of the Matter As described in Notes 1 and 7 of the consolidated financial statements, the Company maintains general liability insurance, including construction defect and bodily injury coverage, and workers’ compensation insurance. These insurance policies protect the Company against a portion of the risk of loss from claims related to home building activities, subject to certain self-insured retentions, deductibles and other coverage limits. The Company accrues for expected costs associated with the self-insured retentions, deductibles and other coverage limits which constitute the accrual for self-insurance. The Company’s accrual for self-insurance was $230.7 million as of October 31, 2023. The Company records expenses and accrues liabilities based on the estimated costs required to cover its self-insured liability under its insurance policies and the estimated costs of potential claims and claim adjustment expenses that are above coverage limits or that are not covered by insurance policies. These estimated costs are based on an analysis of historical claims and industry data. The majority of the accrual for self-insurance is an estimate of claims incurred but not yet reported (“IBNR”). F-3 The Company engages a third-party actuary that uses historical claim and expense data, input from the Company’s internal legal and risk management groups, as well as industry data, to estimate the IBNR associated with the risks that the Company is assuming for its accrual for self-insurance, and other required costs to administer current and expected claims. These estimates are subject to uncertainty due to a variety of factors, the most significant being the long period of time between the delivery of a home to a home buyer and when a structural warranty or construction defect claim may be made, and the ultimate resolution of the claim. Auditing the Company’s estimate of IBNR was especially challenging as evaluating the projection of losses related to these liabilities requires actuarial assumptions that are subject to variability due to uncertainties regarding construction defect claims relative to markets and types of products the Company builds, insurance industry practices, and legal or regulatory actions and/or interpretations, among other factors. Key assumptions used in these estimates include claim frequencies, severity, and settlement patterns, which can occur over an extended period of time. In addition, the estimate of IBNR is sensitive to significant assumptions including changes in the frequency and severity of reported claims and loss development factors for reported claims. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s review of the estimate of IBNR, including controls over the significant assumptions and the data inputs used in the actuarial analysis. For example, we tested controls over management’s review of the actuarial analysis, including its review of the model and methodology, significant assumptions and the data inputs used in the analysis. To test the estimate of IBNR we performed audit procedures that included, among others, testing the significant assumptions as well as the completeness and accuracy of the underlying data used by the Company as inputs to develop the assumptions. We reviewed the Company’s contractual self-insured retentions, deductibles and other coverage limits. We also evaluated management’s conclusions about the Company’s legal and contractual obligations with respect to certain claims. We involved our internal actuarial specialists to assist in evaluating the Company’s estimate of IBNR, including evaluating the appropriateness of the model and methodology used by management, evaluating the reasonableness of the actuarial assumptions used by management and independently calculating an estimate of IBNR. We also evaluated the Company’s disclosures in its consolidated financial statements. Inventory Impairment Description of the Matter As described in Notes 1 and 3 of the consolidated financial statements, the Company states its inventory at cost unless an impairment exists, in which case the inventory is written down to fair value. For the year ended October 31, 2023, the Company recorded inventory impairment charges of $20.0 million to operating communities and land owned for future communities. The Company regularly evaluates whether there are any impairment indicators for inventory present at the community level. If impairment indicators are present, the Company reviews the carrying value of each community’s inventory by comparing the estimated future undiscounted cash flows to the carrying value. For inventory for which the carrying value exceeds the future undiscounted cash flows, the Company writes down the carrying value of the inventory to its estimated fair value primarily based on a discounted cash flow model. Auditing management’s accounting for inventory impairment and its tests for recoverability was especially challenging and involved a high degree of subjectivity as a result of the assumptions and estimates inherent in these evaluations. In particular, management’s assumptions and estimates included future home and/or land sales prices and the pace of future sales, which were sensitive to expectations about future demand, operations and economic factors. Additionally, the fair value of certain communities was highly sensitive to relatively small changes in one or more of those assumptions. F-4 How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s inventory impairment review process. For example, we tested controls over management’s review of the significant assumptions and data inputs utilized in the calculation of future undiscounted and discounted cash flows, if applicable. To test the Company’s estimated future cash flows used to test for the recoverability of a community and, if applicable, the measurement of an impairment loss, we performed audit procedures that included, among others, testing the significant assumptions discussed above and the underlying data used by the Company in its impairment analyses, evaluating the methodologies applied by management, and recalculating the total undiscounted and discounted cash flows, if applicable, in each analysis. In certain cases, we involved our internal real estate valuation specialists to assist in performing these procedures. We compared the significant assumptions used by management to historical sales data, sales trends, and observable market-specific data. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of inventory that would result from changes in the assumptions. We also evaluated the Company’s disclosures in its consolidated financial statements. /s/ Ernst & Young LLP We have served as the Company’s auditor since 1983. Philadelphia, Pennsylvania December 20, 2023 F-5 CONSOLIDATED BALANCE SHEETS (Amounts in thousands) October 31, 2023 2022 ASSETS Cash and cash equivalents $ 1,300,068 $ 1,346,754 Inventory 9,057,578 8,733,326 Property, construction, and office equipment – net 323,990 287,827 Receivables, prepaid expenses, and other assets (1) 691,256 747,228 Mortgage loans held for sale – at fair value 110,555 185,150 Customer deposits held in escrow 84,530 136,115 Investments in unconsolidated entities (1) 959,041 852,314 $ 12,527,018 $ 12,288,714 LIABILITIES AND EQUITY Liabilities Loans payable $ 1,164,224 $ 1,185,275 Senior notes 1,596,185 1,995,271 Mortgage company loan facility 100,058 148,863 Customer deposits 540,718 680,588 Accounts payable 597,582 619,411 Accrued expenses 1,548,781 1,345,987 Income taxes payable 166,268 291,479 Total liabilities 5,713,816 6,266,874 Equity Stockholders’ equity Preferred stock, none issued — — Common stock, 112,937 and 127,937 shares issued at October 31, 2023 and October 31, 2022, respectively 1,129 1,279 Additional paid-in capital 698,548 716,786 Retained earnings 6,675,719 6,166,732 Treasury stock, at cost — 9,146 and 18,312 shares at October 31, 2023 and October 31, 2022, respectively ( 619,150 ) ( 916,327 ) Accumulated other comprehensive income ("AOCI") 40,910 37,618 Total stockholders’ equity 6,797,156 6,006,088 Noncontrolling interest 16,046 15,752 Total equity 6,813,202 6,021,840 $ 12,527,018 $ 12,288,714 (1) As of October 31, 2023 and 2022, Receivables, prepaid expenses and other assets and Investments in unconsolidated entities include $ 89.6 million and $ 81.3 million, respectively, of assets related to consolidated variable interest entities ("VIEs"). See Note 4, “Investments in Unconsolidated Entities” for additional information regarding VIEs. See accompanying notes. F-6 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Amounts in thousands, except per share data) Year ended October 31, 2023 2022 2021 Revenues: Home sales $ 9,866,026 $ 9,711,170 $ 8,431,746 Land sales and other 128,911 564,388 358,615 9,994,937 10,275,558 8,790,361 Cost of revenues: Home sales 7,207,279 7,237,409 6,538,454 Land sales and other 153,457 551,770 309,007 7,360,736 7,789,179 6,847,461 Selling, general and administrative 909,446 977,753 922,023 Income from operations 1,724,755 1,508,626 1,020,877 Other: Income from unconsolidated entities 50,098 23,723 74,035 Other income – net 67,518 171,377 40,614 Expenses related to early retirement of debt — — ( 35,211 ) Income before income taxes 1,842,371 1,703,726 1,100,315 Income tax provision 470,300 417,226 266,688 Net income $ 1,372,071 $ 1,286,500 $ 833,627 Other comprehensive income – net of tax 3,292 36,509 8,307 Total comprehensive income $ 1,375,363 $ 1,323,009 $ 841,934 Per share: Basic earnings $ 12.47 $ 11.02 $ 6.72 Diluted earnings $ 12.36 $ 10.90 $ 6.63 Weighted-average number of shares: Basic 110,020 116,771 124,100 Diluted 111,008 117,975 125,807 See accompanying notes. F-7 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Amounts in thousands) Common Stock Addi- tional Paid-in Capital Retained Earnings Treasury Stock AOCI Stock-holders’ Equity Non-controlling Interest Total Equity Shares $ $ $ $ $ $ $ $ Balance, 11/1/2020 152,937 1,529 717,272 5,164,086 ( 1,000,454 ) ( 7,198 ) 4,875,235 52,241 4,927,476 Cumulative effect adjustment upon adoption of ASU 2016-13, net of tax ( 595 ) ( 595 ) ( 595 ) Net income 833,627 833,627 833,627 Purchase of treasury stock ( 378,256 ) ( 378,256 ) ( 378,256 ) Exercise of stock options, and stock based compensation issuances, and employee stock purchase plan issuances ( 26,006 ) 36,489 10,483 10,483 Stock-based compensation 23,187 23,187 23,187 Cancellation of treasury stock ( 25,000 ) ( 250 ) ( 950,315 ) 950,565 — — Dividends declared ( 76,964 ) ( 76,964 ) ( 76,964 ) Other comprehensive income 8,307 8,307 8,307 Loss attributable to non-controlling interest — ( 6,770 ) ( 6,770 ) Capital distributions, net — ( 40 ) ( 40 ) Balance, 10/31/2021 127,937 1,279 714,453 4,969,839 ( 391,656 ) 1,109 5,295,024 45,431 5,340,455 Net income 1,286,500 1,286,500 1,286,500 Purchase of treasury stock ( 542,739 ) ( 542,739 ) ( 542,739 ) Exercise of stock options, and stock based compensation issuances, and employee stock purchase plan issuances ( 18,762 ) 18,068 ( 694 ) ( 694 ) Stock-based compensation 21,095 21,095 21,095 Dividends declared ( 89,607 ) ( 89,607 ) ( 89,607 ) Other comprehensive income 36,509 36,509 36,509 Income attributable to non-controlling interest — 64 64 Capital distributions, net — ( 29,743 ) ( 29,743 ) Balance, 10/31/2022 127,937 1,279 716,786 6,166,732 ( 916,327 ) 37,618 6,006,088 15,752 6,021,840 Net income 1,372,071 1,372,071 1,372,071 Purchase of treasury stock ( 565,950 ) ( 565,950 ) ( 565,950 ) Exercise of stock options, and stock based compensation issuances, and employee stock purchase plan issuances ( 43,043 ) 91,308 48,265 48,265 Stock-based compensation 24,805 24,805 24,805 Cancellation of treasury stock ( 15,000 ) ( 150 ) ( 771,669 ) 771,819 — — Dividends declared ( 91,415 ) ( 91,415 ) ( 91,415 ) Other comprehensive income 3,292 3,292 3,292 Loss attributable to non-controlling interest — ( 666 ) ( 666 ) Capital contributions, net — 960 960 Balance, 10/31/2023 112,937 1,129 698,548 6,675,719 ( 619,150 ) 40,910 6,797,156 16,046 6,813,202 See accompanying notes. F-8 CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Year ended October 31, 2023 2022 2021 Cash flow provided by operating activities: Net income $ 1,372,071 $ 1,286,500 $ 833,627 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 76,473 76,816 76,250 Stock-based compensation 24,805 21,095 23,187 Income from unconsolidated entities ( 50,098 ) ( 23,723 ) ( 74,035 ) Distributions of earnings from unconsolidated entities 88,393 32,316 83,118 Deferred tax provision 36,239 ( 96,680 ) 11,815 Impairment charges and write-offs 69,537 39,541 26,535 (Gain) loss on sale of assets ( 416 ) 576 ( 38,706 ) Other 3,181 3,781 ( 406 ) Expenses related to early retirement of debt — — 35,211 Changes in operating assets and liabilities: Inventory ( 22,212 ) ( 618,829 ) ( 196,227 ) Origination of mortgage loans ( 1,602,700 ) ( 2,035,637 ) ( 2,178,468 ) Sale of mortgage loans 1,681,610 2,086,358 2,159,827 Receivables, prepaid expenses, and other assets ( 135,924 ) ( 95,018 ) 135,806 Current income taxes – net ( 162,570 ) 160,500 25,131 Customer deposits – net ( 88,285 ) ( 3,279 ) 165,637 Accounts payable and accrued expenses ( 23,674 ) 152,499 214,825 Net cash provided by operating activities 1,266,430 986,816 1,303,127 Cash flow used in investing activities: Purchase of property, construction, and office equipment – net ( 72,961 ) ( 71,726 ) ( 66,878 ) Investments in unconsolidated entities ( 216,438 ) ( 226,724 ) ( 221,932 ) Return of investments in unconsolidated entities 112,749 116,769 203,504 Proceeds from the sale of assets, including ownership interests in unconsolidated entities 26,049 28,309 80,418 Other — 196 652 Net cash used in investing activities ( 150,601 ) ( 153,176 ) ( 4,236 ) Cash flow used in financing activities: Proceeds from loans payable 3,079,142 4,304,635 3,158,033 Debt issuance costs ( 5,365 ) — — Principal payments of loans payable ( 3,239,418 ) ( 4,356,185 ) ( 3,425,065 ) Redemption of senior notes ( 400,000 ) ( 409,856 ) ( 294,168 ) Proceeds (payments) related to stock-based benefit plans – net 48,269 ( 690 ) 10,487 Purchase of treasury stock ( 561,595 ) ( 542,739 ) ( 378,256 ) Dividends paid ( 91,082 ) ( 88,901 ) ( 76,623 ) Receipts (payments) related to noncontrolling interest – net 11 ( 25,766 ) ( 5,491 ) Net cash used in financing activities ( 1,170,038 ) ( 1,119,502 ) ( 1,011,083 ) Net (decrease) increase in cash, cash equivalents, and restricted cash ( 54,209 ) ( 285,862 ) 287,808 Cash, cash equivalents, and restricted cash, beginning of period 1,398,550 1,684,412 1,396,604 Cash, cash equivalents, and restricted cash, end of period $ 1,344,341 $ 1,398,550 $ 1,684,412 See accompanying notes. F-9 Notes to Consolidated Financial Statements 1. Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of Toll Brothers, Inc. (the “Company,” “we,” “us,” or “our”), a Delaware corporation, and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Investments in 50% or less owned partnerships and affiliates are accounted for using the equity method unless it is determined that we have effective control of the entity, in which case we would consolidate the entity. References herein to fiscal year refer to our fiscal years ended or ending October 31. Use of Estimates The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires us to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. In times of economic disruption when uncertainty regarding future economic conditions is heightened, these estimates and assumptions are subject to greater variability. As a result, actual results could differ from the estimates and assumptions we make that affect the amounts reported in the Consolidated Financial Statements and accompanying notes, and such differences may be material. Cash and Cash Equivalents Liquid investments or investments with original maturities of three months or less are classified as cash equivalents. Our cash balances exceed federally insurable limits. We monitor the cash balances in our operating accounts and adjust the cash balances as appropriate; however, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, we have experienced no loss or lack of access to cash in our operating accounts. Inventory Inventory is stated at cost unless an impairment exists, in which case it is written down to fair value in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment” (“ASC 360”). In addition to direct land acquisition costs, land development costs, and home construction costs, costs also include interest, real estate taxes, and direct overhead related to development and construction, which are capitalized to inventory during the period beginning with the commencement of development and ending with the completion of construction. For those communities that have been temporarily closed, no additional capitalized interest is allocated to a community’s inventory until it reopens. While the community remains closed, carrying costs such as real estate taxes are expensed as incurred. We capitalize certain interest costs to qualified inventory during the development and construction period of our communities in accordance with ASC 835-20, “Capitalization of Interest” (“ASC 835-20”). Capitalized interest is charged to home sales cost of sales revenues when the related inventory is delivered. Interest incurred on home building indebtedness in excess of qualified inventory, as defined in ASC 835-20, is charged to the Consolidated Statements of Operations and Comprehensive Income in the period incurred. During fiscal 2023, 2022 and 2021, the Company’s qualified inventory exceeded its indebtedness and substantially all interest incurred was capitalized to inventory. See Note 3, “Inventory”. Once a parcel of land has been approved for development and we open one of our typical communities, it may take four or more years to fully develop, sell, and deliver all the homes in such community. Longer or shorter time periods are possible depending on the number of home sites in a community and the sales and delivery pace of the homes in a community. Our master-planned communities, consisting of several smaller communities, may take up to 10 years or more to complete. Because our inventory is considered a long-lived asset under GAAP, we are required, under ASC 360, to regularly review the carrying value of each community and write down the value of those communities for which we believe the values are not recoverable. Operating Communities : When the profitability of an operating community deteriorates, the sales pace declines significantly, or some other factor indicates a possible impairment in the recoverability of the asset, the asset is reviewed for impairment by comparing the estimated future undiscounted cash flow for the community to its carrying value. If the estimated future undiscounted cash flow is less than the community’s carrying value, the carrying value is written down to its estimated fair value. Estimated fair value is primarily determined by discounting the estimated future cash flow of each community. The impairment is charged to home sales cost of revenues in the period in which the impairment is determined. In estimating the future undiscounted cash flow of a community, we use various estimates such as (i) the expected sales pace in a community, based upon general economic conditions that will have a short-term or long-term impact on the market in which the community F-10 is located and on competition within the market, including the number of home sites available and pricing and incentives being offered in other communities owned by us or by other builders; (ii) the expected sales prices and sales incentives to be offered in a community; (iii) costs expended to date and expected to be incurred in the future, including, but not limited to, land and land development, home construction, interest, and overhead costs; (iv) alternative product offerings that may be offered in a community that will have an impact on sales pace, sales price, building cost, or the number of homes that can be built on a particular site; and (v) alternative uses for the property such as the possibility of a sale of the entire community to another builder or the sale of individual home sites. Future Communities : We evaluate all land held for future communities or future sections of operating communities, whether owned or under contract, to determine whether or not we expect to proceed with the development of the land as originally contemplated. This evaluation encompasses the same types of estimates used for operating communities described above, as well as an evaluation of the regulatory environment applicable to the land and the estimated probability of obtaining the necessary approvals, the estimated time and cost it will take to obtain the approvals, and the possible concessions that may be required to be given in order to obtain them. Concessions may include cash payments to fund improvements to public places such as parks and streets, dedication of a portion of the property for use by the public or as open space, or a reduction in the density or size of the homes to be built. Based upon this review, we decide (i) as to land under contract to be purchased, whether the contract will likely be terminated or renegotiated, and (ii) as to land owned, whether the land will likely be developed as contemplated or in an alternative manner, or should be sold. We then further determine whether costs that have been capitalized to the community are recoverable or should be written off. The write-off is charged to home sales cost of revenues in the period in which the need for the write-off is determined. The estimates used in the determination of the estimated cash flows and fair value of both current and future communities are based on factors known to us at the time such estimates are made and our expectations of future operations and economic conditions. Should the estimates or expectations used in determining estimated fair value deteriorate in the future, we may be required to recognize additional impairment charges and write-offs related to current and future communities and such amounts could be material. Variable Interest Entities We are required to consolidate variable interest entities (“VIEs”) in which we have a controlling financial interest in accordance with ASC 810, “Consolidation” (“ASC 810”). A controlling financial interest will have both of the following characteristics: (i) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Our variable interest in VIEs may be in the form of equity ownership, contracts to purchase assets, management services and development agreements between us and a VIE, loans provided by us to a VIE or other member, and/or guarantees provided by members to banks and other parties. We have a significant number of land purchase contracts and financial interests in other entities which we evaluate in accordance with ASC 810. We analyze our land purchase contracts and the entities in which we have an investment to determine whether the land sellers and entities are VIEs and, if so, whether we are the primary beneficiary (“PB”). We examine specific criteria and use our judgment when determining if we are the primary beneficiary of a VIE. Factors considered in determining whether we are the primary beneficiary include risk and reward sharing, experience and financial condition of other member(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE’s executive committee, existence of unilateral kick-out rights or voting rights, level of economic disproportionality between us and the other member(s), and contracts to purchase assets from VIEs. The determination whether an entity is a VIE and, if so, whether we are the primary beneficiary may require significant judgment. Property, Construction, and Office Equipment Property, construction, and office equipment are recorded at cost and are stated net of accumulated depreciation of $ 285.7 million and $ 289.4 million at October 31, 2023 and 2022, respectively. For property and equipment related to onsite sales centers, depreciation is recorded using the units of production method as homes are delivered. For all other property and equipment, depreciation is recorded using a straight-line method over the estimated useful lives of the related assets. In fiscal 2023, 2022, and 2021, we recognized $ 75.5 million, $ 75.9 million, and $ 74.8 million of depreciation expense, respectively. F-11 Mortgage Loans Held for Sale Residential mortgage loans held for sale are measured at fair value in accordance with the provisions of ASC 825, “Financial Instruments” (“ASC 825”). We believe the use of ASC 825 improves consistency of mortgage loan valuations between the date the borrower locks in the interest rate on the pending mortgage loan and the date of the mortgage loan sale. At the end of the reporting period, we determine the fair value of our mortgage loans held for sale and the forward loan commitments we have entered into as a hedge against the interest rate risk of our mortgage loans using the market approach to determine fair value. The evaluation is based on the current market pricing of mortgage loans with similar terms and values as of the reporting date, and such pricing is applied to the mortgage loan portfolio. We recognize the difference between the fair value and the unpaid principal balance of mortgage loans held for sale as a gain or loss. In addition, we recognize the change in fair value of our forward loan commitments as a gain or loss. Interest income on mortgage loans held for sale is calculated based upon the stated interest rate of each loan. In addition, net origination costs and fees associated with residential mortgage loans originated are expensed as incurred. These gains and losses, interest income, and origination costs and fees are recognized in “Other income – net” in the Consolidated Statements of Operations and Comprehensive Income. Investments in Unconsolidated Entities In accordance with ASC 323, “Investments—Equity Method and Joint Ventures,” we review each of our investments on a quarterly basis for indicators of impairment. A series of operating losses of an investee, the inability to recover our invested capital, or other factors may indicate that a loss in value of our investment in the unconsolidated entity has occurred. If a loss exists, we further review the investment to determine if the loss is other than temporary, in which case we write down the investment to its estimated fair value. The evaluation of our investment in unconsolidated entities entails a detailed cash flow analysis using many estimates, including, but not limited to, expected sales pace, expected sales prices, expected incentives, costs incurred and anticipated, sufficiency of financing and capital, competition, market conditions, and anticipated cash receipts, in order to determine projected future distributions from the unconsolidated entity. In addition, for investments in rental properties, we review rental trends, expected future expenses, and expected cash flows to determine estimated fair values of the properties. Our unconsolidated entities that develop land or develop for-sale homes and condominiums evaluate their inventory in a similar manner as we do. See “Inventory” above for more detailed disclosure on our evaluation of inventory. For our unconsolidated entities that own, develop, and manage for-rent residential apartments, we review rental trends, expected future expenses, and expected future cash flows to determine estimated fair values of the underlying properties. If a valuation adjustment is recorded by an unconsolidated entity related to its assets, our proportionate share is reflected in income from unconsolidated entities with a corresponding decrease to our investment in unconsolidated entities. We are a party to several joint ventures with unrelated parties to develop and sell land that is owned by the joint ventures. We recognize our proportionate share of the earnings from the sale of home sites to other builders, including our joint venture partners. We do not recognize earnings from the home sites we purchase from these ventures at the time of purchase; instead, our cost basis in those home sites is reduced by our share of the earnings realized by the joint venture from sales of those home sites to us. We are also a party to several other joint ventures. We recognize our proportionate share of the earnings and losses of our unconsolidated entities. Fair Value Disclosures We use ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), to measure the fair value of certain assets and liabilities. ASC 820 provides a framework for measuring fair value in accordance with GAAP, establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, and requires certain disclosures about fair value measurements. The fair value hierarchy is summarized below: Level 1: Fair value determined based on quoted prices in active markets for identical assets or liabilities. Level 2: Fair value determined using significant observable inputs, generally either quoted prices in active markets for similar assets or liabilities or quoted prices in markets that are not active. Level 3: Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or similar techniques. F-12 Derivative Instruments and Hedging Activities Our objective in entering into derivative transactions is to manage our exposure to interest rate movements associated with certain variable rate debt, mortgage loans held for sale, interest rate lock commitments, and forward loan commitments we have entered into related to our mortgage operations. We recognize derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. We have entered into interest rate swaps related to a portion of our variable rate debt. These derivative transactions are designated as cash flow hedges. The entire change in the fair value of these derivative transactions included in the assessment of hedge effectiveness is initially reported in Accumulated other comprehensive income (loss) and subsequently reclassified to home sales cost of revenues in the accompanying Consolidated Statements of Operations and Comprehensive Income when the hedged transaction affects earnings. If it is determined that a derivative is not highly effective as a hedge, or if the hedged forecasted transaction is no longer probable of occurring, the amount recognized in Accumulated other comprehensive income (loss) is released to earnings. Our derivative transactions related to our mortgage loans held for sale, interest rate lock commitments, and our forward loan commitments are not designated as hedges and therefore the entire change in the fair value of these derivative transactions is included as a gain or loss in Other income – net in the accompanying Consolidated Statements of Operations and Comprehensive Income. See Note 12 “Fair Value Disclosures” for more information. Treasury Stock Treasury stock is recorded at cost. Issuance of treasury stock is accounted for on a first-in, first-out basis. Differences between the cost of treasury stock and the re-issuance proceeds are charged to additional paid-in capital. When treasury stock is cancelled, any excess purchase price over par value is charged directly to retained earnings. In fiscal 2023 and 2021, we cancelled 15 million and 25 million shares of treasury stock, respectively. Revenue and Cost Recognition Home sales revenues: Revenues and cost of revenues from home sales are recognized at the time each home is delivered and title and possession are transferred to the buyer. For the majority of our home closings, our performance obligation to deliver a home is satisfied in less than one year from the date a binding sale agreement is signed. In certain states where we build, we are not able to complete certain outdoor features prior to the closing of the home. To the extent these separate performance obligations are not complete upon the home closing, we defer the portion of the home sales revenues related to these obligations and subsequently recognize the revenue upon completion of such obligations. As of October 31, 2023, the home sales revenues and related costs we deferred related to these obligations were immaterial. Our contract liabilities, consisting of deposits received from customers for sold but undelivered homes, totaled $ 540.7 million and $ 680.6 million at October 31, 2023 and October 31, 2022, respectively. Of the outstanding customer deposits held as of October 31, 2022, we recognized $ 542.0 million in home sales revenues during the fiscal year ended October 31, 2023. Of the outstanding customer deposits held as of October 31, 2021, we recognized $ 515.6 million in home sales revenues during the fiscal year ended October 31, 2022. For our standard attached and detached homes, land, land development, and related costs, both incurred and estimated to be incurred in the future, are amortized to the cost of homes closed based upon the total number of homes to be constructed in each community. Any changes resulting from a change in the estimated number of homes to be constructed or in the estimated land, land development, and related costs subsequent to the commencement of delivery of homes are allocated to the remaining undelivered homes in the community. Home construction and related costs are charged to the cost of homes closed under the specific identification method. The estimated land, common area development, and related costs of master-planned communities, including the cost of golf courses, net of their estimated residual value, are allocated to individual communities within a master-planned community on a relative sales value basis. Any changes resulting from a change in the estimated number of homes to be constructed or in the estimated costs are allocated to the remaining home sites in each of the communities of the master-planned community. For high-rise/mid-rise projects, land, land development, construction, and related costs, both incurred and estimated to be incurred in the future, are generally amortized to the cost of units closed based upon an estimated relative sales value of the units closed to the total estimated sales value. Any changes resulting from a change in the estimated total costs or revenues of the project are allocated to the remaining units to be delivered. Land sales and other revenues: Our revenues from land sales and other generally consist of: (1) land sales to joint ventures in which we retain an interest; (2) lot sales to third-party builders within our master-planned communities; (3) bulk land sales to third parties of land we have decided no longer meets our development criteria; and (4) sales of commercial and retail F-13 properties generally located at our high-rise urban luxury condominium projects. In general, our performance obligation for each of these land sales is fulfilled upon the delivery of the land, which generally coincides with the receipt of cash consideration from the counterparty. For land sale transactions that contain repurchase options, revenues and related costs are not recognized until the repurchase option expires. In addition, when we sell land to a joint venture in which we retain an interest, we do not recognize revenue or gains on the sale to the extent of our retained interest in such joint venture. Forfeited Customer Deposits: Forfeited customer deposits are recognized in “Home sales revenues” in our Consolidated Statements of Operations and Comprehensive Income in the period in which we determine that the customer will not complete the purchase of the home and we have the right to retain the deposit. Sales Incentives: In order to promote sales of our homes, we may offer our home buyers sales incentives. These incentives will vary by type of incentive and by amount on a community-by-community and home-by-home basis. Incentives are reflected as a reduction in home sales revenues. Incentives are recognized at the time the home is delivered to the home buyer and we receive the sales proceeds. Advertising Costs We expense advertising costs as incurred. Advertising costs, including brochures and signage, were $ 49.6 million, $ 42.5 million, and $ 39.1 million for the years ended October 31, 2023, 2022, and 2021, respectively. Warranty and Self-Insurance Warranty: We provide all of our home buyers with a limited warranty as to workmanship and mechanical equipment. We also provide many of our home buyers with a limited 10 -year warranty as to structural integrity. We accrue for expected warranty costs at the time each home is closed and title and possession are transferred to the home buyer. Warranty costs are accrued based upon historical experience. Adjustments to our warranty liabilities related to homes delivered in prior periods are recorded in the period in which a change in our estimate occurs. Over the past several years, we have had a significant number of warranty claims related primarily to homes built in Pennsylvania and Delaware. See Note 7 – “Accrued Expenses” for additional information regarding these warranty charges. Self-Insurance: We maintain, and require the majority of our subcontractors to maintain, general liability insurance (including construction defect and bodily injury coverage) and workers’ compensation insurance. These insurance policies protect us against a portion of our risk of loss from claims related to our home building activities, subject to certain self-insured retentions, deductibles and other coverage limits (“self-insured liability”). We also provide general liability insurance for our subcontractors in Arizona, California, Colorado, Nevada, Washington, and certain areas of Texas, where eligible subcontractors are enrolled as insureds under our general liability insurance policies in each community in which they perform work. For those enrolled subcontractors, we absorb their general liability associated with the work performed on our homes within the applicable community as part of our overall general liability insurance and our self-insured liability. We record expenses and liabilities based on the estimated costs required to cover our self-insured liability and the estimated costs of potential claims and claim adjustment expenses that are above our coverage limits or that are not covered by our insurance policies. These estimated costs are based on an analysis of our historical claims and industry data, and include an estimate of claims incurred but not yet reported (“IBNR”). We engage a third-party actuary that uses our historical claim and expense data, input from our internal legal and risk management groups, as well as industry data, to estimate our liabilities related to unpaid claims, IBNR associated with the risks that we are assuming for our self-insured liability, and other required costs to administer current and expected claims. These estimates are subject to uncertainty due to a variety of factors, the most significant being the long period of time between the delivery of a home to a home buyer and when a structural warranty or construction defect claim may be made, and the ultimate resolution of the claim. Though state regulations vary, construction defect claims may be reported and resolved over a prolonged period of time, which can extend for 10 years or longer. As a result, the majority of the estimated liability relates to IBNR. Adjustments to our liabilities related to homes delivered in prior years are recorded in the period in which a change in our estimate occurs. The projection of losses related to these liabilities requires actuarial assumptions that are subject to variability due to uncertainties regarding construction defect claims relative to our markets and the types of product we build, insurance industry practices, and legal or regulatory actions and/or interpretations, among other factors. Key assumptions used in these estimates include claim frequencies, severity, and settlement patterns, which can occur over an extended period of time. In addition, changes in the frequency and severity of reported claims and the estimates to settle claims can impact the trends and assumptions used in the actuarial analysis, which could be material to our consolidated financial statements. Due to the degree of judgment required, and the potential for variability in these underlying assumptions, our actual future costs could differ from those estimated, and the difference could be material to our consolidated financial statements. F-14 Stock-Based Compensation We account for our stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation” (“ASC 718”). We use a lattice model for the valuation of our stock option grants. The option pricing models used are designed to estimate the value of options that, unlike employee stock options and restricted stock units, can be traded at any time and are transferable. In addition to restrictions on trading, employee stock options and restricted stock units may include other restrictions such as vesting periods. Further, such models require the input of subjective assumptions, including the expected volatility of the stock price. Stock-based compensation expense is generally included in “Selling, general and administrative” expense in our Consolidated Statements of Operations and Comprehensive Income. We recognize forfeitures of stock-based awards as a reduction to compensation expense in the period in which they occur. Legal Expenses Transactional legal expenses for land acquisition and entitlement, and financing are capitalized and expensed over their appropriate life. We expense legal fees related to litigation, warranty and insurance claims when incurred. Income Taxes We account for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities are recorded based on temporary differences between the amounts reported for financial reporting purposes and the amounts reported for income tax purposes. In accordance with the provisions of ASC 740, we assess the realizability of our deferred tax assets. A valuation allowance must be established when, based upon available evidence, it is more likely than not that all or a portion of the deferred tax assets will not be realized. See “Income Taxes – Valuation Allowance” below. Federal and state income taxes are calculated on reported pre-tax earnings based on current tax law and also include, in the applicable period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provisions differ from the amounts currently receivable or payable because certain items of income and expense are recognized for financial reporting purposes in different periods than for income tax purposes. Significant judgment is required in determining income tax provisions and evaluating tax positions. We establish reserves for income taxes when, despite the belief that our tax positions are fully supportable, we believe that our positions may be challenged and disallowed by various tax authorities. The consolidated tax provisions and related accruals include the impact of such reasonably estimable disallowances as deemed appropriate. To the extent that the probable tax outcome of these matters changes, such changes in estimates will impact the income tax provision in the period in which such determination is made. ASC 740 clarifies the accounting for uncertainty in income taxes recognized and prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. ASC 740 requires a company to recognize the financial statement effect of a tax position when it is “more-likely-than-not” (defined as a substantiated likelihood of more than 50 %), based on the technical merits of the position, that the position will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to be recognized in the financial statements based upon the largest amount of benefit that is greater than 50 % likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Our inability to determine that a tax position meets the more-likely-than-not recognition threshold does not mean that the Internal Revenue Service (“IRS”) or any other taxing authority will disagree with the position that we have taken. If a tax position does not meet the more-likely-than-not recognition threshold, despite our belief that our filing position is supportable, the benefit of that tax position is not recognized in the Consolidated Statements of Operations and Comprehensive Income and we are required to accrue potential interest and penalties until the uncertainty is resolved. Potential interest and penalties are recognized as a component of the provision for income taxes. Differences between amounts taken in a tax return and amounts recognized in the financial statements are considered unrecognized tax benefits. We believe that we have a reasonable basis for each of our filing positions and intend to defend those positions if challenged by the IRS or other taxing jurisdiction. If the IRS or other taxing authorities do not disagree with our position, and after the statute of limitations expires, we will recognize the unrecognized tax benefit in the period that the uncertainty of the tax position is eliminated. Income Taxes — Valuation Allowance We assess the need for valuation allowances for deferred tax assets in each period based on whether it is more-likely-than-not that some portion of the deferred tax asset would not be realized. If, based on the available evidence, it is more-likely-than-not that such asset will not be realized, a valuation allowance is established against a deferred tax asset. The realization of a F-15 deferred tax asset ultimately depends on the existence of sufficient taxable income in either the carryback or carryforward periods under tax law. This assessment considers, among other matters, the nature, consistency, and magnitude of current and cumulative income and losses; forecasts of future profitability; the duration of statutory carryback or carryforward periods; our experience with operating loss and tax credit carryforwards being used before expiration; tax planning alternatives: and outlooks for the U.S. housing industry and broader economy. Changes in existing tax laws or rates could also affect our actual tax results. Due to uncertainties in the estimation process, particularly with respect to changes in facts and circumstances in future reporting periods, actual results could differ from the estimates used in our assessment that could have a material impact on our consolidated results of operations or financial position. Segment Reporting We operate in the following five geographic segments, with current operations generally located in the states listed below: Eastern Region: • The North region: Connecticut, Delaware, Illinois, Massachusetts, Michigan, New Jersey, New York and Pennsylvania; • The Mid-Atlantic region: Georgia, Maryland, North Carolina, Tennessee and Virginia; • The South region: Florida, South Carolina and Texas; Western Region: • The Mountain region: Arizona, Colorado, Idaho, Nevada and Utah; and • The Pacific region: California, Oregon and Washington. Our geographic reporting segments are consistent with how our chief operating decision makers are assessing operating performance and allocating capital. Recent Accounting Pronouncements In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items to reconcile to segment profit or loss, and the title and position of the entity’s CODM. The amendments in this update also expand the interim segment disclosure requirements. ASU 2023-07 will be effective for our fiscal year ending October 31, 2025 and for interim periods starting in our first quarter of fiscal 2026. Early adoption is permitted and the amendments in this update are required to be applied on a retrospective basis. We are currently reviewing the impact that the adoption of ASU 2023-07 may have on our consolidated financial statements and disclosures. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate credit losses. ASU 2016-13 became effective for our fiscal year beginning November 1, 2020, and we adopted the standard under the modified retrospective transition method. As a result of the adoption, we recognized a cumulative effect adjustment, net of tax, of $ 0.6 million to the opening balance of retained earnings. The adoption of ASU 2016-13 did not have a material impact on our consolidated financial statements or disclosures, and there have been no significant changes to our internal controls, processes, or systems as a result of implementing this new standard. In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848),” as amended by ASU 2021-01 in January 2021 and ASU 2022-06 in December 2022 (“ASC 848”), directly addressing the effects of reference rate reform on financial reporting as a result of the cessation of the publication of certain London Interbank Offered Rate (“LIBOR”) rates beginning December 31, 2021. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform by virtue of referencing LIBOR or another reference rate expected to be discontinued. This guidance became effective on March 12, 2020 and can be adopted no later than December 31, 2024, with early adoption permitted. We elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We continue to evaluate the impact of the guidance on our consolidated financial statements and may apply other elections as applicable as additional changes in the market occur. F-16 Reclassification Certain prior period amounts have been reclassified to conform to the fiscal 2023 presentation. 2. 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. This acquisition was accounted for as an asset acquisition and was not material to our results of operations or financial condition. In fiscal 2021, we acquired substantially all of the assets and operations of a privately-held home builder with operations in Las Vegas, Nevada 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. This acquisition was accounted for as an asset acquisition and was not material to our results of operations or financial condition. 3. Inventory Inventory at October 31, 2023 and 2022 consisted of the following (amounts in thousands): 2023 2022 Land controlled for future communities $ 173,175 $ 240,751 Land owned for future communities 663,413 808,851 Operating communities 8,220,990 7,683,724 $ 9,057,578 $ 8,733,326 Operating communities include communities offering homes for sale; communities that have sold all available home sites but have not completed delivery of the homes; and communities preparing to open for sale. The carrying value attributable to operating communities includes the cost of homes under construction, land and land development costs, the carrying cost of home sites in current and future phases of these communities, and the carrying cost of model homes. Communities that were previously offering homes for sale but are temporarily closed due to business conditions, do not have any remaining backlog, and are not expected to reopen within 12 months of the end of the fiscal period being reported on are included in land owned for future communities. Backlog consists of homes under contract but not yet delivered to our home buyers (“backlog”). The amounts we have provided for inventory impairment charges and the expensing of costs that we believed not to be recoverable in each of the three fiscal years ended October 31, 2023, 2022, and 2021, are shown in the table below (amounts in thousands): Charge: 2023 2022 2021 Land controlled for future communities $ 10,712 $ 13,051 $ 5,620 Land owned for future communities 1,493 19,690 19,805 Operating communities 18,501 — 1,110 $ 30,706 $ 32,741 $ 26,535 We have also recognized $ 30.6 million and $ 6.8 million of impairment charges on land held for sale included in land sales and other cost of revenues during the fiscal years ended October 31, 2023 and 2022, respectively. See Note 14, “Commitments and Contingencies,” for information regarding land purchase contracts. At October 31, 2023, we evaluated our land purchase contracts, including those to acquire land for apartment developments, to determine whether any of the selling entities were VIEs and, if they were, whether we were the primary beneficiary of any of them. Under these land purchase contracts, we do not possess legal title to the land; our maximum exposure to loss is generally limited to deposits paid to the sellers and predevelopment costs incurred; and the creditors of the sellers generally have no recourse against us. At October 31, 2023, we determined that 251 land purchase contracts, with an aggregate purchase price of $ 3.79 billion, on which we had made aggregate deposits totaling $ 421.4 million, were VIEs, but that we were not the primary beneficiary of any VIE related to such land purchase contracts. At October 31, 2022, we determined that 237 land purchase contracts, with an aggregate purchase price of $ 3.89 billion, on which we had made aggregate deposits totaling $ 417.6 million, were VIEs, but that we were not the primary beneficiary of any VIE related to such land purchase contracts. F-17 Interest incurred, capitalized, and expensed in each of the three fiscal years ended October 31, 2023, 2022, and 2021, was as follows (amounts in thousands): 2023 2022 2021 Interest capitalized, beginning of year $ 209,468 $ 253,938 $ 297,975 Interest incurred 140,426 135,029 152,986 Interest expensed to home sales cost of revenues ( 139,410 ) ( 164,831 ) ( 187,237 ) Interest expensed to land sales and other cost of revenues ( 10,787 ) ( 5,788 ) ( 4,372 ) Interest reclassified to property, construction and office equipment - net — — ( 1,034 ) Interest capitalized on investments in unconsolidated entities ( 9,783 ) ( 6,699 ) ( 4,574 ) Previously capitalized interest transferred to investments in unconsolidated entities ( 244 ) ( 2,412 ) — Previously capitalized interest on investments in unconsolidated entities transferred to inventory 880 231 194 Interest capitalized, end of year $ 190,550 $ 209,468 $ 253,938 4. Investments in Unconsolidated Entities We have investments in various unconsolidated entities and our ownership interest in these investments range from 5.0 % to 50 %. These entities, which are structured as joint ventures either (i) develop land for the joint venture participants and for sale to outside builders (“Land Development Joint Ventures”); (ii) develop for-sale homes (“Home Building Joint Ventures”); (iii) develop luxury for-rent residential apartments and single family homes, commercial space, and a hotel (“Rental Property Joint Ventures”), or (iv) provide financing and land banking to residential builders and developers for the acquisition and development of land and home sites (“Gibraltar Joint Ventures”). The table below provides information as of October 31, 2023, regarding active joint ventures that we are invested in, by joint venture category ($ amounts in thousands): Land Development Joint Ventures Home Building Joint Ventures Rental Property Joint Ventures Gibraltar Joint Ventures Total Number of unconsolidated entities 16 2 43 3 64 Investment in unconsolidated entities (1) $ 351,154 $ 65,285 $ 531,823 $ 10,779 $ 959,041 Number of unconsolidated entities with funding commitments by the Company 9 — 19 1 29 Company’s remaining funding commitment to unconsolidated entities (2) $ 204,438 $ — $ 184,266 $ 12,066 $ 400,770 (1) Our total investment includes $ 121.6 million related to 11 unconsolidated joint venture-related variable interests in VIEs and our maximum exposure to losses related to these VIEs is approximately $ 329.3 million as of October 31, 2023, inclusive of our investment in these joint ventures. Our ownership interest in such unconsolidated Joint Venture VIEs ranges from 25 % to 50 % . (2) Our remaining funding commitment includes approximately $ 105.4 million related to our unconsolidated joint venture-related variable interests in VIEs. F-18 The table below provides information as of October 31, 2022, regarding active joint ventures that we are invested in, by joint venture category ($ amounts in thousands): Land Development Joint Ventures Home Building Joint Ventures Rental Property Joint Ventures Gibraltar Joint Ventures Total Number of unconsolidated entities 15 3 41 4 63 Investment in unconsolidated entities (1) $ 343,314 $ 49,385 $ 441,399 $ 18,216 $ 852,314 Number of unconsolidated entities with funding commitments by the Company 9 1 18 1 29 Company’s remaining funding commitment to unconsolidated entities (2) $ 180,812 $ 20,072 $ 90,900 $ 12,533 $ 304,317 (1) Our total investment includes $ 100.2 million related to 13 unconsolidated joint venture-related variable interests in VIEs and our maximum exposure to losses related to these VIEs is approximately $ 200.0 million as of October 31, 2022. Our ownership interest in such unconsolidated Joint Venture VIEs ranges from 20 % to 50 % . (2) Our remaining funding commitment includes approximately $ 105.0 million related to our unconsolidated joint venture-related variable interests in VIEs. Certain joint ventures in which we have investments obtained debt financing to finance a portion of their activities. The table below provides information at October 31, 2023, regarding the debt financing obtained by category ($ amounts in thousands): Land Development Joint Ventures Home Building Joint Ventures Rental Property Joint Ventures Total Number of joint ventures with debt financing 12 2 42 56 Aggregate loan commitments $ 610,758 $ 219,650 $ 3,731,847 $ 4,562,255 Amounts borrowed under commitments $ 445,506 $ 135,723 $ 2,152,872 $ 2,734,101 The table below provides information at October 31, 2022, regarding the debt financing obtained by category ($ amounts in thousands): Land Development Joint Ventures Home Building Joint Ventures Rental Property Joint Ventures Total Number of joint ventures with debt financing 10 2 35 47 Aggregate loan commitments $ 557,185 $ 219,650 $ 3,317,261 $ 4,094,096 Amounts borrowed under commitments $ 444,306 $ 17,583 $ 1,774,567 $ 2,236,456 More specific and/or recent information regarding our investments in and future commitments to these entities is provided below. New Joint Ventures The table below provides information on joint ventures entered into during fiscal 2023 ($ amounts in thousands): Land Development Joint Ventures Rental Property Joint Ventures Number of unconsolidated joint ventures entered into during the period 1 5 Investment balance at October 31, 2023 $ 14,867 $ 59,567 Number of consolidated joint ventures entered into during the period — 1 Carrying value of consolidated joint ventures’ assets at October 31, 2023 $ — $ 10,600 Noncontrolling interests in consolidated joint ventures at October 31, 2023 $ — $ 2,700 The table below provides information on joint ventures entered into during fiscal 2022 ($ amounts in thousands): Land Development Joint Ventures Home Building Joint Ventures Rental Property Joint Ventures Gibraltar Joint Ventures Number of unconsolidated joint ventures entered into during the period 3 2 12 1 Investment balance at October 31, 2022 $ 48,600 $ 48,700 $ 132,200 2,700 F-19 Results of Operations and Intra-entity Transactions In fiscal 2023, 2022 and 2021, certain of our Rental Property Joint Ventures sold their underlying assets to unrelated parties or to our joint venture partner. In connection with these sales, we recognized gains of $ 50.9 million, $ 21.0 million, and $ 74.8 million, respectively, which is included in “Income from unconsolidated entities” in our Consolidated Statements of Operations and Comprehensive Income. In fiscal 2023, we sold our ownership interest in one of our Rental Property Joint Ventures and recognized a gain of $ 16.0 million, which is included in “Income from unconsolidated entities” in our Consolidated Statements of Operations and Comprehensive Income. No similar gains were recognized in fiscal 2022 or 2021. In fiscal 2022 and 2021, we recognized other-than-temporary impairment charges on our investments in certain Home Building and Rental Property Joint Ventures of $ 8.0 million and $ 2.1 million, respectively. No other-than-temporary impairment charges were recognized in fiscal 2023. In fiscal 2023, 2022 and 2021, we purchased land from unconsolidated entities, principally related to our acquisition of lots from our Land Development Joint Ventures, totaling $ 110.7 million, $ 54.8 million, and $ 18.5 million, respectively. Our share of income from the lots we acquired was insignificant in each period. We sold land to unconsolidated entities, which principally involved land sales to our Home Building and Rental Property Joint Ventures, totaling $ 44.2 million, $ 434.2 million and $ 227.8 million in our fiscal 2023, 2022 and 2021. These amounts are included in “Land sales and other revenue” on our Consolidated Statements of Operations and Comprehensive Income and are generally sold at or near our land basis. At October 31, 2023 and 2022, we had receivables due from joint ventures totaling $ 12.6 million and $ 51.7 million, respectively, primarily related to amounts we funded on behalf of our partners that had not yet been reimbursed and amounts due to us for management fees earned. Guarantees The unconsolidated entities in which we have investments generally finance their activities with a combination of partner equity and debt financing. In some instances, we have guaranteed portions of debt of unconsolidated entities. These guarantees may include any or all of the following: (i) project completion guarantees, including any cost overruns; (ii) repayment guarantees, generally covering a percentage of the outstanding loan; (iii) carry cost guarantees, which cover costs such as interest, real estate taxes, and insurance; (iv) an environmental indemnity provided to the lender that holds the lender harmless from and against losses arising from the discharge of hazardous materials from the property and non-compliance with applicable environmental laws; and (v) indemnification of the lender from “bad boy acts” of the unconsolidated entity. In some instances, we and our joint venture partner have provided joint and several guarantees in connection with loans to unconsolidated entities. In these situations, we generally seek to implement a reimbursement agreement with our partner that provides that neither party is responsible for more than its proportionate share or agreed upon share of the guarantee; however, we are not always successful. In addition, if the joint venture partner does not have adequate financial resources to meet its obligations under such a reimbursement agreement, we may be liable for more than our proportionate share. We believe that, as of October 31, 2023, in the event we become legally obligated to perform under a guarantee of an obligation of an unconsolidated entity due to a triggering event, the collateral in such entity should be sufficient to repay a significant portion of the obligation. If it is not, we and our partners would need to contribute additional capital to the venture. Information with respect to certain of the Company’s unconsolidated entities’ outstanding debt obligations, loan commitments and our guarantees thereon are as follows ($ amounts in thousands): October 31, 2023 October 31, 2022 Loan commitments in the aggregate $ 3,341,700 $ 2,858,800 Our maximum estimated exposure under repayment and carry cost guarantees if the full amount of the debt obligations were borrowed (1) $ 688,000 $ 597,800 Debt obligations borrowed in the aggregate $ 1,643,600 $ 1,110,900 Our maximum estimated exposure under repayment and carry cost guarantees of the debt obligations borrowed $ 544,100 $ 390,500 Estimated fair value of guarantees provided by us related to debt and other obligations $ 19,500 $ 16,900 Terms of guarantees 1 month - 4.0 years 1 month - 3.7 years F-20 (1) At October 31, 2023 and 2022, our maximum estimated exposure under repayment and carry cost guarantees includes approximately $ 102.3 million and $ 95.0 million, respectively, related to our unconsolidated Joint Venture VIEs. The maximum exposure estimates presented above do not take into account any recoveries from the underlying collateral or any reimbursement from our partners, nor do they include any potential exposures related to project completion guarantees or the indemnities noted above, which are not estimable. We have not made payments under any of the outstanding guarantees, nor have we been called upon to do so. Variable Interest Entities We have both unconsolidated and consolidated joint venture-related variable interests in VIEs. Information regarding our involvement in unconsolidated joint-venture related variable interests in VIEs has been disclosed throughout information presented above. The table below provides information as of October 31, 2023 and October 31, 2022, regarding our consolidated joint venture-related variable interests in VIEs ($ amounts in thousands): Balance Sheet Classification October 31, 2023 October 31, 2022 Number of Joint Venture VIEs that the Company is the PB and consolidates 5 5 Carrying value of consolidated VIEs assets Receivables, prepaid expenses, and other assets and Investments in unconsolidated entities $ 89,600 $ 81,300 Our partners’ interests in consolidated VIEs Noncontrolling interest $ 10,200 $ 9,700 Our ownership interest in the above consolidated Joint Venture VIEs ranges from 82 % to 98 %. As shown above, we have concluded we are the PB of certain VIEs due to our controlling financial interest in such ventures as we have the power to direct the activities that most significantly impact the joint ventures’ performance and the obligation to absorb expected losses or receive benefits from the joint ventures. The assets of these VIEs can only be used to settle the obligations of the VIEs. In addition, in certain of the joint ventures, in the event additional contributions are required to be funded to the joint ventures prior to the admission of any additional investor at a future date, we will fund 100% of such contributions, including our partner’s pro rata share, which we expect would be funded through an interest-bearing loan. For other VIEs, we have concluded that we are not the PB because the power to direct the activities of such VIEs that most significantly impact their performance was either shared by us and such VIEs’ other partners or such activities were controlled by our partner. For VIEs where the power to direct significant activities is shared, business plans, budgets, and other major decisions are required to be unanimously approved by all partners. Management and other fees earned by us are nominal and believed to be at market rates, and there is no significant economic disproportionality between us and other partners. Joint Venture Condensed Combined Financial Information The Condensed Combined Balance Sheets, as of the dates indicated, and the Condensed Combined Statements of Operations, for the periods indicated, for the unconsolidated entities in which we have an investment, aggregated by type, are included below (in thousands). F-21 Condensed Combined Balance Sheets: October 31, 2023 Land Develop- ment Joint Ventures Home Building Joint Ventures Rental Property Joint Ventures Gibraltar Joint Ventures Total Cash and cash equivalents $ 83,330 $ 14,124 $ 62,734 $ 1,086 $ 161,274 Inventory 1,112,382 277,438 — 35,325 1,425,145 Loan receivables, net — — — 17,024 17,024 Rental properties — — 1,907,604 — 1,907,604 Rental properties under development — — 1,804,664 — 1,804,664 Other assets 210,831 15,961 157,481 924 385,197 Total assets $ 1,406,543 $ 307,523 $ 3,932,483 $ 54,359 $ 5,700,908 Debt, net of deferred financing costs $ 445,123 $ 134,427 $ 2,132,436 $ — $ 2,711,986 Other liabilities 131,798 32,625 312,691 21,752 498,866 Members’ equity 829,622 140,471 1,487,356 32,607 2,490,056 Total liabilities and equity $ 1,406,543 $ 307,523 $ 3,932,483 $ 54,359 $ 5,700,908 Company’s net investment in unconsolidated entities (1) $ 351,154 $ 65,285 $ 531,823 $ 10,779 $ 959,041 October 31, 2022 Land Develop- ment Joint Ventures Home Building Joint Ventures Rental Property Joint Ventures Gibraltar Joint Ventures Total Cash and cash equivalents $ 132,344 $ 19,628 $ 102,270 $ 642 $ 254,884 Inventory 1,047,437 168,743 — 40,035 1,256,215 Loan receivables, net — — — 48,217 48,217 Rental properties — — 1,702,690 — 1,702,690 Rental properties under development — — 1,413,607 — 1,413,607 Other assets 172,110 15,232 117,027 881 305,250 Total assets $ 1,351,891 $ 203,603 $ 3,335,594 $ 89,775 $ 4,980,863 Debt, net of deferred financing costs $ 443,061 $ 16,770 $ 1,788,923 $ — $ 2,248,754 Other liabilities 100,931 52,116 225,812 20,959 399,818 Members’ equity 807,899 134,717 1,320,859 68,816 2,332,291 Total liabilities and equity $ 1,351,891 $ 203,603 $ 3,335,594 $ 89,775 $ 4,980,863 Company’s net investment in unconsolidated entities (1) $ 343,314 $ 49,385 $ 441,399 $ 18,216 $ 852,314 (1) Our underlying equity in the net assets of the unconsolidated entities was less than our net investment in unconsolidated entities by $ 40.9 million and $ 18.5 million as of October 31, 2023 and 2022, respectively, and these differences are primarily a result of interest capitalized on our investments; the estimated fair value of the guarantees provided to the joint ventures; distributions from entities in excess of the carrying amount of our net investment; unrealized gains on our retained joint venture interests; other than temporary impairments we have recognized; and gains recognized from the sale of our ownership interests. F-22 Condensed Combined Statements of Operations and Comprehensive Income: For the year ended October 31, 2023 Land Develop- ment Joint Ventures Home Building Joint Ventures Rental Property Joint Ventures Gibraltar Joint Ventures Total Revenues $ 240,365 $ 38,124 $ 238,651 $ 28,221 $ 545,361 Cost of revenues 196,924 26,583 85,328 21,031 329,866 Other expenses 13,261 7,201 233,734 1,053 255,249 Total expenses 210,185 33,784 319,062 22,084 585,115 Income (loss) from operations 30,180 4,340 ( 80,411 ) 6,137 ( 39,754 ) Other income (2) 2,500 205 102,865 241 105,811 Income before income taxes 32,680 4,545 22,454 6,378 66,057 Income tax provision (benefit) 214 367 ( 940 ) — ( 359 ) Net income $ 32,466 $ 4,178 $ 23,394 $ 6,378 $ 66,416 Company’s equity in earnings of unconsolidated entities (3) $ 13,178 $ 972 $ 34,327 $ 1,621 $ 50,098 For the year ended October 31, 2022 Land Develop- ment Joint Ventures Home Building Joint Ventures Rental Property Joint Ventures Gibraltar Joint Ventures Total Revenues $ 207,179 $ 60,902 $ 192,901 $ 37,705 $ 498,687 Cost of revenues 172,921 45,087 65,387 26,229 309,624 Other expenses 8,911 4,717 165,447 1,436 180,511 Total expenses 181,832 49,804 230,834 27,665 490,135 Loss on disposition of loans and REO — — — ( 113 ) ( 113 ) Income (loss) from operations 25,347 11,098 ( 37,933 ) 9,927 8,439 Other income (2) 23,292 804 36,805 — 60,901 Income (loss) before income taxes 48,639 11,902 ( 1,128 ) 9,927 69,340 Income tax provision (benefit) 348 508 ( 607 ) — 249 Net income (loss) $ 48,291 $ 11,394 $ ( 521 ) $ 9,927 $ 69,091 Company’s equity (deficit) in earnings of unconsolidated entities (3) $ 20,402 $ 1,068 $ ( 335 ) $ 2,588 $ 23,723 F-23 For the year ended October 31, 2021 Land Develop- ment Joint Ventures Home Building Joint Ventures Rental Property Joint Ventures Gibraltar Joint Ventures Total Revenues $ 110,330 $ 88,534 $ 141,373 $ 21,357 $ 361,594 Cost of revenues 81,207 105,436 61,278 10,506 258,427 Other expenses 2,622 4,887 143,050 1,947 152,506 Total expenses 83,829 110,323 204,328 12,453 410,933 Loss on disposition of loans and REO — — — ( 4,109 ) ( 4,109 ) Income (loss) from operations 26,501 ( 21,789 ) ( 62,955 ) 4,795 ( 53,448 ) Other income (2) 8,807 317 177,777 — 186,901 Income (loss) before income taxes 35,308 ( 21,472 ) 114,822 4,795 133,453 Income tax provision (benefit) 258 ( 875 ) ( 824 ) — ( 1,441 ) Net income (loss) $ 35,050 $ ( 20,597 ) $ 115,646 $ 4,795 $ 134,894 Company’s equity (deficit) in earnings of unconsolidated entities (3) $ 18,155 $ ( 241 ) $ 53,792 $ 2,329 $ 74,035 (2) Other income generated by Rental Property Joint Ventures for the years ending October 31, 2023, 2022, and 2021 include gains of $ 106.2 million, $ 29.9 million, and $ 177.6 million related to the sale of assets by multiple Rental Property Joint Ventures. (3) Differences between our income (loss) from unconsolidated entities and our percentage interest in the underlying net income (loss) of the entities are primarily a result of distributions from entities in excess of the carrying amount of our investment; promote earned on the gains recognized by join ventures and those promoted cash flows being distributed; other than temporary impairments we have recognized; recoveries of previously incurred charges; unrealized gains on our retained joint venture interests; gains recognized from the sale of our investment to our joint venture partner; and our share of the entities’ profits related to home sites purchased by us which reduces our cost basis of the home sites acquired. 5. Receivables, Prepaid Expenses, and Other Assets Receivables, prepaid expenses, and other assets at October 31, 2023 and 2022, consisted of the following (amounts in thousands): 2023 2022 Expected recoveries from insurance carriers and others $ 94,987 $ 41,527 Improvement cost receivable 40,992 60,812 Escrow cash held by our wholly owned captive title company 44,273 51,796 Properties held for rental apartment and commercial development 225,261 224,593 Prepaid expenses 43,763 44,307 Right-of-use asset 102,787 116,660 Derivative assets 41,612 71,929 Other 97,581 135,604 $ 691,256 $ 747,228 F-24 6. Loans Payable, Senior Notes, and Mortgage Company Loan Facility Loans Payable At October 31, 2023 and 2022, loans payable consisted of the following (amounts in thousands): 2023 2022 Senior unsecured term loan $ 650,000 $ 650,000 Loans payable – other 517,378 537,043 Deferred issuance costs ( 3,154 ) ( 1,768 ) $ 1,164,224 $ 1,185,275 Senior Unsecured Term Loan We are party to a $ 650.0 million senior unsecured term loan facility (the “Term Loan Facility”) with a syndicate of banks. On February 14, 2023, we entered into an amendment to the Term Loan Facility to extend the maturity date of $ 487.5 million of outstanding term loans to February 14, 2028, with $ 60.9 million due on November 1, 2026 and the remaining $ 101.6 million due on November 1, 2025. In addition, this amendment replaced the London Interbank Offered Rate (“LIBOR”)-based interest rate provisions applicable to borrowings under the Term Loan Facility with Secured Overnight Financing Rate (“SOFR”)-based interest rate provisions. At October 31, 2023, other than $ 101.6 million of term loans scheduled to mature on November 1, 2025 and the $ 60.9 million scheduled to mature on November 1, 2026, there are no payments required before the final maturity date on the Term Loan Facility. The Term Loan Facility provides an accordion feature under which we may, subject to certain conditions set forth in the agreement, increase the Term Loan Facility up to a maximum aggregate amount of $ 1.5 billion. Under the Term Loan Facility, as amended, we may select interest rates equal to (i) SOFR plus an applicable margin, (ii) the base rate (as defined in the agreement) plus an applicable margin, or (iii) the federal funds/Euro rate (as defined in the agreement) plus an applicable margin, in each case, based on our leverage ratio. At October 31, 2023, the interest rate on the Term Loan Facility was 6.20 % per annum. Toll Brothers, Inc. and substantially all of its 100 %-owned home building subsidiaries are guarantors under the Term Loan Facility. The Term Loan Facility contains substantially the same financial covenants as the New Revolving Credit Facility, as described below. In November 2020, we entered into five interest rate swap transactions to hedge $ 400.0 million of the Term Loan Facility through October 2025. The interest rate swaps effectively fix the interest cost on the $ 400.0 million at 0.369 % plus the spread set forth in the pricing schedule in the Term Loan Facility, which was 0.90 % as of October 31, 2023. These interest rate swaps were designated as cash flow hedges. Revolving Credit Facility On February 14, 2023, we entered into a new five -year $ 1.905 billion senior unsecured revolving credit facility (the “New Revolving Credit Facility”) with a syndicate of banks that is scheduled to mature on February 14, 2028. The New Revolving Credit Facility replaced our existing $ 1.905 billion revolving credit facility, which was terminated in connection with the execution of the new agreement. The terms of the New Revolving Credit Facility are substantially the same as the prior revolving credit facility, except that the LIBOR-based interest rate provisions have been replaced with SOFR-based provisions. Toll Brothers, Inc. and substantially all of its 100 %-owned home building subsidiaries are guarantors of the borrower’s obligations under the New Revolving Credit Facility. Under the New Revolving Credit Facility, up to 100 % of the commitment is available for letters of credit. The New Revolving Credit Facility has an accordion feature under which we may, subject to certain conditions set forth in the agreement, increase the New Revolving Credit Facility up to a maximum aggregate amount of $ 3.00 billion. We may select interest rates for the New Revolving Credit Facility equal to (i) SOFR plus an applicable margin or (ii) the lenders’ base rate plus an applicable margin, which in each case is based on our credit rating and leverage ratio. At October 31, 2023, the interest rate on outstanding borrowings under the New Revolving Credit Facility would have been 6.50 % per annum. We are obligated to pay an undrawn commitment fee that is based on the average daily unused amount of the Aggregate Credit Commitment and our credit ratings and leverage ratio. Any proceeds from borrowings under the New Revolving Credit Facility may be used for general corporate purposes. Under the terms of the New Revolving Credit Facility, at October 31, 2023, our maximum leverage ratio (as defined in the credit agreement) was not permitted to exceed 1.75 to 1.00, and we were required to maintain a minimum tangible net worth (as defined in the credit agreement) of no less than approximately $ 3.98 billion. Under the terms of the New Revolving Credit Facility, at October 31, 2023, our leverage ratio was approximately 0.24 to 1.00 and our tangible net worth was approximately F-25 $ 6.75 billion. Based upon the terms of the New Revolving Credit Facility, our ability to repurchase our common stock was limited to approximately $ 3.60 billion as of October 31, 2023 and our ability to pay cash dividends was limited to approximately $ 2.76 billion as of October 31, 2023. At October 31, 2023, we had no outstanding borrowings under the New Revolving Credit Facility and had outstanding letters of credit of $ 118.9 million. Loans Payable – Other “Loans payable – other” primarily represent purchase money mortgages on properties we acquired that the seller had financed, project-level financing, and various revenue bonds that were issued by government entities on our behalf to finance community infrastructure and our manufacturing facilities. Information regarding our loans payable at October 31, 2023 and 2022, is included in the table below ($ amounts in thousands): 2023 2022 Aggregate loans payable at October 31 $ 517,378 $ 537,043 Weighted-average interest rate 5.25 % 4.14 % Interest rate range 0.38% - 9.00% 0.19% - 7.00% Loans secured by assets: Carrying value of loans secured by assets $ 516,186 $ 537,043 Carrying value of assets securing loans $ 1,416,034 $ 1,327,683 The contractual maturities of “Loans payable – other” as of October 31, 2023, ranged from one month to 29.5 years . Senior Notes At October 31, 2023 and 2022, senior notes consisted of the following (amounts in thousands): 2023 2022 4.375% Senior Notes due April 15, 2023 $ — $ 400,000 4.875% Senior Notes due November 15, 2025 350,000 350,000 4.875% Senior Notes due March 15, 2027 450,000 450,000 4.35% Senior Notes due February 15, 2028 400,000 400,000 3.80% Senior Notes due November 1, 2029 400,000 400,000 Bond discounts, premiums, and deferred issuance costs - net ( 3,815 ) ( 4,729 ) $ 1,596,185 $ 1,995,271 The senior notes are the unsecured obligations of Toll Brothers Finance Corp., our 100 %-owned subsidiary. The payment of principal and interest is fully and unconditionally guaranteed, jointly and severally, by us and substantially all of our 100 %-owned home building subsidiaries (together with Toll Brothers Finance Corp., the “Senior Note Parties”). The senior notes rank equally in right of payment with all the Senior Note Parties’ existing and future unsecured senior indebtedness, including the New Revolving Credit Facility and the Term Loan Facility. The senior notes are subordinated to the prior claims of creditors, including trade creditors, of our subsidiaries that are not guarantors of the senior notes. Each series of senior notes is redeemable in whole or in part at any time at our option, at prices that vary based upon the then-current rates of interest and the remaining original term of the senior notes to be redeemed. In our second quarter of fiscal 2023, we redeemed all $ 400.0 million principal amount of 4.375 % Senior Notes due April 15, 2023, at par, plus accrued interest. In November 2021, we redeemed the remaining $ 409.9 million principal amount of 5.875 % Senior Notes due February 15, 2022, at par, plus accrued interest. In March 2021, we redeemed, prior to maturity, all $ 250.0 million aggregate principal amount of our then-outstanding 5.625 % Senior Notes due 2024. In connection with this redemption, we incurred a pre-tax charge of $ 34.2 million, inclusive of the write-off of unamortized deferred financing costs, which is recorded in our Consolidated Statement of Operations and Comprehensive Income. In the first quarter of fiscal 2021, we redeemed, prior to maturity, approximately $ 10.0 million of the $ 409.9 million then-outstanding principal amount of 5.875 % Senior Notes due February 15, 2022, plus accrued interest. F-26 Mortgage Company Loan Facility Toll Brothers Mortgage Company (“TBMC”), our wholly owned mortgage subsidiary, has a mortgage warehousing agreement (“Warehousing Agreement”) with a bank, which has been amended from time to time, to finance the origination of mortgage loans by TBMC. The Warehousing Agreement is accounted for as a secured borrowing under ASC 860, “Transfers and Servicing.” The Warehousing Agreement provides for loan purchases up to $ 75.0 million, subject to certain sublimits. In addition, the Warehousing Agreement, provides for an accordion feature under which TBMC may request that the aggregate commitments under the Warehousing Agreement be increased to an amount up to $ 150.0 million for a short period of time. We are also subject to an under usage fee based on outstanding balances, as defined in the Warehousing Agreement. Before the amendment in March 2023, the Warehousing Agreement was set to expire on March 31, 2023. In March 2023, the Warehousing Agreement was amended to extend the expiration date to March 30, 2024 and borrowings thereunder to bear interest at the Bloomberg Short-Term Yield Index Rate (“BSBY”) plus 1.75 % per annum (with a BSBY floor of 0.50 %). At October 31, 2023, the interest rate on the Warehousing Agreement was 7.15 % per annum. Borrowings under this facility are included in the fiscal 2024 maturities in the table below. At each of October 31, 2023 and 2022, there was $ 100.1 million and $ 148.9 million, respectively, outstanding under the Warehousing Agreement, which are included in liabilities in our Consolidated Balance Sheets. At October 31, 2023 and 2022, amounts outstanding under the agreement were collateralized by $ 104.7 million and $ 187.2 million, respectively, of mortgage loans held for sale, which are included in assets in our Consolidated Balance Sheets. As of October 31, 2023, there were no aggregate outstanding purchase price limitations reducing the amount available to TBMC. There are several restrictions on purchased loans under the agreement, including that they cannot be sold to others, they cannot be pledged to anyone other than the agent, and they cannot support any other borrowing or repurchase agreements. On December 5, 2023, TBMC executed a new Warehousing Agreement (“New Warehousing Agreement”) with a bank which provides for loan purchases up to $ 75.0 million, subject to certain sublimits. In addition, the New Warehousing Agreement, provides for an accordion feature under which TBMC may request that the aggregate commitments under the New Warehousing Agreement be increased to an amount up to $ 150.0 million for a short period of time. TMBC is also subject to an under usage fee based on outstanding balances, as defined in the New Warehousing Agreement. The New Warehousing Agreement is set to expire on December 3, 2024 and bears interest at SOFR plus 1.75 % per annum (with a SOFR floor of 2.50 %). General As of October 31, 2023, the annual aggregate maturities of our loans and notes during each of the next five fiscal years are as follows (amounts in thousands): Amount 2024 $ 317,593 2025 $ 123,930 2026 $ 536,349 2027 $ 529,799 2028 $ 407,890 F-27 7. Accrued Expenses Accrued expenses at October 31, 2023 and 2022, consisted of the following (amounts in thousands): 2023 2022 Land, land development and construction $ 555,146 $ 334,975 Compensation and employee benefits 212,684 223,609 Escrow liability associated with our wholly owned captive title company 42,451 44,115 Self-insurance 230,688 251,576 Warranty 206,171 164,409 Lease liabilities 123,866 139,664 Deferred income 52,907 50,973 Interest 30,044 31,988 Commitments to unconsolidated entities 29,212 26,905 Other 65,612 77,773 $ 1,548,781 $ 1,345,987 At the time each home is closed and title and possession are transferred to the home buyer, we record an initial accrual for expected warranty costs on that home. Our initial accrual for expected warranty costs is based upon historical warranty claim experience. Adjustments to our warranty liabilities related to homes delivered in prior periods are recorded in the period in which a change in our estimate occurs. The table below provides a reconciliation of the changes in our warranty accrual during fiscal 2023, 2022, and 2021 (amounts in thousands): 2023 2022 2021 Balance, beginning of year $ 164,409 $ 145,062 $ 157,351 Additions - homes closed during the year 44,949 42,423 42,316 Addition - liabilities assumed in an asset acquisition — 150 100 Increase in accruals for homes closed in prior years - net 12,739 10,433 9,155 Increase in accruals expected to be recovered from third parties (1) 58,000 29,000 — Reclassification from self-insurance accruals 696 — 3,618 Decrease to water intrusion accrual — — ( 11,823 ) Charges incurred ( 74,622 ) ( 62,659 ) ( 55,655 ) Balance, end of year $ 206,171 $ 164,409 $ 145,062 (1) These increases in accruals for warranty charges are expected to be recovered from our insurance carriers or suppliers, which are recorded as receivables included in “Receivables, prepaid expenses, and other assets” on our Consolidated Balance Sheets. Since fiscal 2014, we have received water intrusion claims from owners of homes built since 2002 in communities located in Pennsylvania and Delaware (which are in our North region). Our recorded remaining estimated repair costs, which reflects a reduction for the aggregate amount expended to resolve claims, were approximately $ 41.1 million at October 31, 2023 and $ 46.9 million at October 31, 2022. We continue to perform review procedures to assess, among other things, the number of affected homes, whether repairs are likely to be required, and the extent of such repairs. Our review process, conducted quarterly, includes an analysis of many factors to determine whether a claim is likely to be received and the estimated costs to resolve any such claim, including: the closing dates of the homes; the number of claims received; our inspection of homes; an estimate of the number of homes we expect to repair; the type and cost of repairs that have been performed in each community; the estimated costs to remediate pending and future claims; the expected recovery from our insurance carriers and suppliers; and the previously recorded amounts related to these claims. We also monitor legal developments relating to these types of claims and review the volume, relative merits and adjudication of claims in litigation or arbitration. Our review process includes a number of estimates that are based on assumptions with uncertain outcomes. Due to the degree of judgment required in making these estimates and the inherent uncertainty in potential outcomes, it is reasonably possible that our actual costs and recoveries could differ from those recorded . However, based on the facts and circumstances currently known, we do not believe that any such differences would be material. F-28 8. Income Taxes The following table provides a reconciliation of our effective tax rate from the federal statutory tax rate for the fiscal years ended October 31, 2023, 2022, and 2021 ($ amounts in thousands): 2023 2022 2021 $ %* $ %* $ %* Federal tax provision at statutory rate 386,898 21.0 357,782 21.0 231,066 21.0 State tax provision, net of federal benefit 90,698 4.9 75,465 4.4 50,153 4.6 Other permanent differences ( 2,782 ) ( 0.2 ) 4,386 0.3 8,388 0.8 Reversal of accrual for uncertain tax positions ( 621 ) — ( 1,690 ) ( 0.1 ) ( 993 ) ( 0.1 ) Accrued interest on anticipated tax assessments 403 — 234 — 297 — Increase in unrecognized tax benefits 2,209 0.1 658 — — — Excess stock compensation benefit ( 7,320 ) ( 0.4 ) ( 3,012 ) ( 0.2 ) ( 4,698 ) ( 0.4 ) Energy tax credits ( 2,348 ) ( 0.1 ) ( 22,153 ) ( 1.3 ) ( 24,343 ) ( 2.2 ) Other 3,163 0.2 5,556 0.3 6,818 0.6 Income tax provision* 470,300 25.5 417,226 24.5 266,688 24.2 * Due to rounding, percentages may not add We are subject to state tax in the jurisdictions in which we operate. We estimate our state tax liability based upon the individual taxing authorities’ regulations, estimates of income by taxing jurisdiction, and our ability to utilize certain tax-saving strategies. Based on our estimate of the allocation of income or loss among the various taxing jurisdictions and changes in tax regulations and their impact on our tax strategies, we estimate that our rate for state income taxes, before federal benefit, will be 6.2 % in fiscal 2023. Our state income tax rate, before federal benefit, was 5.6 % and 5.8 % in fiscal 2022 and 2021, respectively The following table provides information regarding the provision (benefit) for income taxes for each of the fiscal years ended October 31, 2023, 2022, and 2021 (amounts in thousands): 2023 2022 2021 Federal $ 385,650 $ 343,524 $ 213,314 State 84,650 73,702 53,374 $ 470,300 $ 417,226 $ 266,688 Current $ 433,837 $ 513,075 $ 254,873 Deferred 36,463 ( 95,849 ) 11,815 $ 470,300 $ 417,226 $ 266,688 The components of income taxes payable at October 31, 2023 and 2022 are set forth below (amounts in thousands): 2023 2022 Current $ 5,978 $ 168,548 Deferred 160,290 122,931 $ 166,268 $ 291,479 The following table provides a reconciliation of the change in the unrecognized tax benefits for the years ended October 31, 2023, 2022, and 2021 (amounts in thousands): 2023 2022 2021 Balance, beginning of year $ 4,922 $ 5,780 $ 6,591 Increase in benefit as a result of tax positions taken in prior years 3,633 296 624 Increase in benefit as a result of tax positions taken in current year 2,733 833 — Decrease in benefit as a result of lapse of statute of limitations ( 776 ) ( 1,987 ) ( 1,435 ) Balance, end of year $ 10,512 $ 4,922 $ 5,780 F-29 The statute of limitations has expired on our federal tax returns for fiscal years through 2019. The statute of limitations for our major state tax jurisdictions remains open for examination for fiscal year 2018 and subsequent years. Our unrecognized tax benefits are included in the current portion of “Income taxes payable” on our Consolidated Balance Sheets. If these unrecognized tax benefits reverse in the future, they would have a beneficial impact on our effective tax rate at that time. During the next 12 months, it is reasonably possible that the amount of unrecognized tax benefits will change, but we are not able to provide a range of such change. The anticipated changes will be principally due to the expiration of tax statutes, settlements with taxing jurisdictions, increases due to new tax positions taken, and the accrual of estimated interest and penalties. The amounts accrued for interest and penalties are included in the current portion of “Income taxes payable” on our Consolidated Balance Sheets. The following table provides information as to the amounts recognized in our tax provision, before reduction for applicable taxes and reversal of previously accrued interest and penalties, of potential interest and penalties in each of the three fiscal years ended October 31, 2023, 2022, and 2021, and the amounts accrued for potential interest and penalties at October 31, 2023 and 2022 (amounts in thousands): Expense recognized in the Consolidated Statements of Operations and Comprehensive Income Fiscal year 2023 $ 332 2022 $ 296 2021 $ 376 Accrued at: October 31, 2023 $ 1,259 October 31, 2022 $ 1,157 The components of net deferred tax assets and liabilities at October 31, 2023 and 2022 are set forth below (amounts in thousands): 2023 2022 Deferred tax assets: Accrued expenses $ 48,088 $ 50,164 Impairment charges 25,005 37,418 Inventory valuation differences 20,690 41,154 Stock-based compensation expense 12,603 17,064 Amounts related to unrecognized tax benefits 1,385 203 State tax, net operating loss carryforwards 11,129 24,185 Other 1,709 1,691 Total assets 120,609 171,879 Deferred tax liabilities: Capitalized interest 22,909 26,791 Deferred income 223,225 226,929 Expenses taken for tax purposes not for book 3,143 2,961 Depreciation 14,484 19,391 Deferred marketing 17,138 18,738 Total liabilities 280,899 294,810 Net deferred tax liabilities $ ( 160,290 ) $ ( 122,931 ) In accordance with GAAP, we assess whether a valuation allowance should be established based on our determination of whether it is more-likely-than-not that some portion or all of the deferred tax assets would not be realized. At October 31, 2023 and 2022, we determined that it was more-likely-than-not that our deferred tax assets would be realized. Accordingly, at October 31, 2023 and 2022, we did not have valuation allowances recorded against our federal or state deferred tax assets. We file tax returns in the various states in which we do business. Each state has its own statutes regarding the use of tax loss carryforwards. Some of the states in which we do business do not allow for the carryforward of losses, while others allow for carryforwards ranging from five years to an indefinite carryforward period. F-30 9. Stockholders’ Equity Our authorized capital stock consists of 400 million shares of common stock, $ 0.01 par value per share (“common stock”), and 15 million shares of preferred stock, $ 0.01 par value per share. At October 31, 2023, we had 103.8 million shares of common stock issued and outstanding, 3.1 million shares of common stock reserved for outstanding stock options and restricted stock units, 3.7 million shares of common stock reserved for future stock option and award issuances, and 252,000 shares of common stock reserved for issuance under our employee stock purchase plan. As of October 31, 2023, no shares of preferred stock have been issued. Cash Dividends On February 21, 2017, our Board of Directors approved the initiation of quarterly cash dividends to shareholders. In March 2023, our Board of Directors approved an increase in the quarterly dividend from $ 0.20 to $ 0.21 per share, which was previously increased from $ 0.17 to $ 0.20 in March 2022. During fiscal years 2023, 2022 and 2021, we declared and paid aggregate cash dividends of $ 0.83 , $ 0.77 and $ 0.62 per share, respectively, to our shareholders. Stock Repurchase Program From time to time since fiscal 2017, our Board of Directors has renewed its authorization to repurchase up to 20 million shares of our common stock in open market transactions, privately negotiated transactions (including accelerated share repurchases), issuer tender offers or other financial arrangements or transactions for general corporate purposes, including to obtain shares for the Company’s equity award and other employee benefit plans. On May 17, 2022, our Board of Directors renewed its authorization to repurchase 20 million shares of our common stock and terminated, effective the same date, the existing authorization that had been in effect since March 10, 2020. The Board of Directors did not fix any expiration date for this repurchase program. On December 13, 2023, the Board of Directors renewed its authorization to repurchase 20 million shares of our common stock and terminated, effective the same date, the existing authorization that had been in effect since May 17, 2022. The following table provides information about the share repurchase programs for the fiscal years ended October 31, 2023, 2022, and 2021: 2023 2022 2021 Number of shares purchased (in thousands) 7,860 11,000 7,421 Average price per share (1) $ 72.00 $ 49.34 $ 50.97 Remaining authorization at October 31 (in thousands) 6,716 14,577 12,563 (1) Average price per share includes costs associated with the purchases. For the fiscal 2023 period, it also includes the excise tax accrued on our share repurchases as a result of the Inflation Reduction Act of 2022. Transfer Restriction On March 17, 2010, our Board of Directors adopted a Certificate of Amendment to the Second Restated Certificate of Incorporation of the Company (the “Certificate of Amendment”). The Certificate of Amendment includes an amendment approved by our stockholders at the 2010 Annual Meeting of Stockholders that restricts certain transfers of our common stock. The Certificate of Amendment’s transfer restrictions generally restrict any direct or indirect transfer of our common stock if the effect would be to increase the direct or indirect ownership of any Person (as defined in the Certificate of Amendment) from less than 4.95 % to 4.95 % or more of our common stock or increase the ownership percentage of a Person owning or deemed to own 4.95 % or more of our common stock. Any direct or indirect transfer attempted in violation of this restriction would be void as of the date of the prohibited transfer as to the purported transferee. F-31 Accumulated Other Comprehensive Income The changes in each component of accumulated other comprehensive income (“AOCI”), for fiscal years ended October 31, 2023, 2022, and 2021, were as follows (amounts in thousands): 2023 2022 2021 Employee Retirement Plans Beginning balance $ 2,475 $ ( 6,024 ) $ ( 7,198 ) Gains arising during the period 736 9,573 152 Less: Tax expense ( 199 ) ( 2,424 ) ( 316 ) Net gains (losses) arising during the period 537 7,149 ( 164 ) Losses reclassified from AOCI to net income (1) 92 1,805 1,801 Less: Tax benefit (2) ( 24 ) ( 455 ) ( 463 ) Net losses reclassified from AOCI to net income 68 1,350 1,338 Other comprehensive income, net of tax 605 8,499 1,174 Ending balance $ 3,080 $ 2,475 $ ( 6,024 ) Derivative Instruments Beginning balance $ 35,143 $ 7,133 $ — Gains on derivative instruments 8,369 37,539 9,383 Less: Tax expense ( 2,110 ) ( 9,505 ) ( 2,408 ) Net gains on derivative instruments 6,259 28,034 6,975 (Gains) losses reclassified from AOCI to net income (3) ( 4,784 ) ( 32 ) 211 Less: Tax benefit (expense) (2) 1,212 8 ( 53 ) Net (gains) losses reclassified from AOCI to net income ( 3,572 ) ( 24 ) 158 Other comprehensive income, net of tax 2,687 28,010 7,133 Ending balance $ 37,830 $ 35,143 $ 7,133 Total AOCI ending balance $ 40,910 $ 37,618 $ 1,109 (1) Reclassified to “Other income – net” (2) Reclassified to “Income tax provision” (3) Reclassified to “Cost of revenues – home sales” F-32 10. Stock-Based Benefit Plans We grant stock options, restricted stock, and various types of restricted stock units to our employees and our non-employee directors under our stock incentive plans. Restricted stock unit awards may be based on performance conditions, market conditions or service over a requisite time period (time-based). On March 12, 2019, shareholders approved the Toll Brothers, Inc. 2019 Omnibus Incentive Plan (the “Omnibus Plan”), which succeeded the Toll Brothers, Inc. Stock Incentive Plan for Employees (2014) and the Toll Brothers, Inc. Stock Incentive Plan for Non-Executive Directors (2016) with respect to equity awards granted after its adoption, and no additional equity awards may be granted under such prior plans. As a result, the Omnibus Plan is the sole plan out of which new equity awards may be granted to employees (including executive officers), directors and other eligible participants under the plan. The Omnibus Plan provides for the granting of incentive stock options (solely to employees) and nonqualified stock options with a term of up to 10 years at a price not less than the market price of the stock at the date of grant. The Omnibus Plan also provides for the issuance of stock appreciation rights and restricted and unrestricted stock awards and stock units, which may be performance-based. Stock options and restricted stock units granted under the Omnibus Plan generally vest over a four-year period for employees and a two-year period for non-employee directors. Shares issued upon the exercise of a stock option or settlement of restricted stock units are either from shares held in treasury or newly issued shares. At October 31, 2023, 2022, and 2021, we had 3.7 million; 5.0 million; and 5.7 million shares, respectively, available for grant under the plans. The following table provides information regarding the amount of total stock-based compensation expense recognized by us for fiscal year 2023, 2022, and 2021 (amounts in thousands): 2023 2022 2021 Total stock-based compensation expense recognized $ 24,805 $ 21,095 $ 23,187 Income tax benefit recognized $ 6,291 $ 5,312 $ 5,910 At October 31, 2023, the aggregate unamortized value of outstanding stock-based compensation awards was approximately $ 23.2 million and the weighted-average period over which we expect to recognize such compensation costs was approximately 2.5 years. Performance-Based Restricted Stock Units: In fiscal 2023, 2022, and 2021, the Executive Compensation Committee approved awards of performance-based restricted stock units (“Performance-Based RSUs”) relating to shares of our common stock to certain members of our senior management. The number of shares earned for Performance-Based RSUs is based on the attainment of certain operational performance metrics approved by the Executive Compensation Committee in the year of grant. The number of shares underlying the Performance-Based RSUs that may be issued to the recipients ranges from 0 % to 150 % of the base award depending on actual achievement as compared to the target performance goals. Shares earned based on actual performance vest pro-rata over a four-year period (provided the recipients continue to be employed by us as specified in the award document) or cliff-vest at the end of a three-year performance period. The value of the Performance-Based RSUs was determined to be equal to the estimated number of shares of our common stock to be issued multiplied by the closing price of our common stock on the New York Stock Exchange (“NYSE”) on the date the Performance-Based RSUs were approved by the Executive Compensation Committee (“Valuation Date”), adjusted for post-vesting restrictions applicable to retirement eligible participants. Compensation expense related to these grants is based on the Company’s performance against the related performance criteria, the elapsed portion of the performance period and the grant date fair value of the award. To estimate the fair value of the award, we evaluate the performance goals quarterly and estimate the number of shares underlying the Performance-Based RSUs that are probable of being issued. F-33 A summary of the status of our nonvested Performance-Based RSUs as of October 31, 2023, and changes during the year ended October 31, 2023, is presented below: Number of shares (in thousands) Weighted-average grant date fair value Nonvested at November 1, 2022 280 $ 39.79 Granted 126 $ 39.44 Vested ( 153 ) $ 36.53 Nonvested at October 31, 2023 253 $ 41.60 The following table provides information regarding the issuance, valuation assumptions, and amortization of the Performance-Based RSUs issued in fiscal 2023, 2022, and 2021: 2023 2022 2021 Estimated number of shares underlying Performance-Based RSUs to be issued 126,068 71,576 128,894 Aggregate number of Performance-Based RSUs outstanding at October 31 442,961 507,604 539,592 Weighted-average fair value per share of Performance-Based RSUs issued $ 34.70 $ 45.41 $ 29.87 Aggregate grant date fair value of Performance-Based RSUs issued (in thousands) $ 7,244 $ 6,156 $ 5,030 Performance-Based RSUs expense recognized (in thousands) $ 5,838 $ 4,346 $ 5,989 Fair market value of Performance-Based RSUs vested (in thousands) $ 5,595 $ 4,514 $ 5,084 Shares earned with respect to Performance-Based RSUs granted in December 2016, 2017, and 2018 were delivered in fiscal 2021, 2022, and 2023, respectively. Time-Based Restricted Stock Units: We issue time-based restricted stock units (“Time-Based RSUs”) to various officers, employees, and non-employee directors on an annual basis. These Time-Based RSUs generally vest in annual installments over a two-year (for non-employee directors) or four-year (for employees) period and are generally settled at the end of such period. The value of the Time-Based RSUs are determined to be equal to the number of shares of our common stock underlying the Time-Based RSUs multiplied by the closing price of our common stock on the NYSE on the date the Time-Based RSUs are awarded, adjusted for post-vesting restrictions applicable to retirement eligible participants. The fair value of Time-Based RSUs is expensed evenly over the shorter of the vesting period or the period between the grant date and the time the award becomes nonforfeitable to the participant. A summary of our Time-Based RSUs nonvested shares as of October 31, 2023, and changes during the year ended October 31, 2023, is presented below: Number of shares (in thousands) Weighted-average grant date fair value Nonvested at November 1, 2022 842 $ 47.18 Granted 549 $ 51.65 Vested ( 336 ) $ 43.44 Forfeited ( 40 ) $ 52.28 Nonvested at October 31, 2023 1,015 $ 50.64 F-34 The following table provides additional information on the Time-Based RSUs for fiscal 2023, 2022, and 2021: 2023 2022 2021 Time-Based RSUs issued: Number of Time-Based RSUs issued 324,399 276,421 386,017 Weighted-average fair value per share of Time-Based RSUs issued $ 34.26 $ 45.55 $ 33.21 Aggregate fair value of Time-Based RSUs issued (in thousands) $ 11,114 $ 12,591 $ 12,820 Time-Based RSUs expense recognized (in thousands): $ 18,340 $ 15,738 $ 14,531 Fair market value of Time-Based RSUs vested (in thousands): $ 14,592 $ 13,925 $ 14,029 2023 2022 2021 At October 31: Aggregate number of Time-Based RSUs outstanding 1,500,097 1,315,303 1,312,710 Cumulative unamortized value of Time-Based RSUs (in thousands) $ 22,836 $ 14,902 $ 12,919 11. Earnings Per Share Information Information pertaining to the calculation of earnings per share for each of the fiscal years ended October 31, 2023, 2022, and 2021, is as follows (amounts in thousands): 2023 2022 2021 Numerator: Net income as reported $ 1,372,071 $ 1,286,500 $ 833,627 Denominator: Basic weighted-average shares 110,020 116,771 124,100 Common stock equivalents (1) 988 1,204 1,707 Diluted weighted-average shares 111,008 117,975 125,807 Other information: Weighted-average number of antidilutive options and restricted stock units (2) 200 410 166 Shares issued under stock incentive and employee stock purchase plans 2,026 507 1,011 (1) Common stock equivalents represent the dilutive effect of outstanding in-the-money stock options using the treasury stock method and shares expected to be issued under our restricted stock units programs. (2) Weighted-average number of antidilutive options and restricted stock units are based upon the average of the average quarterly closing prices of our common stock on the NYSE for the year. 12. Fair Value Disclosures Financial Instruments A summary of assets and (liabilities) at October 31, 2023 and 2022, related to our financial instruments, measured at fair value on a recurring basis, is set forth below (amounts in thousands): Fair value Financial Instrument Fair value hierarchy October 31, 2023 October 31, 2022 Residential Mortgage Loans Held for Sale Level 2 $ 110,555 $ 185,150 Forward Loan Commitments – Residential Mortgage Loans Held for Sale Level 2 $ 2,234 $ 9,184 Interest Rate Lock Commitments (“IRLCs”) Level 2 $ ( 4,135 ) $ ( 17,734 ) Forward Loan Commitments – IRLCs Level 2 $ 4,135 $ 17,734 Interest Rate Swap Contracts Level 2 $ 35,243 $ 45,010 At October 31, 2023 and 2022, the carrying value of cash and cash equivalents, escrow cash held by our wholly owned captive title company, and customer deposits held in escrow approximated fair value. F-35 The fair values of the interest rate swap contracts are included in “Receivables, prepaid expenses and other assets” in our Consolidated Balance Sheets and are determined using widely accepted valuation techniques including discounted cash flow analysis based on the expected cash flows of each swap contract. Although the Company has determined that the significant inputs, such as interest yield curve and discount rate, used to value its interest rate swap contracts fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our counterparties and our own credit risk utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of October 31, 2023 and 2022, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our interest rate swap contract positions and have determined that the credit valuation adjustments were not significant to the overall valuation of our interest rate swap contracts. As a result, we have determined that our interest rate swap contracts valuations in their entirety are classified in Level 2 of the fair value hierarchy. Mortgage Loans Held for Sale At the end of the reporting period, we determine the fair value of our mortgage loans held for sale and the forward loan commitments we have entered into as a hedge against the interest rate risk of our mortgage loans and commitments using the market approach to determine fair value. The evaluation is based on the current market pricing of mortgage loans with similar terms and values as of the reporting date and the application of such pricing to the mortgage loan portfolio. We recognize the difference between the fair value and the unpaid principal balance of mortgage loans held for sale as a gain or loss. In addition, we recognize the change in fair value of our forward loan commitments as a gain or loss. These gains and losses are included in “Other income – net” in our Consolidated Statements of Operations and Comprehensive Income. Interest income on mortgage loans held for sale is calculated based upon the stated interest rate of each loan and is also included in “Other income – net.” The table below provides, for the periods indicated, the aggregate unpaid principal and fair value of mortgage loans held for sale as of the date indicated (amounts in thousands): At October 31, Aggregate unpaid principal balance Fair value Fair value greater (less) than principal balance 2023 $ 114,835 $ 110,555 $ ( 4,280 ) 2022 $ 193,746 $ 185,150 $ ( 8,596 ) IRLCs represent individual borrower agreements that commit us to lend at a specified price for a specified period as long as there is no violation of any condition established in the commitment contract. These commitments have varying degrees of interest rate risk. We utilize best-efforts forward loan commitments (“Forward Commitments”) to hedge the interest rate risk of the IRLCs and residential mortgage loans held for sale. Forward Commitments represent contracts with third-party investors for the future delivery of loans whereby we agree to make delivery at a specified future date at a specified price. The IRLCs and Forward Commitments are considered derivative financial instruments under ASC 815, “Derivatives and Hedging,” which requires derivative financial instruments to be recorded at fair value. We estimate the fair value of such commitments based on the estimated fair value of the underlying mortgage loan and, in the case of IRLCs, the probability that the mortgage loan will fund within the terms of the IRLC. The fair values of IRLCs and forward loan commitments are included in either “Receivables, prepaid expenses and other assets” or “Accrued expenses” in our Consolidated Balance Sheets, as appropriate. To manage the risk of non-performance of investors regarding the Forward Commitments, we assess the creditworthiness of the investors on a periodic basis. Inventory We recognize inventory impairment charges based on the difference in the carrying value of the inventory and its fair value at the time of the evaluation. The fair value of the aforementioned inventory was determined using Level 3 criteria. Estimated fair value is primarily determined by discounting the estimated future cash flow of each community. See Note 1, “Significant Accounting Policies - Inventory,” for additional information regarding our methodology on determining fair value. As further discussed in Note 1, determining the fair value of a community’s inventory involves a number of variables, many of which are interrelated. If we used a different input for any of the various unobservable inputs used in our impairment analysis, the results of the analysis may have been different, absent any other changes. Impairments of inventory were insignificant in each of the three fiscal years ended October 31, 2023, 2022, and 2021 and, accordingly, we did not disclose the ranges of certain quantitative unobservable inputs utilized in determining the fair value of these impaired communities. F-36 Debt The table below provides, as of the dates indicated, the book value, excluding any bond discounts, premiums, and deferred issuance costs, and estimated fair value of our debt at October 31, 2023 and 2022 (amounts in thousands): 2023 2022 Fair value hierarchy Book value Estimated fair value Book value Estimated fair value Loans payable (1) Level 2 $ 1,167,378 $ 1,150,704 $ 1,187,043 $ 1,180,893 Senior notes (2) Level 1 1,600,000 1,481,220 2,000,000 1,822,255 Mortgage company loan facility (3) Level 2 100,058 100,058 148,863 148,863 $ 2,867,436 $ 2,731,982 $ 3,335,906 $ 3,152,011 (1) The estimated fair value of loans payable was based upon contractual cash flows discounted at interest rates that we believed were available to us for loans with similar terms and remaining maturities as of the applicable valuation date. (2) The estimated fair value of our senior notes is based upon their market prices as of the applicable valuation date. (3) We believe that the carrying value of our mortgage company loan borrowings approximates their fair value. 13. Employee Retirement and Deferred Compensation Plans Salary Deferral Savings Plans We maintain salary deferral savings plans covering substantially all employees. We recognized an expense, net of plan forfeitures, with respect to the plans of $ 17.1 million, $ 17.1 million, and $ 15.5 million for the fiscal years ended October 31, 2023, 2022, and 2021, respectively, which is included in “Selling, general and administrative” expense in the Consolidated Statements of Operations and Comprehensive Income. Deferred Compensation Plan We have an unfunded, nonqualified deferred compensation plan that permits eligible employees to defer a portion of their compensation. The deferred compensation, together with certain of our contributions, earns various rates of return depending upon when the compensation was deferred. A portion of the deferred compensation and interest earned may be forfeited by a participant if he or she elects to withdraw the compensation prior to the end of the deferral period. We accrued $ 35.6 million and $ 35.7 million at October 31, 2023 and 2022, respectively, for our obligations under the plan. Defined Benefit Retirement Plans We have two unfunded defined benefit retirement plans. Retirement benefits generally vest when the participant reaches normal retirement age. Unrecognized prior service costs are being amortized over the period from the date participants enter the plans until their interests are fully vested. We used a 5.83 %, 5.26 %, and 2.27 % discount rate in our calculation of the present value of our projected benefit obligations at October 31, 2023, 2022, and 2021, respectively. The rates represent the approximate long-term investment rate at October 31 of the fiscal year for which the present value was calculated. Information related to the plans is based on actuarial information calculated as of October 31, 2023, 2022 and 2021. F-37 Information related to our retirement plans for each of the fiscal years ended October 31, 2023, 2022, and 2021, is as follows (amounts in thousands): 2023 2022 2021 Plan costs: Service cost $ 137 $ 261 $ 452 Interest cost 1,869 1,055 926 Amortization of prior service cost 1,407 1,806 1,723 Amortization of unrecognized losses ( 1,316 ) — 77 $ 2,097 $ 3,122 $ 3,178 Projected benefit obligation: Beginning of year $ 36,904 $ 47,705 $ 48,374 Plan amendments adopted during year 1,171 — 755 Service cost 137 261 452 Interest cost 1,869 1,055 926 Benefit payments ( 2,748 ) ( 2,544 ) ( 1,894 ) Change in unrecognized (gain) loss ( 1,957 ) ( 9,573 ) ( 908 ) Projected benefit obligation, end of year $ 35,376 $ 36,904 $ 47,705 Unamortized prior service cost: Beginning of year $ 3,678 $ 5,484 $ 6,452 Plan amendments adopted during year 1,171 — 755 Amortization of prior service cost ( 1,407 ) ( 1,806 ) ( 1,723 ) Unamortized prior service cost, end of year $ 3,442 $ 3,678 $ 5,484 Accumulated unrecognized gain (loss), October 31 $ 7,926 $ 7,285 $ ( 2,288 ) Accumulated benefit obligation, October 31 $ 35,376 $ 36,904 $ 47,705 Accrued benefit obligation, October 31 $ 35,376 $ 36,904 $ 47,705 The accrued benefit obligation is included in accrued expenses on our Consolidated Balance Sheets. The table below provides, based upon the estimated retirement dates of the participants in the retirement plans, the amounts of benefits we would be required to pay in each of the next five fiscal years and for the five fiscal years ended October 31, 2033 in the aggregate (in thousands): Year ending October 31, Amount 2024 $ 2,818 2025 $ 3,142 2026 $ 3,533 2027 $ 3,610 2028 $ 3,613 November 1, 2028 – October 31, 2033 $ 16,827 F-38 14. Commitments and Contingencies Legal Proceedings We are involved in various claims and litigation arising principally in the ordinary course of business. We believe that adequate provision for resolution of all current claims and pending litigation has been made and that the disposition of these matters will not have a material adverse effect on our results of operations and liquidity or on our financial condition. Land Purchase Contracts Generally, our agreements to acquire land parcels do not require us to purchase those land parcels, although we, in some cases, forfeit any deposit balance outstanding if and when we terminate an agreement. If market conditions are weak, approvals needed to develop the land are uncertain, or other factors exist that make the purchase undesirable, we may choose not to acquire the land. Whether a purchase agreement is legally terminated or not, we review the amount recorded for the land parcel subject to the purchase agreement to determine whether the amount is recoverable. While we may not have formally terminated the purchase agreements for those land parcels that we do not expect to acquire, we write off any nonrefundable deposits and costs previously capitalized to such land parcels in the periods that we determine such costs are not recoverable. Information regarding our land purchase contracts at October 31, 2023 and 2022, is provided in the table below (amounts in thousands): 2023 2022 Aggregate purchase price: Unrelated parties $ 4,191,160 $ 4,279,660 Unconsolidated entities that the Company has investments in 31,477 42,057 Total $ 4,222,637 $ 4,321,717 Deposits against aggregate purchase price $ 449,925 $ 463,452 Additional cash required to acquire land 3,772,712 3,858,265 Total $ 4,222,637 $ 4,321,717 Amount of additional cash required to acquire land included in accrued expenses $ 254,030 $ 34,994 In addition, we expect to purchase approximately 8,200 additional home sites over a number of years from several joint ventures in which we have investments; the purchase prices of these home sites will be determined at a future date. At October 31, 2023, we also had similar purchase contracts to acquire land for apartment developments of approximately $ 256.5 million, of which we had outstanding deposits in the amount of $ 12.9 million. We intend to develop these projects in joint ventures with unrelated parties in the future. We have additional land parcels under option that have been excluded from the aforementioned aggregate purchase amounts since we do not believe that we will complete the purchase of these land parcels and no additional funds will be required from us to terminate these contracts. Investments in Unconsolidated Entities At October 31, 2023, we had investments in a number of unconsolidated entities, were committed to invest or advance additional funds, and had guaranteed a portion of the indebtedness and/or loan commitments of these entities. See Note 4, “Investments in Unconsolidated Entities,” for more information regarding our commitments to these entities. Surety Bonds and Letters of Credit At October 31, 2023, we had outstanding surety bonds amounting to $ 871.6 million, primarily related to our obligations to governmental entities to construct improvements in our communities. We estimate that approximately $ 355.6 million of work remains on these improvements. We have an additional $ 323.3 million of surety bonds outstanding that guarantee other obligations. We do not believe it is probable that any outstanding bonds will be drawn upon. At October 31, 2023, we had outstanding letters of credit of $ 118.9 million under our New Revolving Credit Facility. These letters of credit were issued to secure our various financial obligations, including insurance policy deductibles and other claims, land deposits, and security to complete improvements in communities in which we are operating. We do not believe that it is probable that any outstanding letters of credit will be drawn upon. F-39 At October 31, 2023, we had provided financial guarantees of $ 25.7 million related to fronted letters of credit to secure obligations related to certain of our insurance policy deductibles and other claims. Backlog At October 31, 2023, we had agreements of sale outstanding to deliver 6,578 homes with an aggregate sales value of $ 6.95 billion. Mortgage Commitments Our mortgage subsidiary provides mortgage financing for a portion of our home closings. For those home buyers to whom our mortgage subsidiary provides mortgages, we determine whether the home buyer qualifies for the mortgage based upon information provided by the home buyer and other sources. For those home buyers who qualify, our mortgage subsidiary provides the home buyer with a mortgage commitment that specifies the terms and conditions of a proposed mortgage loan based upon then-current market conditions. Prior to the actual closing of the home and funding of the mortgage, the home buyer will lock in an interest rate based upon the terms of the commitment. At the time of rate lock, our mortgage subsidiary agrees to sell the proposed mortgage loan to one of several outside recognized mortgage financing institutions (“investors”) that is willing to honor the terms and conditions, including interest rate, committed to the home buyer. We believe that these investors have adequate financial resources to honor their commitments to our mortgage subsidiary. Mortgage loans are sold to investors with limited recourse provisions derived from industry-standard representations and warranties in the relevant agreements. These representations and warranties primarily involve the absence of misrepresentations by the borrower or other parties, the appropriate underwriting of the loan and in some cases, a required minimum number of payments to be made by the borrower. The Company generally does not retain any other continuing interest related to mortgage loans sold in the secondary market. Information regarding our mortgage commitments at October 31, 2023 and 2022, is provided in the table below (amounts in thousands): 2023 2022 Aggregate mortgage loan commitments: IRLCs $ 354,716 $ 669,631 Non-IRLCs 1,818,486 2,429,063 Total $ 2,173,202 $ 3,098,694 Investor commitments to purchase: IRLCs $ 354,716 $ 669,631 Mortgage loans receivable 104,703 186,666 Total $ 459,419 $ 856,297 Lease Commitments We lease certain facilities, equipment, and properties held for rental apartment operation or development under non-cancelable operating leases which, in the case of certain rental properties, have an initial term of 99 years. We recognize lease expense for these leases on a straight-line basis over the lease term. Right-of-use (“ROU”) assets and lease liabilities are recorded on the balance sheet for all leases with an expected term over one year. A majority of our facility lease agreements include rental payments based on a pro-rata share of the lessor’s operating costs which are variable in nature. Our lease agreements do not contain any residual value guarantees or material restrictive covenants. ROU assets are classified within “Receivables, prepaid expenses, and other assets” and the corresponding lease liability is included in “Accrued expenses” in our Consolidated Balance Sheets. We elected the short-term lease recognition exemption for all leases that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that we are reasonably certain to exercise. For such leases, we do not recognize ROU assets or lease liabilities and instead recognize lease payments in our Consolidated Statements of Operations and Comprehensive Income on a straight-line basis. At October 31, 2023, ROU assets and lease liabilities were $ 102.8 million and $ 123.9 million, respectively. At October 31, 2022, ROU assets and lease liabilities were $ 116.7 million and $ 139.7 million, respectively. Payments on lease liabilities totaled $ 20.2 million, $ 17.7 million, and $ 19.4 million for the years ending October 31, 2023, 2022, and 2021, respectively. Lease expense includes costs for leases with terms in excess of one year as well as short-term leases with terms of one year or less. For the fiscal years ending October 31, 2023, 2022, and 2021, our total lease expense was $ 27.1 million, $ 25.6 million, F-40 and $ 22.2 million, respectively, inclusive of variable lease costs of approximately $ 4.2 million, $ 3.3 million, and $ 3.1 million, respectively. Short-term lease costs and sublease income was de minimis. Information regarding our remaining lease payments as of October 31, 2023 is provided in the table below (amounts in thousands): Year ended October 31, 2024 $ 23,000 2025 20,600 2026 18,600 2027 15,300 2028 12,700 Thereafter 139,700 Total lease payments (1) $ 229,900 Less: Interest (2) 106,000 Present value of lease liabilities $ 123,900 (1) Lease payments include options to extend lease terms that are reasonably certain of being exercised. (2) Our leases do not provide a readily determinable implicit rate. Therefore, we estimate our discount rate for such leases to determine the present value of lease payments at the lease commencement date. The majority of our facility leases give us the option to extend the lease term. The exercise of lease renewal options is at our discretion. For several of our facility leases we are reasonably certain the option will be exercised and thus the renewal term has been included in our calculation of the ROU asset and lease liability. The weighted average remaining lease term and weighted average discount rate used in calculating these facility lease liabilities, excluding our land leases, were 7.2 years and 5.8 %, respectively, at October 31, 2023 and 7.8 years and 4.8 %, respectively, at October 31, 2022. We have a small number of land leases with initial terms of 99 years. We are not reasonably certain that, if given the option, we would extend these leases. We have therefore excluded the renewal terms from our ROU asset and lease liability for these leases. The weighted average remaining lease term and weighted average discount rate used in calculating these land lease liabilities were 94.4 years and 4.5 %, respectively, at October 31, 2023 and 93.5 years and 4.5 %, respectively, at October 31, 2022. 15. Other Income – Net The table below provides the components of “Other income – net” for the years ended October 31, 2023, 2022, and 2021 (amounts in thousands): 2023 2022 2021 Interest income $ 35,133 $ 6,180 $ 4,320 Income from ancillary businesses 2,846 24,668 36,711 Management fee income earned by home building operations 4,462 7,968 1,646 Gain on litigation settlements – net 27,683 141,234 — Other ( 2,606 ) ( 8,673 ) ( 2,063 ) Total other income – net $ 67,518 $ 171,377 $ 40,614 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. Coincident with this settlement, we seeded a new Toll Brothers charitable foundation with $ 10.0 million which was recorded in Selling, general and administrative in our Consolidated Statements of Operations and Comprehensive Income in fiscal 2022. F-41 Income from ancillary businesses is generated by our mortgage, title, landscaping, smart home technology, Gibraltar, apartment living, city living, and golf course and country club operations. The table below provides revenues and expenses for these ancillary businesses for the years ended October 31, 2023, 2022, and 2021 (amounts in thousands): 2023 2022 2021 Revenues $ 140,272 $ 135,510 $ 139,640 Expenses $ 137,426 $ 110,842 $ 102,929 In fiscal 2022, our smart home technology business recognized a $ 9.0 million gain from a bulk sale of security monitoring accounts, which is included in income from ancillary businesses above. In fiscal 2023 and fiscal 2022, we recognized $ 8.4 million and $ 0.3 million of write-offs related to previously incurred costs that we believed not to be recoverable in our apartment rental development business operations, respectively. In fiscal 2023, income from ancillary businesses included management fees earned on our apartment rental development, high-rise urban luxury condominium, and Gibraltar unconsolidated entities and operations totaling $ 34.7 million. In fiscal 2022 and 2021, income from ancillary businesses included management fees earned on our apartment rental development and Gibraltar unconsolidated entities and operations totaling $ 25.9 million and $ 22.7 million, respectively. Prior to fiscal 2023, management fees earned on our high-rise luxury condominium unconsolidated entities were included in “Management fees earned by home building operations” above. 16. Information on Segments The table below summarizes revenue and income (loss) before income taxes for our segments for each of the fiscal years ended October 31, 2023, 2022, and 2021 (amounts in thousands). Revenue Income (loss) before income taxes 2023 2022 2021 2023 2022 2021 North $ 1,494,127 $ 1,853,720 $ 2,011,896 $ 197,414 $ 280,829 $ 313,694 Mid-Atlantic 1,175,348 1,148,966 1,076,900 243,464 189,485 128,494 South 2,204,763 1,519,600 1,183,272 416,711 249,665 153,799 Mountain 2,660,746 2,747,783 2,003,045 517,080 509,512 276,360 Pacific 2,329,365 2,441,959 2,156,114 610,126 572,844 382,855 Total home building 9,864,349 9,712,028 8,431,227 1,984,795 1,802,335 1,255,202 Corporate and other (1) 1,677 ( 858 ) 519 ( 142,424 ) ( 98,609 ) ( 154,887 ) 9,866,026 9,711,170 8,431,746 1,842,371 1,703,726 1,100,315 Land sales and other revenue 128,911 564,388 358,615 Total consolidated $ 9,994,937 $ 10,275,558 $ 8,790,361 $ 1,842,371 $ 1,703,726 $ 1,100,315 (1) Included in our fourth quarter of fiscal 2022 is a $ 141.2 million net gain related to a favorable litigation settlement as further discussed in Note 15, “Other Income - Net”. “Corporate and other” is comprised principally of general corporate expenses such as our executive offices; the corporate finance, accounting, audit, tax, human resources, risk management, information technology, marketing, and legal groups; interest income; income from certain of our ancillary businesses, including our apartment rental development business and our high-rise urban luxury condominium operations; and income from our Rental Property Joint Ventures and Gibraltar Joint Ventures. F-42 Total assets for each of our segments at October 31, 2023 and 2022, are shown in the table below (amounts in thousands): 2023 2022 North $ 1,281,479 $ 1,464,995 Mid-Atlantic 1,323,381 1,049,043 South 2,399,055 2,137,568 Mountain 2,666,874 2,785,603 Pacific 2,175,776 2,174,065 Total home building 9,846,565 9,611,274 Corporate and other 2,680,453 2,677,440 Total consolidated $ 12,527,018 $ 12,288,714 “Corporate and other” is comprised principally of cash and cash equivalents, restricted cash, investments in our Rental Property Joint Ventures, expected recoveries from insurance carriers and suppliers, our Gibraltar investments and operations, manufacturing facilities, our apartment rental development and high-rise urban luxury condominium businesses, and our mortgage and title subsidiaries. Inventory for each of our segments, as of the dates indicated, is shown in the table below (amounts in thousands): Land controlled for future communities Land owned for future communities Operating communities Total Balances at October 31, 2023 North $ 32,762 $ 31,253 $ 1,031,625 $ 1,095,640 Mid-Atlantic 34,175 135,042 1,089,270 1,258,487 South 40,335 198,467 1,908,468 2,147,270 Mountain 12,443 129,326 2,426,113 2,567,882 Pacific 53,460 169,325 1,765,514 1,988,299 Total consolidated $ 173,175 $ 663,413 $ 8,220,990 $ 9,057,578 Balances at October 31, 2022 North $ 25,876 $ 125,762 $ 1,142,060 $ 1,293,698 Mid-Atlantic 50,425 245,208 700,844 996,477 South 67,173 190,081 1,570,059 1,827,313 Mountain 15,890 119,315 2,523,027 2,658,232 Pacific 81,387 128,485 1,747,734 1,957,606 Total consolidated $ 240,751 $ 808,851 $ 7,683,724 $ 8,733,326 The amounts we have provided for inventory impairment charges and the expensing of costs that we believed not to be recoverable for each of our segments, for the years ended October 31, 2023, 2022, and 2021, are shown in the table below (amounts in thousands): 2023 2022 2021 North $ 677 $ 11,860 $ 12,194 Mid-Atlantic 15,898 3,369 12,022 South 1,766 3,391 662 Mountain 5,662 4,091 379 Pacific 6,703 10,030 1,278 Total consolidated $ 30,706 $ 32,741 $ 26,535 In the year ended October 31, 2023, we recognized $ 30.6 million of land impairment charges included in land sales and other cost of revenues, of which $ 15.6 million, $ 10.3 million, $ 2.2 million, and $ 2.5 million were in our North, Mid-Atlantic, Pacific F-43 and Corporate and other segments, respectively. In the year ended October 31, 2022 we recognized $ 6.8 million of land impairment charges included in land sales and other cost of revenues in our North segment. The net carrying value of our investments in unconsolidated entities and our equity in earnings (losses) from such investments, for each of our segments, as of the dates indicated, are shown in the table below (amounts in thousands): Investments in unconsolidated entities Equity in earnings (losses) from unconsolidated entities At October 31, Year ended October 31, 2023 2022 2023 2022 2021 North $ 65,285 $ 49,385 $ 972 $ 1,068 $ ( 641 ) Mid-Atlantic 19,807 26,171 283 ( 405 ) 5,953 South 169,004 174,901 13,520 20,065 12,619 Mountain 61,363 53,046 ( 211 ) 494 — Pacific 100,980 89,196 ( 414 ) 248 ( 17 ) Total home building 416,439 392,699 14,150 21,470 17,914 Corporate and other 542,602 459,615 35,948 2,253 56,121 Total consolidated $ 959,041 $ 852,314 $ 50,098 $ 23,723 $ 74,035 “Corporate and other” is comprised of our investments in the Rental Property Joint Ventures and the Gibraltar Joint Ventures. 17. Supplemental Disclosure to Consolidated Statements of Cash Flows The following are supplemental disclosures to the Consolidated Statements of Cash Flows for each of the fiscal years ended October 31, 2023, 2022 and 2021 (amounts in thousands): 2023 2022 2021 Cash flow information: Income tax paid - net $ 584,695 $ 350,650 $ 229,742 Noncash activity: Cost of inventory acquired through seller financing, municipal bonds, or included in accrued expenses - net $ 359,042 $ 273,893 $ 174,726 Reclassification from inventory to property, construction, and office equipment - net $ 1,170 $ — $ 39,309 Transfer of inventory to investment in unconsolidated entities $ 1,000 $ 46,019 $ 50,841 Transfer of other assets to investment in unconsolidated entities, net $ 47,780 $ 100,123 $ 94,332 Transfer of other assets to property, construction, and office equipment - net $ 47,280 $ 16,168 $ — Unrealized (loss) gain on derivatives $ ( 9,767 ) $ 34,680 $ 10,330 At October 31, 2023 2022 2021 Cash, cash equivalents, and restricted cash Cash and cash equivalents $ 1,300,068 $ 1,346,754 $ 1,638,494 Restricted cash included in receivables, prepaid expenses, and other assets $ 44,273 $ 51,796 $ 45,918 Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows $ 1,344,341 $ 1,398,550 $ 1,684,412 F-44 18. Summary Consolidated Quarterly Financial Data (Unaudited) The table below provides summary income statement data for each quarter of fiscal 2023 and 2022 (amounts in thousands, except per share data): Three Months Ended October 31 July 31 April 30 January 31 Fiscal 2023: Revenue: Home sales $ 2,951,904 $ 2,674,602 $ 2,490,098 $ 1,749,422 Land sales and other $ 68,243 $ 13,040 $ 16,881 $ 30,747 Gross profit (loss): Home sales $ 810,375 $ 742,653 $ 657,220 $ 448,499 Land sales and other $ ( 10,351 ) $ 1,462 $ ( 3,969 ) $ ( 11,688 ) Income before income taxes $ 604,966 $ 553,017 $ 430,592 $ 253,796 Net income $ 445,536 $ 414,789 $ 320,216 $ 191,530 Earnings per share (2) Basic $ 4.15 $ 3.77 $ 2.88 $ 1.72 Diluted $ 4.11 $ 3.73 $ 2.85 $ 1.70 Weighted-average number of shares Basic 107,465 110,003 111,214 111,397 Diluted 108,388 111,123 112,184 112,336 Fiscal 2022: Revenue: Home sales $ 3,580,952 $ 2,256,337 $ 2,186,529 $ 1,687,352 Land sales and other $ 131,182 $ 238,465 $ 91,012 $ 103,729 Gross profit (loss): Home sales $ 963,038 $ 585,634 $ 527,264 $ 397,825 Land sales and other $ 1,571 $ 8,904 $ ( 1,969 ) $ 4,112 Income before income taxes (1) $ 841,144 $ 365,951 $ 295,815 $ 200,816 Net income (1) $ 640,536 $ 273,467 $ 220,593 $ 151,904 Earnings per share (2) Basic $ 5.67 $ 2.37 $ 1.87 $ 1.26 Diluted $ 5.63 $ 2.35 $ 1.85 $ 1.24 Weighted-average number of shares Basic 112,914 115,334 117,839 120,996 Diluted 113,793 116,326 118,925 122,858 (1) Included in our fourth quarter of fiscal 2022 is a $ 141.2 million net gain related to a favorable litigation settlement as further discussed in Note 15, “Other Income - Net”. (2) Due to rounding, the sum of the quarterly earnings per share amounts may not equal the reported earnings per share for the year. F-45